Netflix (NFLX) Buys Back Friends in Warner Bros. Discovery (WBD) Acquisition
Maria Schrater
WriterNetflix’s (NFLX) successful bid for Warner Bros. Discovery (WBD) dominated Friday headlines. The deal, which includes HBO Max, HBO, and its film and television studios, is worth around $72 billion dollars. WBD’s Global Networks Division will spin off into Discovery Global, a publicly traded company, which will own its pay TV networks like CNN and TNT.
The $27.75/share deal is expected to close in 12-18 months and is mostly in cash. Paramount Skydance (PSKY), another bidder (and the result of a recent media merger of its own) has alleged WBD favored Netflix’s bid and has raised issues around the “fairness and adequacy” of the process. U.S. senators have also already raised anti-monopoly concerns.
If the deal goes through, Netflix would gain beloved properties like The Wizard of Oz, the DC Universe, The Sopranos, and even Game of Thrones. HBO Max is generally known as a home of prestige TV, a status which Netflix covets. It has long aimed to sweep various awards, including the Oscars and Emmys, and HBO has had a consistent presence at those industry honors.
Due to competing streaming services, Netflix has also lost a lot of its top rerun hits over the years – Friends was one of its most consistently viewed offerings. Netflix shelled out between $80 million - $100 million in 2018 just to keep the rights to the show. On top of this, it recently announced that the show will leave its platform – for HBO Max.
However, as several analysts pointed out in the wake of the announcement, the deal heavily leverages Netflix as it takes on tens of billions of dollars in bridge loans. Also, WBD’s last merger – between Warner Bros. and Discovery – destroyed value.
The deal is unpopular in Hollywood, with director James Cameron warning the deal would be a “disaster.” Its streaming-first model could take Warner Bros. movies out of theaters, impacting the box office, which has never fully recovered from Covid. CEO Ted Sarandos argues that the merger gives creators access to an even bigger sandbox.
Netflix doesn’t own the most consistent hitmaking properties right now: Disney (DIS) has a lock on the Marvel universe, Pixar films, Star Wars, and many other beloved franchises. Netflix has been able to make some modern smashes, including Wednesday and Stranger Things, but their bench isn’t nearly as deep. Netflix owning the DC Universe could position it directly against Disney, just as it receives a refresh under James Gunn.
Expanding their content slate so dramatically could give Netflix additional leverage to raise prices. The New York Times also notes that it will give them further leverage over Hollywood entertainment labor unions.
While this is an unusual move for Netflix – “over the years, we have been known as builders, not buyers,” Sarandon said on an investors call – it is reflective of the rapidly merging media landscape of the last few years. Netflix may see acquiring tried-and-true content as a better move than building out its own right now, given the fickleness of audiences and the stickiness of classics. It could also be driven by the desire to keep rivals out: in the past, Netflix has been willing to pay eye-watering sums for exclusivity deals with popular directors and producers. We’ll see if this deal makes it through government approval.
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