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Paramount to Settle Lawsuits Against WBD Deal · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios.
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  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 3: We want to get to one of the big company
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  Speaker 3: news stories this morning, and that is Paramount Skydance reaching
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  Speaker 3: a settlement, according to people familiar with the matter. with
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  Speaker 3: California and other states sowing to block its proposed acquisition
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  Speaker 3: of Warner Brothers Discovery. That means we need to bring
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  Speaker 3: in Geetha Ranganathan, our media analyst here at Bloomberg Intelligence,
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  Speaker 3: to cover this. She's been covering this story from the beginning. Geetha,
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  Speaker 3: this sounds like this was the one thing we're waiting for.
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  Speaker 1: What are you hearing in terms.
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  Speaker 3: Of how solid this potential compromise is?
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  Speaker 4: Hey, Scarlett. Yeah, I think it's pretty solid just from,
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  Speaker 4: you know, whatever we've been hearing over the weekend. So
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  Speaker 4: we've kind of gone from, you know, is this deal
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  Speaker 4: ever going to close to kind of broader promises to
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  Speaker 4: now some concessions that seem really, really reasonable from a
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  Speaker 4: paramount standpoint. And I say that because one of the
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  Speaker 4: things that, you know, I think investors were really fearful
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  Speaker 4: about with this merger and the potential settlement was, was
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  Speaker 4: whether they would have to divest assets, especially whether they
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  Speaker 4: would have to divest the cable networks, which would have
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  Speaker 4: been really problematic because it would directly have affected their
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  Speaker 4: synergy target. And they have a really ambitious synergy target
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  Speaker 4: of $ 6 billion. So it looks like they don't have
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  Speaker 4: to do anything on that front. They do, however, have
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  Speaker 4: to promise to theatrically release 30 films from both studios
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  Speaker 4: every year, failing which there will be a penalty. They
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  Speaker 4: also have to make an investment in the California production
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  Speaker 4: and also maintain the two studio operations so they can't
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  Speaker 4: dispose off any of the studios.
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  Speaker 2: But all of.
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  Speaker 4: That seems to be something that David Ellison will be,
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  Speaker 4: I think, happy to live with as long as he
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  Speaker 4: can get this deal closed by that September 30th date
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  Speaker 4: and avoid those very, very expensive ticking fees.
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  Speaker 2: Paramount stock is up about 8.5% today. Warner Brothers Discovery
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  Speaker 2: up about 10%, so the market's happy about that. All right, Geetha,
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  Speaker 2: I think this is a little bit of be careful
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  Speaker 2: what you wish for. They're going to get their deal done.
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  Speaker 2: Now they've got to operate this thing. What are the
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  Speaker 2: key challenges, do you think, for this combined company going forward?
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  Speaker 4: Yeah, the biggest challenge there, Paul, is definitely going to
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  Speaker 4: be the leverage, the debt. So we're looking at about
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  Speaker 4: $ 80 billion of debt. It's going to be about six
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  Speaker 4: and a half times levered. So it's really, really going
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  Speaker 4: to come down, as you just pointed out, to execution
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  Speaker 4: about getting those synergies and trying to drive this to
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  Speaker 4: three times leverage within a few years after closing. That's
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  Speaker 4: a tall order. Given that you have two businesses that
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  Speaker 4: are in secular decline, which are the TV businesses. Yes,
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  Speaker 4: they can extract some synergies, but you're doing that at
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  Speaker 4: the cost of those businesses bleeding further. And then remember,
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  Speaker 4: the studios is really a very, very up and down business.
