Lucas Shaw (3:57)

We woke up to our second Spinco of the year.

Matt Bellany (4:00)

I know that is the nice thing about being on the west coast is you often will wake up to news that has been regurgitated already by people on the east coast so you can start fresh. All right, so I want to talk about what this first.

Lucas Shaw (4:14)

First off, I'm curious. Surprise. Not surprised.

Matt Bellany (4:16)

No, of course. We've been talking about this for months. They've been doing this. They've been setting the groundwork for this like literally for almost a year. I mean, some of the details. I'm a little surprised and we'll get into that. But I do, I want to just start with what this says about the entire Warner Brothers Discovery experiment. The combination of WarnerMedia with Discovery Communications under David Zaslav, more is better. We're going to compete with Netflix and ride this to the promised land. What does this say besides it failed?

Lucas Shaw (4:53)

Well, yeah, it was a failure. That's what it says. I guess if you were to look on the positive side for David Zasov. He oversaw Discovery, which was sort of this subscale collection of cable networks and he saw that the cable bundle was dying. And so first he merges with scripts to get more scale and that sort of buys him some time. And then he swallows this much larger thing. And so in terms of sort of preserving discovery, which was probably his initial impulse, it worked. But in terms of the goals for this company, it was a three year train wreck. I mean, they, they had this whole ambition of we're going to have this greater scale. We account for like whatever the percentage was of TV viewing. So we're going to have 40% of.

Matt Bellany (5:34)

The IP in the world that matters.

Lucas Shaw (5:36)

And with cable shriveling, what they needed to do was figure out a post cable strategy.

Matt Bellany (5:42)

No, no, they needed cable to stay floating, at least to a certain point to fund the other strategy. And the problem is that cable dropped faster than they thought.

Lucas Shaw (5:54)

Well, but that wasn't the only problem. The other. The problem is also their streaming strategy didn't work. So you had cable dropping too quickly and they created this like kind of Frankenstein streaming service to compete with Netflix that people weren't that interested in. It turns out they were mostly just interested in HBO and maybe if you fold in the sports. Right?

Matt Bellany (6:12)

Yeah. And in the meantime, thousands and thousands.

Lucas Shaw (6:16)

Of layoffs, budget cuts, pissed off all these filmmakers.

Matt Bellany (6:21)

Yeah. I mean, everything about this has been painful and frankly, industry changing because Warner Brothers has always been this like big north star of the creative community. And then first thing they do, they get in there is they start canceling movies and start, you know, completely re envisioning what their product is going to be. And it's just unfortunate that this had to happen and it didn't have to happen.

Lucas Shaw (6:46)

Well, and hbo, which still produces a lot of great television, but it definitely feels like it lost a little bit of the separation it had from, from other brands. Right. You had a lot of people talking about is Apple the new hbo, is FX the new hbo? And even if you don't believe either.

Matt Bellany (7:02)

Of those things, yeah, they're still chugging along, they're doing what they do, but they're now making a lot more DC shows. They're making a Harry Potter show. They're doing a lot of things to serve the corporate master that are direct results of the Zaslav regime here. Now this is all being undone. So let's talk about what's being done here because there's a couple elements to this. First of all, the split that was not surprising. Putting the networks on their own island to float off and absorb all the debt. Absorb all the debt. Not, not all, but most of the debt. It's interesting. They are taking a $17.5 billion bridge loan from JP Morgan to buy back a bunch of the debt. And my understanding is this is the missing element here. This is what we have been talking about for months. How are they going to do this? Because most of the revenue and profit comes from the television networks, yet they want to spin them off. They're going to need to have some kind of mechanism to fund the growth company. So the mechanism seems to be that they will get a loan to deal with this debt. They will then have The SpinCo own 20% of the studios and streaming company. So they will be able to recapitalize and then fund the streaming business via this investment from the entity that still makes the revenue. That's my understanding here.

Lucas Shaw (8:35)

So you're taking a loan to pay off a loan?

Matt Bellany (8:38)

Yeah, sure. But that's the financial mechanism here.

