Unleashing Gulf capital will push Warner to new growth

Media assets are being married with the resources needed for a new era

A landmark water tower at Warner Brothers Studios in the city of Burbank, California. EPA

Paramount's bid for Warner Brothers Discovery has sent the media and international investment community into a frenzy.

It’s not simply the size of the hostile takeover attempt at $108 billion for Warner, or WBD, that has caused excitement. It’s also the fact that three Gulf sovereign wealth funds have come together on the same mega-play. Abu Dhabi’s L’imad Holding Company, the Qatar Investment Authority and Saudi Arabia’s Public Investment Fund are jointly throwing their considerable weight behind the Paramount strike.

Netflix rivals

They are contributing $24 billion to the offer led by David Ellison as he tries to railroad Netflix’s agreed rival approach for the Hollywood movie studio and owner of CNN, HBO and other media platforms. What is arousing interest is that they were prepared to move quickly and set aside any differences they may have had.

David Ellison, chief executive of Paramount Skydance, has heavyweight support lining up behind his pursuit of Warner Brothers Discovery. Reuters

Significantly, too, they were willing to forego company governance demands. Normally, any investor putting in a stake of this size would seek commensurate voting rights and/or board seats. Together, the three are supplying almost 60 per cent of the $41bn equity portion of Paramount’s offer, which would give them a majority say in the running of the business. That is not happening here, partly because it would slow down Ellison’s attack. Demands of that sort from the three state-controlled funds would cause protracted regulatory delays. So determined were the three to avoid hurdles being placed in their way over a foreign government role that they were happy to go without.

Partly though it’s because an opportunity like WBD does not come along very often. It’s a prize asset that guarantees instant access to the major league of global media ownership. For that, those strictures and reservations were abandoned.

The funds are determinedly pursuing policies of diversifying away from a historic, concentration on oil and energy. They want to take their holdings and economies into new, digitally-focused sectors. Media, sport, entertainment and tourism are key targets. Within that context, WBD is a glittering diamond.

Paramount Studios in Los Angeles, California. Bloomberg

Financially overall, WBD has not been performing well recently – its third quarter revenue was down 6 per cent year-on-year to $9 billion. The company reported a net loss of $148 million versus a $135 million profit for the same quarter last year.

But the creative WBD Studios division powers ahead. It enjoyed a record year, with revenue jumping 24 per cent to $3.3 billion, thanks to blockbuster releases. Streaming also produced bumper numbers – with worldwide subscribers climbing 16 per cent to 128 million.

That's what is proving so attractive – the chance to be on the inside of a company that is a true media and entertainment colossus, with a vast archive of famous name movies, among them Casablanca, Goodfellas, Batman and Harry Potter and TV shows (Friends, The Sopranos, Game of Thrones, ER, The White Lotus, Ted Lasso and many more) under its belt and is continuing to churn out hits. It sits at the very pinnacle of an industry that itself enjoys peak worldwide recognition and is made for the AI-digital age.

Presidential interests

Their move comes on the heels of the PIF’s involvement in the $55 billion buyout of gaming giant Electronic Arts. In that deal, the Saudis partnered with Affinity, the private equity firm headed by Jared Kushner. It was Donald Trump’s son-in-law who brokered the coup, albeit one that came at an industry-quaking price. The QIA and Abu Dhabi’s Lunate are also Affinity investors. Kushner is again playing a pivotal role in funding and putting together the Paramount consortium for WBD.

Should Paramount succeed, final approval will rest with the US President. Trump’s critics have immediately claimed he is interested in neutering CNN, which he has long regarded as a thorn in his side. But that is a diversion from what is really occurring, which is a reshaping of the media landscape, as tech and AI advance, orchestrated by people like Kushner, who are able to tap into the capital resources and requirements of the three Arab countries. Investment banks are on red alert, searching for other enticing prospects.

It's about consolidation, of harnessing past and future creative prowess with financial muscle and vision. It also entails a degree of streamlining, of reducing costs and manpower. That reformatting saw Discovery merge with AT&T’s Warner to form WBD.

The industry is undergoing great change against a backdrop of the pandemic soon followed by the writer strikes. Ellison’s Skydance was able to swoop for Paramount. When WBD then put up the for-sale sign, a heavyweight entrant that is responsible for reconfiguring how people view visual content, Netflix, was quick to pounce.

Banners for shows at the Warner Brothers Discovery Techwood office campus in Atlanta, Georgia. Bloomberg

The question that has got everyone thinking: is this just the beginning, can the state funds, with their newfound shared aspiration follow WBD with other blockbusters?

Are we witnessing a new force (unprecedented in terms of firepower) that can redesign the global media environment and come to that, sectors elsewhere, at a time when the industry needs innovation and deep pockets? It is an enticing possibility, one that has been a long time in the making, but with WBD a line may have just been crossed.