Regardless of whether Netflix’s purchase of Warner Bros. For $82.6 billion, whether it goes through or not, the deal caps a stressful moment for Hollywood as the entertainment industry is increasingly overshadowed by tech giants.
In 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 industry, and she wondered if it’s “too much of a risk” for Netflix.
Meanwhile, I discussed a call with Netflix executives where Wall Street analysts also appeared to be struggling to wrap their heads around the deal. And then, of course, there’s Paramount’s competing hostile bid — whatever happens, Warner Bros.’ days as an independent business appear to be numbered.
You can read an edited preview of our conversation below.
Kirsten: I remember when Netflix was just a little baby startup and I got theirs [DVDs] in the mail. Here they are, all grown up, offering a legacy business. Did that cross your mind when you saw the news?
Anthony: Quite symbolically, it is this moment when the upstart has eaten Hollywood. There have been all these articles, even before this deal, saying, “Netflix is eating Hollywood, Netflix is transforming Hollywood.” Whether this deal ends up going through or not, Netflix will have transformed Hollywood, but this seems like the biggest – both symbolically and also substantively – one of the most dramatic things to happen.
Then there are all these other questions about: Does Netflix get regulatory approval? Will Paramount’s hostile bid succeed?
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What jumped out at you is that you caught up, Kirsten?
Kirsten: Well, the first thing was that I thought, can there be any more consolidation in this market? I mean, that was the big one for me, because if memory serves, Warner Bros. already been through such a consolidation with Discovery, right? So here we are again. There has been so much consolidation that I have lost track of it all.
But the second thought was what I immediately thought, what I kicked [off our discussion] with who really think about how Netflix [has grown]and there have been these dips in the road along the way where the headlines have been about how is it struggling and will it stay relevant and how can it do that? If they succeed in the actual deal, [it would] potentially reflect [that] they have made it.
But then again, they have to execute [running] an even bigger company than ever before. So I guess my third thought on this is: Should are they buying this? Is that what it takes for them to expand? Is it a risk for them to take on so much? Why not just stay 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 that makes sense for Netflix. That’s one way to take one [content] library that’s already quite large, and they’ve obviously had some very successful TV shows – less so on the movie side – [but] potentially they just get that much stronger on the content side.
[And] they’re suddenly now 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, making TV shows for other streaming services and networks, all of which are businesses that Warner Bros is in and Netflix says it will continue to support. But we’ll see how true that is.
So it seems like something that could really benefit Netflix in some ways, but at the same time, it seems like this is a huge risk. If you go and watch the analyst call that Netflix executives did after announcing the deal, you can see the analysts struggling with it and wondering “Okay, I see this is growing your business, but is it growing your business [so much that it’s] an $82 billion deal?”
And then of course, beyond the Netflix perspective, you have everyone else in Hollywood. There are all these perhaps exactly hyperbolic headlines about: Is this the end of Hollywood? Is this the end of the cinema industry? All the unions are basically either saying, “This deal should be blocked” or “We’re very, very, very concerned about this deal.” That’s what the theater owners say
And so I think there’s A) Is this a good deal for Netflix? And B) is this a good deal for the entertainment industry? 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 a good deal for the entertainment industry.
But again, one of the things to keep in mind when people are weighing these options or thinking about possible outcomes here is that because of the way Paramount has forced Warner Bros. to consider these acquisition offers, it seems unlikely that Warner Bros. will be able to continue as an independent company – which, if you’re not a fan of media consolidation, is disappointing.