Lucas Shaw (8:41)

Yeah. I mean, God bless. They have figured out how to do it. You're right that there was a question around what continues to fund HBO and Warner Brothers when those assets are not nearly as profitable as the cable networks. But what they've done is they've taken the less desirable asset, they've sent it out on a flotilla. It will continue to shrivel, but it will generate enough money to pay off the debt. What I don't know is, does that mean it's less of a player for. Because that's where the sports rights are going to live. That means less of a player for sports rights because it's got all this debt to pay off. Does that mean that it is. You know, they're trying to position it as something that can roll up other assets. Is it going to have the financial wherewithal to do that? I don't know.

Matt Bellany (9:25)

Or is this a placeholder? I mean, it's very telling that they're putting Gunner in charge of the SpinCo. The CFO currently is now going to be in charge of the SpinCo. Not a content executive. When Comcast did this, they put Mark Lazarus in charge of the SpinCo.

Lucas Shaw (9:42)

Mark Lazarus already ran a business a lot like he is now running.

Matt Bellany (9:46)

Exactly. And he has run a sports business. He was in charge of half the television business. He's an experienced content executive. Gunner is, you know, by all accounts, a very strong cfo. Not a content guy, not a strategy guy. He is now going to be able to run roughshod over these television assets, cut costs wherever he wants, drain them, do whatever he wants to them, and doesn't necessarily, I think, have to have a Long term strategic vision because this is for sale. They want to combine this with Versant or with another entity and get rid of these things forever, right?

Lucas Shaw (10:22)

That is the assumption. There have been a lot of rumors about talks between WWBD and Comcast NBCU and I think part of the issue there is that neither side really wanted to give up control, which is kind of funny because neither side wants to own these cable networks or have them drag down the stock performance of their main company. But they also don't want to like totally give up. Like if it were me, I would just, you know, wipe my hands of it and be done with it.

Matt Bellany (10:45)

Well, and there's also no narrative. What's the narrative when your company's run by a cfo?

Lucas Shaw (10:50)

Well, Versant. Versant doesn't really have a narrative.

Matt Bellany (10:52)

Versant does have a narrative. They at least are saying we're investing in MSNBC and going to have a standalone news business here and we're going to be an acquirer of other networks and this is a seasoned TV executive that is going to manage these assets appropriately. And what's the narrative going to be for the Warner?

Lucas Shaw (11:15)

It's kind of a narrative, but it is mostly a. These are drag on us and we're going to spin it out and this. They've done a good job of positioning what it is and can be. But I think the same is largely true of these TV networks and it makes sense for them to probably all squish together. I mean the one that I probably feel the worst for in all this is cnn.

Matt Bellany (11:34)

CNN and Biggest Loser here. I mean, that's awful. Awful.

Lucas Shaw (11:37)

They're getting spun out into this crap. This other company, you could say Krapko and it's, you know, they're not going to have a lot of resources or they say they will, but like you can't see them coming up with the, you know, Mark Thompson came in to run this business and really try to inject some new energy and strategy and the fairy dust that made it, that worked at the New York Times. And it certainly doesn't feel like a company that's going in the right direction. It makes you wonder what would have happened if they had just sold CNN from the get go.

Matt Bellany (12:08)

Oh yeah. I mean, can you imagine Gunner looking at the PNL for CNN and just thinking of all the amazing cuts he can make and sacrifices and anchors he can fire and replace with man on the street anchors. I mean he is going to have a field day with cnn.

Lucas Shaw (12:29)

Still makes a lot of money.

Matt Bellany (12:30)

It does. But not as much as before. And it's going down. And you know what? It can fund all those other networks that are not making money.

Lucas Shaw (12:37)

Yeah.

Matt Bellany (12:37)

What does CNN have to be to continue? It is a must carry in the cable bundle. Doesn't matter how much they spend on programming. It is a must carry because you're not going to get rid of CNN when you've got Fox and others if you're a cable carrier.

Lucas Shaw (12:51)

But I guess if CNN cuts back dramatically on its overseas reporting and things like that, is it still as much of a must carry?

Matt Bellany (12:58)

I think it is, yeah. I think that it's going to get Chris McCarthy ized. It's going to get MTV ridiculousness, eyes.

Lucas Shaw (13:05)

15 hours of Jake Tapper every day.

Matt Bellany (13:08)

Yeah. Why? Why do they have bureaus around the world? I mean, I'm sure Gunner is looking at the Fox News model and saying, wait, why do we do this again? Why do we maintain this gigantic news operation around the world? Yeah, we have a digital business, but we're not going to own this network forever. And if we can cut the costs in half of operating cnn, that's money that we can use elsewhere. Yeah, that's a speculation. I don't know that's happening.

