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Marcus Johnson (00:00):

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(00:32):

Hey, gang. It's Monday, March 16th. Marissa Ross and listeners. Welcome to Behind the Numbers, an EMARKETER podcast made possible by Rokt. I'm Marcus. Joining me for today's conversation, we have with us briefings analyst living in New York City, Marisa Jones .

Marisa Jones (00:48):

Hi. Thank you for having me.

Marcus Johnson (00:49):

Why, of course, of course. We're also joined by a senior digital media analyst up in Westchester, Ross Benes.

Ross Benes (00:55):

Hello.

Marcus Johnson (00:57):

Hey, fella. Today's fact. Where are Americans moving to in America? So I think part of this is just also people being born. There were 10 million people added to America from 2020 to 2025, and what do migration patterns look like, people moving from one state to another, et cetera? So since the pandemic, the fastest growing states were Texas, they added 2.6 million people, Florida, 1.9, then North Carolina, nearly 800,000, popular space. Georgia and Arizona followed that. Seven states saw population declines. I think you guys could guess one.

Marisa Jones (01:55):

New York.

Marcus Johnson (01:56):

Bang. That's the leader. 201,000 people left New York in the last five years. 200,000, so basically the same amount, left California over that time period. Illinois, 103,000. And then, Louisiana, West Virginia, Hawaii, and Mississippi all lost people. But Americans, also, they're not just moving around, they're also leaving America.

Marisa Jones (02:23):

Yeah.

Marcus Johnson (02:25):

There was a Wall Street Journal article last year, the US experienced something that hasn't occurred since the Great Depression, more people moved out than moved in. I did note this could be because of the administration's promise to ramp up deportations and restrict new visas. But beneath the stormy optics of that immigration crackdown lies a less noticed reversal, America's own citizens are leaving in record numbers. While the US doesn't collect comprehensive statistics on the number of citizens leaving... That's surprising. Shouldn't that be something that they know? Data on residence permits, foreign home purchases, and student enrollments and other metrics offer some clues to more Americans choosing to leave.

(03:08):

All right. Anyway, today's real topic, Paramount to buy Warner Bros. Discovery. What's the impact? All right. So Paramount just agreed to acquire Warner Bros. Discovery in a deal estimated at about $111, $110 billion. After winning a bidding war for the entertainment company against Netflix, notes Lauren Forrester of TechCrunch, the economist explains that should the deal go through, it will create a colossus that includes streaming networks, HBO Max and Paramount+, news channels, CBS and CNN, and the rights to film franchises, like Harry Potter and Transformers.

(03:47):

Marissa, I'll start with you. Why did Warner Bros. Discovery end up choosing Paramount's bid over Netflix's bid?

Marisa Jones (03:53):

Well, I would probably say two main reasons. One is what you kind of already touched on, the offer was very much financially superior to Netflix's. It's $31 per share, all cash. The bid is billions and billions above what Netflix's was, which if I'm remembering correctly, was about 83 billion. This is about 111 billion, so it was deemed a company superior offer.

(04:18):

But I think another key reason that this is the deal they ended up going with is they were kind of starting to get a bit spooked about the regulatory hurdles that Netflix would likely have to go to. Paramount is far less likely to see at least as many hurdles as Netflix would have, because it still preserves market competition at a much greater rate, it's not consolidating everything into one huge powerhouse, so it'll probably face fewer antitrust concerns. The company does also have more favor with the current administration. We see David Ellison and Trump are already kind of politically aligned. The FCC previously hinted that Paramount was a superior option as well. So I do think a lot of it boils down to just the regulatory aspect.

Marcus Johnson (05:11):

Yeah. Yeah, they're the two I had. Paramount's bid's more likely to get antitrust approval, so yeah, some signals from Washington that Paramount's takeover won't get the kind of objection from the trust busters that the Netflix one might've done, because of, as you said, Ellison's alignment with Donald Trump. And then also, that they upped the initial offer. They raised the price, they're also offering various guarantees, promising to release at least 30 films in a year in movie theaters. Hollywood was scared that Netflix could diminish the traditional cinema model.

(05:47):

Ross, anything else, apart from these two?

