Paramount Goes Hostile With $108B Bid for Warner Bros.

Ed Elson is joined by James Kynge, Senior Research Fellow at Chatham House and co-host of China Decode, to break down China’s record trade surplus and what it means for the U. S. Then Jonathan Kanter, former Assistant Attorney General for the Antitrust Division of the U. S. Department of Justice, joins to analyze Paramount’s hostile bid for Warner Bros. Discovery and how it stacks up against Netflix’s deal from an antitrust perspective. Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram and X Follow Scott on Instagram Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Are your ad campaigns lighting up the dashboard? But not the pipeline? That's bull spend. And marketers are calling it out in dashboard confessions.

• 0:09Speaker 01

  My boss asked for results, so I opened my dashboard for the only positive sounding metric I had: impressions.

• 0:17Speaker 00

  Cut the bull spend. See revenue, not just reach. LinkedIn delivers the highest return on ad spend of major ad networks. Advertise on LinkedIn. Spend $250 on your first campaign and get a $250 credit. Go to LinkedIn.com/campaign. Terms and conditions apply.

• 0:30Speaker 02

  Energía baja. Falta de concentración? Nebla mental? You might be dehydrated. Gatorade Zero Powders han sido diseñados científicamente para ayudarte a mejorar el balance de hidratación en el cuerpo. Hechos con la mezcla número uno de electrolitos, sin colores ni sabores artificiales. Shop now online or at retailers nationwide. Gatorade: Hydrates better than water. Is it in you? Signos de dehidratación leve y moderada. Consulta a tu médico si los síntomas persisten.

• 1:00Speaker 03

  Welcome to Sephora.

• 1:01Speaker 04

  I'm looking for a perfume that's not too perfumey?

• 1:05Speaker 03

  I got you.

• 1:06Speaker 05

  Serum moisturizer or moisturizer serum?

• 1:09Speaker 03

  Let's get into layering.

• 1:11Speaker 04

  My concealer is making me look worse?

• 1:14Speaker 03

  Sounds like the wrong shade. Let's get you matched.

• 1:18Speaker 06

  There's only one store that really gets what you're going for. Get beauty from people who get beauty. Only at Sephora.

• 1:25Speaker 03

  Hi, I, uh...

• 1:26Speaker 04

  Let's get you a basket.

• 1:29Ed Elson?

  Today's number? 7.5. That is the percentage reduction in cerebral blood flow that can be caused by wearing your tie too tight. A too-tight tie actually restricts blood from entering the brain and can even cause mental impairment. That is according to a study of Scott Besant.

• 1:52Speaker 08

  Money markets, Matt. If money is evil, then that building is hell.

• 1:56Speaker 09

  The show goes on! The folks in there are watching the show!

• 2:01Ed Elson?

  Welcome to Prof you Markets. I'm Ed Elson. It is December 9th. Let's check in on yesterday's market vitals.

• 2:09Ed Elson?

  The major indices declined ahead of the Federal Reserve meeting, which starts today. Markets are pricing a near 90% probability of a quarter point cut on Wednesday. Meanwhile, the yield on 10-year Treasuries rose. Bitcoin climbed after another sell-off late last week. And finally, Nvidia shares rose 2% on reports that the Trump administration will allow H200 chip exports to China.

• 2:34Ed Elson?

  Okay, what else is happening? China just hit a major milestone, racking up a record $1 trillion trade surplus for the first time ever. Exports jumped 6% in November, driving a $112 billion surplus. That is the third largest monthly surplus that China has ever recorded. Meanwhile, Chinese shipments to the US plummeted 29% in November. This marks the eighth straight month of double-digit declines as US companies shift supply chains away from China. Okay, for more on what this surplus actually means for China and for the world, we are speaking with James King, Senior Research Fellow at Chatham House and also co-host of China Decode. James, great to see you.

• 3:19Ed Elson?

  Thank you for joining us.

• 3:21Speaker 10

  Great to see you, Ed.

• 3:22Ed Elson?

  So we want to just jump right into it here. China's annual trade surplus has surpassed $1 trillion for the first time ever.

• 3:32Ed Elson?