Lucas Shaw (13:35)

Which of the two kind of new companies do you think is more likely to be independent three years from now?

Matt Bellany (13:43)

Oh, that's a good question. Because you would think that the reason the studios and streamers company is being separate now is so that someone will buy them.

Lucas Shaw (13:52)

Right. Both of these are set up to use David Zazha's favorite word, to create optionality. Right. Like that's why they restructure the company. It's why they're spinning. Because the cable networks make sense for one type of buyer, private equity, other cable networks, whatever it may be, who want to milk it for cash and the studio. And streaming is appealing to people who, you know, are still very interested in Hollywood and see future growth potential and is the type of thing that a few years ago you certainly think might have traded. Right.

Matt Bellany (14:23)

Yeah. See that. And that's the answer to your question, I think it's not about what David Zaslav wants. It's about which of these entities has a potential buyer. And that's a tougher question because I see who the potential buyer is for the television side of the business. It's the private equity vultures that took over the newspaper industry and that want to manage decline. And this is an opportunity to do that, whether it's via the Warner vehicle or whether it's Versant or Whether it's both of them combined or whether it's, you know, Disney might throw in some networks as well or other companies here. So I see the potential buyers for that. The potential buyers in the studio and streamer space to me seem like more strategic.

Lucas Shaw (15:10)

They're strategic and it's a little bit, it's a little bit a recycling of.

Matt Bellany (15:14)

The names we always hear like, is Apple a buyer? Does Apple really want to own it?

Lucas Shaw (15:19)

It's like Apple, YouTube and Netflix all in theory have reasons why they could do this deal. None of them has ever done a deal of this scale. And I could come up with a lot more reasons why those people shouldn't be than should at the same time. You never know.

Matt Bellany (15:33)

I mean, Apple could do a lot with Warner Brothers probably, right? Sure.

Lucas Shaw (15:38)

Look, Apple could, right? It would immediately supercharge tv. Plus it's, it would be, you know, people always float the Apple Disney stuff. It'd be a little bit like buying Disney without needing to deal with the hassle of the theme parks. Like there are a lot of good things about it. But also if you're Apple and you're this massive company that generally doesn't do massive deals and you have a lot of other more pressing concerns, are you really going to go and spend tens of billions of dollars to try to supercharge a part of your business that isn't your core business and like deal with the hassle and deal with the regulatory headaches and all of that.

Matt Bellany (16:08)

Right. Which would be significant because Apple is Apple. And Warren, everybody knows what Warner Brothers is.

Lucas Shaw (16:14)

They have plenty of other problems, as my colleague Mark Gurman has, that have covered like that they need to fix first.

Matt Bellany (16:20)

You would think so, but maybe this could be the antidote to that. I mean, on the developers conference opening today, what did they launch with? They started with talking about F1. I mean it's a nice little diversion and it doesn't cost that much to do this. And if they are serious about content, which Eddie Q. Keeps saying they are, this would make sense. They wanted the company 10 years ago, Jeff Bukes wouldn't sell it to them. Maybe now that it's been separated from the garbage assets, they would buy it.

Lucas Shaw (16:49)

Anything is possible.

Matt Bellany (16:51)

And Amazon, I mean we, we could. Amazon, I, I don't think has the tolerance for another deal like this. They bought mgm. I think they have mixed feelings about that purchase and this would just be another thing for them to absorb. Yeah, not to mention the how much it would suck for the rest of Hollywood. I mean this is a this would be a major studio likely going away if it merged with a strategic investor. It would not. You know, if it was some outside buyer. Great. You know, Warner's has had many of them over the years, but some kind of a merger of studios, even more people would get fired. I mean, it would be pretty catastrophic.

Lucas Shaw (17:27)

Yes. Although other than Netflix, most of the tech companies don't have the same level of studio infrastructure that Warner Brothers have. So it's not a total loss of the studio.

Matt Bellany (17:38)

I mean, think what Netflix could do with those Warner's franchises though. Like if Netflix really wanted to level up the ip, which is the one area of content that they don't compete with the majors. Like think about Netflix owning dc. Think about Netflix owning Minecraft movies, Lego movies. Like, although I think Lego went back to Lego. But Barbie, like Netflix could do a lot with that.

