The Politics Episode: Paramount/WBD stalls, AI's charm offensive and Burnham's UK

Speaker 0 · 0:00

And welcome to this week's Media Unfiltered podcast. We're going to call this the politics episode. We'll have a look at the Paramount and Warner deal that's going on in The US. We're also gonna be looking at the politics surrounding AI. Mark Zuckerberg just wrote a piece in the Wall Street Journal looking at or arguing that AI will be beneficial to everyone. Musk has also been at this too. So perhaps there's a public narrative to address there. And we're gonna look at The UK as well to see whether the Burnham government will have a shift in direction. If you recall, Starmer initiated a social ban on the, platforms. And, of course, we've got the big deal between ITV and Sky, and maybe that will be impacted too. We're not sure. So, Ian, let's start off with the Paramount deal because, that's been put on pause based on the court cases gone in California. What's happened there? What's the market reaction to it? And what do you think the likely outcome's going to be?

Speaker 1 · 1:01

Okay. So if you look at what has happened, so we have actually, during during this week, we had a judge in the Northern District Of California, sort of under the federal court system, sort of granted a temporary restraining order, against the the plan I've taken over WBD. That was on the July 20. Then on on July 24, so a couple of days back, you then had Paramount said, look. You're we agree not to close this deal until either of the earlier dates. Either the court decides the state's claims or 06/01/2027, whichever comes whichever comes first. Mhmm. Now, yeah, if the states win, then the merger stays blocked. So, you know, pending any any appeal that comes through. There hasn't been a trial date that's been set for this year. There was also as well something which is in the background, which, of course, is the fee that's PAMA agreed to pay to Warner Brothers shareholders for every quarter past September 30, that this deal wasn't signed. And that's that amount is roughly around $650,000,000 per quarter. So it's quite expensive sort of, on here. If you look at all the attorney generals involved, there are 12 attorney generals that led this so that they were led by California and New York. Mhmm. Or 12 attorney generals of Democrats. So, you know, the US administration's already cleared this deal. It's being cleared by you know, given the provisional clearance by the European Commission on here. So but within The US, you have a number of state attorney generals that came together. So there's obviously a political element that is that is on here as well. That's where things stand at the moment. You've had some speculation. I mean, you've got some of the antitrust sort of, commentators suggesting, one in particular saying there's a 60% chance now this deal doesn't go come through or doesn't go through. You know, I mean, I think it's hard to put an actual percentage number on it. But, you know, this is obviously a significant move. So

Speaker 0 · 3:21

what's your view on this then? I mean, this might be a daft question, but why are so many Democrats against this deal? Is it to do with the owners coming in, the Ellisons, and the the news properties that they're acquiring, or is there some other reason that I'm I'm missing here?

Speaker 1 · 3:39

No. I mean, I think politics has definitely got lots to do with it. Look. I mean, the the Ellisons are are particularly Larry Ellison sort of is based most of the year to the Trump administration. So and there was a feeling that the deal got pushed through just because at the federal side just because of the closest of those links. I mean, it has to be remembered as well. I mean, it's not just the state attorney. It's only generals who have come out against against this. The writers' guild, yeah, are many involved in Hollywood That's right. Are also also against this. Having said that, there's also a section of Hollywood. Again, looking at the Wall Street Journal, and you looked at the article written by Harry Emmanuel today. You actually say that this deal has to be done in order to save the in order to save the industry. But there's no doubt that the politics are are are at play here. I mean, one interesting question is you've got the November midterms coming up. And if you look at those 12 attorney generals, nine of them are on the sort of are facing reelection on here. I this realistically, there's only probably two where there's a decent chance that it could turn from democrat to republican, and those would be Arizona and and Nevada. You've got a long shot case probably in New York, where the attorney general there has, some of the this sort of has proven quite controversial, and there's a number of there's a number of issues around her. But, you know, if two of the if two of the state attorney generals change and they go to Republican, then even if they even if they drop out of the bid, it doesn't really change the dynamics of it. California and New York are leading the attorney general. So as long as those two stay in, then expect this case to continue. I think the you know, there's there's a couple of sort of interesting points here. One is that if you look at what's happening in terms of the in terms of what the states are doing, then there seems to be a playbook here in terms of what happened sort of five years ago in the consumer book section. Space where sort of a similar sort of the Penguin Random House and the the Simon Shuster, deal sort of was blocked. And I I I would say that's probably the template, for this action. So look, you know, this third, there is a significant chance here that this deal could get could get blocked. I think one interesting point when you look at what's happening, and I think this is, you know, what I would say this is absolutely sort of, you know, probably critical on this, is look at the wall above the share price. Yeah. Look at the spread between the bid, which is $31 and and where the WBD share price is at the moment. The share price is, yeah, around, as I'm talking, around $25, yeah, 60. So there's quite a considerable spread between where the bid is and what the current share price is today. And what that is telling you is that the markets are thinking there is a not insignificant chance that this deal may not go through. So I I I think where things stand at the moment is, look, you know, there's gotta be there's there's certainly a question mark sorta, over this deal. You know, the California attorney general said he's open to a deal. So, yeah, there is there is potentially something that could be done here. Although, again, given the ideological sort of divide that's in play, it'd be interesting to see, to see where that takes place. There's one other thing sort of other factor in here as well is we've got the November midterms coming up. And, you know, ahead of that, politically, it's gonna make sense for these state attorney generals who are, as I mentioned, most of them, up for reelection to actually continue with this case. Because from a political standpoint, you know, from a sort of being able to say, look at what we're doing. We're fighting against big corporate power. This is, you know, this is likely to be sort of a popular case for them. So I think in the run up to November, my feeling is is that the language on both sides is gonna be, you know, certainly from the state attorney generals, is gonna be quite good and cold, particularly now they've got this restraining order and and Paramount has put the pause on bid. Yeah. They'll put the bid on on pause. The interesting thing will be what happens post November.

