Understanding the risky Netflix-Warner Bros deal

Whether Netflix will acquire Warner Bros. Worth $82.6 billion or not, the deal encapsulates a fraught moment for Hollywood, as the entertainment business is increasingly overshadowed by tech giants.

In the latest episode of Equity, Kirsten Korosek and I discuss 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 I got acquired [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, which is what I kicked [off our discussion] With, which really thinks about how Netflix works [has grown]And there were these dips along the way, where the headlines were about how she’s fighting, will she stay relevant, and how can she do it? If they succeed in the actual deal, [it would] potentially reflective [that] They did it.

But again, they have to implement it [running] A bigger 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 to take [content] A very large library indeed, and they obviously have some very successful TV shows – less so in terms of films – [but] They will likely become much stronger in terms of content.

[And] They’re suddenly involved in all these other businesses now, though the question is how much they’ll invest in things like theatrical businesses, theme parks, and producing TV shows for other streaming services and networks, all of which are businesses 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 look at the analyst call that Netflix executives took after the deal was announced, you can see that analysts are grappling with it and asking, “Okay, I can see this growing your business, but is it growing your business?” [so much that it’s] Worth $82 billion?

And then of course, outside of the Netflix perspective, you have everyone in Hollywood. There are all these headlines that are perhaps subtly exaggerated about: Is this the end of Hollywood? Is this the end of the film industry? All the unions are either saying: “This deal should be banned” 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 it is 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.