Motley Fool Money - Paramount Has a Buyer

Episode Date: July 9, 2024

A couple of weeks ago, Skydance Media’s offer to buy Paramount looked like it was dead. Now, both companies have a joint press release announcing the deal. (00:21) Jason Moser and Ricky Mulvey discuss: - What Skydance Media is getting in the Paramount deal. - Why Netflix is winning the streaming wars. - Questions that investors should ask before putting money in a turnaround story. Then, (15:58) Alison Southwick and Brian Feroldi kick off their summer school series with a history class on markets. Companies discussed: PARA, NFLX, DIS, PYPL Learn more about the Range Rover Sport at www.landroverusa.com Host: Ricky Mulvey Guests: Jason Moser, Alison Southwick, Brian Feroldi Engineers: Dan Boyd, Desiree Jones David Ellison interview on “The Town”: https://podcasts.apple.com/us/podcast/skydances-david-ellison-on-his-plans-for-paramount/id1612131897?i=1000661591016 Brian Feroldi’s newsletter: https://longtermmindset.co/newsletter/ Learn more about your ad choices. Visit megaphone.fm/adchoices

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The Paramount deal is done. Pretty much, you're listening to Motley Fool Money. I'm Ricky Mulvey, joined today by Jason Moser. Jason, thanks for being here. Hey, Ricky, thanks for having me. So about a week ago, I thought the Paramount deal was dead in the water. And in fact, I talked about it with Puck co-founder Bill Cohen on the show. And, you know, a couple of days ago, it turns out Skydance Media's buyout of Paramount is happening.

We got a joint press release. And it's a little complex, so I'm going to go through some of the details and then get your reaction to it. But they're paying $2.4 billion in cash to acquire national amusements, which is the controlling shareholder of Paramount and also owns a bunch of movie theaters. They're spending $4.5 billion for publicly traded stock, $1.5 billion to shore up the balance sheet and de-lever the company. this is important because over the past 12 months, Paramount's interest expense was about double its operating income. Hollywood right now is pretty much celebrating the deal because David Ellison is genuinely interested in movies. And this is not a deal with Sony in a private equity company, which was feared to sort of buy out the assets and maybe strip it for parts. And Ellison is getting some crown jewel assets in CBS.

Yes, he's got a movie studio, Nickelodeon, MTV. But J-Mo, he's also getting a company that is bleeding money in a movie theater chain at a time where movie theaters are not doing so well. That's the, I was going to say a plate, but that's really the buffet of the deal. Is Ellison and Skydance getting a good deal here? Well, I mean, it is a complicated one, as you mentioned. I mean, there are a lot of moving parts. It does seem, it feels like,

this is an unavoidable deal. And I just mean that from the sense of consolidation in the media space, right? And we're just seeing that play out here over the last several years. And so to see some additional consolidation, not terribly surprising. But I mean, I'm glad you made the point of the crown jewel assets, because I think there's a lot to it. I think on the surface, it's very easy to look at this is just a streaming deal, right? Oh, that's a streaming deal. Well, no, it's clearly not. It's a lot more. There are movie theaters that come into play here. There's a lot of IP, right? There's a lot of action. There's a library of content that comes with this as well, and some legacy channels that may or may not have as bright a future as we once thought they

might. But absolutely getting some valuable properties, if you think about it just from a film perspective. I mean, these are the, I think you get the Mission Impossible films, you get the Star Trek franchise, Terminator, Transformers. I think there's a lot of stuff there that they can do a lot with, right? And I think the key is going to be not pulling Disney. And ultimately, I just mean by that, just exhausting your fan base, right? I mean, if we don't have another Marvel movie, I think the world will be just fine. I mean, it does feel like they have probably taken the Star Wars franchise in some strange directions and lost some of that fan base as well. So I think part of it, really with these legacy franchises, it's going to be making sure they do things that attract

the younger generations, right, the newer audiences. And I think there's a lot of potential things like MTV and Nickelode and whatnot. I certainly understand the concerns in regard to the movie theaters. That's probably a big question, Mark, right now, is will we get back to a point where people are going to movie theaters like they used to? No. I don't know. There's no way.

It doesn't feel like to me that we will. And I think part of that is just because we have so many more options now. And I think people just consume their content, different ways. And it's not the same world that I grew up. We have more than three channels on the TV now, Ricky. So I do wonder from the movie theater side how that investment will pay off. But clearly, Ellison has a lot of experience in the space. So it doesn't seem like he's out for just a quick buck.

