The Case for Biden to Bail Out Paramount
Banks got help in a crisis. So did auto. Why can't legacy studios also be too big to fail?
I know what you’re thinking when you see that headline: Seriously?!
But having watched this Paramount sale drama play out over these many months — and not come to fruition despite many times when it appeared over — I think I speak for everyone when I say, stop this ride, I wanna get off. The Paramount story is like we’ve recast Barbarians at the Gate, arguably the best business narrative of all time about the leveraged buyout of RJR Nabisco, as this generation’s attempt to make a private equity M&A transaction as rollicking as that one from 35 years ago.
What should not — and cannot — be lost in this is Paramount itself. My colleague Richard Rushfield has eloquently discussed both Paramount and the importance of a robust studio ecosystem. As he wrote in April about Paramount’s venerable roots:
No company in history did more than Paramount to provide the masses with higher-class amusement. And in their sweep the entire industrial entertainment project was born.
We’re talking about The Godfather, Chinatown, Rosemary’s Baby, Psycho, Saving Private Ryan, Beverly Hills Cop, Top Gun, Ferris Bueller’s Day Off, Grease. And on and on and on.
CBS, of course, has its own esteemed legacy, the home of Murrow and Cronkite, Norman Lear and the only broadcast outlet that could live up to the Tiffany Network moniker. And 60 Minutes, the most successful news show in history.
How can we, as a society, just let all that twist in the wind in an endless process? As with other debt-burdened industries before, the government needs to step in with a bailout in the way it has with automobiles and banks in this millennium. Hollywood may have a reputation as frivolous, but in terms of the jobs, the economy and America’s standing in the world, its health is essential.
Isn’t This Socialism? Actually, No
Nationalizing companies may call to mind some scary fever dream of developing-world leaders taking control of private industry. But, in fact, as the researcher Thomas M. Hanna wrote in 2019, America “actually has a long and rich tradition of nationalizing private enterprise, especially during times of economic and social crisis.”
Long before the bank and auto bailouts of 2008-2009, President Woodrow Wilson nationalized the radio business as well as telecommunications and railroads during World War I. What did those industries all have in common? They were of vital interest to American well-being — that’s how important media was and is to the government. Entertainment, which according to the International Trade Association of the U.S. Commerce Department, generated $2.2 trillion to the U.S. economy and employed more than 11 million workers as of 2018 (its most recent data), is as essential as the transportation networks that ferry goods, people and, yes, military equipment around the country and globe.
Under the control of the U.S. Navy, the military branch acquired radio companies and broke patents in an effort to stoke innovation. When the war ended, there were some who wanted radio to be nationalized permanently. When the Navy failed in doing so, though, it agreed to sell its radio assets to private interests — but notably refused to return them to the previous owners. A new company, the Radio Company of America (RCA), was formed.
This moment effectively set the model for the U.S. government’s approach to nationalizing assets ever since: Come in during a moment of crisis, right the ship, get out. That’s not socialism; it’s managing the health and vitality of the American economy.
As President George W. Bush said in 2008 after engineering an unprecedented bailout of the nation’s banks: “I’m a free market guy. But I’m not gonna let this economy crater in order to preserve the free market system.”
The Contagion Theory for Seizing Paramount
The legacy entertainment studios, much like the banks or automakers in the 2000s, are in a world of hurt, much of it self-inflicted. As we wrote about last week in our piece about the culture of fear and uncertainty rippling through the studios, these companies are laden with debt that threatens their long-term viability:
Paramount: $14.6 billion
Disney: $39.5 billion
Warner Bros. Discovery: $39.1 billion
The banks and carmakers were recklessly pursuing failing strategies, were similarly over financialized, and in the case of the automakers quality had deteriorated significantly. For GM and Chrysler, three million jobs, many of them union labor, were at risk. Starting to sound familiar?
These industries were simply, as we learned at the time, too big to fail. So the government wouldn’t let them. In the case of the carmakers, a mere (by the standards of the federal government) $80 billion was deployed to stanch the bleeding. This was, of course, highly controversial! But ultimately the Obama administration decided that if it changed leadership and their business models, it could revitalize the sector.
The entertainment industry is as vital as Detroit — and in as much woe. According to last month's latest Otis College report on the creative economy, there were 20,906 fewer workers employed in film and TV in Los Angeles as of March than there had been prior to the strikes. That's a 19 percent drop at a time when national unemployment is 4 percent. The very thing underpinning the entertainment industry is being outsourced around the world, to countries with fewer labor protections and far less benefit to the U.S. economy.
Admittedly the government didn’t know if the auto bailout would work, but the gamble did. In 2014, the Obama administration sold its final stakes in the automakers and revealed that in just five years it had net a $15.35 billion profit for U.S. citizens from the Detroit bailout as well as the Troubled Asset Relief Program. Let’s see Zaslav generate that kind of free cash flow!
And for GM CEO Mary Barra’s role in helping to steady the august automaker, she made almost a quarter-billion dollars in total compensation between 2014 and 2023. Socialism, my ass.
As Wharton management professor John Paul MacDuffie noted, letting those auto companies flail and fail would have been idiotic. “It could have been a domino-effect collapse of the domestic auto industry,” he said.
It’s that domino effect that we need to worry about here. Disney’s acquisition of Fox broke the seal on Hollywood operating without a full complement of six major studios. There are many scenarios at play in the Paramount story, but its studio’s continued operation is not guaranteed in every case. Then we’d have four studios, and hell, at what point does maybe three look like the right number? Or two? We are on the proverbial slippery slope as dreams of scale and consolidation dance in the heads of the moguls in charge.
If the government allowed Paramount — and the other studios — to wipe the slate clean, as it were, and be free of all that debt, they could operate entirely differently than they do now, with all the perverse incentives that drive their behavior, often right deeper into a ditch. Take chances! Big swings! Maybe — maybe — even have fun again.
Entertainment is a currency, one that the United States has leveraged well since its rise as the world’s superpower in World War II.
A National Crisis
Virtually every instance of the government nationalizing a company has involved an act of Congress. It has required a case to be made that a crisis is at hand.
Well, there is a calamity afoot and that’s the precarious state of one of Hollywood’s great engines of American popular culture, as Big Tech and Wall Street continue squeezing every industry. “The promotion of American culture through Hollywood movies makes the rest of the world decide whether to fear or favor the promise of Americanization,” wrote the political scientist Wanwarang Maisuwong in 2012. Or as NYT columnist and author Thomas Friedman succinctly framed it, American culture is as important as the Navy and the U.S. dollar to American interests.
So if it took the somewhat jingoistic argument that American soft power is why the government needs to step into Paramount, buy out Redstone and seek to run the business as a “public option” for awhile (not that afield from PBS or NPR, or certainly the BBC), so be it if it attracted bipartisan support. If Democrats and Republicans can join forces to ban TikTok and build U.S. chipmaking facilities as part of the national welfare, then I think the public should own the home of The Godfather in the spirit of providing a bulwark to the most important American export ever created.
Undeniably, there are innumerable hurdles here, from finding the legal authority to the Supreme Court. One idea: Could the FCC use the threat of revoking CBS’ right to broadcast over the public airwaves if it didn’t agree to participate in a “voluntary” sale to a government-backed entity?
Look, I’m not dumb (or at least that dumb): This is a wild longshot that would be extremely risky in an election year. But you know Trump isn’t going to do this. Paramount’s too woke, or something.
So I’ll leave you with this: Shari Redstone may have a private jet and the rights to Top Gun, but she’s no match for the Air Force.