  Just before we dive in here, what does this actually mean? What does it mean to have a trade surplus? And why is $1 trillion here an important number, if at all?

• 3:44Speaker 10

  Well, a trade surplus is when your exports exceed your imports. And in the case of China this year, it's done so by a simply enormous margin. And a $1 trillion-plus trade surplus, such as you've mentioned, I've been looking back into economic history and talking to experts that are helping me to do that. They reckon that this is the biggest ever peacetime trade surplus since the Second World War. It does seem to be the case that during the Second World War, the US enjoyed some extraordinarily large surpluses. But the figures are not that clear, but I think we can safely say that since the Second World War, this is number one, the biggest that we've seen.

• 4:26Ed Elson?

  Is there a strategy to this? I mean, what does this mean for China? Why is it good or bad for China to be running up such a giant surplus? And what does it mean for the rest of us?

• 4:37Speaker 10

  Well, I guess it's good for China in the sense that it allows Chinese companies to earn more revenue. It's good for the economy in that it contributes to China's GDP growth. And it also helps to build up the enormous Chinese foreign exchange reserves, which is a sort of a war chest of more than three trillion US dollars that China holds and can use for various things like investing around the world or buying US Treasury bonds or bailing out countries. So it basically adds considerably to the general heft of China's economic and political power.

• 5:18Ed Elson?

  And bad for the rest of us? I mean, I just see this this quote from Emmanuel Macron, President of France. He called the trade imbalance, quote, unbearable. What makes this unbearable for, say, Europe?

• 5:33Speaker 10

  Well, I suppose, you know, every surplus has its deficit. And in the case of the European Union, and France is of course part of that, there's a massive trade deficit to China. More than 300 billion US dollars in recent years, and this year it looks like it's going to be another record. That basically means that your companies are selling less to China than China is selling to them. And so all of the positive things that I mentioned go into reverse. You're bleeding money, you've got money going out, your companies are earning less, your your GDP is being run down by your trade deficit. So I think that's what Macron is talking about.

• 6:15Speaker 10

  And what we're hearing a lot in Europe now is countries and leaders talking about tariffs and non-tariff barriers to Chinese imports. But, you know, we haven't seen a lot of action, but we're seeing a definite increase in the amount of talk on that topic.

• 6:33Ed Elson?

  Yeah, it seems as though Europe is now kind of following in the footsteps of the US. I mean, it's kind of seemingly becoming the next battleground for a trade war. And they're talking about tariffs. What do you make of the fact that, you know, Trump's been talking about tariffs? He's been talking about the trade imbalance. And I guess how it appears, Europe agrees.

• 6:57Speaker 10

  Well, yeah, I mean, there's, there's a bit of a difference. I mean, I would say that Trump has been talking the talk on the tariffs and he's raised tariffs very, very strongly in about April to, I think, about a peak level of 145% on Chinese imports. But those have now come sharply down. And I understand that the current average for US tariffs on Chinese imports is only around 45%. In Europe, it's a different situation. Europe has got a few tariffs on Chinese imports in areas such as cars and a few others. But really, it hasn't joined the US zeitgeist.

• 7:42Speaker 10

  And I think that Europe will be constrained even despite the huge pressures that we've just been talking about. And this is because a lot of Europe's biggest companies are in China, making a lot of money in China, and the Chinese government is pressuring them to lobby their home governments back in Europe not to put tariffs on. And so far, that's winning the day. Now, it is possible that at some point that breaks and Europe just goes, enough is enough. We're slapping on massive tariffs. We're joining the US tariff war on China. But, you know, I don't want to call that. I'm not sure that will happen. Some people are saying it will, but personally, I think it might not.

• 8:26Ed Elson?

  What are your views on Trump's handling of China so far, just at a general level? The tariffs that we've seen, I mean, if you had to give him a grade on his China policy thus far, given what we're seeing here with this news, what would you give it?

• 8:43Speaker 10

  Well, Ed, I mean, I suppose I if I was a teacher, I think I'd be a pretty hard taskmaster. You know, I would have to give him a D minus. I think he lost the tariff war with China. He came in swinging in April liberation day, one hundred and forty five percent tariffs on China. And now he's had to bring it right back down. Uh, the Chinese have muscled uh uh the US with these rare earth export controls. And the US has really had to cave somewhat. I mean, not completely. Of course, the US remains a very powerful country, but it's had to cave somewhat. I'd give him a D minus, I'm afraid.