Speaker 0 · 8:23

And how are investors viewing Paramount with all this? Because, obviously, now they're they're going to do a deal. They pulled out the deal. You've got all the politics involved. How are investors, looking towards Paramount?

Speaker 1 · 8:36

Well, you know, I mean, it's not I mean, if you look at the if you look at what's been happening in terms of the the PowerMax share price, I mean, that that hasn't been hasn't been particularly great either, I think, with this. I think No. It's down. You know, the yeah. Yeah. I mean, it's you you look at it. I mean, the share price is down. It is down around 20 percent in the in the past month. So there is a feeling here, I think, of, you know, what does Paramount do next if this is blocked? Because bear in mind, this is not just Yeah. This just likely blocked this deal. But let's say, for example, Paramount let's say it was blocking this. Paramount then decided, actually, what we wanna do is we wanna go after the NBCU spin off. Well, yeah, it's very likely you would get the same sort of dynamics that'd be very much in play. And, yeah, the issues with the stand alone Paramount have been, you know, have been noticed for ages. So I think, yeah, I think for this, there's a I think what the Ellisons are probably doing here, pause and reflecting, realizing that, actually, given the circumstances, given the timing of things, you know, do they just they've they've obviously decided, look. Let's sort of take some of the heat out of this. But it it's no doubt, it's a significant blow to their strategy.

Speaker 0 · 10:02

Yeah. It's a shame that such crazy politics have, infected every aspect of of business deals, which just seems to be a a problem particularly in The US. And you mentioned before that actually television or traditional media needs this. They need the scale. They need they need to collaborate or consolidate. And, do you agree with that that piece that you referenced that this deal or deals like this need to go through for TV to stand a chance to compete with the platforms and with, you know, the modern sort of media ecosystem?

Speaker 1 · 10:36

Well, my deal yeah. Interestingly, my view on the the Paramount Warner deal was was the most interesting aspect of it was not necessarily bringing two content giants together and then a traditional, just a synergistic operation that would have more scale and more content. It's actually more from a technology angle. And what we mean by that is that, obviously, in terms of the Ellisons, they have a very strong technological background, particularly Larry Ellison and the links there with Oracle. And there was always a very interesting impression as to what they would be able to do with the vast amount of content that they would inherit once this deal went went through. Because, you know, you look at you look at what the market's sort of rewarded. The markets reward tech companies, and they generally, you know, they're generally sort of more negative towards media. You look at Netflix and you look at its share price performance. A lot of the reason why that has been weak in recent months is a changing perception of Netflix as a company. Yeah. The investors generally still see it as standing apart from traditional media giants, but I would say that gap is narrowing. And so I think if sort of let's say the merger goes through. And let's say that you get the Ellisons using their technological their their knowledge and technology to transform the platform and actually make the combined entity into something more like Netflix when it comes to technological side. But that's a real game changer. It's a huge game changer in terms of what it means for Hollywood. So my overall view is that I'm I'm actually more in sympathy with that argument. I think the people who are arguing against a a sort of block sort of this deal not to go through, my question to them would be, well, what exactly do you want? Because if you look at the Waller Brothers share price before any sort of talks were announced, You know? Yes. They announced a spin off plan, and, yes, most of the debt would sit with the with the sort of legacy assets. But, yeah, that was not a business that was in a particularly healthy state. And if it's just to go back to the state sort of the the status quo ante, then, quite frankly, I don't think that's good for good for the media industry at all.

