Media Monday: WarnerMount Nightmare Scenarios & ESPN’s New Era

**Jon Kelly** (0:02)
But what is, I think, inarguable is that preventing this deal from happening at this date is probably the worst possible outcome if it gets delayed for a full year.

**Peter Hamby** (0:17)
Welcome to The Powers That Be Daily, Pucks podcast focused on the intersection of Wall Street, Washington, Silicon Valley and Hollywood and the players who run it all. I'm Peter Hamby.
It's Monday, August 3rd, which means it's Media Monday. Today, Jon Kelly joins me to break down some big political media intrigue. California Governor Gavin Newsom is concerned about the antitrust lawsuit led by his own attorney general aimed at stopping the Paramount Warner Brothers merger. Why? Well, Gavin has a point. He's worried about what would happen to Warner Brothers and its jobs if they were left to fend for itself in today's attention economy.
We also discuss ESPN trying to straddle the tonal line between the TV side of their business, which makes money, and the digital side, with executives telling talent in Bristol that they need to be quote, more authentic, whatever that means. We'll discuss all that and much more on today's episode of The Powers That Be.
Happy Monday, everybody, and welcome to The Powers That Be. If it's Monday, it's Media Monday. I'm joined today by Jon Kelly. We're going to riff on the paused Warner Brothers paramount merger. Obviously, that's on pause pending an antitrust lawsuit. This might be on hold until June of next year. There's a lot of storylines here, some of them political, some of them inside Warner Brothers. Our colleague Bill Cohan wrote smartly about this just a few days ago. We're also going to talk about a town hall meeting at ESPN after those big layoffs last week and what was said by executives, what they told the troops in Bristol. They didn't really even address the layoffs, according to our colleague, John Orr, not really. Anyway, Jon, it's good to see you. Let's dig right in to the Warner Brothers Paramount story because a story popped on Friday that I think you will actually enjoy. The Wall Street Journal reported that California Governor Gavin Newsom has expressed private concerns about the lawsuit, which is led by California Attorney General Rob Bonta, trying to stop the merger. Let me read to you from this article. Gavin Newsom has expressed concerns, blah, blah, blah, about the ramifications of this lawsuit on Hollywood, according to people close to the suit. In recent weeks, the Journal reports, Newsom has told people involved in the matter that if the deal is blocked as a result of the suit, California employment would suffer. Newsom's office has encouraged Attorney General Rob Bonta, which has independent authority to file these lawsuits, to find a resolution out of court. I find this fascinating because Newsom, as much as he's perceived in red parts of the country, is a raging socialist, dystopian, California, big nanny state liberal.
He does have the ear of business leaders in his state, from Hollywood to Silicon Valley, and is sensitive to what they say and what they tell him. I'm curious if you understand where Newsom is coming from. I'd love your take on that.

**Jon Kelly** (3:33)
Yeah, Gavin's right on this one.
There are a lot of reasons to criticize Gavin. I feel like a lot of people criticize him just because he's too pretty.
But he's a very sensible, he's a practical business person and obviously, he has donors who work in the entertainment industry, and I agree with him.
The deal was paused after we taped the show last week, and I think that the pauses has been significant, no doubt, as many of our colleagues have written and discussed in their shows to this point, and there's a fair amount of legal strategy, and I would refer anyone who wants to understand it to a lot of great work that Eric Gardner has done, in particular, in what I'm hearing this week.
On the Paramount skyline side, they knew a decision was coming, they recognized they wouldn't have recourse, so they had to pull out and suspend, and they think that they actually just have a much better judicial posture going this route. And look, will it cost them more than a billion dollars in the ticking fee, which is seven million bucks a day, starting on October 4 after September 30th? Yes, it will, but at this point, unfortunately, that's part of the sunk cost effect of the deal. I saw Bonta at a very fancy, very private dinner in March. I told him this myself when I told you, so there were no surprises here. The lawsuit is, leaving the politics aside, it really narrowly defines these categories that define the deal as anticompetitive. But for those of us who live in the real world, Peter, you recognize that the attention economy is not bifurcated in the randomized formats that Rob and the AGs have laid out here. When you think about these companies, they're quite vulnerable, and pausing this deal just makes them even more vulnerable, just on a practical economic level. Think about the executive inability at a company like Warner Brothers Discovery now. How is it going to compete for long-term sports rights deals, when it doesn't know what its fate looks like? Can David Zaslov, he has to also pause his split here. Are they greenlighting movies that have a gestation period two or three years out? Are they hunting for huge production deals with A-list talent? It puts smoke over everything. Guess where these talents go when they can't go there, right? Maybe some go to Universal, maybe some go to, I'm not sure if you ever heard of these companies, Peter, Netflix and YouTube. And so, it's actually, when you think about the position that what was called WarnerMedia was in when Zaslav acquired the business, it was in this fragile posture because of the long review that the Trump era DOJ put the company through during its acquisition of AT&T. And in some fundamental ways, it did not ever really recover from that, right? Like it was a wasted two year period and it was an incredibly pivotal moment. It was right after the kind of HBO post Game of Thrones era when the business had a chance to sort of superscale to new heights and it didn't. And so I actually, and I'm not an antitrust lawyer, but I find myself quite frustrated by this ruling, by this lawsuit. And I also, similar to kind of the way that the public misunderstands AI, there's a lot of discourse in the entertainment industry, on the creative side of the entertainment industry, about how this deal is bad because it's depriving a studio. And reasonable people can have that conversation all day long. I don't think it's true. I think that we're segueing into a new era and these companies are actually stronger together than they would be on their own. But what is, I think, inarguable is that preventing this deal from happening at this state is probably the worst possible outcome if it gets delayed for a full year. Unfortunately, I actually think that that's not going to be the case, but that is what Gavin Newsom is arguing for here without quite putting it in this fulsome detail.