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  Speaker 4: And you've always said this, Paul, it's like it's such
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  Speaker 4: a hit and hit or miss business. It's not predictable
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  Speaker 4: at all. So you just look at the two combined
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  Speaker 4: studios last year. They had about a 30 percent share
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  Speaker 4: of the domestic box office this year. Year to date,
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  Speaker 4: they're only at about 10 percent. So, you know, it's
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  Speaker 4: it's again, it's going to be a tough slog on
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  Speaker 4: that on that front. streaming is definitely a bright spot
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  Speaker 4: for both companies. But again, we're seeing even streaming leaders
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  Speaker 4: really struggle. You look at the likes of Netflix and,
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  Speaker 4: you know, every day we see some engagement data that
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  Speaker 4: comes out that doesn't look so optimistic, really struggling against
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  Speaker 4: the likes of YouTube and some of the other social
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  Speaker 4: media platforms. So whichever way you kind of slice or
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  Speaker 4: dice it, this is really going to be a tough
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  Speaker 4: road ahead for Paramount Skydance.
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  Speaker 3: Yeah, the company, Paramount, has promised merger synergies of $ 6 billion.
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  Speaker 3: So that means a lot of cost cuts, probably job eliminations.
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  Speaker 3: And you mentioned all the challenges operationally. If they're going
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  Speaker 3: to grow their way out of this debt, what part
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  Speaker 3: of the business has the best prospects for growth?
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  Speaker 4: Yeah, definitely. Streaming, I think, has the best prospects. Remember,
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  Speaker 4: this is at its heart, David Ellison and the whole
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  Speaker 4: Oracle backing at its heart is a technology operation. So
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  Speaker 4: I think one of the things that the market and
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  Speaker 4: investors are kind of banking on is the use of
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  Speaker 4: technology in the media operations, whether that's for content creation,
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  Speaker 4: content production, eliminating a lot of those post-production costs. I mean,
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  Speaker 4: they do have a seat at the table when it
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  Speaker 4: comes to AI. And so it's going to come down
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  Speaker 4: how well they can kind of leverage some of the
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  Speaker 4: edge that they have there and implement those across their
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  Speaker 4: media operations. But I think definitely one of the business
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  Speaker 4: units that everybody is going to be looking at very
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  Speaker 4: closely is going to be the streaming side and how
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  Speaker 4: fast they can go profitability. Even though 70% Scarlett off
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  Speaker 4: the combined company, 70% of EBITDA will still be from
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  Speaker 4: the secularly challenged TV businesses.
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  Speaker 6: Yeah.
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  Speaker 2: 30 seconds left here, Geetha. What's the Wall Street's view
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  Speaker 2: of David Ellison? He's kind of a new entity to
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  Speaker 2: Wall Street. Has there been enough time for the street
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  Speaker 2: to get a sense of, is this the management and
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  Speaker 2: management team that can execute this deal?
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  Speaker 4: I think they can, Paul. And actually, whatever we've seen
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  Speaker 4: so far, he's actually been pretty impressive because he's more
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  Speaker 4: than delivered on the synergy targets for the Skydance acquisition. Remember,
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  Speaker 4: this is Paramount Skydance. They just executed that transaction. And
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  Speaker 4: so far, he's actually more than delivered what he had promised.
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  Speaker 4: So let's see.
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  Speaker 1: Stay with us.
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  Speaker 5: More from Bloomberg Intelligence coming up after this. You're listening
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  Speaker 5: to the Bloomberg Intelligence Podcast. Catch us live weekdays at
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  Speaker 5: the Bloomberg Business app. Listen on demand wherever you get
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  Speaker 5: your podcasts or watch us live on YouTube.
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  Speaker 2: Edward Price joins us here, non-resident senior fellow at NYU
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  Speaker 2: joining us here in studio. Ed, I've been getting the
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  Speaker 2: sneaky feeling that with President Trump in New York for
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  Speaker 2: a couple of days, with the United Nations General Assembly
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  Speaker 2: here this week, We've got leaders from Iran coming, which
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  Speaker 2: is very rare. They were granted some visas. We've got
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  Speaker 2: President Zelensky here. For some reason, it's just me. I'm
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  Speaker 2: getting this feeling that we might have some announcements this
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  Speaker 2: week on maybe Ukraine, maybe Iran, maybe President Trump is
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  Speaker 2: feeling the pressure with midterms coming up, with diesel at $ 6.
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  Speaker 6: 50.
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  Speaker 2: Am I just kind of whistling in the dark here,
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  Speaker 2: or do you think there's possibly some movement here on
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  Speaker 2: some of these key global issues?
