The Ellisons may still get Warner Bros. But it won't be easy.

4 hours ago 5

By Peter Kafka Chief Correspondent covering media and technology

Larry Ellison and David Ellison at a Star Trek premiere, 2013

Up until last week, just about everyone in Hollywood and Wall Street believed that Larry and David Ellison's Paramount was going to own Warner Bros. Discovery in the near future.

Now an antitrust lawsuit brought by California's attorney general and other state AGs has thrown that into doubt. The Paramount-WBD deal is on hold for months, or maybe more, while the case works its way through the legal system.

There is a lot of spin and posturing around this one, with good reason: There's a lot of uncertainty about whether the Ellisons will eventually get what they want.

I asked Bloomberg's Lucas Shaw, the well-sourced reporter who has been covering the ins and outs of the deal for nearly a year, to walk me through what happens next: Could this get settled before a court verdict, and what would that look like? How might this November's election results affect all of this? And what does this mean for Netflix, which was going to buy WBD before it walked away?

You can hear my entire conversation with Lucas, which also tackles Netflix's growth and engagement issues, and the very mixed state of Hollywood's theatrical business, in my Channels podcast.

The following is an edited excerpt of our conversation:

Peter Kafka: What are the odds that this lawsuit gets settled before a verdict? That the Ellisons just say to the states, "Look, we'll give you something. It's more than we wanted to give you." And then the states say, "OK, this deal can go through."

Lucas Shaw: People thought that they would likely find some settlement before this trial started. That was the prevailing wisdom: That the states were fighting the deal because the Trump DOJ was not. And that they were unlikely to win or actually block the deal, but that they could garner some concessions.

The last month has really damaged the conventional wisdom. A lot of people, myself included, have realized that maybe they underestimated the forces fighting against the deal.

I was in that group too. I thought well, the Ellisons are gonna get this done one way or another. Some combination of brute force and maybe political favors. They really want it, and they are willing to spend an enormous amount of money.

They were willing to outbid Netflix, a much larger, much wealthier company. They spent months fighting the [Netflix-WBD deal], which at the time seemed like spoiled grapes. But they ended up playing a very canny political game, applying a lot of pressure on both Netflix and Warner Bros., to eventually get it.

And while I thought that the states were going to fight against the deal, I assumed that eventually the Ellisons would prevail, which of course, they may still.

In terms of what they could offer: One of the reasons why a settlement may prove difficult — and of course this is all posturing and bargaining, so maybe it's easier than we think — is that the Ellisons have been offering behavioral remedies. And the states are saying behavioral remedies don't really work.

They want structural remedies. So that would mean Paramount and Warner Brothers agreeing to sell things or divest things as part of this deal. There are assets that Paramount and Warner Brothers could divest, and it wouldn't really hurt the combined company that much. But they have not shown a willingness to get rid of things.

Democrats could take back all or part of Congress in November. Is that a worry for Paramount?

Yes, but a small one. There was never a lot that legislators could do about this deal. But especially now that the federal government has blessed it, we're really in the realm of the courts. I guess it could go to the Supreme Court.

A Democrat-controlled House will be annoying [for the Ellisons], especially given the belief that David Ellison and the current leadership of Paramount has made changes to CBS News that have made them more friendly to the Trump administration. And they're going to get CNN as part of this.

So there will be a lot of scrutiny of whatever happens with the news organizations. But that is separate from the deal itself.

What does Netflix think about this? Do they think there's now an opportunity for them to end up with Warners after all?

I think for now they're just sitting there with a big bucket of popcorn.

Look: If this deal falls apart, would Netflix look at it again? Sure. I interviewed Netflix co-CEO Ted Sarandos after his deal fell apart, and he said something like, "Maybe this'll come around again."

But their investors hated the deal. Their stock price has only continued to go down since then. So the threshold to reengaging on any deal like that would be really high.

And if we're being honest about what's happening with Paramount and the Ellisons — unless there's some dramatic change of heart for David Ellison, he's not giving up on this deal very easily.