This piece originally appeared in the Too Much TV Newsletter
The January 1973 cover of National Lampoon is widely considered to be one of the greatest magazine covers of all time.
Designed by the late art director Michael Gross, it's a perfect piece of branding. It's irreverent, it distills the mission of the magazine down to a single image and even more importantly, it not so subtly lets the reader know, "Hey, if you don't buy this magazine, we might not be around much longer."
It's the shock-and-awe approach to making your point. And while I don't think the Lampoon cover inspired Paramount Skydance CEO David Ellison, he is clearly going for the same effect with this week's flurry of increasingly threatening and sometime contradictory leaks to the press.
If anything, this Paramount/WBD merger story illustrates that irony is dead in Hollywood.
David Ellison is frequently framed as being a producer, not a tech person. In fact, you’d be hard pressed to find a profile of Ellison that doesn’t describe him that way:
Rather, it’s pure self-interest — survival, actually. These execs see the writing on the wall: cord cutting is eating away at profits and revenues from cable bundles. People go to the movies less — far less — and streaming services are a tough business, too. Meanwhile, Big Tech is looming with troves of cash amassed from gadgets, social networks and search engines to fuel expansion into entertainment.
In other words, media and entertainment need to consolidate because their survival is in danger — that is, unless you want Amazon, Apple or tech-heavy streaming giant Netflix owning the entire viewing world (how's that for antitrust).
That description is ironic because David Ellison’s march towards media mogul status has been made possible by substantial funding from his tech industry father, Larry Ellison. His dad provided much of the initial funding for Skydance and is also providing a financial guarantee for this Warner Bros. Discovery bid, using the Oracle stock that funds the Larry Ellison Trust.
Moreover, part of David Ellison’s financial rationale for this merger is that he has the ability to use AI and other technology to cut costs (lay off people) and eliminate “redundancies.” All of which sounds like the type of thing an evil tech industry owner would do.
Part of the merger discussion this week has centered on Ellison’s apparent threats to somehow move Paramount out of Hollywood. Which sounds scary, especially to an industry that has been facing severe economic and employment challenges since COVID.
But just like National Lampoon’s threat to shoot a defenseless dog, it’s all bluster designed to spook an already nervous Hollywood. The comments have inspired an impressive number of frantic think pieces in the industry press. But no one seems to have considered what this might look like in real life.
Let’s assume that David Ellison is being entirely honest in background comments being shared with some media reporters. Let’s assume he will really move Paramount out of California and that includes some or most of the current production and marketing arms of the company.
Even in the most optimistic of timelines, this is a multi-year process that will include renegotiating contracts, offering moving bonuses and finding new studio space in whatever Red state Ellison wants to call home. If Paramount began this massive project tomorrow - something no media company has ever done at this scale - the company will still be in the earliest planning stages by the time this legal battle with the dozen state AGs is expected to wrap up.
And then there is the troubling scenario that is being floated by “people familiar with Davis Ellison’s thinking” that the complicated move would be financed in large part by selling off the iconic Paramount studio lot.
So let’s game out the possible outcomes of this threat:
The merger fails, Paramount sells off the lot and moves elsewhere. Which suggests David Ellison believes the company could survive the collapse of the merger. And that goes against the thrust of so many pieces this week that suggested a failed merger would bankrupt the company.
The merger succeeds. Paramount sells off the lot and moves elsewhere anyway. Hollywood ends up with one less hometown studio and one of the remaining studios is now owned by an absentee landlord.
No matter whether the merger is approved or not, Ellison moves Paramount’s C-suite and support staff elsewhere, along with some production that he can get production credits offsets for in the new location. The Paramount studio lot stays, albeit in a weakened state.
Paramount stays in Hollywood, although it moves some production to other states and countries to take advantage of available production credits and tax breaks.
Do you notice what scenario isn’t included in the above choices? Ellison moving Paramount because the state AGs continue to fight the merger.
His threat of a move is a long-term consequence to a short-term problem. The move itself won’t have any impact even if the lawsuit stretches out into late May. What matters is the threat.
Ellison is increasingly desperate and much of the desperation is the result of his own arrogance and the tech CEO belief that the best thing to do in any situation is to “Break things first, then ask for permission later.”
It was his idea to voluntarily agree to pay a so-called daily “ticking fee,” which will end up costing Paramount at least a billion dollars before the trial itself even begins. And if the merger isn’t completed by June 1st, he’s agreed to pay WBD a $7 billion regulatory termination fee. Which is a staggering amount for a company that has a current market cap of under $12 billion.
It was a profoundly dumb thing to agree to in the first place. But Ellison was concerned that Netflix might up its bid enough to win WBD. So he bet the farm (or in this case, Paramount) that he could get the merger closed before any of those fees kicked in.
That’s why you see Paramount asking the court to impose a $1.88 billion bond on the plaintiffs (the 12 state AGs), which would cover his ticking fees over the course of the trial. It’s a wild, legal longshot. But if it works, it’s likely the state AGs would drop their case and Ellison will survive this economic near-death experience.
David Ellison is holding a metaphysical gun to the heads of everyone in Hollywood because he has no choice. He can’t survive losing this lawsuit or having it drag out to the point where Paramount has to pay a fee equal to more than half of its market cap.
Which is why you are starting to see arguments from Ellison supporters along the lines of “these two companies are weak and can’t survive without the merger.” Aside from the fact that combining two weak companies into a larger weak one doesn’t exactly solve the problem, the primary reason these two companies are weak are because their CEOs were arrogant and greedy.
And sadly, those are traits that aren’t going to disappear no matter what happens in this merger battle.