Ross Benes (05:50):

Well, Paramount was willing to buy the whole company at a pretty steep price. So if Netflix bought the more exciting part of the company, you have the decaying TV networks left, and that would be a difficult sell to extract much value from. Of course, they could have stayed as a standalone company. But it seemed like the end goal for Warner Bros. Discovery was to eventually sell everything, and you could do that all in one go here.

Marcus Johnson (06:21):

Yeah. Yes. Netflix said, "We want the IP and the streaming bit, the studio." And then, Paramount said, "We'll take it all." And they did, or at least it looks like they might when it starts to go through. Yes, Warner Bros. shareholders still need to vote, that should be April, and approve the transaction. Attorneys General in California and other states could pull up a fight if they think federal regulators didn't do their job, antitrust authorities in Europe and other places also have to approve. Warner Bros. Chief Executive David Zaslav said the deal could still take up to 18 months to close, so a lot to get through.

(06:59):

But in the meantime, Marissa, HBO Max and Paramount+ merging and a lot of different ways they're going to overlap, one of them being that they're going to, as they said, they're going to combine into a single streaming service. What kind of an impact will this coming together of these two major media conglomerates have on the streaming universe?

Marisa Jones (07:20):

So I think whichever way WB went, we were obviously going to see power increasingly consolidate into a few key streaming players. David Ellison claimed in his decision that the combined company will have access to more than 200 million direct-to-consumer subscribers. I think he's kind of missing an overlap between them, not really accounting for the fact that there is a pretty notable overlap of people who have both services.

Marcus Johnson (07:47):

Right. Because they came to that number by basically saying, "HBO Max has this many. Paramount+ has this many."

Marisa Jones (07:53):

And then, yeah, "Paramount+ has this many."

Marcus Johnson (07:53):

But you wrote a piece about this, and you were saying that there is... What's the overlap roughly?

Marisa Jones (07:58):

So we estimate it's about, in the US, it's about 50 million subscribers who have both.

Marcus Johnson (08:03):

Okay. Okay. So it's still a big audience.

Marisa Jones (08:05):

So a pretty notable number, yeah.

Marcus Johnson (08:06):

But yes, it's a much bigger audience than obviously them separately, because [inaudible 00:08:11] but it's a lot less than just adding the two together.

Marisa Jones (08:14):

Absolutely. So even regardless of that overlap though, the new streaming service is still going to gain millions and millions of subscribers that neither streaming servers had before then, and that will ultimately help it compete much more directly with giants like Netflix, and create scale that is still unmatched by the majority of streaming players now that we have hundreds and hundreds, it seems, of streaming options today.

Marcus Johnson (08:40):

Yeah. Yeah. Yeah. Netflix, over 300 million, so still smaller than them, but bigger than folks like Disney. I looked at Nielsen's Gauge in terms of viewers, I looked at Nielsen's Gauge tracks what people are watching on TV, half of it's streaming, 47%, the rest is cable, broadcast, other. But of that streaming, if you break down the streaming stuff, YouTube out in front, Netflix second, whatever. But if you combined Paramount with Warner Bros. Discovery, it gives you 3.7% of all TV time. Netflix is 8.8. Disney is 4.9. Prime video is 4.1. So it makes them bigger than the Roku channel combined, but still smaller than Prime Video.

Marisa Jones (09:27):

So yeah, I really think it's definitely still going to maintain more competitiveness, I think, combined, they'll be a bit more attractive for marketers, which we'll obviously touch on. But it's definitely nowhere near the scale of what we would've seen with a Netflix.

Marcus Johnson (09:43):

Yeah. Ross, what do you make of the impact here? Obviously, they still have to figure out how to come together. These are very different cultures, corporate cultures, these are very different overlapping, but not completely, streaming services. Mergers don't always work out the way that you hope that they will. But what else do you see being some of the impacts here from this deal?

Ross Benes (10:08):

I would say mergers usually don't work out, especially in media. Warner Bros. Discovery itself was a disaster. Disney and Fox was a disaster. AT&T getting involved with Warner Media did not go well. There's not a lot of reason to hope that this will go well. You have a company with a debt load that's going to be just gigantic. Servicing that debt alone is going to put significant strain. You're going to see some massive layoffs.

