Sony and Apollo’s Plan for Paramount: Break It Up

Shari Redstone helped build Paramount Global into a media empire, but if Sony Pictures Entertainment and private-equity giant Apollo Global Management succeed in acquiring it, they plan to break it all up, according to three people familiar with the matter.

The plan would see the CBS broadcast network, cable channels like MTV and the Paramount Plus streaming service auctioned off, said the people, who asked not to be identified sharing private details. Paramount Pictures — home to blockbusters like “The Godfather,” “Top Gun” and the “Mission Impossible” franchise — would be combined with Sony’s existing business.

Sony and Apollo, which made a nonbinding expression of interest in acquiring Paramount for $26 billion last week, are also likely to keep Paramount’s library of films and TV shows and the rights to well-known characters, including the Teenage Mutant Ninja Turtles and SpongeBob SquarePants. They have not yet outlined this plan to Paramount or its advisers.

A breakup of Paramount would represent a major changing of the guard in the entertainment industry. CBS and Paramount have been controlled by the Redstone family for decades, since the media mogul Sumner Redstone assembled the sprawling conglomerate in a series of audacious deals. His daughter, Ms. Redstone, championed a 2019 deal to reunite it through a merger with CBS, and remains Paramount’s controlling shareholder.

Sony and Apollo are now engaging with Paramount’s financial advisers on next steps in their proposal, the people said. The two companies have not yet signed formal nondisclosure agreements or begun due diligence reviews, a process that could take weeks.

Though it’s still early, the two bidders have already begun to envision how a deal for Paramount could unfold. The two would likely operate the company as a joint venture controlled by Sony, with a minority stake owned by Apollo, the people said. Sony would look to combine the marketing and distribution functions of the Paramount movie studio with its own operations, and divest the rest of the properties.

Over time, Apollo could sell its stake in the joint venture back to Sony or to another buyer. It’s not yet clear just how large of a stake Apollo would hold in the business, though the company plans to invest billions in the deal, one person said.

A breakup of Paramount is not a preferred outcome for Ms. Redstone, who would prefer to see the company pass on to another buyer intact, according to a person familiar with her thinking. But it wouldn’t necessarily be a dealbreaker if the offer was compelling, the person said.

There are other suitors. Skydance, a media company founded by the tech scion David Ellison, has been in discussions with Paramount for months about a potential deal for the company. Exclusive negotiations between Skydance and Paramount lapsed last week, shortly after Sony and Apollo put in its expression of interest. But Skydance remains interested in a potential deal.

Sony and Paramount have different approaches to the entertainment business, and a deal would probably result in a dramatic U-turn for Paramount. Unlike Paramount, which streams its content on Paramount Plus, Sony licenses its movies and TV shows to companies like Netflix and Disney. Sony would probably not change that approach in a deal with Paramount and would likely look to combine Paramount Plus with a rival service, such as Comcast’s Peacock or Warner Bros. Discovery’s Max.

Sony has long pursued Paramount’s movie studio. Several years ago, executives at Sony reached out to Paramount to see if the company would be willing to sell Paramount Pictures or merge it into a joint venture, but Paramount rebuffed the approach, signaling it was only interested in a deal for the whole company. So, when Apollo made a bid for all of Paramount earlier this year, Sony decided to team up.

Any deal by Sony would face regulatory hurdles. Regulations restrict foreign owners from holding licenses for U.S. broadcast stations, which could prevent Sony — which is owned by Japan-based Sony Group Corporation — from owning CBS-affiliated TV stations. But they could divest the stations immediately, or have Apollo apply for the license. They are also considering other options for the stations.

The deal would also likely require clearance from the Committee on Foreign Investment in the United States, the panel in Washington that scrutinizes acquisitions by foreign owners.

When Sony and Apollo decide to sell the Paramount assets, the companies believe there could be many logical buyers, the three sources said. Warner Bros. Discovery, which does not own a broadcast network, could be a suitor for the CBS broadcast network. TV station groups like Nexstar and Tegna could be logical buyers for CBS’s owned and operated TV stations.

The hardest asset to sell would most likely be Paramount’s bundle of cable networks like MTV and Nickelodeon, but those could be sold to a TV programmer looking for greater scale in negotiations with cable companies like Charter and Comcast.