• 9:22Ed Elson?

  The shipments from China to the US are down. Shipments to the Europe, obviously, we've just discussed are up. And also shipments up to Africa are up twenty eight percent. Uh, what does this mean for just the the global trade economy? I mean, it looks as though we're beginning to cut ties, US versus China. But then China is just going off to everyone else. Perhaps these trade partnerships are forming with everyone except for us.

• 9:53Speaker 10

  That's such a great observation, Ed. I I really think that what we're seeing now, aside from the US-China trade war, is a reorientation in the global world of trade. Uh, and what's happening is the non-West is rising sharply. And China is really a catalyst for this rise. You know, we're seeing big exports from China to the global south, including Africa, Southeast Asia, other countries. And we're also seeing quite a bit of exports from those places to China. So really, what's happening is that the world is being created sort of almost without the West, or increasingly without the West.

• 10:36Speaker 10

  It's the non-West that's growing quicker than the West. Um, and it's the West that's got these huge trade deficits to China. Whereas in some cases, uh, countries of the global south have got more balanced trade with China. So it's a fascinating, big-picture story, as well as a sort of short-term, acrimonious battle between the US and China.

• 11:01Ed Elson?

  All right, James King, senior research fellow at Chatham House and co-host of China Decode, which I am loving. Keep up the great work there, James, and really appreciate your time. Thank you. Thanks so much. Great to be on. After the break, a look at Paramount's hostile bid for Warner Brothers Discovery. If you're enjoying the show, give Prof G Markets a follow.

• 11:29Speaker 00

  Are your ad campaigns lighting up the dashboard, but not the pipeline? That's bull spend, and marketers are calling it out in. Dashboard Confessions.

• 11:38Speaker 01

  My boss asked for results, so I opened my dashboard for the only positive sounding metric I had: impressions.

• 11:46Speaker 00

  Cut the bull spend. See revenue, not just reach. LinkedIn delivers the highest return on ad spend of major ad networks. Advertise on LinkedIn. Spend $250 on your first campaign and get a $250 credit. Go to LinkedIn.com/campaign. Terms and conditions apply.

• 11:59Speaker 02

  Energy baja. Falta de concentración? Nebla mental? You might be dehydrated. Gatorade Zero powders han sido diseñados científicamente para ayudarte a mejorar el balance de hidratación en el cuerpo. Hechos con la mezcla número uno de electrolitos, sin colores ni sabores artificiales. Shop now online or at retailers nationwide. Gatorade hydrates better than water. Is it in you? Signos de dehidratación leve y moderada. Consulta a tu médico si los síndomas persisten.

• 12:29Speaker 04

  Welcome to Sephora. I'm looking for a perfume that's not too perfumey.

• 12:34Speaker 03

  I got you.

• 12:35Speaker 05

  Serum moisturizer or moisturizer serum?

• 12:38Speaker 03

  Let's get into layering. My concealer is making me look worse? Sounds like the wrong shade. Let's get you matched.

• 12:47Speaker 06

  There's only one store that really gets what you're going for. Get beauty from people who get beauty, only at Sephora.

• 12:54Speaker 11

  Hi, I... Let's get you a basket.

• 13:02Ed Elson?

  We're back with Prof G Markets. Paramount has gone hostile, throwing an all cash $108 billion offer into the ring for Warner Brothers Discovery. David Ellison argues that it is a better deal for shareholders and easier to clear with regulators than Netflix's $72 billion deal. Netflix fell 3% on the news. Meanwhile, Warner Brothers Discovery rose 4% and Paramount popped 9%. At the center of this saga is of course, one issue, and that is antitrust. The Netflix deal has already raised a lot of eyebrows, but could Paramount really stand a better chance of getting cleared? Here to discuss all of this, we are speaking with our favorite antitrust expert, Jonathan

• 13:47Ed Elson?

  Kanter, former Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice. Jonathan, good to see you again. Seeing you sooner than I thought I would.

