In the Room: Why Brian Roberts Walked Away…

Good afternoon, I’m Dylan Byers.

Welcome back to In The Room, my biweekly private email on the inner workings of the media industry.

Today, in advance of the Memorial Day weekend, I chatted with my partner William D. Cohan, a former M&A banker and Puck’s senior Wall Street correspondent, about all the latest tectonic shifts rearranging the media-entertainment-tech landscape: Brian Roberts’ fantasy M&A thesis, Warren Buffett’s $2.6 billion Paramount arbitrage, and David Zaslav’s next moves. That conversation, and more, below.

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Why Brian Roberts Walked Away…

Notes on why NBCU-EA didn’t happen, thoughts on Warren & Shari, and Zaz’s next moves.

DYLAN BYERS

William D. Cohan: So, Dylan, maybe we could start this dialogue with you sharing with Puck readers what else you have learned about the intriguing idea that you reported last week: that Comcast gave serious consideration to merging its NBCU subsidiary with EA Sports, the large gaming company. What’s the latest with this deal, especially since EA, as you’ve said, has basically put itself up for sale?

Dylan Byers: It’s a privilege to talk about media M&A with you Bill, especially since you see the Wall Street side of these deals so clearly. On that note, I was hoping you might help clarify my thinking on the recent, failed negotiations between Comcast and Electronic Arts. As I reported, Comcast chief Brian Roberts recently approached EA with a proposal to merge the video game company with a spun-off NBCUniversal. In the scenario that was under negotiation for several weeks, Roberts would have maintained control of the combined entity, EA chief Andrew Wilson would have served as C.E.O. of the combined entity, and NBCUniversal chief Jeff Shell would have moved to a new role at Comcast.

I understand the logic behind the deal from Roberts’ perspective: NBCU needs greater scale, and worthwhile acquisition targets—Fox, WarnerMedia, Activision—are quickly coming off the table. Meanwhile video games are a rapidly growing business and an increasingly important piece of the streaming strategy (there’s little wonder why Netflix is investing so heavily in the space). I also understand how, if you’re EA, and you’re looking at Microsoft’s $69 billion Activision acquisition, now seems like a particularly opportune time to strike a deal. As I also reported, EA has pitched itself to Disney, Amazon and Apple in recent months.

The piece of this that wasn’t entirely clear to me when I filed my first report was why the deal fell apart. This week, I picked up two bits of intel that help to explain that. First, EA’s stock price went up and the premium narrowed. Apparently EA went back to Comcast and asked for a higher premium, and Roberts wouldn’t budge on the apparent retrade. So EA walked away… for now, anyway. I suppose if the stock price goes back down, the two sides could come back to the table, especially given the macroeconomic climate. But the other thing I was told, which may preclude future talks, is that Wilson gave a presentation to Comcast about his vision for the combined company that failed to win everyone over and raised doubts about whether he should be the C.E.O. (Neither Comcast nor EA commented on this.)

Anyway, leadership questions aside, do you see the logic to this deal? And where do you think EA might land, if not with Comcast?

WC: Comcast has any number of important sports franchises that it could exploit further with EA’s FIFA and Madden relationships. EA doesn’t strike me as a necessity for Comcast in the same way that AT&T Broadband and NBCU were necessities. Brian is a disciplined deal guy who listens to his M&A advisors. If the play is to be disciplined on price, then Brian will be disciplined. I suspect this deal will come back if Comcast is determined to get it because I’m not sure I see another logical buyer out there. By the way, the fact that you sussed this out is pretty impressive. Without getting too specific, how the hell did you do it?

DB: I really appreciate that. Sources in the right places, I guess. The fun part about having those sources—the ones who really, really know—is it gives you leverage over the comms people who try to convince you that you’re barking up the wrong tree. And I’ll concede there’s no small satisfaction in coming back to them and saying: As a matter of fact, I have the right tree.

Anyway, I agree with you about Roberts: I don’t think this is the last time these two parties will talk. At the very least, I think Roberts still has a strong interest in gaming. I imagine his appetite for this has been pushed in part by his own son Tucker, a gaming executive who now heads up Comcast Spectator’s gaming division and Comcast’s eSports team in Philadelphia.

WC: Thank you for answering the question about getting that story. I think it helps readers to understand how these things occur and most reporters are wary of sharing that insight with readers for fear that their “proprietary” relationship will somehow be burned, which is not the case, of course. So, thank you.

Let’s turn to another family-owned media company—the newly renamed Paramount Global (it used to be ViacomCBS not so long ago)—which, of course, is controlled by Shari Redstone and her children through a trust that Shari’s father, Sumner, set up. At the moment, Paramount Global seems like a minnow in a sea of sharks. It has a market cap of around $21 billion these days and that’s after the legendary investor Warren Buffett bought a $2.6 billion stake in the company. By contrast, Comcast’s market cap is $200 billion; Disney’s market cap is also around $200 billion. Netflix, which used to be worth around $300 billion is still valued at around $80 billion, or four times what Paramount Global is worth. So what’s Shari to do?

