The Gulf Buys Big Into Paramount. What It Wants in Return

Editor’s note: This story has been updated to reflect Paramount’s April 27 FCC filing about its proposed acquisition of Warner Bros. Discovery.

Saudi Arabia, Qatar and the United Arab Emirates rarely agree on anything. Now their sovereign wealth funds are jointly pouring almost $24 billion into Paramount Skydance’s $111 billion deal to acquire Warner Bros. Discovery, joining Larry Ellison in backing son David Ellison’s pitch to transform Hollywood by absorbing (and thus subtracting) one of its iconic studios.

The question is what the Gulf states want from a deal that will put two Hollywood studios and two global news networks — CNN and CBS — under one roof.

Foreign investment in U.S. media isn’t new. But it has rarely collided this directly with major American news assets — or so audaciously tested federal limits. The FCC caps direct foreign ownership of broadcast TV at 25 percent.

The proposed transaction would lead to nearly double that level of foreign ownership, Paramount disclosed in an April 27 FCC filing — which says the ownership would not be direct. About 49.5 percent of the new company’s equity would be held by “aggregate indirect foreign ownership,” according to the filing. Three Middle Eastern sovereign wealth funds would account for the bulk of those foreign holdings — 38.5 percent of the company’s total post-deal equity. The filing says the funds — one each from Saudi Arabia, Qatar and the UAE — would hold non-voting shares and that the Ellison family would retain a majority of voting shares, even in an extreme scenario for which Paramount is also seeking approval: foreign investors holding up to 100 percent of the company’s equity in the future. 

The war with Iran has laid bare the limits of press freedom in the Gulf states, where journalists who question official policies and propaganda are frequently subject to arrest, and criticism of the state can lead to the death penalty.

The current U.S. administration, which has close ties to the Gulf states, does not seem likely to be bothered by this group of investors’ participation. The Saudi royal family has invested $2 billion in Jared Kushner’s private equity firm, Affinity Partners, while the Qatari government controversially gave President Trump a free plane (valued at roughly $400 million) to supplement Air Force One.

But last month, a group of Senate Democrats wrote to FCC chair Brendan Carr, seeking a serious review of the Paramount-WBD merger deal involving three nations whose policies have at times been hostile to the U.S. and that have infamously bad human rights records. The 2018 murder of Washington Post columnist Jamal Khashoggi looms particularly large over the potential deal, since U.S. intelligence agencies concluded it was ordered by Mohammed bin Salman, Saudi Arabia’s crown prince and de facto ruler — and chairman of his country’s Public Investment Fund (PIF).

Nineteen journalists are currently detained in Saudi Arabia, according to Reporters Without Borders, whose World Press Freedom Index ranks the nation 166 out of 180 countries.

“Saudi Arabia, Qatar and the United Arab Emirates are not adversaries, but they are foreign governments with distinct and sometimes conflicting interests from those of the United States,” the letter to the FCC chair read. “Even as non-governing partners, their massive investment creates significant opportunity to obtain data and information about Americans and their viewing habits, and soft power and influence over CNN’s editorial decisions and business priorities.”

Saudi Arabia’s Public Investment Fund, the Qatar Investment Authority and the UAE’s L’imad Holding Co. won’t have voting control or board seats. But in Hollywood, influence doesn’t necessarily require either — and the real question is what governments trying to build global media power actually expect in return.

From my conversations with investors, attorneys and other experts, it turns out, quite a bit. I’ll take you into the specific needs and wants from each of the three sovereign funds, including around news, and how those expectations already are taking shape.