And I think that's what has the market excited about this deal. Definitely not out for a quick buck. And also, he had worked with Paramount for years before. And Top Gun Maverick was a movie that his company financed. And one of the points that he made on Matt Bellany's podcast, The Town, is that now, instead of just financing these properties, these are properties that he has full control over. J-Mo, I will say, you're sounding a little like Bob Iger these days. Me?

Me. Me? Yeah. Yeah. Disney has exhausted the properties. You need to slow down and get back to basics. Well, I mean, I don't think Cheapeck necessarily was the one. I mean, that stuff started well before Cheape took over. I mean, I would say Iger and Chepec contributed to that problem.

But yeah, I mean, it's just, it's one of those things where you have to be very thoughtful with that content. I mean, you've got this valuable library of ideas and IP. You just have to be very thoughtful and careful how you roll it out. And yeah, I mean, time will tell, but I suspect we'll probably see Disney trying to make some, some acquisition here at some point to bring some more content into their fold. So Ellison hoping to bring in some Disney magic. He has John Lasseter, the Pixar co-founder, main creative guy, is the head of, head of animation there, had a bit of an unceremonious exit.

I'll call it from Disney after some sexual harassment complaints. But now he's at Skydance. Ellison on the town basically trying to compare this deal to Pixar going into Disney, you know, a legacy media company being reinvigorated. by tech innovation, not just focusing on the past, but thinking about these different video game concepts, different delivery points for a lot of this content. Do you think this is a fair comparison? That's a pretty high bar to compare yourself to Pixar going into Disney. Yeah, I mean, I think it's fair to a degree. Maybe he's just trying to sort of paint the big

picture there in sort of saying, well, you've got that legacy company that's going to help get itself sort of reinvented. I think that's at least, yeah, it's fair to an extent. Now, how this ultimately turns out, time, time will tell. But I mean, there's no question. I mean, when you think about Paramount today, I mean, that is just sort of your legacy, old, stale sort of brand, right? That doesn't seem to have really been as forward thinking or keeping up with the times. And so sometimes it takes a little shot in the arm like this to really get things going back in the right direction. One potential change or one big decision point is what do you do with Paramount Plus? It's a streaming service that is adding millions of subscribers every quarter,

which is something that Wall Street wanted back in, let's say, 2019, 2020. But it's losing hundreds of millions of dollars per quarter, which is something that Wall Street does not like in 2024. J-Mah, what do you do with this? try to make this thing profitable, it's slowly losing less money, or maybe do you become an arms dealer, you know, sell survivors streaming rights to Netflix, or do you think you do a little bit of both? How would you handle this if you're CEO? Well, I don't know that they definitely have to have a presence in the streaming world. Now, how they ultimately go about that is going

to be their call. And it's a very, you know, they relate to the game in developing this, right? I think for all of the success that they've had with Paramount Plus, they've done a tremendous job building that's out in a short period of time, and they've got a lot of content. But they launched it right as we started hitting that exhaustion front, right? Of the streaming exhaustion. There are too many apps now, and I'm not looking to have to deal with seven or eight different apps

in order to get the content that I won. So it kind of goes back to that consolidation. And with Paramount Plus, being a part of this larger sort of entity, I mean, when you compare that to something like a Netflix, I mean, it reminds me, I want to give Jim Gilley's credit for this because we were talking, I think it was yesterday we were talking about this. And it was in regard to Netflix versus other sort of streaming companies in Paramount, I think is a good example here. It's that, it's what he called the breakfast problem. And it's, you have a bacon and eggs breakfast. well, you know, the chickens involved, but the pig is committed, right? And in this case, I mean, like, Netflix is committed. They are the streaming company.

But all of these other ancillary streamers out there, they're still kind of just involved, right? They have other ways they can go about it. Disney, I think, companies that make their money a little bit of a little number of different ways. And so with Paramount, they are still involved. And when it comes to streaming, if you want to be one of the, leaders in streaming, it feels like you really got to be committed. So with Paramount, again, I go back to it feels to me like more of the values in the quality of the IP and the library of the content that they have. I think I would be looking to monetize that as well as I possibly could

and then perhaps create relationships with other streamers to offer some sort of a bundle book. It seems to me, at least, that we are going back toward that bundle, right? We're pivoting back over towards that bundle that we moved so quickly away from just just a short while ago. That's something they've hinted at into your point where the, what is it, the chicken is involved and the pig is fully committed to breakfast. The chicken is involved and the pig is committed. It's hard to see a lot of winners in the streaming space or really any besides Netflix right now, which Netflix not only is committed, but also makes money.

It makes a profit on the streaming business it does. Well, and the reason why, I mean, well, a number of reasons why, but clearly, Clearly, they started so early, right? I mean, this was the company that led the way. So they've had a lot of time to grow that subscriber base, to grow that content library, to make those investments. Even still, I mean, you got to remember, if you're going to be a leader in the streaming space, it's going to require a ton of capital investment on an ongoing basis.

