Michael O'Rielly: Paramount Deal Doesn’t Trigger Foreign Ownership Concerns

After months of a publicly contested bidding war over the Warner Bros./Discovery assets, Paramount ultimately prevailed. The company now moves to the deal review and approval process with government officials, which will allow the transaction to close in full.

Then it can focus on delivering rich media content to consumers worldwide. One area that shouldn’t cause consternation among regulators is the foreign ownership aspects of Paramount’s financing package. From a Federal Communications Commission standpoint, this should either be a non-issue or require only a pro forma review. 

Paramount has been completely transparent, openly disclosing from the beginning that its bid included financing from overseas funds. This includes sovereign wealth funds from the Middle East and a small investment from a Chinese conglomerate, Tencent. That shouldn't be surprising, as it requires a huge amount of capital to win some of the most popular media properties ever created.

Critics of Paramount’s bid have spent considerable time trying to make hay over this financing structure and to create a misleading narrative for the investor community, policymakers, and, especially, the voting shareholders of Warner Bros./Discovery, in an effort to sway opinion toward alternative proposals. At the end of the bidding process, sophisticated investors dismissed these views, recognizing the motives behind the spin and conducting their own analysis that the deal would likely receive approval from U.S. regulators without disruption. 

The FCC's only role is from local television broadcast licenses

Respectfully, the FCC’s only role in this transaction arises from the local television broadcast licenses affiliated with the CBS television network, which Paramount currently holds. All the conjecture over the movie studios, HBO, CNN, CBS News, and other media assets is completely out of scope, as the FCC does not license those entities. It is entirely irrelevant that others wish to expand the FCC’s responsibilities. 

In particular, the foreign ownership limits in communications law, set at 25 percent with the Commission's authority to exceed, are meant to prevent foreign entities from taking control of American broadcast stations to manipulate programming, spread false information, or promote foreign propaganda. Such outcomes were a rarity in the 20th century, when there were few alternatives to broadcast stations and other media outlets. Today, in our hypermedia world, these concerns are even less significant due to the wide variety of content available and the diminishing role of broadcasting as a primary platform. 

Furthermore, the details of the Paramount deal are especially favorable for any issues related to broadcasting interference. In fact, most of the deal’s funding comes from traditional U.S. sources, such as banks and equity funds. Specifically, only $25 billion of the total $111 billion originates from foreign sources. However, even that figure is misleading because foreign investment will be entirely passive. This means foreign investors will not hold board seats, voting rights, or any control over company governance—limiting any influence over corporate decisions, particularly regarding content.

Consequently, they will have no power to control FCC licenses, and any fears that the deal could lead to manipulation or propaganda would be groundless. In reality, this funding operates just like a conventional investment, depending on the company's growth and performance to generate returns. This level of protection exceeds what would be necessary to guarantee content independence, as if that were ever going to be an issue.

Unfounded claims that foreign investors could influece Paramount's coverage

Yet there are still unfounded claims that foreign investors could indirectly influence Paramount's news coverage. The contention is that the presence of foreign investors will chill reporters and news professionals from covering some stories and cause them to shy away from others. But if this phenomenon existed, for which there isn’t any evidence, then it would apply in situations below the ownership threshold of 25%.

And it would apply, ridiculously, anytime a broadcaster had outside financing or had owners with other lines of business. The FCC is smart enough to recognize this empty theory for what it is: an attempt by certain politicians to promote advocacy groups’ old claims that growth through acquisitions is always bad and media mergers should be blocked at all costs.

Critics of the deal have also argued that it raises national security concerns due to Tencent's investment. No one has been more committed to the communications sector’s national security than the FCC during the Trump Administrations. But the $1 billion investment, with the same passive structure, should cause little to no concern. It provides Tencent with no control or undue influence over Paramount, and, in a twist of fate, it may actually prove extremely beneficial to U.S. content producers when Paramount exports films and other media to China. 

In a constantly evolving media market, U.S. companies are continually seeking to gain size and heft. The newest proposal—Paramount & Warner Bros./Discovery—should not cause concern for FCC regulators regarding the foreign composition of its financial backers. The investment’s structure, including passivity, removes any worries about foreign ownership or national security.

Michael O’Rielly is currently President at MPORielly Consulting Inc., Visiting Fellow at the Hudson Institute, Senior Fellow at the Media Institute, Adjunct Senior Fellow at the Free State Foundation, and Member of the International Advisory Committee of APCO Worldwide. He served as a Commissioner at the Federal Communications Commission from 2013 through 2020. Before joining the FCC, Mr. O’Rielly held a variety of leading staff positions during 20 years on Capitol Hill in both the U.S. Senate and House of Representatives, ending as Policy Advisor in the Office of the Senate Republican Whip. This Expert Opinion is exclusive to Broadband Breakfast.

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