(Welcome to the Entertainment Strategy Guy, a newsletter on the entertainment industry and business strategy. I write a weekly Streaming Ratings Report and a bi-weekly strategy column, along with occasional deep dives into other topics, like today’s article. Please subscribe.)
Well, fourth time is the charm.
Since 2001, the movie studio Warner Bros. (and associated assets such as HBO and Warner Bros. TV production) has been sold four times. (Five, if you count the AOL divorce and consequent spinning off of assets.) That includes:
- 2001: AOL acquires Time Warner for $165-182 billion.
- 2014: Time Warner sells off assets to just Warner Bros., Turner, and HBO remaining. (Specifically, they spun off Warner Music in 2005, AOL in 2009, Time Warner cable in 2009, and print media in 2014.)
- 2018: AT&T acquires Time Warner for $85.4 billion (108.7 with debt).
- 2022: WarnerMedia spinoff from AT&T to Discovery for $43 billion.
- 2025: Netflix buying Warner Bros. for $82.7 billion.
Let’s go ahead and make a quick bar chart with the (inflation-adjusted) values over time:
Even though Warner Bros. has been bought and sold many times over the years, it’s always major news when it happens. So, as I did after the Warner Bros-Discovery deal, the AT&T-Warner Bros. deal, the Amazon-MGM Studios deal, and the Disney-Fox deal, I’m going to put my “regularly scheduled programming” on hold while we discuss the ramifications of this huge deal. Frankly, I’m bursting with ideas and takes on this potential acquisition, since it is that monumental.
Today is Part I of my analysis, looking at the strategy: who won, why this deal makes sense, and what may happen next. Part II (early next week) will look at the competition (meaning antitrust/consolidation) angles. Call this the “strategy versus society” angle: the former is whether the companies should do something; the latter is whether society should let them. So I’m holding my nose while I discuss this deal from the first angle today, but hey, I am the Entertainment Strategy Guy, so strategy comes first.
Today I’ll look at…
- Why Netflix won the bidding war
- Four reasons Why I love This deal strategically
- Why I dislike the price tag
- Why the deal may not close
- Why Netflix may succeed where others have failed
Overall, I love the deal strategically, but am terrified of the price. So I’ll say I like it overall.
Let’s dive in!
Why Warner Bros. Discovery Chose Netflix
Simply put, I think Warner Bros. Discovery (meaning their CEO, David Zaslav, with the board, including key investor John Malone) picked Netflix’s offer because it makes them the most money. As I recently wrote:
“Who do I think wins this auction? Heck, the highest bid usually wins. Tell me who bid the most, and that’s who I’m betting on.”
From my understanding of the leaks, Paramount-Skydance tried to offer around $75 billion for all of Warner Bros. Discovery, including the cable assets. This deal is $8 billion more (factoring in the debt acquisition) for JUST Warner Bros.
Paying more for less? That’s a better deal, and likely why Warner Bros. Discovery picked Netflix.
I’d add, Netflix really is the strongest player in streaming/TV globally, and they have the best balance sheet to pull this off. Part of closing a deal is trusting the money will actually show up, and picking the company worth $445 billion in enterprise value with $9 billion in free cash flow means the deal is likelier to close that bar.
It also means WBD is less worried about the regulatory hurdles than Paramount-Skydance had hoped. Some of this may have been Paramount-Skydance thinking they could buy WBD at a discount, and clearly WBD thinks they can overcome any antitrust concerns from the federal authorities in this administration (and presumably the next, but more on that in the future).
Why I Love This Deal
I won’t lie: strategically, I love this deal for Netflix.
Ironically, I’m sure some Netflix bulls wish I hated it. Reverse-ironically, I think some Big Tech-loving types actually dislike this deal for Netflix since it’s so…traditional.
This deal has four major advantages for Netflix, in rough order from most valuable to least:
- IP
- The “defensive” strategy
- Backdoor strategy change (also known as “the end of Neverflix”)
- HBO
Overall, this feels to me like the “strong getting stronger” and you have to love that for Netflix. They’re already on top and using their position as “big stack” at the poker table to build a bigger lead. (Keep this analogy in mind for future articles.)
IP, IP, IP
The rest of this article is for paid subscribers of the Entertainment Strategy Guy, so please subscribe.
We can only keep doing this great work with your support. If you’d like to read more about why you should subscribe, please read this post about the Streaming Ratings Report, why you need it, and why we cover streaming ratings best.
