Crypto News: Paramount-Skydance merger update, secret media successes

Good afternoon from Los Angeles, where I have returned after far too long on the road.

The soap opera at Paramount Global is almost over. A special committee of the company's board of directors has blessed a merger with Skydance Media and the companies are expected to announce a deal within the next 24 hours.

Barring some last minute surprise, Shari Redstone is about to cede control of her family's media empire to David Ellison.

As anyone who has been following this will know, a surprise is not out of the question. You may recall that Ellison thought he had a deal just a few weeks ago, only for Redstone to change her mind at the last minute.

Despite murmurs that Redstone had soured on Ellison, the two remained in touch and worked to resolve their differences. Ellison, an upstart movie mogul, made a few changes to the deal, namely increasing the amount of money to Redstone and offering her a little more protection against potential shareholder lawsuits. But it's not a dramatically different deal.

So why did Redstone change her mind (again)? Redstone has told people for months that she wants to sell. (For more on why Redstone is finally read to call it quits, I would read this.)

But selling a prized family asset is still hard. So even though Redstone picked Ellison as her preferred buyer, she still had to sign the dotted line. Ellison revised his initial deal to placate other shareholders, reducing Redstone's payday. Redstone, who had plenty of people telling her not to do the deal, balked at the last minute.

But she still wants to sell — and she wants to sell to Ellison. She hasn't engaged seriously with several other suitors, some real and some less so. With a few more weeks to digest the deal — and a little extra money — she came around.

Any deal will be subject to regulatory approval, a process that will take months at a minimum. But one rich person buying the asset from another rich person is less troubling to politicians than if a rival media company or private equity were the buyer.

Redstone will have 45 days to shop for a better deal. There are still a couple of other bidders circling, including Edgar Bronfman Jr. Redstone has had several months to look for other deals. She has yet to find one she likes more.

Ellison has deep pockets, loves movies and wants to invest in Paramount. He isn't going to break the company up and he has an experienced team around him. Whether anyone can fix Paramount remains to be seen.

Paramount is almost certainly going to sell BET. The current leadership could even do that before closing the Skydance transaction, assuming Paramount's new owners bless it. They will have veto power over major moves.

Some shareholders will still balk at the valuation Paramount is giving to Skydance. Others will be happy that this saga is finally over.

Five things you need to know

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For the better part of two years, workers in Los Angeles' most famous industry have been depressed. Their pessimism is rooted in an extended contraction that started with Netflix's slowdown and the dire state of the movie business, followed by two strikes and job cuts at almost every major media company.

Yet the more optimistic among us view this contraction as temporary, a cyclical downturn rather than a permanent one.

The holiday weekend, which comes at the midway point of the year, is a good time to answer questions from readers and executives about the state of the media business. But I also want to ask you a question I get a lot.

What is a trend, company, person, idea or piece of art that has excited you in recent months? I'd prefer if your answer is media-related, but it can be anything. You can let me know at lshaw31@bloomberg.net, or via signal.

Now, for those reader questions…

What price would Spotify and other services have to charge for artists to earn the same money they made at the height of the recorded music business?

About $10 a month. This answer may surprise you because the average price of Spotify in the US is higher than that. But the average price of Spotify globally is just under $5.

Music industry revenue peaked in 1999 at $22.3 billion. That translates to about $42 billion today. Global industry sales last year totaled $28.6 billion. So we'd need to find another $13 billion to $14 billion.

That is the exact size of the paid streaming market today ($13.8 billion). So if you doubled the paid streaming market, the business would be as big as at its peak.

This isn't an exact answer, of course. I can come up with all sorts of caveats. But I will answer the question with a question. Would you pay $25 a month for Spotify?

Don't worry, you won't need to any time soon, though Spotify is raising prices.

Drake accused Spotify of allowing bots to increase streaming numbers for Kendrick Lamar. How big of a problem are bots?

Fraud is a real problem in the music business. Most experts estimate it accounts for about 10% of listening, which equates to a couple billion dollars a year.

Spotify has responded by, among other things, limiting payments for songs that fail to cross a certain listener threshold. This has been imperfect and messy, but it's a step in the right direction.

Fraud is seen as more of a problem on the margins, with made-up artists or white noise podcasts, more so than people manipulating listenership of a major artist. Kendrick's songs about Drake weren't popular because of fraud. They were popular because they were good.

Why does Comcast think Hulu is worth more than $40 billion? That is more than Warner Bros. Discovery and Paramount Global combined. Why does the stock market put a higher value on "tech entertainment" stocks like Netflix?

Hulu isn't worth more than Paramount and Warner Bros. put together. Their combined market capitalization is about $26 billion, but that doesn't reflect the total value of the companies.

Including about $43 billion in debt, Warner Bros.' enterprise value is $58 billion, which is more than Hulu.

That said, streaming businesses like Netflix trade at higher multiples than companies that make most of their money from cable networks. Investors value stocks based on future growth and earnings potential. That's why tech companies have long traded at higher multiples than peers in similar industries. (Think Amazon vs. Walmart or Netflix vs. Disney.)

It's hard to argue there is great potential in cable networks or movie theaters. They are mature industries in decline. So those companies trade at a discount.

However, you could argue streaming no longer deserves a considerably higher multiple. Netflix is settling into an era of slower growth. Even with the recent boom in subscribers, its sales will only grow 10% to 15% a year.