(10:37):

But as far as the streaming services coming together, I'd also just point out Paramount+ and HBO Max are the flagship streaming services of those respective companies, but you've also got Pluto TV, CBS All Access, Discovery Plus. Warner Bros. Discovery was going to launch a TNT Sports app. I doubt that's going to happen now. But you have actually a handful of streaming services, and there will be some winnowing. I just don't see why it would make sense to keep all of those. I'd be surprised if Discovery Plus continues to be a standalone option two years from now. They could bring all that audience in one place. Centralizing it does make it more attractive for marketers, probably simplify the proposition for consumers.

(11:34):

But the real threat of this merger for a consumer point of view is if you combine the TV networks with the streaming services and look at the time spent then, this does have more of a monopoly effect. These companies are huge in linear TV. The linear TV side is a much bigger antitrust concern than the streaming side. I don't expect US regulators to actually act on it, because we don't live in a society governed by laws and legal norms right now. But just looking at Paramount-Warner Bros. more broadly, there's a lot of repercussions in the entertainment industry. They can say they're going to keep the theater window and the number of movies, but for how long and to what quality and how many people will be making those, I don't know.

(12:30):

So there's a lot of questions that this prompts right now. I have more questions and answers, clearly, by the way, I'm addressing your question. But I just don't think they'll be a completely top player in streaming alone. But when you add in their studio and their TV networks, it's going to be one of the largest media corporations in the world, and whatever they do will have a pretty big effect on the market.

Marcus Johnson (12:58):

Yeah. There's a lot of pieces here, and one of them you touched on at the beginning was the debt side of this. They still have to operate as a company and viably operate as a company. The debt load, it could significantly weigh down the ambitions of this new Paramount-Warner Bros. Discovery streaming giant. Jason Ayton was summarizing this quite nicely, I think, writing, "Paramount is taking on Warner Bros. Discovery's massive $39 billion debt load, including the Warner Bros. Discovery linear TV business, which is getting less valuable every day." Paramount has to also pay a $7 billion breakup fee if the deal is blocked by regulators, a near $3 billion breakup fee to Netflix. So Netflix essentially just got paid $3 billion to let its competitor to take on $39 billion in debt. The combined company's debt is 70 billion, and last year, the two companies generated a combined operating profit before depreciation and amortization of just 11 billion.

Ross Benes (13:55):

Yeah. Netflix got one of its main competitors to be tied in a legal and regulatory mess for a while, and they can continue to stay nimble. I think it's actually a blessing in disguise for Netflix that they didn't get Warner Bros.

Marcus Johnson (14:13):

Yeah. Knowing when to walk away is definitely part of-

Ross Benes (14:17):

No one to hold them, no one to fold them, right?

Marcus Johnson (14:18):

Yes, exactly. And yeah, they said that this was not worth the cost, and it seems, at least, given how much debt they're going to be taking on, that that's probably the right move. And that maybe they end up getting money from them in the future in terms of licensing, so there's still ways that they could benefit from this deal. You also mentioned-

Ross Benes (14:43):

That would actually be an interesting point, is what's going to happen with the intention to whore your IP versus license it out, because both the Paramount studio and the Warner Bros. studio are two of the biggest content spenders in the US, if not the world. Warner Bros. has made a lot of the greatest shows right now that aren't even on HBO Max, like Ted Lasso. Will they continue to do that under new management? I don't know.

Marcus Johnson (15:12):

Yeah. The other piece of this is what it does to the film industry. David McKie of The Times saying that combining two of the five major movie studios created concerns a deal could reduce, Ross, as you alluded to, the number of people who work in this space, potential buyers for scripts and potential employers, for actors, crew members, damaging competition and driving down wages and the prices paid for creative material." The Justice Department, it did block a similar case, Penguin Random House's purchase of Simon & Schuster in 2022, over similar concerns that the combined company would reduce compensation for authors and potential bestselling titles. So definite concerns from the industry about what this does.

(15:58):

That said, was this the better of the two options for the industry, for the theatrical movie business? Because there are some major producers who have said that they're happy that David Ellison is going to be supporting the traditional business of making movies and releasing them in theaters. There was some concern that Netflix wasn't going to do that. So maybe this is better for the business in some respects.

Ross Benes (16:28):

Yeah. I don't think either option was great for people in the movie-going business-

Marisa Jones (16:30):

Yeah.

