Netflix Breaks From 'Build, Not Buy' With Warner Bros. Deal

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00:00Did it take you by surprise?

00:02By this point, no.

00:04It's funny that you ask that.

00:05I've spoken with a few different people at Netflix this morning,

00:07and they all asked me if I was surprised or shocked.

00:11And it's true that they've never done anything like this before.

00:14It represents a huge change for the business.

00:17If this deal gets through, and I know we may get there,

00:19it'll double in size pretty much as soon as they add all these folks.

00:23But Netflix has always been a company where they kind of never say never.

00:26They say they're not going to do something, and then they end up doing it.

00:29And it's been obvious over the course of the last two months,

00:32really since Greg's appearance at Screen Time,

00:34my confidence this would happen has increased bit by bit,

00:38including as people from Netflix told me that they were getting more and more serious about it.

00:42Lucas, I think there's a lot of reporting to do here on Bloomberg Tech,

00:46especially for the audience members that are hearing about this deal for the first time.

00:50What is Netflix proposing to do with Warner Brothers Discovery?

00:54What does Warner Brothers Discovery plan to spin out?

00:57Because there's an element that they'll have to divest or start new companies of some things.

01:01And we're reporting that in this bidding process,

01:05Paramount came in with a $30 per share offer.

01:08So it sounds as if Netflix had a lower offer than Warner Brothers Discovery went with.

01:13I'll take them in three, although I will say that the Paramount offer was not technically higher,

01:23but I'll get into it.

01:24So the process is, assuming that this all continues as planned,

01:29Warner Brothers Discovery will spin off its cable networks,

01:32the CNN, TNT, TBSs of the world, sometime third quarter next year.

01:36They will then proceed with closing the sale of the rest of the business,

01:41which is the Warner Brothers Studio and HBO slash HBO Max streaming to Netflix.

01:46They expect that transaction will close in the next 12 to 18 months.

01:50So let's say sometime in 27.

01:53And then there will obviously be regulatory approval and all that,

01:57which could also drag on for some time.

02:00Depends on when that enters the equation.

02:02In terms of the value and all that, yes, Paramount offered $30 a share.

02:09Netflix was just shy of $28.

02:12But you have to remember that because Netflix is only buying two-thirds of the company,

02:17there is a value that is being applied to the business that will be spun off

02:21that you add on top of the Netflix bid.

02:24So a lot of whether the Netflix bid was more or less than Paramount

02:27depends on the value you assign to those cable networks.

02:30You know, people who are really skeptical and certainly folks I spoke with in the Paramount

02:34Orbit are like, those cable networks are worth nothing, maybe a dollar a share, maybe two.

02:38You know, Warner Brothers may argue it's worth four or five dollars a share,

02:42in which case the Netflix offer is actually higher.

02:44Right.

02:44That's right.

02:45So, what not?

02:46I loveuno.

02:46Right.

02:47So, what is this one I'm going to do?

02:48You know, I'm going to listen.

02:49Well, where I'm going to go.

02:49Look, how's this one?

02:50And that's the one I'm going to go to do?

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