Lucas Shaw (18:05)

They could, they could.

Matt Bellany (18:07)

You don't think they would though.

Lucas Shaw (18:09)

Netflix has never done a large deal, has never spent that kind of money on a transaction. They have been very averse to integrating kind of large numbers of employee like their stock answer to this is what do we want with TV networks? Goes away. But integrating lots of employees, dealing with the hassle of M and A is something the company's always avoided. That was as much of a read thing, Reed Hastings thing as anything. So now that he is no longer in charge day to day, the odds of something like this are a little bit greater, yet also feel. It still feels a little out of character for them.

Matt Bellany (18:44)

Okay, but they're worth half a trillion dollars now.

Lucas Shaw (18:47)

Yes, they don't.

Matt Bellany (18:49)

You get so big, you just start buying stuff.

Lucas Shaw (18:50)

The thing is, they don't really need the, the HBO part of it is the part that throws it because like they have no need for another streaming service. But if they bought hbo, rebranded the TV network, Netflix shut down the streaming service and just took all the ip, it would be very interesting. But we've entered the realm of crazy.

Matt Bellany (19:10)

Speculation, which we do not want to do here. Seriously. David Ellison should buy Warner Brothers. If the Paramount deal falls through, or maybe even if it doesn't, he could combine them. Although that might not be great.

Lucas Shaw (19:26)

This episode is brought to you by Amazon Prime. Ever finish a movie and the next thing you know you're totally obsessed. Like, like I'm talking about ordering a book about 70s film lighting or buying the soundtrack on vinyl. Kind of obsessed. Whatever it is, prime helps you get more out of whatever passions you're into or getting into. Head to Amazon.com prime and follow your obsession wherever it goes.

Matt Bellany (19:49)

This episode is brought to you by Netflix. Presenting the Diplomat from writer and creator Deborah Kahn. Keri Russell and Rufus Sewell return, with Allison Janney joining in the explosive second season as US Ambassador Kate Wyler navigates high stakes diplomacy and a fraught marriage in search of the truth. The Guardian lauds the Diplomat a masterclass in storytelling, and Indiewire hails it one of the best shows of the year for your Emmy consideration. I mean, the overall good news here is that these companies, Comcast and Warner Brothers, they are essentially finally cutting the cord. They are getting rid of these businesses that are dragging them down. Disney may do the same at some point, Paramount may do the same at some point. And then in a couple years, we have a Hollywood content business that is focused on the future and on their growth assets, not bogged down by these old linear models and that ultimately could turn into a business that starts growing again. That's the good news here.

Lucas Shaw (20:54)

Right? I guess the bad news is that it took them way too long to figure this out.

Matt Bellany (21:01)

Yeah. Okay, but these, I mean, in the grand scheme of things, maybe 10 years from the peak to now.

Lucas Shaw (21:07)

I mean, I'm only, I'm only saying because we've, we've been having some version of this conversation for, you know, let's say 10 years.

Matt Bellany (21:13)

I know cable peaked in 2015.

Lucas Shaw (21:15)

Yeah. And it's just been a lot of sort of shuffling deck chairs and trying to figure stuff out.

Matt Bellany (21:23)

Do you think this spin makes it more or less likely that Disney will do the same? We know Paramount will do the same once they get control of the company at Skydance, if that ever happens. But what about Disney? They're in a tougher situation because they don't have as many cable networks. They're trying to make a go of FX on Hulu. They have ESPN coming into a standalone thing. ESPN still makes a lot of money.

Lucas Shaw (21:43)

Yeah. They have less of an immediate need.

Matt Bellany (21:46)

Exactly. What is the value of FXX and Nat Geo and Disney Channel in a spinco? I don't know. Iger was talking two years ago about spinning off all the TV networks. Didn't do it. Still considers ABC to be a good business for them.

Lucas Shaw (22:04)

Well, that's the thing, is people who own the broadcast network still want the broadcast network. So, like, it's not like Paramount is going to be spinning off cbs.

Matt Bellany (22:12)

We don't think so. Although maybe that'll be a condition of the sale.

Lucas Shaw (22:16)

You must sell CBS to, to, to.

Matt Bellany (22:19)

The Koch brothers or Elon Musk or I guess not Elon Musk.