Speaker 0 · 13:11

Yeah. You mentioned Netflix there. Their, share's down around 35, 40% in a year. It's still still performing well, but, that's, that's that's quite a drop. But, I think that's reflective also of the, of the business they're in as well. It's not necessarily because of them per se, but no. That's interesting. And then going on to AI and this sort of, there's almost a PR campaign going on. I remember not so long ago, Musk came out and saying, AI will benefit everybody. It should be something that, everyone is in favor of. And now, was it today? You've had Zuckerberg come out as well and say a similar thing. So why are these guys who are pouring money into it, making a tremendous amount of money from it as well, coming out with these, these articles to try and sort of sway public opinion?

Speaker 1 · 14:04

Well, look. If you look at things and just just quickly to go back on some Netflix point, I think, to be honest, I think part of it is due to their actions. Just, I think you've got an element there that, certainly, in terms of the guidance, wasn't well received and, you know, there's a question mark to the post post their bid. But but that's, I think, that's a a topic for for wider debate. I think if you I mean, this PR campaign in terms of the in terms of what's happening with AI. Again, you know, you would look at what's happening with AI, certainly, when it as we head into the midterms, and it's not just in The US. This is, you know, across, you know, pretty much across sort of most of the advanced economies. You're seeing AI become a genuine political issue. Yeah. And that really is but there were two there were two frames to it as it were. There's the impact that it has on jobs, and is it going to you know, is it gonna impact, you know, people's livelihoods? And then, of course, that's been, you know, at a more sort of brown roots level, then there's been a whole issue of AI data centers. And what you've seen is, quite frankly, increasing sort of, yeah, a it's sort of extremist action being taken to sort of where people are looking to stop AI data centers being built sort of on here. And I think what sort of the the because you have Musk doing it. You say you have Zuckerberg doing it. I think what there is a greater realization within, within Silicon Valley is, look, if there's one thing that essentially can stop these platforms, it will be it will be politics. You know, everyone has, you know, everyone has essentially let's call it a a a sort of guiding force. You know, in a financial markets, that that is obviously money, but in politics, it's boats. And in against the big tech giants, it's increasingly seen as as very popular. You can see that in of the manifestos that's coming out. You can see it also as well, particularly in the Democrat party Mhmm. With how the Democratic Socialist of America, their candidates are doing well in the primaries. This is becoming a major political issue. And I think for the platforms, what they've realized is they need to get ahead of this. And I think you know, look at what sort of happened two years ago when sort of or eighteen months ago when you had the inauguration of President Trump. You had you know, it was not taking this picture of all the CEOs of the tech platforms in the inauguration. They've realized that, essentially, they need to be close to the center of power. And to be fair, that strategy has worked. The US has said it sees the major US tech platforms. In fact, in the national security document, it describes them as being a core part of American power. But what these platforms, I think, are now starting to realize is that, yeah, if the votes go against them and they become unpopular politically, then there is a risk that, essentially, the politics means that either the federal level or the state level, the the politicians move against them. Or at the very least, are not as fay is not as fable to them as they've been in the past. And this is you can look at other sort of there are other metrics out there as well. If you look at the amount, for example, that the tech platforms are are spending when it comes to lobbying in the in The US, I mean, it's gone up astronomically. So Yeah. Yeah. This is across all this is across all levels.

Speaker 0 · 17:58

Yeah. And there there's also public outcry as well from, data centers being built in certain areas as well. So there there is a sort of a, a public sort of PR campaign as well to explain that, this is in in your benefit and interest. Whether it is or not, who knows? If we look at the, UK, we've changed prime minister again, and referring to the politics and the social platforms, obviously, Starmer came out and said that, they're going to initiate a similar social ban like the Australians did. Do you think with the new government that we have now or the new PM, we should say, do you think that will change their approach?

