Is Paramount Really Going to Leave California to Get Its Acquisition of Warner Bros. Discovery Done?
We interrupt our regularly scheduled speculation about one mega-corporate transaction with breaking "news" and speculation about a different mega-corporate transaction.
There’s an adage in journalism called Betteridge’s Law of Headlines. Named after Ian Betteridge, a British tech journalist who wrote about it in 2009, it states: “Any headline that ends in a question mark can be answered by the word no.”1
Perhaps the editors of Semafor had Betteridge’s Law in mind when they decided to run an article on Sunday afternoon from business reporter Rohan Goswami under the title “Paramount weighs leaving California over Warner Bros. rift.” Goswami’s piece can be fairly summarized by its lede paragraph:
As California tries to derail Paramount’s $110 billion takeover of Warner Bros. Discovery, Paramount CEO David Ellison’s friends and advisers have been pushing the media executive to consider shifting his business out of the state.
Unlike Goswami, I have the liberty of choosing my own headlines and deks here.2 And I very much had Betteridge’s Law in mind when I posed the question at the top of this post: is Paramount really going to leave California to get its acquisition of Warner Bros. Discovery done?
No. But the fact that we’re even having this conversation is very much the point.3
Over the last few years, a lot of reporting and analysis about the entertainment industry has relied on the metaphor of a “house on fire.” Perhaps a more apt metaphor for our business would be a “theater on fire.” Which makes this article the journalistic equivalent of running into the auditorium and yelling:
As of the publication of this post — less than 24 hours since Goswami’s article dropped — I’ve been contacted by eight different friends, colleagues, and contacts for my take on the Semafor piece. And in those conversations, I’ve encountered reactions representing at least three out of five of the so-called “Five Stages of Grief” popularized by Swiss-American Elizabeth Kübler-Ross.
There has been anger. There has been denial. There has been depression.
But I think this news story is about one thing above all others: bargaining.
And the four reasons why I believe that can be found right in the Semafor article, and in the circumstances immediately surrounding its publication.
1. The Article Doesn’t Match the Headline
Let’s go back to the specific title of the Semafor piece that has the town so abuzz: “Paramount weighs leaving California over Warner Bros. rift.” But is that actually what the article says?
Digging into the full text, and paring away the context and speculation, I can identify two bits of “news reporting” that are broadly consistent with the headline (which appear in the very first two sentences):
“As California tries to derail Paramount’s $110 billion takeover of Warner Bros. Discovery, Paramount CEO David Ellison’s friends and advisers have been pushing the media executive to consider shifting his business out of the state.”
“Ellison’s confidantes have pushed him to consider moving its corporate headquarters and reallocating much of its $30 billion in planned spending outside the state if California Attorney General Rob Bonta were to sue to stop the merger, according to people familiar with the discussions.”
To even describe these statements as “broadly consistent” with the headline is a bit generous on my part. All this article really says is that “People are telling David Ellison to think about moving the company.”
So is Paramount actively considering the prospect of leaving California? Maybe. The headline certainly suggests as much. But the article never actually says so, nor does it identify anything that Paramount or its leaders are actually doing to assess or prepare for a move. The reader is simply left to infer that Paramount is actively considering the prospect.
This should be your first indication that this “news article” might be more laundered company-issued publicity than actual reportage.
2. The Sources Paint Ellison as the Reluctant Hero
The next clue that Semafor’s article is more buffed-and-shined press release than meaningful journalism is the subtle reality of exactly what statements or intentions are (and are not) being attributed specifically to Ellison — who is as much an individual human stand-in for Paramount as any single individual can be considered for any company in the industry these days — as opposed to “friends,” “advisers,” or “confidantes”:
“For his part, Ellison remains wary of the idea of leaving California, some of the people said — he relocated Paramount’s corporate headquarters from New York to Los Angeles after his original deal to purchase the company closed last year, and has spent most of his life in California.”