Lucas Shaw (22:22)

Not Not Elon anymore. Marc Andreessen can buy some here.

Matt Bellany (22:25)

Sure. But you know what I'm saying, like, I just feel like this is a slow progression to where these companies will ultimately shed most of these assets.

Lucas Shaw (22:34)

Yeah. You just have to hope that what is left has the resources to really execute and compete and be what they want to be. Right. A lot of these players are going a little more of a focused strategy, which is probably good. I mean, the, the, the period in which they were going sort of full freight, funding TV networks and streaming just made no sense. It was, that's why they lost so much money.

Matt Bellany (22:54)

Yeah.

Lucas Shaw (22:55)

There needed to be greater coordination between those, those businesses. And so now instead of coordinating, they're just splitting.

Unnamed Guest (23:02)

What's the best possible outcome here for Hollywood with regards to Warner Brothers? Like what could, what, what do you want to happen?

Matt Bellany (23:09)

Some rich dude comes in and says, I would like to own Warner Brothers and HBO and I would like to pay. I would like to pay $50 billion. Yes. Private ownership of these companies I think is the best outcome.

Lucas Shaw (23:24)

Even with what we've, even with what we've seen with newspapers where that's what people said and that it wasn't great.

Matt Bellany (23:29)

I'm not talking about vampires in the private equity business like Alden Capital or Apollo or something. No, that's bad.

Lucas Shaw (23:36)

But even, even Bezos and Patrick Soon Shong didn't turn out that well.

Matt Bellany (23:40)

Yes, but they're keeping them alive. I mean, the Washington Post and the LA Times are at least not owned by Alden Capital. That's an improvement. I think if there is a, I don't know who it is, but if there is a billionaire out there or you know, someone, a couple that want to go in together and own Warner Brothers and hbo, that's probably the best outcome. As long as they can keep funding it and grow it. Then you know, the other alternative is tech company. Maybe Google wants to buy a studio. They say they don't and every indication says they don't. Maybe Mark Zuckerberg would like to own DC Comics and you know, be able to make kick ass Superman movies that he can put all over Facebook.

Unnamed Guest (24:23)

You're saying you want that or don't want that?

Matt Bellany (24:25)

I'm just saying that that is a potential owner that would at least have the money to fund operations and come up with a growth strategy.

Lucas Shaw (24:32)

Yeah.

Matt Bellany (24:33)

You know, they could make content for the meta glasses and maybe that's a lifeline.

Lucas Shaw (24:38)

It creates greater long term stability.

Matt Bellany (24:40)

Yeah. I mean, to be honest, like Amazon owning MGM is probably the best outcome. For mgm. Because what was it going to be otherwise?

Unnamed Guest (24:51)

So essentially you need a David Ellison to come in and buy Warner Brothers is what you're saying. That's the ideal scenario for Hollywood, in my opinion.

Matt Bellany (24:57)

I actually think David Ellison is a much more preferred owner of Paramount than the alternatives that were out there for a subscale studio streaming company that is heavily buoyed by television.

Lucas Shaw (25:09)

But Ellison is also a little bit unusual in that he was already playing in the game and is in is.

Matt Bellany (25:17)

There's a lot of billionaires in the game.

Lucas Shaw (25:19)

But. And is personally passionate about. Sure, yes.

Matt Bellany (25:22)

You know, Steve Cohen could come in with some of his buddies and do it. Or Steve Rails has, you know, the Wes Anderson stuff. I mean those guys are probably not rich enough to do this on their own.

Lucas Shaw (25:33)

That's the problem.

Matt Bellany (25:33)

I know. It is a problem.

Lucas Shaw (25:35)

Steve Cohen can. Well, Steve Cohen could, but he wouldn't. He would need a lot of someone else's money. Right?

Matt Bellany (25:41)

Yeah. Superman starring Francisco Lindor and Juan Soto.

Lucas Shaw (25:46)

I think. Yeah. I guess A wealthy individual or a tech company. I think. I think as much as it would pain people, having having a tech company that was committing to entertainment long term would probably be in. In the best interest of the company.

Matt Bellany (26:00)

Yeah. If Neil Mohan at YouTube said tomorrow the future of YouTube is a combination of user generated content and professionally produced Hollywood style content. And because of that we are buying Warner Brothers and HBO Max, that's probably a good outcome for that company.