Speaker 1 · 18:39

Do you think, there there could be an impact there? What do you what do you think, mister Burnham's gonna do? Well, I mean, again, you know, you got a few quite a few moving parts here. So if you were to look at what's happened with, let's take the Paramount deal and where you got, the culture secretary, Lisa Nandi, said she was minded to look at the deal. She stayed in place, so there's been there's no particular change there. So you've still got the same culture sex trees that that's been in place. Now I think if you look at things, things are, I would say, generally, you're probably gonna see more skepticism of, Silicon Valley. You know, it's quite interesting if you look at what's happened. The Department of Science at DCET, Department of Science was abolished sort of in the latest cabinet reshuffle, and then its responsibilities were split up. Now there has been a feeling that that department was very much sort of favored towards The US tech giants. So I think that's that's quite an interesting sort of, an interesting action. You've now got a AI minister who sits at cabinet level. That's Kanishka Devayan. And if you look at his background, he comes from second finance. Sort of on there, I mean, he now sits at the the cabinet table on there. And I think, you know, if you if you look at what's I don't think you'll get a massive shift sort of, overall. You still got a number of questions which are outstanding. What happens with digital terrestrial switch up, for example? Because we have a green paper that's that's out on that. Yeah. Andy Burnham, yeah, in terms of his attitude, he's very much emphasized, yeah, issues that, you know, what he wants to focus on are issues that essentially sort of are more sort of amongst sort of voters' everyday concerns rather than Starmer, who you would argue was perhaps more concerned with legal principles. Now one of the questions here is, yeah, would a burning government be more or less likely to push through an earlier switch off of digital to rescue? Yeah. I mean, there is a campaign at the moment saying that, yeah, there shouldn't be a 2034 switch off. Where does that land? Where does it land, as I said, in terms of The US tech platforms? Obviously, in terms of the AI minister, what it means for skills, yeah, etcetera, You could argue NASA plus, but at the same time as well, as I said, these have been abolished. That would seem suggest what you're gonna get is you're gonna get more skepticism. I don't think when it comes to the Paramount deal, I don't think that, essentially, Lisa Nandy would would move on her own to block the to block the Paramount deal. I think she would move if there was cover. There was political cover elsewhere, but I don't think you would see, yeah, The UK standing on its own and saying we're gonna block this deal. Because if you look at the backlash that happens when The UK, you know, tried to block the Microsoft takeover of Activision, I think that sort of caused you get a it it it caused some scars that have yet to yet to heal. So I would say, I think the changes that you're probably gonna get are quite subtle. I think I don't think you'll see more, as it were, the bans that you've seen from Starmer, at least not as strong. I think Burnham's saying, look. We wanna concentrate on issues that matter to voters. I think that's that perhaps sort of suggests something slightly different. But I think what you will see when it comes to, particularly with AI, is you'll see more emphasis on what The UK can do internally. You'll probably get sort of more been outsourced to the regions, and that's in line with devolution policy. You'll probably see more emphasis being placed in the education system. But I don't think that you'll necessarily see, sort of as it were, a gunco, let's all embrace digital. Because many of the voters that Burnham's talking to when he's talking about voter concerns, you gotta remember, there's a large chunk of the population that quite frankly is not with the the agenda of let's you know, of people who work in media companies. And whereas you could say the start of the government is probably more in line with that, I'd say the Burnham government is gonna be more skeptical.

Speaker 0 · 23:26

Does it does it change the ITV Sky discussions, do you think? Because, you know, it's it's it's at the competition commission, I guess, and, they're deciding. Does does it have any impact on that, do you think? Just a quick one on that. No. I mean, look, you've got the same culture secretary. So, again,

Speaker 1 · 23:45

you know, my my view of this deal has always been that it wouldn't have been announced. At least there hadn't have been some sort of of, you you know, sort of view expressed that the deal would be would be reviewed quite favorably. I think the deal still goes through. Nobody wants If you're in the competition commission or the the CMAs it's now called, nobody wants this to be project kangaroo mark two. Nobody wants to block a deal. And then if ITV suddenly sees significant pressure as a stand alone company within five years, The regulators and the politicians are blamed. So I still think this deal goes through. There may be some constraints. And, obviously, now we're looking to get this in the context of Sky not being part of Comcast, but as a wide NBCU Group.

Speaker 0 · 24:36

Yeah. The CMA. Sorry. That was a good correction there. I, that that's that's exactly who's determining this. Well, this has been interesting. It's the politics update, and, Ian, we haven't necessarily talked about investment. However, we should still sign off in the same way that, as usual,

Speaker 1 · 24:55

this is not investment advice. Investment advice.