That’s it. That’s the whole list.
To the extent the article purports to reveal anything about the thinking of Ellison or other actual decision-makers at Paramount, we get the following:
“Privately, Ellison and other Paramount executives have expressed frustration at [California Attorney General Rob] Bonta’s refusal to engage” with the company on negotiated concessions that Bonta would accept in order to drop his objections to the deal.
“But Paramount believes Bonta’s office has rebuffed its overtures, creating what one Ellison adviser said is an ‘inhospitable’ environment for Paramount to operate in.”
So, divorcing the article from its provocative headline and taking its text at face value, Ellison doesn’t seem to be doing much “weighing” at all. To the contrary, we are told only that he doesn’t want to do something so drastic. It’s those dastardly friends, confidantes, and advisers who are in his ear!
This is what a smart, deftly executed publicity strategy looks like. Nothing controversial is attributed to Ellison, or to any other executive of the company — only to the outsiders. Readers are given space to infer and speculate themselves into a tizzy, while Ellison himself is positioned as a reluctant and put-upon leader who isn’t keen on any of this, and who has total plausible deniability. You can already imagine Ellison reassuring an anxious industry community, “Hey, I never said anything about moving the company! I’d never want to do such a thing. I just want that damn Rob Bonta to call me back so they can figure it out like grown-ups!”
3. Timing Is Everything (or, “Don’t Talk About That; Talk About This”)
You also can’t read this article in a vacuum. Rather, you have to look at it in the context of when it was released, and what else was in the news over the last two days.
Paramount’s departure from California would certainly qualify as Very Bad News for the industry. And companies tend to drop (or work very hard to persuade journalists to drop) Very Bad News on Fridays, in hopes that it will be largely missed and forgotten by Monday. This article came out on Sunday afternoon — timed perfectly to allow it to dominate industry conversation this week.
And why might Paramount want this to be the story on everyone’s minds this week?
I’d wager that it’s because, if it wasn’t, everyone might instead just be talking about Sunday’s report in the New York Times that “[s]tate attorneys general are said to be getting ready to file a lawsuit as soon as this week to halt the $111 billion deal.” But only until that was superseded by discussion of this morning’s filing of the promised lawsuit, a showy press conference in the shadow of the iconic Hollywood sign, and an accompanying press blitz from the CA Attorney General’s office.
Paramount and its leaders understand full well that the industry community is, at best, deeply wary of its imminent merger with Warner Bros. Discovery. Once Donald Trump’s Department of Justice fulfilled everybody’s most cynical expectations by announcing its decision not to oppose the merger (or even to extract some nominal concessions from the company in exchange for its approval), many had turned their attention to Bonta as their Last Great Hope for blocking it.
You’d be hard-pressed to find anyone in Hollywood who is especially happy or optimistic about the prospect of “WarnerMount.” But there are plenty who have been willing to begrudgingly conclude that, in a world in which the only plausible alternatives were for Netflix to buy Warners (memorably called “the death of Hollywood” in one piece from the few weeks when that appeared to be happening) or Warners and Paramount both slowly withering and dying in the face of the Netflix/Amazon/Apple onslaught, Paramount acquiring Warner Bros. Discovery was “the best of the bad options” (at least for some constituencies).
Semafor’s report is a megaphone through which Ellison and his partners can subtly half-reassure/half-warn those who know they hate this deal but are still on the fence about whether to actively oppose it: “This deal is fine. And if you think you want Bonta to block it? Just know that it could get worse. It could get so much worse.”
4. Don’t Bet on Outcomes in Which Everyone Loses
The best reason to assume that Paramount isn’t seriously entertaining leaving California is because, in short, it’s an outcome that literally no one wants.
Skeptical as I am about that Semafor article, I fully believe its suggestion that Ellison himself would not want the price of his prize to essentially be his banishment from California, and with it, exile from the social and cultural power center of the industry.