• 13:57Jonathan Kanter?

  Sorry about that, Ed.

• 14:01Ed Elson?

  So, we want to get your breakdown on what's happening here. We had the Netflix deal, which was announced on Friday, and then Netflix basically confirmed it. I got an email from Netflix, I am a subscriber, saying they had acquired Warner Brothers. And then, on Monday, we get this other bid from Paramount. They're offering more than $100 billion, all cash. We'll get to the antitrust implications, but first, just your reactions to what we're seeing this week.

• 14:27Jonathan Kanter?

  Listen, as someone who used to be in the middle of it, I'm enjoying this as a spectator. It's actually a lot of fun, it's quite entertaining, but it's also very serious at the same time. It's kind of like UFC for M&A and antitrust. But you have a situation here where Netflix, which is largely considered the 800-pound gorilla. Nvidia streaming, the number one player is proposing to buy what, you know, is probably the number three player in the market, in addition to on the streaming side, in addition to a library. And so the antitrust issues there are obvious. At the same time, you have Paramount coming in as the interloper with the now rumors of a hostile bid or reports

• 15:09Jonathan Kanter?

  of a hostile bid, or I guess the confirmation of a hostile bid, I should say. And they have, you know, while they have their own set of antitrust issues, they're not quite as substantial. What makes this all really interesting is the President of the United States has inserted himself in the process, insisted that he's going to be involved in the decision, which is highly unusual, but sets up a situation where both companies now will be, you know, trying to curry the favor of the president. And he's clearly positioning himself to extract concessions from both parties and create a different auction for to be in his good graces. And that can be things that relate to competition,

• 15:51Jonathan Kanter?

  but could also be things that are, you know, far afield from competition, like, you know, rejecting DEI, or emphasizing conservative views and censoring non-conservative views and all the things that I think cause, you know, at least me and others like me to worry.

• 16:06Ed Elson?

  Yeah, he said that the deal, quote, could be a problem. He was asked about it, this is Donald Trump, over the weekend, said it could be a problem. He also said kind of nice things about Ted Sarandos, who's the CEO of Netflix. So there's a question there of, does he like Netflix? And how much does that matter? But then we also learn this week that one of the backers of the Paramount deal is Jared Kushner, who is his son-in-law. So, I mean, it seems as if there are loyalties perhaps on both sides here. But I guess the larger question here, does this basically come down to which company and which deal

• 16:47Ed Elson?

  Trump likes more? I mean, it sounds like that is actually the analysis here, that there are antitrust implications, and it's essentially whichever one Trump likes is the one that he's going to greenlight. Is that what we have on our hands here?

• 17:01Jonathan Kanter?

  It's not that simple.

• 17:03Ed Elson?

  Okay.

• 17:04Jonathan Kanter?

  So certainly, that's the way it's being positioned. And I think that's problematic. It's not the job of the President of the United States to engage in law enforcement, even if you believe in the unitary executive, ultimately. Decisions should be made on the facts and the law, not on these sort of ancillary concerns and favoritism by the president, but that's alas the world we live in today. But even then, there are a number of other regulatory authorities here that are relevant. You have state attorneys general, you have private plaintiffs, and you have foreign authorities, and you have courts. And by that, I mean, you can't just wave your hand and block a deal. You might be able to wave your hand and decide that the Department of Justice is not going to challenge the deal, but ultimately, if the Department of Justice does challenge

• 17:49Jonathan Kanter?

  the deal, that will have to be fought in the court of law on the facts and the law and the merits of the case.

• 17:55Ed Elson?

  So after Trump said that, said that it could be a problem, we looked at the prediction markets and the chances that it actually went through plummeted. Would you say that that is the market kind of having a slightly false reaction, believing too strongly in the power of the president here?

• 18:14Jonathan Kanter?

  Well, I think it's important to take a step back, actually, and think about what's really going on here. So the reaction at the time the merger is announced versus the outcome at the time a decision has to be made are going to be roughly a year apart, if not a little longer.

• 18:34Ed Elson?

  Right.

• 18:35Jonathan Kanter?