Marcus Johnson (16:30):

Yeah.

Ross Benes (16:32):

... but perhaps it is better, yeah. So maybe there is a silver lining there for the people who work in film distribution specifically, because Paramount has a strong incentive to keep that going. But I'll be surprised if that number and quality of movies stays at the level that it had been.

Marcus Johnson (16:52):

Yep. So Marissa, you alluded to this earlier, but what does all this mean for marketers?

Marisa Jones (17:00):

I do think, regardless on which one would've been better for the industry, which, like Ross alluded to, there's not really a great outcome for everyone involved, for consumers and the industry, but I think for marketers specifically, this is, of the two, the preferable deal. It maintains more access to different ad support distribution options. There'll be greater ad inventory across cable, theatrical, and streaming and broadcast, as opposed to a Netflix deal that would've really consolidated all this inventory into streaming. So marketers do have, at the very least, more ad support environments and leverage as ad buyers with this deal, so it is a bit preferable. Paramount does rely very heavily on advertising for part of its revenues, so they're likely to be pretty aggressive with this push and appeal to marketers with this new opportunity, especially marketers who are looking to CTV and streaming, maybe give them more leverage that Paramount+ doesn't currently have. So I do think, overall, it is probably a more attractive deal for marketers.

Marcus Johnson (18:09):

Yeah. Ross?

Ross Benes (18:11):

Well, it simplifies it a little bit for marketers, because it's one less place you'll have to go to. That's assuming everything clears. That's not going to matter for this upfront or even this year in general. But down the road, it's one less TV network conglomerate or streaming service that you have to go and make a partnership with. So I think anything to centralize buying is probably preferred for marketers in general, to centralize the audience. But what would probably do more than that, than just the combination of the companies, is how they end up mushing all those various streaming services together. Those two that we've talked about a lot are the main ones, but we'll see what happens with the handful of other ones they've got too.

Marcus Johnson (19:02):

I'm curious, any thoughts on what they do there? There was one article I was reading trying to guess the name of the new service, maybe a Paramount-Warner. They haven't had the best track record of branding. HBO, they changed the name about four or five different times in the space of a year or two. What do you think the play will be there? Is one giant app to rule them all where things are headed?

Ross Benes (19:26):

Probably, at least for those main apps. I think if you have something really niche, makes sense to have that separate, but I think they'll push as much as they can into one app. I would be surprised if the app maintains, even though I think HBO is the strongest brand out of all of them, I'd be surprised if that is the name of a combined app, because Paramount is the acquirer, Ellison is the man with the ego that really wanted to have... He just bought Paramount not that long ago either. He's been so focused. It was just Skydance not long ago, then it was Skydance Paramount, now it's Skydance Paramount Warner Bros. Discovery, been really focused on taking over these old Hollywood studios. I don't think they're going to put another company's name at the top of their product that's going to be their future.

Marisa Jones (20:23):

Yeah. I'm betting on Paramount Max.

Ross Benes (20:25):

Paramount Max?

Marcus Johnson (20:28):

That's fair.

Ross Benes (20:30):

That'd be doable.

Marcus Johnson (20:32):

What did you say? That'd be what?

Ross Benes (20:32):

That'd be doable. There's worse.

Marisa Jones (20:35):

Yeah, it could be worse.

Marcus Johnson (20:36):

Yeah, it could definitely be worse. Lots to choose from, lots of different titles that they could pick, but we'll see. Thank you guys so much for talking to me today about some of the implications of this potential deal, still got to go through. Thank you first to Marissa.

Marisa Jones (20:51):

Thank you for having me.

Marcus Johnson (20:53):

Of course. And to Ross.

Ross Benes (20:54):

Thanks, Marcus.

Marcus Johnson (20:55):

Of course. Thank you to the whole production crew, Luigi and John helping out with this one. And thanks so much to everyone for listening in to Behind the Numbers, an EMARKETER podcast made possible by Rokt. Tune in tomorrow for the second installment of our brand new show, In the Game, Ross will be joining me for that one, our sports marketing podcast, where this episode will cover America's new and developing relationship with F1, and what brands and advertisers can get from the sport that they can't get anywhere else. See you there.