Netflix Will 'Scale Up' as Needed With Warner: Gallagher

Bloomberg

Watch Netflix Will 'Scale Up' as Needed With Warner: Gallagher - Bloomberg on Dailymotion

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00:00I was taking a look at Bloomberg Intelligence, their report out. They crunched the numbers and

00:04basically this deal, it's 25.2 times forward EBITDA. You think about recent studio M&A,

00:13it's closer to a range of 15 to 22 times. So you could make the case that this looks expensive and

00:21I wonder where you fall. I think everyone needs to keep in mind that Warner's value inside Netflix

00:26is exponentially larger than what it might be on a standalone basis. People are valuing

00:31the Warner asset as it is today, not what it could be when you light up the 190 countries that

00:37Netflix is currently live in, which is a much larger footprint than is currently available to

00:42HBO and Warner Brothers today. So it sounds like you're saying this is the proper home

00:47for Warner Brothers Discovery. I want to talk about movie theaters. I thought it was interesting to

00:52hear Netflix management say that they're going to release movies in theaters. What do you make

00:57of that strategy? Do you think that they'll stick to it? You know, it's interesting. I had a

01:02conversation with Reed Hastings about this very topic 10 years ago now, and he was very much against

01:07the releasing. You know, it was all about how do we provide the most value to the subscribers? And

01:11that was delivering the films to them in the home. But fast forward 10 years, and I think you can really

01:16see that it's a tremendous marketing channel to put Netflix films in the theaters, but maybe not for as

01:22long and maybe on a day and date basis, but provide the best possible viewing opportunity for some of

01:28the marquee films. And I think they might be able to negotiate more preferred terms now that they've

01:32also got the Warner Brothers assets alongside the Netflix films. Well, I am curious. I mean, if you did

01:39still have the ear of Sarandos and Peters, I am curious as to how you would want them to balance out

01:45obviously their core business of streaming with this idea of theatrical releases. And I bring that

01:51up because there was a lot of criticism that they didn't necessarily keep K-pop Demon Hunters in the

01:56theater longer when it really became clear that it had become sort of this phenomenon. And I understand

02:02why they pulled it. That was part of the transition. But this is one of those moments where they could

02:07have capitalized us on this even more. And I'm curious as to whether, A, they care about that.

02:11And if they do, do they have the people inside that company right now who can execute on it?

02:18Do they have a look? Do they care about it? Absolutely. They care about it. And it's certainly

02:22interesting. But again, it's more a marketing asset to say to the existing subscribers, look at this

02:27tremendous value that we're creating for you. This is theatrical release worthy. But you know what?

02:32You can go and view it at home for the price of your subscription. And we think that delivers you

02:37more value. So relative to the people, do they have people internally? I'm sure they have a

02:42handful of people internally, but they'll scale up as needed. They're a very intelligent organization

02:47and they'll manage it appropriately. With regards to the integration of Warner Brothers Discovery,

02:53assuming that this deal does go through, I mean, I assume there's going to be a lot of overlap in

02:58terms of personnel. And I assume there's going to be some consolidation there. But how deep do you

03:03think that needs to be? Or is there going to be some symbiosis in keeping a lot of the folks from

03:08Warner Brothers intact, more or less?

03:11I think Warner Brothers brings tremendous production expertise that goes back a long way,

03:16as well as development expertise. So I think what you'll see is Warner Brothers and HBO existing

03:21as silos inside the Netflix organization to produce content that's more specific to those silos.

03:28So and maybe perceived as more premium content, that it's iconic type titles that might be perceived

03:39with more value. And maybe it introduces an opportunity for a different subscription tier even.

03:43I don't think that's the way they'll go because they love the simplicity of the single price point.

03:47But it does present that as a viable option if they've got the HBO and Warner Brothers content.

03:53Well, Simon, I also want to talk about antitrust concerns here as well,

03:57because you think about Netflix, you think about HBO, the point could be made that they're competing

04:01for the same audience. And given that context, do you think that we're going to run into issues here

04:07and that Netflix can get this over the line while keeping HBO?

04:13I'm sure they've put a significant amount of time into this before actually formalizing the offer.

04:18They wouldn't have proceeded down this path without a lot of legal analysis on what potential hurdles

04:26they may face. And at the end of the day, everyone needs to keep in mind that they're currently 9%

04:31of television viewing time in the United States.

04:34If the acquisition is looked at alongside YouTube, which perhaps does have higher viewing hours

04:42than Netflix at the moment, and if it's also considered alongside the broadcasters who have

04:47more significant sports rights, then it seems to be a much more even playing field and a defensible

04:53acquisition. If it's considered just on a subscription streaming basis, which I don't think it should be,

04:59then it starts to be a little bit more of an uphill battle.

05:02And I want to talk about the industry overall. You think about this particular deal, it's just

05:07enormous in scale. But do you think that this could encourage and perhaps open the door

05:12to more consolidation within the industry?

05:15I think there's going to have to be, because this is certainly only makes Netflix more powerful,

05:21more of a value proposition for the consumer and for the others to compete, particularly on a

05:27content volume basis. I think what Apple's done in terms of taking a very premium approach to the

05:34space is clever. But when you look at Paramount+, when you look at what some of the others are

05:40offering, I just don't think they're robust enough to compete, even if Netflix ups their monthly

05:45subscription fee.

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