  And so we're not going to know the fate of either transaction, whichever bidder ultimately wins, for a while. And that's going to be in a very different political and economic environment, potentially. You'll have the midterms either right before or right after. You'll have, who knows what the status of the economy is going to be. It's going to be a very different time, and there will be a lot of water under the bridge between now and then in terms of lobbying for and against the deal. And so the environment, the context in which the decision may be made politically, even setting aside the merits of the case, will be different then than it is now. So it's difficult to predict.

• 19:13Ed Elson?

  Yeah.

• 19:14Jonathan Kanter?

  The thing that I would want to emphasize is that we are not going to know, right? And so who bears the most risk in that situation? It's Warner. And so risk of closing is there's only one thing that matters more than price. When you're selling a company, it's certainty of closing. And if you're Warner and the Warner shareholders right now, you definitely want to be optimizing for certainty of closing, unless your goal is not to do a deal at all.

• 19:43Ed Elson?

  You mentioned the merits of the case here, which we haven't really looked at yet because we're more worried about, you know, what the president's role is going to be in this. But could you walk us through the merits of the case here? The idea that Netflix goes in and buys the number three versus Paramount? I mean, what are the actual antitrust implications here? And if you were head of antitrust as you were just a few years ago, what would you be thinking about? What would you be concerned about?

• 20:10Jonathan Kanter?

  Yeah, we'd be rolling up our sleeves and taking a close look. So, you know, Netflix, good company, innovative company, but it's big. It's not particularly well-liked by a lot of folks in Hollywood. And so here are the issues of the Netflix bid. First is straight merger of number one and number three. And so what are you worried about when the the top streaming player gets more dominant because of an acquisition? You worry about prices going up, something that we've seen happen quite a bit in the context of of streaming. You're worried about the negotiating leverage of showrunners and creators and actors going down. And that's very similar to a challenge under my watch against the Penguin Random House,

• 20:55Jonathan Kanter?

  Simon and Schuster transaction. We successfully challenged that transaction in court, not because prices of books were going to go up, but because book advances, the amount of money that the publishers were paying to authors would go down. It's what we called a monopsony concern. And so those monopsony concerns will be relevant here. On top of that, you have concerns about combining these two very powerful libraries and potentially cutting off access to rival streamers. So, you know, the issues for a Netflix deal are quite, you know, traditional, if you will, from a more traditional from the antitrust perspective.

• 21:36Jonathan Kanter?

  You also have a situation where you have Paramount bidding and Paramount has some streaming overlaps of Paramount Plus, but they're not quite as significant because Paramount Plus isn't that as big. But it also has the overlap on the library, which is quite large, and an overlap on news. So it has its own set of antitrust issues. They're just different in flavor, probably in magnitude than the Netflix issues.

• 22:09Ed Elson?

  And yet, both companies, I mean, you mentioned a lot of concerns there. Those all sound like very large and obvious red flags when it comes to antitrust. And yet, both Paramount and Netflix have agreed to pay these giant breakup fees. I think, I forget the exact number with Paramount, but then I see Netflix comes out and they say, we'll pay you $6 billion if this doesn't go through, which is surprising to me because based on the merits of the case you just tell me there, it seems like this probably shouldn't go through, but they think it will. Do they just think that the FTC and the DOJ are not really going to do anything about this?

• 22:45Jonathan Kanter?

  Yeah, so this would be the Department of Justice reviewing the transaction. I was actually surprised the breakup fee wasn't larger. So, you know, market for, we call it reverse termination fee, but breakup fee for short, for regulatory reasons, is usually 5% or 6% of overall deal value. But in a transaction that has significant antitrust concerns, one where, you know, the assets will sit limbo and potentially deteriorate during the interim period, you might expect a higher fee. You want it to be enough so that it's really painful for the buyer. And in this situation, you can almost make an argument that Netflix, if it has to pay, for example, you know, 5.8 billion or whatever

• 23:30Jonathan Kanter?

  it's reported to be, they might make some of that or a good chunk of that back just on its stock price. Because if it doesn't have to buy Warner, the Netflix stock price is likely to go up because it's not spending so much money, eighty three billion dollars or whatever on the assets. And that could actually cover a good chunk of the of the breakup fee. So, you know, it is actually a little lower than I would have expected for a transaction like this. It's one where there's going to be a lot of built in opposition.

