Netflix to Buy Warner Bros. in $72B Cash, Stock Deal

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00:00Were you surprised to see Netflix come out the winner here?

00:03Yeah, I think it was a little surprising. I mean, I think at the start of all this,

00:07Paramount kicked off the sale by making an unsolicited bid for Warner Brothers Discovery

00:12and for the whole company, right? And they rejected three bids, opened it up for sale.

00:17Along came Netflix and Comcast saying we'd like part of the business, not the whole thing.

00:22But I think, you know, in spite of Netflix's strength in Hollywood, I think people were

00:27thinking, well, you know, they only want part of it. David Ellison, you know, just finished his deal

00:34to combine Skydance with Paramount. His father, Larry Ellison, the co-founder of Oracle, has an

00:39enormous amount of money to back the deal. So I think a lot of people thought that the Ellison's

00:44were going to be able to pull this off. And we're surprised that Netflix was able to do it.

00:48Well, the Ellison's might still be able to pull this off because there are reports that

00:51Paramount Skydance is considering taking its offer straight to Warner Brothers Discovery shareholders.

00:56So it's not quite over yet.

00:58Yeah, we're all waiting in the next move from the Ellison's. And they signaled some displeasure

01:03yesterday in a letter to Warner Brothers saying that they felt the process had not been fair

01:08and that, you know, sort of laying the framework for potentially going hostile.

01:12And they bid a higher price than Netflix did too, right?

01:14It depends. It was kind of apples to oranges, right? Because they weren't bidding for the same

01:18thing. Netflix was bidding for part of the company and, you know, Paramount Skydance was bidding

01:25for the whole thing. But part of the company, they were still at, they were still going to offer

01:29even more for part of the company than Paramount was going to give for the whole company. Is that

01:33right? It depends how you value the part of the company that Netflix is not acquiring, which is

01:38all of those cable, legacy cable networks. Well, let's talk about it since you wrote the book on

01:42HBO. What would, let's just say, for instance, this deal goes through Netflix, Warner Brothers Discovery.

01:47What happens to CNN, TNT, TBS, HBO? They'll all be spun off into a standalone company.

01:55And that's going to be, you know, those, it's a declining asset, but it still throws off a lot

02:00of cash. And, you know, will it be eventually potentially combined with some of the other

02:06cable networks that are now out there? It's, you know, conceivable that someone will come along

02:12and roll up what's left of all of the traditional legacy cable networks.

02:17And I misspoke. HBO is not part of that. That would be CNN, the cable.

02:21Right. Cartoon Network, TBS, TNT, CNN. Yeah.

02:28Felix, Netflix is the original disruptor. I mean, it kind of accelerated the cord cutting that we saw,

02:33that we're seeing everywhere. Are we setting up for a major culture clash here by having a tech

02:39company buy a classic Hollywood studio? Well, these deals always look great on paper and then

02:44you start combining the assets and often you do get culture clashes. And particularly with this

02:50company, with Warner Brothers Discovery, which was previously Warner Media, you know, we're now 25

02:57years into mega mergers for this company, starting with AOL Time Warner, which was one of the most

03:02disastrous, you know, combinations in entertainment history. And then, you know, then also the deal

03:10with AT&T buying the company later. And there was a huge culture clash there. Discovery coming along

03:16and combining assets with what remained of Warner Media also has been a turbulent ride. So, yeah,

03:23part of the question is, why would this be different? And people ask that, you know, analysts brought that up

03:28today on the phone call with Netflix executives. And what they said is, look, you know, we're in the

03:33entertainment business. And they didn't bring up the other companies' names, but AOL was not an

03:37entertainment business. They were a tech company, dial up, you know, access to the internet in the early

03:42days. And AT&T also had, you know, basically no entertainment industry history. I thought Netflix was

03:48a tech company. That's what they tell investors. Yeah, I mean, and they, you know, there's the famous

03:54quote of, uh, that Ted Sarandon said, you know, in early in the streaming wars where they said,

03:59you know, he said, we have to become HBO faster than HBO becomes us. And, you know, I think if you

04:05look back at what's happened in the, you know, dozen years since then, uh, you know, Netflix was able

04:12to master the skills of an, of an entertainment company and how to develop original programming,

04:17uh, how to build franchises quicker than HBO was able to master the streaming technology and

04:25distribute in, in this post cable era. I think about the culture clash and I think about how

04:30Amazon bought MGM for eight and a half billion dollars and you don't care about MGM anymore.

04:34It's kind of like it's lost its identity. I, I, I can't imagine that would happen with Warner

04:40Brothers, but I mean, could it, does Netflix just become so big it overshadows these legacy brands?

04:47Yeah. I think there's some serious questions about how these are going to fit together.

04:51Um, you know, and people asked today, like, what was, you know, what's the plan? Like,

04:56is HBO going to be a standalone streaming service? Is it going to be integrated? Is it going to be

05:01like a tab on Netflix? And they said, well, hold up. It's, we have basically a year to 18 months

05:06to figure out these questions. We're still ourselves kind of figuring out how they're going to fit

05:11together, but they see them as complimentary services, complimentary brands. Um, you know,

05:17and I think it's interesting when you think back about the past year, because in a sense,

05:21uh, this was something that, uh, you know, executives of Warner Brothers Discovery also came to this

05:27conclusion in the past year. You know, they'd spent the past couple of years saying, oh, we're going to

05:32build this giant streaming service with assets from Discovery plus assets from Warner Brothers

05:38to build a Netflix competitor. And they weren't able to catch up to Netflix in a meaningful way in

05:44terms of subscribers. And in terms of the amount of time people spend in the service. And eventually

05:49in the past six months, they started saying, you know what, we kind of see Netflix as a utility.

05:53Everyone has Netflix and there's a bunch of other complimentary streaming services of which

06:00HBO max is one. And so we're not going to try and offer everything. So in some ways there is,

06:06you know, other people kind of saw this come in. Maybe there's some world in which if you already

06:10have Netflix, do you buy the HBO add on in the future from Netflix to see, you know, the next season

06:20of another bundle choice is what we may have more bundling.

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