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  Speaker 7: I don't think you're whistling in the dark. There might
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  Speaker 7: be some rhetorical movement, and I definitely think that Trump
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  Speaker 7: is desperate. I mean, diesel at 650 at my local
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  Speaker 7: gas station is wild. I mean, that's fritzing everybody's brain
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  Speaker 7: that voted for him. But I use the word rhetorical
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  Speaker 7: because I'm not sure that he is in control of
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  Speaker 7: events anymore. Zelensky seems more in control of his war
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  Speaker 7: than does Trump. Likewise, Xi seems like he's in a
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  Speaker 7: good position versus Putin. So I think Trump and Putin,
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  Speaker 7: both of them are desperate. And whatever the announcements, I mean,
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  Speaker 7: who knows what they're worth.
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  Speaker 3: So if you say Trump is desperate, he's heading into
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  Speaker 3: this summit with Xi Jinping in a more desperate position
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  Speaker 3: than China. What kind of prepackaged announcement do you think
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  Speaker 3: we'll get versus what actually will be happening between these
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  Speaker 3: two gentlemen?
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  Speaker 7: Well, what's actually happening between these two gentlemen is great
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  Speaker 7: power politics. And Xi Jinping is on the rise. And
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  Speaker 7: Donald Trump represents a, I hate to say it, it's painful,
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  Speaker 7: declining power. If we look at measures such as the
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  Speaker 7: dollar in the next 20 years. So what's actually happening
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  Speaker 7: between them is that Xi Jinping is telling Trump what's what, frankly.
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  Speaker 7: I imagine that happens with Putin and Trump behind closed doors.
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  Speaker 7: What we'll see, you know, for the likes of us
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  Speaker 7: will be some handshaking, the usual stuff, right? Everyone will
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  Speaker 7: be smiling and there'll be maybe an agreement on X, Y,
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  Speaker 7: Z soybean site. But it's all nonsense, right? So we
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  Speaker 7: are in a period of undeclared great power war. Russia
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  Speaker 7: is losing its war. I think we're just about winning
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  Speaker 7: our wars, albeit that's a controversial opinion. And China's watching
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  Speaker 7: and waiting to see when it gets involved.
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  Speaker 3: We're winning our wars?
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  Speaker 1: You mean the Iran war?
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  Speaker 7: I'm not sure that we're winning the Iran war that
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  Speaker 7: we described we wanted to fight. But I think, as
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  Speaker 7: I say before, and I get in trouble for this.
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  Speaker 7: In a counterfactual where we didn't fight Iran and where
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  Speaker 7: we didn't back Israel, and in a counterfactual where Ukraine
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  Speaker 7: lost its war to Russia, that universe, I think, is
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  Speaker 7: the universe that we would have lost World War III
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  Speaker 7: right off the bat. So I think we're somewhere in
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  Speaker 7: the middle because we are reacting to these undeclared, we
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  Speaker 7: sometimes call it hybrid war. The West is doing things.
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  Speaker 7: It's just a shame that we are led by someone
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  Speaker 7: who doesn't really know what they're doing.
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  Speaker 2: So given that midterms, how do you think these are
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  Speaker 2: going to play out here? Do you think President Trump
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  Speaker 2: cares about the midterms? Because one could argue some of
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  Speaker 2: his key policies are not supportive of the Republican Party,
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  Speaker 2: that being tariffs, that being starting a war in the
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  Speaker 2: middle of the oil, you know, global oil patch. Those
• 9:09
  Speaker 2: things aren't they generally don't pull very well.
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  Speaker 7: Well, President Trump has never had policies, per se. He's
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  Speaker 7: never had a thought-out, programmatic piece of paper where you can,
• 9:20
  Speaker 7: as a consumer of politics, as a voter, go and
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  Speaker 7: look at it and say yes or no. What he's
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  Speaker 7: done is systematically attacked our constitutional government, systematically attacked our alliances.
• 9:30
  Speaker 7: and try to undermine his own country on the world stage.
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  Speaker 7: And I think that the voters are beginning to realize this.