• 23:58Ed Elson?

  Were you surprised to see that they actually made an offer in the first place?

• 24:03Jonathan Kanter?

  I was. Well, I mean, the reporting had been there. And so when I first heard that Netflix would make an attempt for this, I was surprised. One, because it's not an area where they've played a lot in the past. And so they've largely pursued more of an organic growth strategy, which is admirable, frankly. The other piece is that they are really the eight hundred pound gorilla in streaming. And they're seen that way by Hollywood. And there's a lot of symbolism here. I mean, it's almost as if Silicon Valley is buying the Hollywood side. And Hollywood has been encroaching on Silicon, Silicon Valley has been encroaching on Hollywood now for, for, you know, a decade or plus.

• 24:48Jonathan Kanter?

  And so that's not new, but this sort of feels like, you know, the final move in the takeover. And so, you know, I think in terms of the legacy of Hollywood and the old time studios and the real, you know, center of gravity being, you know, in Southern California versus Northern, a Netflix deal would shift that and sort of lock that in.

• 25:11Ed Elson?

  So it's very confusing right now because we've got this hostile bid, which you just came in. But if you had to make predictions about how this is all going to unfold, maybe about at least the timeline on this thing, it's unclear to me at least how how long a giant transaction like this would actually take before it actually closes. What do you foresee will happen over the next few months, perhaps the next year or so?

• 25:37Jonathan Kanter?

  Yeah, so I think the next few months are going to be, you know, the arm wrestling over which deal the shareholders are going to accept. They have reported that there's a if Warner wants to switch horses and move to Paramount, they'll have to pay, I think, two point eight billion. So that'll have to be baked into whatever offer Paramount makes in order to. Subsidize that walk away fee. So I think there'll be that arm wrestling. And then from then on, we'll have this regulatory review period, which will occur at the federal level in the United States by the Department of Justice. Inevitably, whichever buyer wins, there will be a rigorous state attorney's general review.

• 26:22Jonathan Kanter?

  But there are also going to be foreign filings, including in the UK, probably in Europe. And so all of that suggests there's going to be a very lengthy timeline. Certainly six months, but I predict it's likely to be a year or longer. Which again, puts you into a very interesting moment politically and economically. Because we've seen so much shift in how our economy is performing. Who knows where we'll be and frankly, what the value of the deal, whether it will be viewed as too much or too little by the time a decision is actually made.

• 26:59Ed Elson?

  Just a final question before we let you go here. If Netflix does buy Warner Brothers successfully, what will this actually mean for the consumer? What will this mean in terms of prices?

• 27:11Jonathan Kanter?

  I couldn't say for sure. It really depends on the data. I think the thing I would make sure that listeners are aware of is that increase in concentration often leads to higher prices and it leads to less choice. And so particularly in the streaming area, when you have a company that's in growth mode, they're working very hard, not just to deliver a low price service, but to deliver really innovative content. And so you saw that when a lot of these streaming services were getting up and running. It was the golden era of TV. They were investing in just tons and tons of content. And I think from a consumer's perspective, it feels like while there's still some good stuff out there, it's held off.

• 27:56Jonathan Kanter?

  There's a lot more mediocre content, a lot more reality TV and other things. And so I think that from a consumer's perspective, what you want is you don't want You want there to be that competitive vigor that forces streaming companies to try harder, to want to invest in innovative content, to want to grow and lure consumers in with lower prices. I think when companies start to get to that flat part of the curve, when they start maturing, then they're worried more about retention and attrition than they are about

• 28:36Jonathan Kanter?

  growth. And it's harder to earn a customer than it is to keep a customer from leaving. And so you like when you have companies who are in growth mode because they get aggressive and they want to build. And so the other thing I would say from more of a macro perspective is Warner is this massive, you know, brand. It's got incredible library. It has the crown jewel of streaming, which is HBO. If we're in a world where Warner is too small to survive, I think that tells us something about our economy. It shouldn't be the case that the only way to compete is to be so massive that Warner is considered subscale. And I think

• 29:21Jonathan Kanter?

  it's symptomatic of a bigger problem.