Was Warner Bros. better off separately operating HBO Now and Discovery+? Right now I don't see anything that really justifies Max existing as a service?

Given the recent struggles of streaming businesses not named Netflix, there are many executives who wonder if media companies erred in trying to build mass-market services.

There is a strong argument that Warner Bros. would have been better off keeping the HBO name as part of its streaming business. HBO is (or was) one of the strongest brands in media, familiar to the average person.

HBO would have been a service for a smaller, more affluent audience. You charge $25 a month and keep making the best scripted TV around, buttressed by premium movies, documentaries and comedy. You stay true to who you are and don't chase scale.

The company abandoned that strategy three leaders ago. AT&T wanted HBO to be much more, first under Richard Plepler, then Bob Greenblatt, then Jason Kilar.

David Zaslav, Warner Bros.' CEO, saw HBO's Tiffany brand as a negative in streaming. There were a lot of people who wouldn't sign up for a service named HBO. So management picked a more generic name (Max) and tried to appeal to new people without sacrificing the core HBO customer.

Time will tell if this strategy works. The early results are … mixed.

While Warner Bros. could go back to the premium approach, I wouldn't bet on it. Discovery faced an existential crisis as the cable TV industry crumbled. Its entire business was cable networks in decline and its streaming service, Discovery+, wasn't a must-have. Zaslav bought WarnerMedia to avoid extinction.

He could have sold CNN and even Discovery networks, centering the new company around a leaner and more-focused HBO. Selling assets would have raised cash to pay down debt and given him the financial flexibility to invest in HBO as it needs.

But empire builders are often reluctant to sell. Paramount didn't pull the trigger on Showtime or BET. Disney didn't sell anything despite flirting with the idea. Not even AMC Networks cashed out when it had the chance.

Will the box office get back to where it was before the pandemic? If not, how will Hollywood adjust?

It is unlikely the industry will fully recover, given the downward trend over the last couple decades and the competing entertainment options available today. While we debate the impact of individual titles on the overall health of the business, there is no disputing that people go to fewer movies than they used to. That trend is irreversible.

Could grosses top 2019 thanks to higher ticket prices? Maybe one day.

As for the second part of the question, no major media company relies on movies for most of its profit. TV and streaming are far bigger. Disney does rely on characters from movies as the engine for other businesses, like theme parks.

What can you share about the pay-per-view market for films? Do some movies disappoint at the box office but clean up on pay per view? How public is the information?

Most movie studios have coalesced around some version of the same strategy. They put movies in theaters exclusively for a month or two and then make them available for purchase or rental at home. In some cases, those movies will still be in theaters. A few months later they become available to streaming subscribers (at no additional cost).

While some filmmakers and cinephiles would like to see a return to 90-day runs in theaters — or even longer — most studios aren't going to do that. Keeping a movie out of the home doesn't have a huge impact on its box-office performance, they say. Eking out another $10 million or $15 million in ticket sales doesn't make up for the money lost in sales at home.

Studios make tens of millions of dollars from some movies in that rental period. The marketing surrounding a movie's initial release can spill over to home viewers. People watching at home are often those who aren't going to theaters. Or people who want to watch it again. Studios also keep more than 80% of those sales (as opposed to 50% with theaters).

Do you think studios will ever go back to releasing comedies in theaters? Why did mid-budget comedies die off?

Everyone who works in Hollywood wants to see more comedies in theaters, but there are a couple of obvious reasons for the decline of the comedy: the globalization of the movie business and the rise of comedy on YouTube and TikTok.

As people go to fewer movies, they've decided they will save their trips for action, kids movies and horror. I personally am baffled by this. I find the communal experience of a great comedy to be unmatched. But others seem to disagree.

Despicable Me 4.

The latest installment in the animated film franchise from Universal has grossed $230 million worldwide since it debuted July 3. It's another No. 1 movie for Chris Meledandri's Illumination and the second massive hit of summer. (Inside Out 2 has now eclipsed $1.2 billion.)

Netflix may say more people watched its Beverly Hills Cop movie, even if Despicable Me 4 made a lot more money. It doesn't really matter. Despicable Me 4 will come to Netflix next year.

Deals, deals, deals

Willow Bay and her husband Bob Iger are in talks to buy Angel City FC for $250 million. If the deal closes, it would be the highest price ever paid for a women's sports franchise.
AI video startup Runway is raising money at a valuation of $4 billion.
The controlling owner of the NBA champion Boston Celtics is selling his stake. Experts believe the franchise will be valued at more than $5 billion.
An AI startup will let you listen to articles read by the voice of Judy Garland and James Dean.
Controversial music entrepreneur Merck Mercuriadis is leaving Hipgnosis, the company he co-founded.

Using the mid-way point to share some top fives.

Top five TV shows: Hacks season 3, Tokyo Vice season 2, One Day, True Detective season 4 and Shogun.

Top five songs: Colores del Mar by Helado Negro, Not Like Us by Kendrick Lamar, Right Back to It by Waxahatchee, Mood Swing by Tierra Whack and I am torn between Beyoncé, Tyla and Shaboozey.

Top five movies: Dune Part 2, Hit Man, Challengers, The Taste of Things and Thelma.