First, there’s the personal factor for Ellison, whose individual aspirations toward industry moguldom are, I have argued, an important frame for understanding what he and Paramount are doing. I can tell you from personal experience that a five-minute stroll down the Paramount Lot’s historic Paseo between one’s parking space and office is one of the greatest perks of working at that or any other company in Hollywood — one that I felt so strongly about during my years there that I commissioned local artist Andy Bauch to create a 3’ x 5’ landscape of the gate out of 19,083 Lego bricks (an image of which appears at the top of this post). I’m no mogul, but taking that walk, strolling through that gate, is enough to make almost anyone feel like one for a few minutes.
I don’t think Ellison would feel like all that much of a mogul taking his morning stroll on the New Jersey boardwalk or through tourist-ridden Times Square.4
At the same time, while the Semafor article holds up Chevron, Oracle, and Tesla as examples of mega-corporations that abandoned California for the most “hospitable” regulatory environment of Texas, it’s hard to believe that other major executives in our industry would feel as sanguine as the leaders of those companies about moving to Texas or New Jersey.
Admittedly, it’s unclear how much of the company’s operations, and how many of its key leaders, would have to travel with the corporate headquarters as part of this transition.5 But the mere fact of it would be a devastating psychological wound to the industry — one that would come with real consequences for the company’s future success. Reports have already started trickling out that some creators and talent with enough options and market power to be choosy have shied away from working with the company, and especially with Ellison’s controversial hand-picked chief for CBS News. Paramount’s key partners are far more likely to punish the company for its defection than the people and companies that do business with Chevron (for which oil-rich Texas is a natural home), Oracle (which joined an already growing tech community in the state), or Tesla (whose CEO Elon Musk has gone all-in on Texas more generally). Already living on a razor’s edge of industry/creative community sentiment, I have to think Ellison and his team would be very concerned that winning the deal and losing the state would prove to be a Pyrrhic victory in the long run.
Meanwhile, California Attorney General Rob Bonta doesn’t want to be the politician who drove not one but TWO legacy studios out of California any more than Ellison wants to be the CEO who left with them. I don’t question the sincerity of Bonta’s concerns about and objections toward the Paramount/WBD deal. But I also don’t doubt that he is acutely aware that he is playing a game with tremendous political promise and peril. If Bonta can bring Paramount to heel, he might start drawing up designs for his office in the governor’s mansion in Sacramento. If he fails to block the deal, and in the process drives Paramount and Warner Bros. to one of the 38 states (including Texas) that haven’t sued to block it, he’s more likely to be looking at floor plans for his window office as “Of Counsel” at a large corporate law firm in San Francisco.
Which is why I’m sure that, if Bonta has been a reticent and unresponsive partner to Paramount in negotiating concessions in exchange for dropping his opposition to the deal, it is only because he has wanted to negotiate with as much leverage as possible. This morning’s filing gives him that leverage.
Now the real negotiations begin.
“The reason why journalists use that style of headline,” writes Betteridge, “is that they know the story is probably bullshit, and don’t actually have the sources and facts to back it up, but still want to run it”
Traditionally, journalists do not write the headlines and “deks” (or sub-headlines) that run above their stories. Historically, this was a concession to the practical realities of type-setting newspaper columns for daily publication. But the convention hasn’t changed in digital publication, in which articles often run under different headlines/deks than they do in their print editions — a trend we can probably attribute to editors who, far more than writers, want to optimize headlines for clickthrough/readthrough rates (and not necessarily for fidelity to the substance or tone of the underlying journalism).
The fact that the Attorneys General of New Jersey and New York are also parties to this morning’s lawsuit might further complicate those already unappealing prospects.
I admit it could make for a pretty cost-effective way to get redundant employees from Paramount, Warner Bros. Discovery, or both to “lay themselves off” after a merger. But I doubt Ellison would be particularly enthused about exactly which employees choose to stay or go with the new HQ.