• 29:23Ed Elson?

  Jonathan Kanter, former Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice. Jonathan, always appreciate your time. Thank you for joining us.

• 29:32Jonathan Kanter?

  You bet. Thanks, Ed.

• 29:36Ed Elson?

  Well, we make a lot of predictions on this show, and we do always try to revisit them. Recently, we've gotten a lot of stuff right. We said that Alphabet was a buy at 150. It's more than doubled since then. We said that emerging markets would outperform this year. We said Oracle would be the new AI stock, et cetera. We have done pretty well this year. I think most would agree. But it is also important to acknowledge when we get stuff wrong. And we do get stuff wrong. And this deal here is a great example. In fact, I probably could not have been more wrong about how this Warner Brothers situation would all play out. I thought that this was going to be a failed auction. I thought that Paramount

• 30:21Ed Elson?

  was secretly the only one who wanted Warner Brothers. And I thought that David Zasloff was kind of manufacturing a fake auction to bid up the price. And I thought that this would all end kind of unceremoniously. And I talked about it on the podcast. Totally, totally wrong. This was very real. Netflix did want Warner Brothers and it has resulted in what may turn out to be one of the most successful M and A auctions ever. So what did I get wrong? Well, my problem was I underplayed these rumors that Netflix and Comcast were submitting bids.

• 31:02Ed Elson?

  I thought that these were generally unserious claims and it wasn't just because they were rumors and it wasn't just because they were unverified rumors, but it was also because the deals themselves just didn't make a whole lot of sense. And the reason they didn't make a whole lot of sense, at least to me, was quite simple and it was antitrust. I mean, the idea, as Jonathan said, that Netflix, the world's largest entertainment company, worth $400 billion, the idea that that company would buy Warner Brothers Discovery, another gigantic entertainment company, that simply seemed implausible to me. It seemed like an M and A nightmare that surely posed

• 31:42Ed Elson?

  huge antitrust issues and that would surely get struck down by the FTC or the DOJ. And surely, Netflix and Netflix's executives knew this. I mean, even the Paramount acquisition sounded crazy and Paramount is 27 times smaller than Netflix. So did Netflix really believe that this would pass the DOJ's smell test? Would they allow one company to own two of the four largest streamers in the world? Would they let one company essentially buy their way into owning a fifth of all streaming and to own almost all of the most iconic IP in the world? I thought, no way, no way the government's down for that and no way Netflix thinks the government is down

• 32:26Ed Elson?

  for that. I was completely mistaken. It turns out that Netflix actually does believe all of that. In fact, they believe it enough that they are willing to pay Warner Brothers $6 billion if this gets struck down.

• 32:43Ed Elson?

  Which tells you something about the state of antitrust right now. I mean, from Meta's recent win against the FTC to the court's recent decision not to punish Google for operating what they admitted was an illegal monopoly. It seems as though big tech has learned a very important lesson this year, and that is monopolization is okay. I mean, we may frown upon it, but when it comes to the law, when it comes to enforcement, it appears that they believe that it is no problem. And Netflix clearly ran that calculation. They believe this transaction is worth it because they believe that the FTC and the DOJ will just twiddle their thumbs and do nothing.

• 33:25Ed Elson?

  And that calculation, that belief, is something that I missed. So we'll see how this all shakes out. It could be that Netflix actually did miscalculate. It could be that it doesn't go through, and it could be that now Paramount wins the auction. I don't know. But until then, I will admit my misjudgment. I predicted that this auction would be unsuccessful. It turned out to be extremely successful. David Zasloff, the CEO of Warner Brothers Discovery, he has essentially tripled this stock in one year. And that isn't because he's a great operator. He isn't really. Rather, he is an incredible salesman, and I underestimated that.

• 34:05Ed Elson?

  He has knocked this auction out of the park, and he is proof that sometimes in business, as we're seeing this week, sales and negotiation are all that really matter.

• 34:22Ed Elson?

  Okay, that's it for today. This episode was produced by Claire Miller, edited by Joel Paston, and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our research team is Dan Shalun, Isabella Kinsel, Kristin O'Donoghue, and Mia Silverio. And our technical director is Drew Burrows. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.