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Now on to the latest in the Warner Discovery auction…

Sadly, it appears we must cross a couple supposed bidders for Warner Bros. Discovery off the list. Eddy Cue, Apple’s top services executive, came on The Town this week and all but ruled out a splashy deal for the home of HBO Max and the Warner Bros. studio. “I never say no to anything, but we’re not actively looking at buying any company of any size,” Cue told me. That followed Netflix co-C.E.O. Greg Peters dumping icy water on the hot gossip suggesting he’s interested in Warners. Netflix is a builder not a buyer, Peters reminded last week’s Bloomberg gathering, where he said that there’s a “reasonable amount of skepticism around big media mergers. They don’t have an amazing track record over the history of time.” (He might as well have finished that line with “cough AOL–Time Warner cough AT&T–Time Warner cough Discovery–WarnerMedia cough cough.”)

Both Cue and Peters left doors open to some possible deal out of “responsibility” to shareholders—and, of course, few executives openly telegraph M&A moves in public. But for now at least, two deep-pocketed players are basically out. Which sucks for our guy David Zaslav. The Warner Discovery chief deal-hustler has been trying his hardest to generate at least the perception of serious interest in his shrinking company from someone, anyone besides Larry and David Ellison, whose $20-per-share offer was recently rebuffed. The Zaz strategy, which he’s all but broadcast via Bat-Signal, is to fend off the Ellison overtures for all of Warner Discovery, amputate the gangrenous cable networks next spring, and shop the studio and streaming assets separately to the many, many interested parties whose jockeying will result in a grand windfall.

Maybe that would ultimately be best for the studio and streamer. (A big maybe.) But it would certainly be best for Zaslav. A delay would keep him flush with eight-figure annual pay—a comp package so gluttonous that his longtime benefactor John Malone, whose boards are famous for shamelessly awarding outsize comp packages, recently walked it back (slightly). And, more importantly, a delay would keep the spoils of a Hollywood empire at Zaz’s disposal. Which is what many of his peers think is really going on here. Put off the inevitable and he keeps the attention of celebrities and billionaires; he keeps appearing on TV while sitting courtside at big sporting events; he keeps being honored as a “humanitarian,” as the Simon Wiesenthal Center will do later this month; and he keeps getting written about by people like me.

Zaslav could potentially sit behind Jack Warner’s desk for a couple more years as suitors wait out an unfavorable tax hit post-split and the uncertain regulatory environment of the Trump administration. Who knows what the Warner assets would be worth then, but the David Zaslav assets would be far more valuable. “It’s extremely simple: David is playing for the spin,” one longtime Zaz friend told me today. “Then it’s two years until it’s done, and he can party.”

To that end, the WBD people were downright ecstatic when Bank of America analyst Jessica Reif Ehrlich wrote in late September that the separated “S&S” division “would generate a bidding war amongst potential buyers” and thus lead to the greatest return for shareholders. Other analysts, like MoffettNathanson, have been similarly bullish on the split and its potential benefit to the studio and HBO Max. Which, again, may end up being true. But a plea to the WBD guys: Stop forwarding that BofA note around; it’s super thirsty.

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It also leads to the key question: Who, exactly, will participate in this supposed bidding war? That’s perhaps the only question that matters to Zaslav, to everyone at WBD, to the Ellisons, and to the larger Hollywood community. After all, as Wells Fargo analyst Steven Cahall wrote in a client note today, “The opportunity is a bidding war, and the risk is a single hostile bidder.” Without credible interest from others, Zaslav is just a sitting duck in mirrored sunglasses, waiting for the Ellisons to appeal directly to his board, and up the offer incrementally until they can’t say no.

So let’s say Apple and Netflix are out. Of the two, Netflix was the one that a) had the tens of billions of available dollars it might take to acquire S&S and whatever debt comes with it, and b) could do the most with all that I.P. that Zaslav loves so much. I know there are important Netflix shareholders who are telling analysts they want Warners. Remember, Netflix spends nearly $20 billion a year on content, so paying a couple times that for all of the Warner and HBO libraries, plus the derivative rights, plus the kind of idyllic studio lot that co-C.E.O. Ted Sarandos has always coveted, would quickly justify itself. But let’s assume Peters knows more than some shareholders do.

