Netflix, Comcast Eyeing Possible Warner Bros. Sale

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00:00I was listening to that conversation live when you were doing it with Greg Peters and it sounded

00:04like the builders not buyers part really stuck out to me and talking about the history of mergers

00:09that have gone sour in the industry. But it sounds like at least according to your reporting along

00:13with Kelsey that they could be in the in the game for it. Well I think the build not buy is still

00:21the Netflix mantra. It's a company that has avoided doing major M&A throughout its entire history.

00:27Some of that informed by co-founder Reed Hastings experience at his prior company a software

00:31company where that kind of grew through a lot of mergers and it didn't end very well for him or

00:36for the company. But they do take a look at everything. They study it. They run the data.

00:42And I think Greg Peters colleague co-CEO Ted Sarandos has always been kind of enamored of

00:49studios and lots. And if they could get their hands on Warner Brothers the studio and perhaps

00:55more importantly the characters and IP that Warner Brothers owns and that HBO owns that's something

01:00that Netflix would be very interested in. They have no interest in the cable networks like TNT,

01:05TBS, CNN. I don't even think they have very much interest in the HBO streaming service because they

01:10can just feed the content into Netflix. So if there's a way to do a deal that gets them what they want

01:16without the stuff they don't want they're open to it. But my read on the situation even though we have

01:21reported that Netflix and Comcast are interested which is true is that you've got one very clear

01:27interested party in Paramount and you have a Warner Brothers Discovery wanting to either get a better

01:31offer from them or find someone else or have more leverage in these conversations. And so they're

01:36basically saying that's it we're for sale come and make an offer and they want to get as many people

01:41in the tent as possible so they have as much leverage as possible. All right so Lucas Warner Brothers

01:45as you said rebuffed Paramount Skydance's initial takeover around $20 a share for being too low

01:51according to those familiar. So is this still a live deal? Are we expecting Paramount Skydance to come

01:57back? Yeah definitely. It is still a live deal. There are still conversations happening. I think there

02:03have been reports that Paramount has made several offers. They are they're clearly exploring how best to

02:10proceed. Do they need partners? Do they need to be hostile and go public with it? You know what is

02:16the number at which the the Warner Brothers Discovery board has to say yes even if management

02:22doesn't want to do the Paramount deal because it would likely lead to their dismissal. But I would not

02:27expect Paramount Skydance to to walk away just because they're in kind of soliciting other bids. Is it

02:33plausible for us to think that Warner Brothers Discovery could remain an independent company when the dust

02:38settles that no deal could be done? That's looking increasingly unlikely. I think it is possible

02:44that they go through with the split and do a deal after that or come up with some arrangement in which

02:50there is still a split but one piece goes to one of these buyers. But it's not feeling because they're

02:56already going to split the company. So I think you know a year from now 18 months from now the odds of

03:01Warner Brothers Discovery being a whole and independent company are incredibly unlikely. But what exact shape it

03:07takes we don't know yet. So let's play out the Netflix part of this a little more Lucas because

03:12I'm intrigued with the idea of Netflix actually getting the studio but not being interested

03:15necessarily in the legacy TV networks that that are part of Warner Brothers Discovery. What would

03:22happen to that legacy side of the business if the studio were to get sold to Netflix or another buyer?

03:29Well it's it's hard to know because we I don't think they're they're progressed enough in those

03:34talks for me to have the answer. But look Warner Brothers Discovery was already going to spin off

03:38its TV networks. It can continue to do that right. It can say okay that studio and streaming business

03:43that was going to be one part of kind of one entity going forward that can go to Netflix and it's up to

03:49Netflix or they can negotiate how the HBO network fits into that or the HBO streaming service fits into

03:55that or they can find another buyer for that right. If they've come to an agreement if they feel like

04:00Netflix has made a great offer for just the studio and the lot and maybe some of the HBO programming

04:05maybe they can take the rest of that and package it up and where Comcast which is spinning out

04:11Versant which is its cable networks is interested maybe those two can come together. Now once you're

04:16dealing with these spin codes it gets very complicated for tax reasons about what you can and can't do

04:21because one of the reasons they choose to spin is to save money on taxes. But there's a lot I think

04:27they are trying to project optionality here. Well for Warner Brothers Discovery I'm assuming they

04:34want to get as much as they can for all of their assets. Can they do that by breaking it apart? Is

04:41that really the smartest route but maybe more complicated versus just getting rid of the company

04:46in one full shot? Well they clearly think that there's more value in the parts than they're getting

04:52valued out in the whole right now. That's one of the reasons they're doing the split spin however you

04:56want to talk about it because they think the parts are worth more than the whole is currently

05:00being valued at. So yes I think they feel like they could sell the studios and streaming for as

05:07almost as much as the whole company's trading at right now. The real question would be if you do that

05:11is there real is there actual value in the cable networks that are left over which you know I guess

05:17we'll find out there's certainly not going to be as frothy a market for those as there would be for

05:22for studio and streaming. People who work there certainly hope there's value. Just real quickly

05:26is there a clock ticking on this or could this drag on for a little bit longer? It could drag on. I

05:31spoke to an investor earlier today who would be said they'd be surprised if they saw this resolved this

05:36year. I don't know if that's the case but they have opened up a process. You think back about how

05:42long the Paramount Skydance process ended up taking. It was you know a year before there was a deal and

05:49then another year for it to actually go through. So I would imagine you know we've got at a minimum

05:54a few months left. Okay Netflix uh happens now happening after the bell. We'll hear about their

05:59latest quarter and the upcoming current quarter that we're in right now. K-pop Demon Hunter is

06:03certainly going to be a star of the call. What else do we need to understand about today's report?

06:08I mean Netflix earnings especially now that they don't report subscriber numbers are a little less

06:13interesting than they used to be. Uh it's a company that has been very steady. Uh investors

06:18tend to want fireworks. They want huge beats and Netflix sometimes delivers that but most often they

06:24do especially recently I feel like they've delivered sort of modest beats. Uh you know I I most people

06:30expect them to post pretty good results. They had the movie this summer. They've had a steady stream of

06:34new programming and Netflix has told us all along that their programming in the back half of the year is

06:38much better than in the first half. The question with earnings is always expectations right. The street

06:43expectations for the company are already really high. So even if the numbers are pretty solid they

06:47might not live up to to what investors want or expect. 20 seconds uh Lucas does anybody really care

06:53now that there's like the Warner Brothers stuff is that what they definitely care because you know

06:57look Netflix is a 500 billion dollar company so its results matter.

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