In a historic move that has shaken the industry, Netflix is officially buying Warner Bros. and HBO Max. The announcement came after months of speculation and a tense bidding war involving the streamer, Paramount Skydance and Comcast. Netflix emerging as the ultimate winner in the auction was a surprise, particularly because, for a time, David Ellison's Paramount seemed to be the top candidate to acquire Warner Bros. Discovery.
People have a lot of questions regarding the transaction, and in a call with Wall Street analysts (via The Hollywood Reporter), Netflix co-CEOs Ted Sarandos and Greg Peters have explained their reasoning for buying the company. For context, in October, shortly after WBD was announced to be for sale, the Netflix heads stated they were not looking to take part in such a potential acquisition. Peters specifically said at the time:
"None of those mergers were a fundamental shift in the competitive landscape, and we have also seen a wide range of outcomes from such mergers. So watching some of our competitors potentially get bigger via M&A does not change in and of itself, at least our view of the competitive landscape."
During this most recent call, the co-CEO was asked about that response. He stated his comments were regarding companies that didn't understand the entities they were merging with. Netflix, he said, is fully aware of the assets it's acquiring:
"Historically, many of these mergers haven't worked. A lot of those failures that we've seen historically is because the company that was doing the acquisition didn't understand the entertainment business. They didn't really understand what they were buying. We understand these assets that we're buying, the things that are critical in Warner Bros. are key businesses that we operate in, and we understand. A lot of times, the acquiring company, it was a legacy, non-growth business that was looking for sort of a lifeline that doesn't apply to us."
There is a lot of concern in the industry regarding the merger, both in terms of a potential reduced theatrical output from Warner Bros., as well as the fear that Netflix will prioritize streaming over theatrical releases. Sarandos, however, states the company's acquisition of WBD will be a healthy development for the industry:
"I think this is a good story, because this is a a healthy, growing business that is going to help another business grow in a more healthy way, and open up audience reach that these creators have never had before. I think the opportunities are great for American production and for the entertainment industry as a whole, to be much more active than it has been over the last several years."
Netflix's deal with Warner Bros. still has to clear regulations. There's been speculation and reports pointing to the possibility of Netflix encountering hurdles during this process. A group of creatives, for example, recently banded together to submit a letter to Congress (via Variety), expressing their fears over a WBD-Netflix merger. The letter requested the transaction to be given the "highest level of antitrust scrutiny."
However, Sarandos is apparently not worried. In fact, he seems quite confident in the deal going through. The co-CEO explained he sees the merger as being "pro-consumer" and "pro-creator," and expressed Netflix's intentions to work with authorities to be able to see the deal through:
"This deal is pro-consumer, pro-innovation, pro-worker, it's pro-creator, it's pro-growth. And you know, our plans here are to work really closely with all the appropriate governments and regulators, but we're really confident that we're going to to get all the necessary approvals that we need. These two businesses are complementary, as Greg [Peters] said earlier, and they're also loved businesses, which is really fantastic."
It was also revealed that Netflix intends to group its estimated $16 billion yearly content spend with WB's annual content budget. Despite that, however, it seems the industry could expect a decrease in Warner Bros.' prolific content output, as CFO Spence Neumann said to analysts that they would eventually implement "content efficiency [...] over time as well."