Understanding the risky Netflix-Warner Bros deal

Whether or not Netflix acquires Warner Bros. for $82.6 billion. As time goes by, the deal represents a fraught moment for Hollywood, as the entertainment business is increasingly overshadowed by tech giants.

In the last episode of Stock podcastKirsten Korosek and I discussed the implications of the deal, both for Netflix and the larger Hollywood ecosystem. Kirsten noted that this is just the latest step that brings more consolidation to the media sector, and wondered if it was “too big a risk” for Netflix.

Meanwhile, I discussed a call with Netflix executives where Wall Street analysts appeared to struggle to understand the deal. And then of course there’s Paramount’s competing bid – whatever happens, Warner Bros. It seems that our days as an independent company are numbered.

You can read an edited preview of our conversation below.

Kirsten: I remember when Netflix was just a small startup and you got their (DVDs) in the mail. Here they are all grown up, bidding to buy out an old company. Did that go through your head when you saw the news?

Anthony: Symbolically, this is the moment Hollywood was eaten by the conceit. There were all these articles, even before this deal, saying, “Netflix is ​​eating Hollywood, Netflix is ​​transforming Hollywood.” Regardless of whether or not this deal goes through, Netflix will have transformed Hollywood, but this seems to be one of the biggest things that could happen – symbolically but also substantively -.

And then there are all these other questions about: Will Netflix get regulatory approval? Will Paramount’s hostile attempt succeed?

What caught your attention that you were following, Kirsten?

Kirsten: Well, the first thing I was thinking is, could there be more consolidation in this market? I mean, that was the biggest thing for me, because if memory serves, Warner Bros. had passed on it. Already integrated with Discovery, right? So here we are again. There was so much merging that I lost track of it all.

But the second thought was what I immediately thought of, what I started (from our discussion), was really thinking about how Netflix (grows), and there were these dips along the way, where the headlines were about how is it struggling, is it going to stay relevant, and how can it do that? If they succeed in the actual deal, it will likely reflect that they made it.

But again, they have to implement (manage) a larger company than ever before. So I guess my third thought on this matter is: He should They buy this? Is this what it will take for them to scale? Is it dangerous for them to take on too much? Why don’t they stay as they are? I don’t know if you agree with me on that. Is it too big of a risk?

Anthony: I can see how that makes sense for Netflix. It’s a way of taking over an already very large (content) library, and obviously they have some very successful TV shows — less so on the movies side — (but) it’s probably going to become a lot stronger on the content side.

(And) suddenly they’re now involved in all these other businesses, although the question is how much they’ll invest in things like the theatrical business, theme parks, and producing TV shows for other streaming services and networks, which are all businesses that Warner Bros. is in, and which Netflix says it will continue to support. But we will see to what extent this is true.

So it seems like something that could really benefit Netflix in some ways, but at the same time, this seems like a huge risk. If you go and look The analyst called out what Netflix executives did After the deal is announced, you can see analysts grappling with it and asking, “Okay, I can see this growing your business, but does it grow your business (to the point where it’s) worth $82 billion?”

And then of course, outside of the Netflix perspective, you have everyone in Hollywood. There are all these maybe Strictly hyperbolic addresses Originally Answered: Is this the end of Hollywood? Is this the end of the film industry? All the unions are either saying: “This deal should be blocked” or “We are very, very concerned about this deal.” Theater owners say so

And so I think there’s a) is this a good deal for Netflix? And b) is this a good deal for the entertainment business? I don’t have a good answer for either, (but) I think it’s more likely to be a good deal for Netflix than a good deal for the entertainment business.

Although, again, part of what needs to be kept in mind when people think about these options or think about the potential outcomes here, is that given the way Paramount forced Warner Bros. Upon consideration of these takeover offers, it seems unlikely that Warner Bros. Able to continue as an independent company – which is disappointing if you’re not a fan of media consolidation.