Rachel Abrams: For months, a Hollywood drama has been unfolding that's fit for the big screen. It's a corporate love triangle with a cast of characters including a billionaire scion, a tech giant, and the president of the United States. Now, that story appears to be coming to a close, but with a twist ending. Today, my colleagues Nicole Sperling, Lauren Hirsch, and Jonathan Mahler explain why the merger between Paramount and Warner Brothers has left Hollywood in a state of shock, and why the deal could reshape our political and cultural landscape.

Rachel Abrams: Lauren, Nicole, Jonathan, good to have you here. So, we have gathered the three of you here today because for months now there has been this looming question over Hollywood about who was going to buy Warner Brothers. And we finally seem to have our answer. It's going to be Paramount with the winning bid. So Jonathan, I want to start with you. Can you explain why this deal matters?

Jonathan Mahler: I mean, on the most basic level, this deal matters a ton because we are talking about the creation of an enormous media empire here. We're talking about under one single roof: Paramount, CBS, HBO, Warner Brothers, CNN, Nickelodeon, MTV, and on and on and on. And we're also talking about Larry and David Ellison, who are, you know, new media power brokers.

Jonathan Mahler: Larry, of course, was the founder of Oracle, a billionaire many, many times over. And his son David, who was at one point an aspiring actor who then went on to become a film producer and financier and then bought Paramount. With this new deal, he's going to become one of the most powerful media moguls in the world almost overnight. They are the new Murdoch, but quite possibly a lot more powerful.

Rachel Abrams: So we're going to talk more about the Ellison's influence. But first, Lauren, the last time you were on the show, it looked at the time like Netflix was going to be the winning bidder, right? And at the time, Paramount was in the middle of trying to swoop in and outbid them. So, catch us up on what has happened since then.

Lauren Hirsch: Shortly after Warner Brothers announced that it had signed a deal with Netflix, Paramount did something called a hostile bid, which they went to Warner Brothers shareholders and said, "Your board isn't doing right by you. We're giving you a better option." And it became so loud and so frankly compelling that the Warner Brothers board was forced to open a dialogue with Paramount.

Lauren Hirsch: It basically got to the point where the Paramount deal was so good in Warner Brothers' mind. They're like, "Not only did they give us everything we wanted, but they threw on a $7 billion fee that they would pay if regulators blocked it." And Netflix said, "Actually, we're just going to walk away." Paramount has agreed to buy Warner Brothers for $31 a share. That is a 150% premium, which is nearly unheard of in deals.

Rachel Abrams: I have read that what you just described adds up to a total purchase price of $111 billion. And a lot of the coverage has basically made it seem like that is way too much to pay. Nicole, can you just explain that? Why is that the criticism?

Nicole Sperling: Last spring the stock was worth $8 a share and Paramount's bid went up to 31. They also added a $2.8 billion breakup fee to send to Netflix. The combined company is going to be carrying a debt load that's close to $80 billion. Yes, they will have 200 million subscribers, but it still cost a lot of money to get there. The movie business is not in a healthier state than it was back then pre-COVID.

Jonathan Mahler: This is a business that is facing serious structural challenges. There's so much competition for eyeballs even beyond streaming, just TikTok and social media. And yet the box office numbers are consistently down. A year ago Warner Brothers Discovery seemed like it was a sinking ship. David Zaslav was doing everything in his power to cut costs, removing movies and episodes of Sesame Street from the platform. It was really penny-pinching.

Rachel Abrams: Hearing you describe all of this, I'm wondering if there's actually a way to think about this as kind of like a huge coup for Netflix because it sounds like they essentially forced a huge competitor to overpay for one asset and walk away with a $2.8 billion breakup fee.

Lauren Hirsch: They are certainly going to market it like that. Not only are they getting money to walk away, but they're walking away from a company that's going to have about 80 billion in debt. When you have a lot of debt, your margin for error is much more slim. So Netflix is surely going to tell the market we made the smart deal in not overpaying.

Rachel Abrams: And all of this I think begs the question, why are the Ellison's doing all of this?

Nicole Sperling: Paramount wasn't big enough to compete with the big streamers. They look at HBO Max, which has a subscriber base of 132 million people, and they see an opportunity to combine forces. Now they will be a behemoth that can actually fight in this battle for subscribers.

Jonathan Mahler: I think there's a bigger plan here. How much of this is about Larry Ellison wanting to put himself in a more favorable position with the administration to get more government contracts? And is that going to entail moving these news outlets, CBS and now CNN, toward the center or to the right? And is that what is going to be expected of David in order to keep his father's business operations running in Washington?

Rachel Abrams: And we've already seen some evidence of how the politics could affect the media business, right? Like look what happened to CBS after David Ellison acquired it last year.

Jonathan Mahler: That's exactly right. When David Ellison took control of CBS, he put Bari Weiss in charge, and she immediately started making changes. She temporarily shelved a report about a detention facility in El Salvador where the Trump administration was sending deportees. Of course, the Stephen Colbert show was terminated pretty quickly. There is a lot of anxiety that something similar is going to come to CNN.

Rachel Abrams: So that of course is the news business side, but what about Hollywood? Nicole, talk to us about what you are hearing from your sources.

Nicole Sperling: When Netflix won the deal back in December, people were appalled and thought, "Okay, here comes the big bad tech giant who's going to flatten the theatrical movie business." But over the months, Ted Sarandos and Greg Peters did everything right. They said all the things people wanted to hear. On the flip side, now we have Paramount has acquired this studio and no one's really clear who's going to survive.

Lauren Hirsch: The only way to make the debt work is to cut costs. They expect to get around 6 billion in synergies—synergies is corporate speak for cost cutting. It often means layoffs. Although Paramount has said these synergies will come predominantly not from layoffs, usually the easiest way you can get cost cutting in a merger is through layoffs.

Rachel Abrams: What does all of this mean for us, the consumers?

Nicole Sperling: One would assume that these are going to merge together. We will probably have one app that we can all access all this content on. As for the movie studio, David Ellison is a big believer in the theatrical release. He says that movies that debut in theaters first have a much greater impact culturally than movies that debut in streaming first.

Nicole Sperling: In the past, he has been a big fan of Transformers, Mission Impossible, and Top Gun. Because the studio has a lot of debt, they have to make safe decisions. It is maybe safer to make movies that are based on well-known franchises than to do the kind of risky things Warner Brothers has done in the past year. It might be less about political kowtowing and more just about making sure bets.

Jonathan Mahler: This moment does seem different. The principal backer of all this is his father. You have to see the Hollywood piece of this dovetailing with what Larry Ellison is up to at Oracle in terms of building out this AI infrastructure. They now own 15% of TikTok. This is part of Larry Ellison's desire to have access to data to train AI models and to build out this new AI infrastructure.

Jonathan Mahler: We need to see this through the lens of the creation of a very new and different kind of global media empire. That's the game that Larry Ellison is playing in. Instead of Rupert and Lachlan, it's Larry and David, and they are amassing a media empire for the data-driven digital age.

Nicole Sperling: I just wonder if HBO will make a sequel to Succession and feature the Ellison family or if that's verboten now.

Jonathan Mahler: Someone else is going to have to make that one. Maybe Netflix.

Rachel Abrams: Lauren, Jonathan, Nicole, thank you so much for being with us.