I mean, you can really never let your guard down. Your business is coming up with the latest and greatest content, and that costs a lot of money. And you know what makes a lot of money is Oracle. And we're getting some of that Oracle money for, for Mr. Ellison here. So I don't own, I don't own Paramount stock, but it's, it's on my watch list. I love a turnaround story. And Ellison right now, in my view, he's saying all the right things. He's in a good spot. And it reminds me a little bit of that first conference call when Alex Chris went into PayPal. We're getting focused. I got a real determined plan. But turn rounds are also really hard. They're extraordinarily

difficult. What should retail investors? You know, I'm only invest in a couple hundred bucks in the stock market every month. And so I got to be disciplined about where I'm putting those dollars and turnaround stories are tough. What should we think about is we're getting excited about these turnaround stories? Yeah, I think it's really just understanding what success actually looks like. And so, I mean, I think a good example with PayPal. I'm glad you brought that up because you know, with PayPal, you look at that and you say, okay, well, I'm willing to be, you bet on the way that money is going to be moving around in the near future. I mean, it seems like digital is kind of a thing, and there are a lot of tailwinds there, right? Those overarching tailwinds

are pretty obvious, and it seems like that's going to be the direction that we're headed in the for the foreseeable future. And so competent leadership can go in there and set up a business to fundamentally succeed in that type of an environment. Now, with Paramount, I mean, yeah, they have a library of content, and I think a number of different ways they can make money. But on the flip side of the coin, I mean, we go back to that theater's question, right? Will theaters be a meaningful driver again one day? Is this deal going to result in ultimately fewer productions? If so, and theaters aren't really the way of the world, will those productions be as profitable? Can Paramount Grow its streaming platform ultimately to compete and be a meaningful contributor to

the bottom line there? I mean, there are a lot of questions. I'm not saying they can't, but what I'm saying is those are the questions that you would ask in regard to a turnaround. So in this turnaround case, it just there are more questions that need to be answered, which I think just elevates the risk profile. And it still takes, it's going to take a little bit for this deal to go through. Sherry Redstone, who has walked away from this deal before, has an out in terms of a, you know, there is a wait and C period if anyone wants to introduce a different buyout deal. And that's going to cost, I think it's like a 400. million-dollar breakup fee. So there's a there's a cost associated if they take that option. But I think in this case, it is, you know, wait a couple of years, see what they do.

And that might tell us a little bit more than the first interviews after the deal, after the press release of the deal. Absolutely. Got to get through that honeymoon phase. So we got Fool Fest next week. Yes, we do. That's coming up. I'm looking forward to it. It can be going to be chatting with members. We're going to be doing some live Motley Full Money show. there on Monday and Tuesday I think it's gonna be a good time you you've got some you've got some presentations you actually have to do a lot of work for it JMO so have have fun thanks but I'm gonna be getting some I think we've got a big team that's doing a lot of work for it so I think it's this is full Fest is always one of those just great examples

of a whole team effort yeah you know it takes a lot now we're gonna get 16 hours of of JMO on different stock picks. I don't think. Anyway, one of the questions I'm going to be asking members and hopefully getting some audio for the show for a segment is, what's your headline from 2029? What's your headline five years from now? So far, I talked to Asset about this on the show last week.

His was Amazon at $4 trillion, trading only at four times revenue. Mine was local JCPenney to be converted into pickleball entertainment. So I'll ask you is we get the ideas flowing from the members coming to Foolfest. What is your headline, Jason Moser, from 2029? Yeah, well, that's basically five years from now and closing in on the beginning of a new decade. And what comes with a new decade, Ricky? A new G. A new G, right?

You remember all the hyperbole of just a few years ago? 5G is going to change the world, right? Well, I think that 2029 to headline is 8, 6G is poised to open up a world we never knew insisted. Yeah. All right. It's a good place to leave it. Yeah.

All right. Jason Moser, thank you for your time and your insight. Appreciate being here. Thank you. The old adage goes, it isn't what you say. It's how you say it. Because to truly make an impact, you need to set an example and take the lead. You have to adapt to whatever comes your way.