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  Speaker 7: It's a shame that it took diesel, of all things,
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  Speaker 7: to really get through to people, because there were any
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  Speaker 7: number of clues that President Trump was not a conventional
• 9:44
  Speaker 7: politician offering us what we wanted. But no, I don't
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  Speaker 7: think there's anything that he can say at this point
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  Speaker 7: that are going to bring people back on board if
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  Speaker 7: they're losing their farms, literally losing the farm.
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  Speaker 3: Meantime, our allies are looking the other way and trying
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  Speaker 3: to form alliances with other countries. I'm thinking about Canada
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  Speaker 3: and the overtures it's made to the European Union.
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  Speaker 1: Is that a good thing?
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  Speaker 7: I think the European Union made the overture to Canada now.
• 10:07
  Speaker 7: I think they saw the opportunity to maybe checkmate Trump.
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  Speaker 1: The associate member.
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  Speaker 7: Yes, yes, which makes me as a British rather jealous
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  Speaker 7: because I used to have an Italian passport, you know,
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  Speaker 7: de jure. Look, I think that's a good development. I
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  Speaker 7: think Mark Carney is an absolute player. He's really giving
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  Speaker 7: the world an example of what democratic leadership looks like
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  Speaker 7: in contrast to Trump. The European Union itself doesn't have
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  Speaker 7: a presidency, right? So my interpretation is they've been looking
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  Speaker 7: around for an executive function. Germany doesn't want to do
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  Speaker 7: it for obvious reasons. And now they're like, oh, there's
• 10:42
  Speaker 7: this very interesting Canadian guy that seems to be able
• 10:44
  Speaker 7: to address large groups of people. So maybe we'll make
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  Speaker 7: him the honorary president of the European Union.
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  Speaker 2: Do you think the European Union, other than Germany, is
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  Speaker 2: prepared to make the investments that they initially talked about,
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  Speaker 2: whether it's in defense or in infrastructure? Again, people feel
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  Speaker 2: pretty confident that Germany is moving in the right direction.
• 11:02
  Speaker 2: How about the rest of Europe?
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  Speaker 7: Well, I'm not sure that places like Spain or Italy
• 11:09
  Speaker 7: ever had much of a military tradition. And I don't
• 11:11
  Speaker 7: think it matters. I'm not being rude. I just don't
• 11:13
  Speaker 7: think that they... maybe since the 16th century, Spain hasn't
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  Speaker 7: really been a military player. It doesn't really matter. If
• 11:20
  Speaker 7: Poland and Germany rearm properly, and if France extends its
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  Speaker 7: nuclear umbrella, and if my country, the UK, gets back
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  Speaker 7: to proper defense spending, and a bit more of a
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  Speaker 7: bullish attitude in the world, we could roll Russia in
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  Speaker 7: a conventional war. I don't worry about that at all.
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  Speaker 7: So if Germany does the right thing, which it is,
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  Speaker 7: we'll be solid. I think the problem is the window,
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  Speaker 7: because it takes time to rearm, And Germany's talking about 2039,
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  Speaker 7: I think, at the point they'll be ready. I mean, guys, let's,
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  Speaker 7: you know, let's much know.
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  Speaker 1: Yeah, exactly. In that time, what does Putin do here?
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  Speaker 2: I mean, is he is he bogged down in Ukraine?
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  Speaker 1: Is he what do you think the next moves are there?
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  Speaker 1: Because I don't think people feel. very good about what
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  Speaker 1: he could do going forward.
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  Speaker 7: So Putin likes to think of himself as like a wolf, right?
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  Speaker 7: As this kind of lone wolf, like stalking the European plane.
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  Speaker 7: I think of him as a rabid groundhog at this point.
