Hello, Quartz members!
This weekend, we have a bit of family drama, about a media nepo-mogul who turned down an offer she wasn’t supposed to refuse. It’s the kind of billion-dollar business drama that could easily have been a big-budget serial on Paramount Plus, the money-losing streaming channel that was supposed to remake the fortune of parent company Paramount Global.
Some of America’s most prominent entertainment powerhouses and media chieftains were angling to acquire Paramount and its multiverse of cable channels and linear programming, including the fabled Paramount Pictures film studio and its library, CBS, Nickelodeon, MTV, Comedy Central, and BET. But just as one of Hollywood’s smaller studios, Skydance Media, was about to put a ring on Paramount’s finger, the giant’s controlling shareholder, media heiress Shari Redstone, instead gave the finger to Skydance on Tuesday and walked away.
The future of Paramount has been a Hollywood obsession for several years, as the unwieldy amalgam of entertainment companies struggled to adapt to the changing media world, where streaming trumps linear programming (old-fashioned TV) and movies. CBS viewership has dropped by half in the past 15 years, the Paramount+ streaming service (which swallowed Showtime this year) has been losing more than $1 billion a year, and Paramount Pictures — which hasn’t had a hit the size of The Godfather (1972) in ages — lost $119 million last year. In three years, Paramount’s stock has lost 75% of its value. Yet after months of negotiations, Redstone had hammered out a deal with Skydance that would pay Paramount shareholders about 50% more than the market price. Redstone’s Class A shares have 77% of Paramount’s voting rights but only 10% of its equity, so the offer came with a massive bonus for Redstone, offering $23 for her own shares, while holders of the company’s Class B stock would get only $15.
By the weekend, it had come down to the wire. A Paramount committee approved the Skydance deal, and it was up to Redstone. A former lawyer, Redstone, 70, gained control of Paramount’s controlling owner, National Amusements Inc., from her aging father Sumner in 2016, after a decade-long and very public family feud and reconciliation. But with revenue falling, and profits evaporating, Redstone still had debts to pay and it was time to sell Paramount before its value eroded any further. There’s no clear answer as to why Redstone walked away from Skydance, whose founder, David Ellison is the son of Oracle software gazillionaire Larry. Hollywood watchers say one reason is that Redstone felt the $2.25 billion she was getting (Redstone would have netted $1.7 billion in the final offer) simply wasn’t enough. Others note that she feared a lawsuit from the Class B shareholders. And one media report said she could be upset she’d no longer be invited to the annual media mogul convention in Sun Valley, Idaho. Either way, the end of Skydance’s offer means Redstone stomps away with a stake the market now values at around $775 million, instead of the $2.25 billion Skydance offered.
William D. Cohan, a former investment banker who’s now a writer for Puck and is one of the sharpest observers of the Paramount battle, put it succinctly: “In the end, she got cold feet.”
Who’s left standing?
Before she called off the deal with Skydance, Redstone had several other offers on the table to take over Paramount. Some bid for National Amusements, others just for the Paramount stake.
The biggest offer was a bid worth $26 billion in all for the whole Paramount package. The problem is that the bid came from Sony Pictures, with backing from Apollo Global Management, a private equity and asset management firm with over half-a-trillion dollars under management. Antitrust regulators may demand a lengthy review before allowing Sony and Paramount to merge, and Sony’s foreign ownership would likely force it to divest CBS under domestic ownership laws. Sony and Apollo have been quiet lately, so it’s not clear if that offer is still on the table.
Another bid comes from Steven Paul, a Hollywood producer not widely known outside Tinseltown, who’s reported to be ready to buy out Redstone for up to $3 billion. He backed by Patron tequila founder John Paul DeJoria, who told Deadline he wants to “put positive news” on CBS stations.
Seagram’s heir Edgar Bronfman, Jr., who once owned and ran Warner Music and Universal Studios, has teamed up with Bain Capital and says he’s ready to pay up to $2.5 billion to Redstone for control of Paramount.
Another plan comes from the three co-CEOs Redstone appointed this spring to run Paramount’s major divisions: George Cheeks, Brian Robbins and Chris McCarthy. Whoever owns Paramount, they plan to put BET television up for sale, partner money-losing Paramount+ with another streaming service, and cut costs by half-a-billion dollars.
Swallow it whole, or spit it out?
Paramount’s brands are among some of the most iconic media and entertainment names in American history. Some of the offers to buy Paramount Global would keep the conglomerate largely intact. Others are clearly primed to sell off parts of the conglomerate. So what could happen in some of these scenarios?
Paramount consists of three major businesses: filmed entertainment, TV media and direct-to-consumer streaming (plus the Simon & Schuster book publisher).
- Filmed entertainment: Generating just $2.96 billion last year, the movie studio represented just 10 percent of revenue and lost $119 million. And while the studio hasn’t generated many hits lately, it has a library of 1,000 titles and rights to another 2,500, including some of the biggest franchises in Hollywood history: The Godfather, Mission Impossible, Top Gun, and Indiana Jones. Paramount Pictures also has a longstanding relationship with Skydance, which could buy the studio business and the famed Paramount lot on Melrose Avenue, while the library could be sold or rented to other streaming services.
- TV Media, with revenue of 20.1 billion last year, is the biggest segment, representing 68% of the company’s revenue. But that’s down 8 percent from 2022, and operating income, at $4.79 billion was down 12 percent. At the heart of TV media is CBS with its news, division, television network, sports network, and 29 local broadcast stations. In a breakup, CBS might easily be severable from other Paramount cable channels, many of which have lost their luster, like Comedy Central, MTV (remember them?), and Nickelodeon. Comcast owns NBC, and another large cable provider could buy CBS.
- The fastest growing segment- and also the biggest money-loser is streaming, where revenue rose 37 percent last year to $6.74 billion, but the operation rang up a loss of $1.66 billion. The expense of paying for rights to air films and shows, creating original programming, and paying cable companies to carry Paramount+ has not matched up with ad or subscription revenue, and the service only has a market share of about 8 percent. As the current co-CEOs, dubbed the Pep Boys by industry insiders, have suggested, the streaming service would be stronger if it were sold off and combined with another streaming service.
Thanks for reading! And don’t hesitate to reach out with comments, questions, or topics you want to know more about.
Enjoy your weekend, and bring the cannoli.
— Peter S. Green, Weekend Brief writer