After all, as I’ve noted before, Netflix doesn’t need Warners—Ted and Greg already won the streaming wars. Plus, as the number one streamer, ingesting another top-five platform, not to mention one of the five remaining legacy studios and a brand as strong as HBO, would likely trigger major antitrust issues.

Not that Sarandos couldn’t just pay another visit to Mar-a-Lago, promise Donald Trump that he’ll move all production out of California and New York to stick it to Newsom and Schumer, cancel the Obamas’ first-look deal, and greenlight a six-part, $100 million docuseries on Don Jr. or Barron. But regulatory review is not a uniquely American issue. The U.K., E.U., Latin America—they’ll all look askance at Netflix buying a streamer that, as Zaslav himself will tell you, is increasingly global.

Anyway, let’s say Apple and Netflix are out. Sony, with its market cap of $175 billion, would be taking a huge risk on super-expensive studio and streaming assets. I know, they were in on Paramount. But Paramount and Paramount+ aren’t Warner Bros. and HBO Max. Disney isn’t interested in loading up on more debt, and Google/YouTube has not indicated any desire to own a Hollywood studio. Amazon’s Prime Video service and nascent theatrical ambitions would certainly benefit from Warner Bros. and HBO. The company already bought MGM and, unlike Apple, has shown a willingness to spend big to challenge Netflix, YouTube, and Disney. But as I wrote last month, the words “Amazon” and “acquisition” automatically conjure an image of a seething antitrust regulator. And no amount of Melania documentaries may change that.

Comcast is a possible—and some say likely—bidder for either all or, most likely, just the S&S unit, and it might have the most to gain. Peacock, after all, is still U.S.-only, and the Universal studio subsists without superhero I.P. But the company is currently preoccupied by its cable TV spinoff, and Mark Lazarus, C.E.O. of that Versant unit, is going out of his way to talk about how a big chunk of its revenue is gonna come from non-cable TV businesses, like events and web properties like Fandango and Rotten Tomatoes. Plus, Comcast and co-C.E.O.s Brian Roberts and Mike Cavanagh are probably hobbled by their arch-villain status in Trumpworld, even though they’re in the process of dumping MSNBC onto Versant.

So that leaves… who? Team Ellison certainly believes they’re the only credible and approvable buyer, either with the vast family money or an assembled group of Larry-friendly backers. And if you look at the numbers, their $20-or-so-a-share bid would be a huge premium over where the WBD stock was trading before the Journal reported on their interest in September. In fact, Cahall’s price target in an August report was $13 per share, so after three years of Zaslav trying desperately to pay down debt and boost his flagging stock, the only thing that really moved it was the prospect of this being the beginning of the end for him. Now Cahall thinks Ellison may increase his offer slightly, go public with it, apply pressure, and the courtship could end with a price around $21 a share—unless, of course, more bidders emerge. The fact that the overtures to the board have become public could jar loose those potential suitors. Remember, even before the split next year, S&S is a separate entity within Warner Discovery, so anyone can make an offer for just that unit now rather than waiting, potentially outmaneuvering Ellison at his own game. “Illustratively, a $60 billion equity offer for just S&S, including $15 billion in debt and tax leakage, could be worth more to WBD shareholders than a $22 a share offer [for] all of WBD,” Cahall wrote today.

Plus, antitrust concerns apply to Ellison, too. Trump seems unable to shut up about how much he loves his “good friends” Larry and David. But while having the president in your corner helps a lot with U.S. regulators, that kind of coziness could be seen as a liability overseas. Or so the Zaslav argument goes. Regardless, Zaz is now on the defensive until other credible suitors emerge—not incoming phonecalls, or bankers floating possible scenarios, I’m talking real, serious suitors. If not, this could all be over before his coveted bidding war even begins.

See you Monday,
Matt

Maya Tribbitt contributed research for today’s issue.

Got a question, comment, complaint, or a podcast to sell to Netflix? Email me at Matt@puck.news or call/text me at 310-804-3198.

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