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terrain response to fine-tuned your vehicle for the roads ahead. The range rover event is on now. Explore enhance offers at range rover.com. All right, up next, Allison Southwick kicks off her summer school series with Brian Faroldi, starting out with a history lesson about stock market exchanges and the lessons for investors today. Everyone pipe down. Summer school is now in session. Over the course of the next few weeks, we're going to cover the history, science, arithmetic, and language arts of investing. With the help of Brian Feroldy, he's a contributing analyst and writer here at the Motley Fool. Hello, Professor Brian. Hello, Alison. Great to be here. So we're starting with history class. And today we're

going to talk about the history and highlights of the New York Stock Exchange, the Dow Jones Industrial Average, the S&P 500, and the NASDAQ. So, Brian, let's start with the New York Stock Exchange. How did it all begin? Yeah, I actually love learning about the history of markets. And I think it's actually really critical that stock investors learn about not only the history of booms and bust that have happened in the past, but also the history of the market itself. I think that you can learn a lot about how to become a better investor by doing so. So the founding of the New York Stock Exchange dates all the way back to the late 17th century, basically just a few decades after the United States of America was founded. So believe it or not, but back then, there were publicly traded

companies, companies that were financed through outside investors, and those companies were owned by the shareholders, which owned stock in the companies. And just like today, back then, the investors in those businesses did want a public way of selling their stock and buying their stock from each other. So it just became known that in lower Manhattan, you could go and you could meet up with other people, other investors, other bankers, and it would be a market that was created kind of naturally where you could buy and sell and exchange stocks with each other. Now, the NYSE in particular, the New York Stock Exchange traces its origins to something called the Buttonwood agreement. This was signed by 24 stockbrokers on May 17th, 1792 under a buttonwood tree

on Wall Street. And this was the really foundation of what would become the New York Stock Exchange. Now, back then on the New York Stock Exchange, they really only traded five securities, but it has slowly grown and evolved to be the market that we all know and love today. All right. So from those securities under a tree, we probably needed a more permanent structure to do this under. Yeah, absolutely. So the NYSE slowly grew and it became known through its reputation as the place that you would want to go to raise money and buy and sell security. So in 1865, so basically 70 years after the NYSE was really founded, it moved into its first permanent building on Broad Street in New York City. A few years

after that, in 1867, they revolutionized the way that information was disseminated. So that was the introduction of the telegraph and the stock ticker in the 1860s. And that was a way to get information about stocks, prices to other investors around the country. And believe it or not, it was all the way, you had to fast forward 100 years into the 1970s before the New York Stock Exchange began to allow investors to trade electronically with each other. So it has really been a slow-moving evolution to be the behemoth that it is today. So here's this market. It's doing things all day long. But how are you able to know what the market is actually? doing hundreds of stocks. Is the market happy today? Is it sad? I don't know. Some stocks were happy.

Some were sad. Enter in the Dow Jones Industrial Average. Yeah, the history of the Dow Jones Industrial Average is really fascinating because when I first learned about the Dow Jones Industrial Average, it almost sounded like four random words were put together and somehow that represented the market itself. But the Dow Jones was actually invented to solve a big problem. So back in 1896, an editor at the Wall Street Journal, this guy's name was Charles Dow. Now, he was frustrated because every day, the Wall Street Journal would just be printing these tables of stock prices. Some stocks would be up, some stocks would be a down, but there was no way that he could summarize for his readers what the quote-unquote stock market did that day. So in 1896, he asked

his business partner, a guy named Edward Jones, who was a statistician for help. So what the two of them came up with was that they would add up the stock prices of the 12 largest and most popular stocks of the day. And back then, all of those companies were industrial companies. And they would add up those prices, and then they would divide by the number 12. And that is how we gave birth to the Dow for Charles Dow, Jones, for Edward Jones, industrial, because they were industrial companies, and average, because we were adding up the number of stocks and then dividing by the total number, which is called averaging.

Suddenly, we had a single number that could be reported to the readers of the Wall Street Journal, and we could use that number as a benchmark to tell readers what happened in the market that day, that week, that month, and even that year. Let's talk a little bit about sort of the math behind the Dow there. This was pre-calculators. So, Dow and Jones had to come up with a really simple way that the Dow Jones Industrial average could be calculated by hand. So the easiest way that they could do it was they added up the dollar price of each share

in the Dow and then they divide it at. That makes the Dow a quote-unquote price-weighed index. Now, that is something that gets a lot of flack from investors today because that is exactly how that calculation still comes along. And Allison, we both know that the dollar price of one share of stock doesn't tell you anything about the importance or the size of the business. So this has been one big knock that the Dow has had against it since it was founded. So I think what's most interesting to me about the Dow is that it's been around a really long time.

And the companies that started on the Dow and then the companies who are, then I guess it was expanded to 30 companies then in 1920. these are companies that were the big movers and shakers of their day. But if you look at those initial companies, it's not the same companies that we necessarily are excited about today. All original 12 companies, and like you said, in 1928, the Dow eventually expanded to 30 companies, which it is today. All 30 of those companies are no longer still a part of the Dow Jones industrial average. Every few years, a couple of stocks. that are no longer relevant, are removed from the Dow, and new ones are replaced.