Lucas Shaw (26:18)

Yeah. I mean I guess the argument against it is YouTube wants to be a neutral distributor and then people would assume that they're paying, giving an advantage to hbo. The other potential.

Matt Bellany (26:27)

But they could do both.

Lucas Shaw (26:28)

But it's like. But yeah, the other potentially negative wrinkle in all of that would be a big part of. For the reason that they would do it would just be to train their AI models on the whole Warner Brothers HBO library. Which is what someone presented to me as a theory for it. And I thought it actually made some sense.

Matt Bellany (26:44)

But you know, they. Maybe they could just do that anyways. Maybe they don't need to buy it. Who knows what the courts are going to say about this.

Lucas Shaw (26:49)

That is. That is also true.

Matt Bellany (26:51)

Ugh. It's all depressing. All right, Lucas, thanks for coming on.

Lucas Shaw (26:54)

Thanks guys.

Matt Bellany (26:56)

We are back with the call sheet. Craig, big ruling today in the Justin Baldoni Blake Lively case. Did you see this thing I did?

Unnamed Guest (27:04)

Was this surprising to you?

Matt Bellany (27:06)

132 page ruling by the judge in the case who happens to be Doug Lyman's brother, Louis Lyman. He said he basically tossed all of the claims that Baldoni's side has made against Blake Lively. The defamation case, extortion. Also tossed all the claims against the New York Times for supposedly colluding with Blake Lively before that article was published. I told Brian Friedman that was a loser claim from the beginning, but they went for it. Big, big movement here in this case. I actually think my prediction is that this is going to lead to a settlement because Blake got her headlines about winning if this goes to trial on her case. You know, she had brought the sexual harassment claim initially against him. If this ends up going to trial, it's going to be damaging to her and a circus and her brand business will suffer even more, I think. So she's going to get her victory here, and I think she's going to settle.

Unnamed Guest (28:03)

Did you expect this dismissal on the Baldoni side to happen?

Matt Bellany (28:06)

No, not. Not of all of it. I mean, this is a pretty sweeping ruling. He does get to replead that Lively interfered with his relationship with William Morris Endeavor, the agents, but all of the others are dismissed with prejudice, meaning he can't refile them. It means his. His claims were defective and they were BS from the beginning. This judge said, how do you think this affects.

Unnamed Guest (28:28)

It ends with us too, and his rights to that movie?

Matt Bellany (28:31)

Depends what a settlement is. If the settlement is that, do you.

Unnamed Guest (28:35)

Think the settlement will include that Lively gets the rights to that film?

Matt Bellany (28:38)

No, no, no. That's. I think that's over. Sad for Sony. I don't think there will be an It Ends with us sequel. That's such a tainted property at this point.

Unnamed Guest (28:47)

You know what's funny, though? You know, the best thing they could ever do financially is to make the second movie with the two of them.

Matt Bellany (28:52)

In it, of course. But that will never happen because they know the only reason they're doing it is for the circus to unfold. The only thing that might prevent Baldoni from settling right now is he's got this billionaire, Steve Sarawitz, that is behind Wayfarer. And I could see them funding an appeal. I could see them dragging this out. Kind of the only way to hurt her now is to keep this going and hopefully get to trial.

Unnamed Guest (29:17)

To try to get this to trial.

Matt Bellany (29:19)

Yeah, try to get this to trial and get a potential appeal in this dismissal. Long shot.

Unnamed Guest (29:26)

I don't know. It feels like you got to cut your losses and.

Matt Bellany (29:29)

I don't know. I mean, that's probably the rational decision, but these people have not been acting rational from the beginning. So I don't maybe they'll keep going, but I do think this will lead to a settlement here.

Lucas Shaw (29:41)

Yeah.

Unnamed Guest (29:41)

I'm happy it's over.

Matt Bellany (29:43)

It's not over. She's got her case still. But I think that she'll get some money. He will get some statement that says they have amicably resolved their differences.

Unnamed Guest (29:53)

I'm hoping the media cage match is over.

Matt Bellany (29:56)

Yeah, maybe. All right. That's the show for today. I want to thank my guest, Lucas Shaw, producer Greg Horbeck, art editor Jesse Lopez, and I want to thank you. We'll see a couple more times this week.