It’s an open secret that she wants to sell if she can find a buyer at the right price. But who are possible buyers? As we discussed, it won’t be Comcast. It won’t be Disney. It won’t be Warner Bros. Discovery, at least until David Zaslav gets a handle on that $55 billion of debt. It won’t be Amazon, Apple, Google or Meta Facebook, so how does Shari turn the stock of Paramount Global into cash for herself and her heirs while also keeping her spot at the Allen & Company conference?

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DB: This is a really great question. Shari’s dilemma is that Paramount Global is too small to compete at scale. But the old Hollywood outfits, like NBCUniversal and Disney, won’t buy because the acquisition a) doesn’t really add that much scale and b) would include broadcast assets that overlap with their existing businesses. Meanwhile, the new tech players in the industry—Netflix, but also Apple, Amazon—don’t want to buy because they don’t want any part in managing the decline of the linear business. This is why MGM, which Amazon bought, was seen as the last attractive Hollywood acquisition in the eyes of most big tech firms—because it wasn’t tethered to linear. So, what does she do? I imagine there’s a private equity route, but that’s not straightforward, and almost assuredly not her preference. Otherwise, I think she just has to bide her time until the landscape changes—which will certainly ensure future trips to Sun Valley.

WC: To close this out, let’s talk about Warner Bros. Discovery. In my calculus, the WBD stock is dead money unless and until Zaslav can show Wall Street each of three things: that he is on track for the $14 billion in EBITDA for 2022 that he’s promised; that he can come up with the $3 billion in synergies that he has promised, and that he can begin to get a handle on WBD’s $55 billion in debt, most of which is rated BBB. He’s got to keep that debt rated investment-grade. He can’t let it slip into junk status and so that’s why achieving that $14 billion of EBITDA is so important to investors and analysts. Do you think he can scale this mountain? He’s a very determined fellow as we both know, but has he bit off more than he can chew with WBD?

DB: Zaz is nothing if not determined. I do think he’ll get there, but it’s going to require aggressive cuts, which translates to a lot of pain—and it’s not entirely obvious how you get to $3 billion. (Our partner Matt Belloni reported last night that a new round of cuts are coming soon.) CNN+ was obvious, low-hanging fruit to cover the first 10 percent of that effort: a product that was by no means a guaranteed success, and at odds with his single D.T.C. service strategy. Getting rid of scripted programming at the Turner networks, and handing more power and control to the much-beloved Casey Bloys at HBO/HBO Max, also makes sense. But we’re still really just scratching the surface. So he may start making cuts that, if not done carefully, could undermine the long-term strength of the businesses—even if they look smart in the short term.

Take CNN, for instance. I’m not sure Zaslav is done with CNN. There’s a whole digital business that Jeff Zucker created there that Zaslav, who is thinking almost exclusively about linear, streaming and theatrical, may decide he doesn’t need. There’s also an original series/documentary unit, headed by Amy Entelis, that could just as easily be rolled into HBO Max or some other part of the WBD universe. How much would that save Zaz? Maybe $100 million, at most? That doesn’t seem like much in the grand scheme of things, but we may get to a point where everything that can be cut will be. I believe Belloni has referred to Zaz’s C.F.O. Gunnar Wiedenfels as the “hatchet man.” When you’re a hatchet, everything looks like wood.

What are you thinking about when it comes to Zaz?

WC: My sense, from talking to him over the years, is that WBD is not the end for him and for his dealmaking. In fact, I am thinking that Zaz could be the savior for both Shari and Brian! What do you think of this scenario? Somehow, Zaz gets his mitts around WBD, generates the EBITDA that is needed, starts paying down the $55 billion of debt and the WBD stock takes off, giving our buddy the currency he needs to make the next move, which is to buy the CBS linear network et al. from Shari for a healthy price while then allowing Brian to swallow up the rest of Paramount Global, in some fit of tax-advantaged deal-making on all sides. Is this just my M&A fantasy, or do you think something like this might happen?

DB: Entirely plausible. And in fact, I also think it’s entirely plausible that Warner Bros. Discovery, NBCUniversal and Paramount could all fly under the same banner one day, or at least versions of those entities—many, many years from now, of course, and only after a long, drawn-out divestiture of the overlapping broadcast assets. But I keep that scenario in mind when I’m thinking about the long-term trajectory of this industry. Consolidation comes in waves, but it is inevitable. And in the face of a world run by Silicon Valley firms that have shown no desire to get tied up in the linear business, banding together may be the best, or only, available option.

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