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  Speaker 7: I'm serious. Like he is cornered. He's unwell. He's clearly
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  Speaker 7: losing that war with Ukraine. And Zelensky, if anything, is
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  Speaker 7: holding back. I mean, Zelensky must have more cards to play, right,
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  Speaker 7: to return to that phrase. And Putin must realize, even
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  Speaker 7: in his delusions, that that war is lost. So if
• 12:34
  Speaker 7: he wants to fight a new war called me versus NATO,
• 12:38
  Speaker 7: maybe a sprinkling of tactical nukes or something, I mean,
• 12:41
  Speaker 7: let's bring a military expert into your show and ask
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  Speaker 7: him if that's possible. This war, he's losing.
• 12:45
  Speaker 1: Stay with us.
• 12:46
  Speaker 3: More from Bloomberg Intelligence coming up after this.
• 12:52
  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 12:56
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 12:59
  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
• 13:02
  Speaker 5: you get your podcasts or watch us live on YouTube.
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  Speaker 2: Nat gas is where you've got to spend a lot
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  Speaker 2: of time as well, because if you're going to have
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  Speaker 2: all these data centers all over the country, you've got
• 13:12
  Speaker 2: to power these things up and electrify them, and you
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  Speaker 2: do it.
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  Speaker 1: A lot with nat gas. And we have a lot
• 13:17
  Speaker 1: of it, too. We have a lot of nat gas,
• 13:18
  Speaker 1: because we frack it down in the oil patch.
• 13:21
  Speaker 3: That's your second gig, I know.
• 13:23
  Speaker 7: Exactly.
• 13:24
  Speaker 1: I'm thinking about it. Henry Eaton, he does this stuff
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  Speaker 1: for a living.
• 13:27
  Speaker 6: U.S.
• 13:27
  Speaker 2: Natural gas market analyst for BNEF. The BNEF folks are...
• 13:31
  Speaker 2: The folks here at Bloomberg, they analyze the energy evolution
• 13:35
  Speaker 2: taking place.
• 13:35
  Speaker 1: They have all the data.
• 13:36
  Speaker 2: I mean, the best data out there as it relates
• 13:39
  Speaker 2: to the global energy business.
• 13:40
  Speaker 1: They've got smart analysts up on us to make sense
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  Speaker 1: of it. Henry, thanks for joining us here.
• 13:44
  Speaker 2: Talk to us about the demand for natural gas these days.
• 13:48
  Speaker 2: The good news is we have supply of it, but
• 13:50
  Speaker 2: talk to us about the demand.
• 13:52
  Speaker 6: Yeah, so the demand side is super interesting.
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  Speaker 8: There are two key drivers that we see through the
• 13:59
  Speaker 8: next five to ten years. That is data centers, as
• 14:03
  Speaker 8: you mentioned, are expected to consume a lot of natural gas,
• 14:07
  Speaker 8: as well as LNG exports. We export a lot of
• 14:11
  Speaker 8: our energy overseas, and that has only ramped up over
• 14:15
  Speaker 8: the past few years and will continue to ramp up
• 14:17
  Speaker 8: over the next five to 10.
• 14:18
  Speaker 1: So it's a long-term bullish story.
• 14:20
  Speaker 3: When it comes to data centers, how difficult or easy
• 14:24
  Speaker 3: is it to get that nat gas to where these
• 14:27
  Speaker 3: data centers are?
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  Speaker 6: Yeah, the gas story in the U.S.
• 14:31
  Speaker 8: Is a very regional one, so it depends where the
• 14:34
  Speaker 8: data centers are being deployed. As you mentioned, we have
• 14:37
  Speaker 8: plentiful natural gas reserves here in the U.S. A lot
• 14:41
  Speaker 8: of that is in Texas, in the Permian, in West Texas.
• 14:46
  Speaker 8: There's also production in the Northeast, in Appalachia. One of
• 14:52
  Speaker 8: the major problems that we see or challenges, I should say,
• 14:56
  Speaker 8: is building the pipeline capacity to get that gas to
• 15:00
  Speaker 8: where it is.
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  Speaker 6: We have it under the ground. It's a question of
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  Speaker 6: getting there.
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  Speaker 8: Building pipeline capacity in the northeast, for example, is extremely difficult,
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  Speaker 8: much more difficult than in, say, West Texas. The other
• 15:13
  Speaker 8: option is to use price as a balancing mechanism and
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  Speaker 8: have that price unlock more expensive supply that we see in.
