The fight for Paramount

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Rob Armstrong (0:36)

Pushkin.

It's high noon in Hollywood. Two financial gunfighters are eyeing each other warily. The Prize, one of the oldest and most revered studios in Hollywood. Today on the show, the fight for Paramount.

This is Unhedged, the markets and finance podcast from the FT and Pushkin. Joining me in our New York studio is James Fontanella-Khan, the FT's deals editor. Welcome, James.

James Fontanella-Khan (1:13)

Thanks for having me, Rob.

Rob Armstrong (1:14)

So you're gonna have to fill me in. I haven't been following the story very carefully.

Who's fighting for Paramount and why?

James Fontanella-Khan (1:21)

So the way we look at it, it's a fight between Hollywood and Wall Street, and it's for the soul of Hollywood, right?

And so you've got on one hand Skydance, which is a studio, really, kind of founded by David Ellison. He's the son of the founder and billionaire behind Oracle, Larry Ellison.

Rob Armstrong (1:44)

We can assume they're fairly well funded.

James Fontanella-Khan (1:45)

Yeah, he's doing okay.

And to top that, behind Skydance and David Ellison, you've got KKR, the well-known private equity firm, and you've got Redbird, which is another private equity firm that has been in the news a lot. Recently, the founder is Jerry Cardinal, who was at Goldman Sachs, and now he's the owner of AC Milan. He tried to buy The Daily Telegraph, didn't work out.

Rob Armstrong (2:08)

So it's a huge amount of financial firepower and a lot of deal-making skill there.

James Fontanella-Khan (2:13)

Absolutely. So on the one hand, and Skydance makes Mission Impossible, it's a ton of movies with Paramount, so they've got a relationship there.

On the other hand, you have Apollo, which brought in Sony, so Sony is a very well-known company, but that's a more financial transaction. And then the complexity is you have Shari Redstone, so the Redstone family are the family behind Paramount. It was created by Shari Redstone's father, who's some of the Redstone. And so they weirdly only own about 10% of the company through this other vehicle.

Rob Armstrong (2:51)

The Redstones only own 10%.

James Fontanella-Khan (2:53)

But they control 80% of the company.

Rob Armstrong (2:57)

So they'll decide between the two bids.

James Fontanella-Khan (3:00)

Well, shareholders might dispute that in a court.

Rob Armstrong (3:07)

Before we get to the legal niceties here, why is Paramount for sale at all?

James Fontanella-Khan (3:14)

That's a very good question. So if we step back, all these studios, these kind of Hollywood companies that were thriving in the 50s, 60s, 70s, they're all kind of doing pretty bad right now.

Rob Armstrong (3:28)

And it's not streaming. We're talking about the streaming wars.

James Fontanella-Khan (3:31)

We're talking about the streaming wars. We're talking about tech companies destroying, they've destroyed our industry, the news industry.

Now they're going-

Rob Armstrong (3:39)

And that was not enough.

James Fontanella-Khan (3:40)

No, no, now they're going after Hollywood. And it's like, but that's the thing. It's like, you know it, we all have a ton of streaming kind of offerings.

Rob Armstrong (3:50)

Let's just go through it. Netflix, Amazon Prime, HBO, Hulu, Paramount.

James Fontanella-Khan (3:56)

Yeah, and you want to watch sports, it's ESPN, and say, you can go on and on and on, and say-

Rob Armstrong (4:02)

And my impression is that, although Netflix makes money, there's a lot, and there's Apple TV, I forgot to mention that one, but with all these competitors, the economics of streaming can't replace the old world of theaters, movie rentals, network TV, all of that stuff. The economics just isn't working in some sense, or not working as well as the old economics.

James Fontanella-Khan (4:27)

100%, and again, Warner Brothers, it changed hands so many times, and now it's not a penny stock, but it's in constant decline. All of these companies are having trouble, so at some point, you either bundle them through deals, or you actually combine them through M&A.

And one of my deals is that you could have a bundle where you could have HBO, Hulu, and Disney, which seems to be happening.

Rob Armstrong (4:51)

Yeah, it was announced this morning.