Whether or not the acquisition of Warner Bros. goes through. from Netflix for $82.6 billion, the deal caps a difficult time for Hollywood as the entertainment business is increasingly overshadowed by tech giants.
On the latest episode of the Equity podcast, Kirsten Korosec and I discussed the deal’s implications, both for Netflix and the larger Hollywood ecosystem. Kirsten noted that it’s just the latest move to bring more consolidation to the media business and wondered if it’s “too big a risk” for Netflix.
Meanwhile, I discussed a call with Netflix executives, where Wall Street analysts also seemed to be having trouble wrapping their heads around the deal. And of course there’s the competing hostile bid from Paramount — whatever happens, Warner Bros. The days as a stand-alone company seem to be numbered.
You can read an edited preview of our conversation below.
Kirsten: I remember when Netflix was just a small startup and I took theirs [DVDs] at the post office. Here they are, all grown up, bidding on a legacy company. Did that go through your mind when you saw the news?
Anthony: Certainly symbolically, this is the moment when the newcomer has eaten Hollywood. There were all these articles, even before this deal, saying, “Netflix is eating Hollywood, Netflix is transforming Hollywood.” Whether or not this deal goes through, Netflix will have transformed Hollywood, but this seems like the biggest — symbolically as well as literally — one of the most dramatic things to happen.
Then there are all these other questions about: Will Netflix get regulatory approval? Will Paramount’s hostile effort succeed?
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Did it seem like you were getting it, Kirsten?
Kirsten: So the first thing was I was like, can there be another consolidation in this market? I mean, that was the big one for me, because if I don’t remember, Warner Bros. already had this kind of integration with Discovery, right? Here we are again. There was so much consolidation that I lost track of it all.
But the second thought was what I immediately thought of, what I kicked [off our discussion] with, which really thinks how Netflix [has grown]and there have been these bumps in the road in his career where the headlines have been about how is he fighting, and will he stay relevant, and how can he do that? If they are successful in the actual deal, [it would] potentially reflect [that] they have succeeded.
But again, they have to execute it [running] an even bigger company than ever before. And so I guess my third thought on this is: You should do they buy this? Is that what it takes to expand? Is it a risk for them to take on so much? Why not leave them as they are? And I don’t know if you agree with me on that. Is it too much of a risk?
Anthony: I can see how it makes sense for Netflix. It’s a way to get one [content] library which is already quite large and apparently they’ve had some very successful TV shows – less so on the film side – [but] potentially, they just get a lot stronger on the content side.
[And] suddenly now they’re involved in all these other businesses, although the question is to what extent they’re going to invest in things like the theater business, theme parks, producing TV shows for other streaming services and networks, which are all businesses that Warner Bros. is in and Netflix says it will continue to support. But we will see to what extent this is true.
So it seems like something that can actually benefit Netflix in some ways, but at the same time, it seems like this is a huge risk. If you go and look the analyst call made by Netflix executives after the deal is announced, you can see that analysts are wrestling with it and wondering, “Okay, I can see that this grows your business, but does it grow your business [so much that it’s] is it worth an $82 billion deal?”
And of course, beyond the Netflix perspective, you have everyone else in Hollywood. There are all these maybe-just-exaggerated headlines about: Is this the end of Hollywood? Is this the end of cinema? All the unions are basically saying either, “This deal needs to be blocked” or “we’re very, very, very concerned about this deal.” The theater owners say so
And so I think there is 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 to be a good deal for the entertainment business.
Though again, part of what you have to remember as people weigh these options or think about possible outcomes here is that because of the way Paramount forced Warner Bros. to consider these takeover offers, it seems unlikely that Warner Bros. to be able to continue as an independent company — which, if you’re not a fan of media consolidation, that’s disappointing.