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  Speaker 6: The Hainesville Basin, which is in eastern Texas and western Louisiana.
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  Speaker 2: So on the demand side, data centers, we need more energy.
• 15:31
  Speaker 2: Isn't that gas enough to fuel these things, do you think?
• 15:34
  Speaker 2: Or is it just one source of energy that you
• 15:37
  Speaker 2: think that the that will be needed.
• 15:39
  Speaker 1: To fund these data centers or fuel up these data centers?
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  Speaker 8: I think you'll see a combination of a lot of
• 15:44
  Speaker 8: different fuels. I think the characteristics of NatGas make it
• 15:49
  Speaker 8: advantageous to do so.
• 15:51
  Speaker 6: A gas plant can ramp up and down quickly like
• 15:54
  Speaker 6: a data center needs.
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  Speaker 8: And I'd say one of the challenges to powering all
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  Speaker 8: this natural gas is getting the gas turbine capacity.
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  Speaker 6: We've seen that that has been a challenge.
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  Speaker 8: Order books at a lot of the large manufacturers are full.
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  Speaker 8: And a gas turbine ordered today, we don't see coming
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  Speaker 8: online by 2031 at the earliest.
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  Speaker 6: So it's about five to six years to secure new capacity.
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  Speaker 8: All right.
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  Speaker 6: So that'll be a challenge.
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  Speaker 3: All things to come. When we talk about LNG exports,
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  Speaker 3: how quickly is that growing? What's the growth rate compared
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  Speaker 3: to demand for data centers?
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  Speaker 8: So on a relative scale, I believe our growth rate
• 16:37
  Speaker 8: for data centers is quicker. On an absolute basis for
• 16:42
  Speaker 8: gas demand, LNG is going to be the largest contributor
• 16:46
  Speaker 8: to new natural gas demand over the next five to
• 16:48
  Speaker 8: 10 years. Our latest outlook for data centers, however, has
• 16:52
  Speaker 8: pushed that power sector much closer to LNG. And so
• 16:56
  Speaker 8: we see these two major demand sectors colliding essentially at
• 17:00
  Speaker 8: the same time. And so essentially something needs to give.
• 17:04
  Speaker 8: We see an undersupplied market over the next five to
• 17:07
  Speaker 8: ten years from what we can see today.
• 17:09
  Speaker 6: Now we're not saying the U.S. is going to run
• 17:11
  Speaker 6: out of gas. We're saying something has to give.
• 17:13
  Speaker 8: And there's a lot of uncertainty on both the LNG
• 17:16
  Speaker 8: and the data center side. For LNG, we see a
• 17:19
  Speaker 8: global LNG oversupply, meaning that there's a lot of liquefaction
• 17:23
  Speaker 8: capacity coming online, particularly here in the U.S. And so
• 17:27
  Speaker 8: if you see those global LNG prices potentially come down
• 17:31
  Speaker 8: in the next five years, we could see essentially curtailments
• 17:35
  Speaker 8: at U.S.
• 17:36
  Speaker 6: Facilities.
• 17:36
  Speaker 8: So that would reduce the demand impact that LNG has.
• 17:39
  Speaker 8: On the data center side, a lot of the data
• 17:42
  Speaker 8: centers that we're looking at are fairly speculative. meaning that
• 17:45
  Speaker 8: they're just announcements rather than committed facilities. And so there's
• 17:49
  Speaker 8: a lot that could happen there to sort of move that,
• 17:52
  Speaker 8: shift those numbers around and bring the market back into balance.
• 17:55
  Speaker 1: I mean, I can not guess.
• 17:57
  Speaker 6: $ 2.
• 17:57
  Speaker 1: 85 per million? BTU, which I think is British Thermal Unit.
• 18:02
  Speaker 1: Have I got that right? I think so.
• 18:04
  Speaker 4: See?
• 18:04
  Speaker 1: Land man, I'm telling you. I know what's going on
• 18:06
  Speaker 1: out there.
• 18:06
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• 18:15
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