So today, you'll find companies like Apple and Microsoft and Home Depot and United Healthcare. Those are the companies that make up the Dow, and they have since replaced all of the legacy companies. All right. So the Dow is great. What a wonderful innovation at the time. But 30 companies, that feels like a very limited measure of really the temperature of the market. So, I think we can approve upon that. How about we invent something like the S&P 500? Yeah, let's do it. That is exactly what happened in the market itself.

And again, S&P standard and pores, that again sounds like two random words that were kind of jammed together to create this index. But again, a history lesson here is important. So if we reroute to 1923, so the Dow has been out for almost 30, years, and it has really caught on with investors at this time point. It is the gold standard that investors look to when figuring out what the market is. Well, we live in a capitalist society, so a company called Standard Statistics, they decided, we're going to launch a competitor to the Dow Jones Industrial Average. Now, their competitor launched with 233 companies,

which was far more than the Dow had at its time. And this index was actually, weighed by market cap. So the size of the business was actually more important than the dollar share price. So these innovations were key distinct things that distinguish it from the Dow Jones. Now, in 1941, this company, Standard Statistics, they merged with another company called PORS publishing, and they became the Standard and Poor's a company. And it wasn't until 1957 that they decided to update their index to what we now call today the Standard and Poor's, or S&P 500. So they increased their index from those 233 companies to all 500 companies. And this has since become the primary yardstick that professional money managers use to measure their returns. Some of our more,

let's say, seasoned investors listening right now, are going to perhaps have a good memory of what it was like to review your stocks, let's say in the 70s and 80s, and even maybe part of the 90s. And it was difficult. You'd have to wait for the newspaper to come out and then you'd read how your stocks performed. Or maybe you'd go hang out at your broker's office and wait for the ticker to come around until you saw your stocks. So thankfully, we don't live in that kind of world anymore. And I guess we have the NASDAQ to thank for that. Yeah, so what is the NASDAQ? It sounds like a very strange word to put together. Well, NASDAQ is actually an acronym. Nasdaq stands for National Association of Securities Dealers and automated quotations, automated quotations, quotations being, aka, what is the price of a stock? What is a stock quote? So the NASDAQ was the world's

first electronic stock exchange, and it launched in 1971. Now, back in the 60s, the way that investors got information about stock prices was exactly what you just said, from looking at the newspaper or from going to their broker office, and it was actually really hard to get up-to-date, accurate pricing information to all investors at all times. So, computer technology had advanced enough in the 1970s that they launched the world's first electronic stock market exchange. And no surprise, in order to get this stock market exchange off the ground, it needed a whole lot of technology from the likes of Hewlett-Packword and

Intel and companies like that. And those companies chose, when they came public, to list their stocks on the electronic stock exchange, the NASDAQ, instead of the Stodgield NYSE. So everything seems pretty great there for the NASDAQ until a little thing called the dot-com bubble comes around. and bursts. Yeah, that was a very interesting time to be an investor. So I remember paying attention to the market or starting to pay attention to the market in the late 90s. And the only thing that I knew was that for some reason, everything is going up and there's all these companies like AOL and Cisco that are just becoming dominant and taking over the world. So yeah, that was a

very big bubble for those investors that were living through it with technology valuations, getting absolutely inflated. The NASDAQ actually crossed 5,000 points in early 2000 before the eventual bust came out, and that was a brutal bust for many technologies to actually live through. So, yeah, this is why studying market history is so important. When you can look back and learn about what has happened in the past at markets, it does give you an indication of what could happen in the future. So 5,000 at the peak before the bubble burst, but where's the NASDAQ now? The NASDAQ is actually fully rebounded, and investors that bought even at those peak prices, as long as they held, are actually doing decently well as investors.

So, the NASDAQ actually surpassed 10,000 points for the first time in 2020. And as we record this, it is near or at all-time highs, thanks to our friends, Microsoft, Nvidia, and Apple. But the NASDAQ continues to be a very attractive exchange for technology companies to list on, and those companies continues to do extremely well for investors. When you look back over the history of the markets and these indexes, what's your big takeaway? My big takeaway with when it comes to investing in general is the importance of studying history. There's a saying that history never repeats, but man always does.

And market prices will always be controlled by humans, human making decisions based on emotions like fear and greed. and by looking back at history and what market prices have done, it can give us a glimmer as to what we can expect in the future. All right, you'll hear more from Brian in the coming weeks. You can also check out his newsletter at longterm mindset.co. As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.