00:00Lucas did a really good job in explaining the differences in structure of the deals and also the different perspectives of each party.
00:07But I wondered if you'd help our audience understand what the difference is between a Netflix joined with Warner Brothers Discovery's streaming and studio business versus a Paramount Skydance taking the entire thing.
00:20What does that look like?
00:21You and Lucas have already done a great job, so I'll try to pitch in here.
00:25Really, WBD and Paramount, more redundancies, more overlap.
00:30They are both traditional TV and film companies with streaming services tacked on, whereas Netflix, obviously, as we know, famously or infamously, depending on your perspective, they are a streaming first at all costs company.
00:43So there's less overlap and far more new integration of potentially complementary or potentially conflicting businesses.
00:51Now, we have seen mega mergers of this nature in the past, but they have almost always been a like versus like company absorbing each other.
01:01We have not really seen a major, major streaming service take a company at the size of Warner Brothers Discovery just yet.
01:09Brendan, we're going later in the program to go deep on the antitrust considerations.
01:13There are antitrust considerations here.
01:15But let's say in either event, Netflix comes out on top or Paramount Skydance comes out on top.
01:21How does that change the landscape of entertainment?
01:24What does it look like to have an entity of that size?
01:28Roughly two thirds of U.S. adults who subscribe to HBO Max also subscribe to Netflix, whereas about 40 percent of HBO Max subscribers also use Paramount Plus, according to Greenlight Analytics data.
01:39So as of right now, the clear raw subscription streaming upside obviously favors Paramount Plus, which has about 80 million subscribers globally.
01:49So they are a solid growing streamer that's been on original content hot streak since late 2023, but clearly isn't remotely the same size as Netflix, Amazon or Disney Plus.
02:00So if Netflix were to get WBD, they would suddenly be investing in a lot of new businesses.
02:07And we don't know how they would play up theatrical.
02:10They don't know.
02:10We don't know how they would handle WBD TV's massive external TV licensing business.
02:17We do know that Paramount and WB, there's more of, again, overlap and redundancies.
02:21So we can safely say that that would probably be more predictable as to what the future would look like.
02:27And it would certainly position Paramount to make that entrance into the top three contenders of media companies.
02:34Certainly, David Ellis has been talking about getting in the position to produce more, more content, in particular for the consumer.
02:41Brandon, just listen to what he told our own Lucas Shaw a little bit earlier in October at our screen time event.
02:46We have a good relationship with the with the administration.
02:50And look, I think if you look to that, I do believe other things that have been rumored about, right, are very large scale players that would affect that could potentially create monopolies, obviously, in the ecosystem.
03:03And again, I think when you look at the lens of consolidation for us, I'll keep going back to it.
03:07It's always how do you create long term value creation?
03:10How do you put yourself in the position to produce more content, not less?
03:13And how do you ultimately build something that is better for the consumer?
03:17Brandon, what serves the consumer best?
03:20What serves the consumer best overall is usually competition.
03:24So I think there is a large sect of industry analysts and professionals that would probably prefer Warner Brothers Discovery to remain as an independent company because it means more competition.
03:35It means more buyers on the market.
03:36It probably means less layoffs of the labor force.
03:40Having said that, that's unfortunately not the reality that we live in.
03:43So somebody is going to get Warner Brothers.
03:45So it is really deciding which ultimate partner is probably best for the industry.
03:51Now, if you combine Netflix and HBO Max and if you combine Paramount Plus and HBO Max, they are still significantly smaller than YouTube, which is currently about a third bigger than Netflix in the U.S.
04:04So either way, there is still a lot of competition out there, depending on which industry you're pitting against one another.
04:10Let's talk about good old cable television, because that is where many would say there is perhaps value.
04:17And it depends on which side of the equation you think.
04:20At the moment, it feels as though Warner Brothers Discovery had thought there was more value in spinning off that part of the business than the $30 coming from Paramount Skydance.
04:28How do you look at those valuations?
04:30Well, let's stick with the famous Warner Brothers property.
04:33Friends, Ross was a famous paleontologist in the show, which means he loved fossils, which means he would love the cable network assets.
04:40They are rapidly declining.
04:42They are shrinking every day.
04:43And while they still spit out a decent amount of free cash flow, Wall Street sees them as an albatross, an anchor.
04:49So they all these companies want to position themselves for long leashes from shareholders and Wall Street.
04:55And the cable nets just aren't part of that strategy.
04:59Niche analogy, but we're here for it.
05:02The most important question seriously was posed by Bloomberg tech producer Pyle Zaveri.
05:09Just take this at face value seriously.
05:11Let's say either deal goes through and we don't know if it will.
05:15There's antitrust.
05:16Does that mean that we stop paying for multiple subscriptions and we can just pay for one subscription where all of our platforms are in one?
05:24Because that's the other side of it.
05:26Everyone has a dozen or more different subscriptions.
05:29And what's so funny is like the parties here, they're all contributors to that ecosystem.
05:35Yeah, this seems to be let's say Netflix gets it.
05:38And I'm betting HBO will be available as a premium add on an upsell.
05:43You have to pay more for it.
05:44But what's interesting about that is it puts Netflix in closer competition to Amazon channels, which is an aggregator, a platform from which you can subscribe to other streaming services.
05:54That's the really big strategic question, because if Netflix pulls this off, who's to say they won't start offering this to other niche or subscale streaming services that need the broad reach and distribution of Netflix?
06:06Because we've seen both YouTube and Amazon primetime channels are massively beneficial for subscale streamers.
06:13And then those host companies get a huge cut of ad revenue, subscription revenue, and it becomes an entirely new self-fulfilling business model all on its own.
06:22You are all about entertainment data.
06:24The moment our data is to look at share prices and Paramount goes higher today on the back of this news and Netflix sinks yet more.
06:33Do you think there is more value to be had longer term for the entire industry with one or the other, Brandon?
06:40I think if Netflix said, you know what, we're going to be complacent, we're not going to touch our bid, and they didn't get it, they would still be the number one streaming subscription video service in the world and for the foreseeable future.
06:53And we've already seen through the last month that shareholders aren't totally convinced that ingesting, let's say, non-traditional business assets compared to their business model is the right way to go, whereas Paramount is a little bit more comfortable and familiar with these businesses that they would be ingesting.
07:11So I think also because Paramount is trying to be a top three contender and a last man standing in the streaming wars, they probably have the most to gain by getting WBA.
Be the first to comment