Canada’s nine million Netflix subscribers might be rooting for the streamer to succeed with its $72-billion (U.S.) takeover bid for the movie studio and HBO Max streaming service of Warner Bros. Discovery.
Netflix’s offerings could soon expand to include classic Warner Bros. films like “Casablanca” and “The Shawshank Redemption”; popular Warner franchises including Harry Potter and Superman; and HBO’s “The White Lotus” and “Succession.”
The 102-year-old Warner Bros. has one of the deepest film libraries on the planet. Netflix will achieve a historic coup if it can thwart a $77.9-billion counter-offer from Paramount Skydance to buy all of Warner.
But Netflix investors aren’t cheering. They’d rather that Netflix stuck with its proven business model as “pure play” streaming service.
You can’t blame them. Netflix stock has more than quintupled in five years.
But Netflix stock has dropped about 24 per cent since October, when word got out that Netflix was interested in buying selected assets of Warner, which is spinning off its CNN, HGTV, TNT and other assets into a separate company.
Aggrieved Netflix investors might get their wish — failure of the Netflix bid — if a hostile bid for all of Warner’s assets by Paramount prevails.
U.S. President Donald Trump is thought to want CNN to be acquired by Paramount, which he expects would do his bidding in remaking CNN as a Trump-friendly channel after years of clashes between Trump and the cable news channel.
And U.S. antitrust regulators in the Trump administration already have Netflix on their watch list. Netflix dominates streaming with its more than 300 million subscribers and would add another 120 million with Warner.
Netflix should have the inside track in this takeover battle, having secured the support of a Warner board that has several times rejected Paramount’s entreaties.
But Netflix might be better off without Warner. Getting its hands on a treasure trove of movies might not be worth deviating from an enviable business model.
The deal announcement means Netflix stock “transitions from pure, organic growth elegance to something more complicated,” analyst Peter Supino of Wolfe Research wrote in a recent client note.
The $38.9-billion Netflix (2024 revenues) has for the most part built its business internally rather than with takeovers. It has never spent more than $700 million on an acquisition.
And as recently as September, Warner had a stock-market value of just $30 billion before takeover speculation drove up its share price.
With a Warner acquisition, the single-suited Netflix would become a multimedia company — a streamer, a major Hollywood studio reliant on box-office releases, and a producer of TV shows for its own use and by other networks. Warner also licenses its shows to other streamers.
There are conflicts galore in that scenario. It’s likely that TV networks and rival streamers will accuse Netflix of withholding popular movies and shows, which could have Netflix spending a lot of time in court.
And exhibitors like Cinemax, AMC Entertainment and Canada’s Cineplex fear Netflix will scale back Warner’s movie output or that Netflix will limit cinema exhibition for Warner releases, typically to just 17 days if Netflix stays true to form. Cineplex shares are down about 13 per cent since October.
Until recently, Netflix said it was averse to takeovers. They “don’t have an amazing track record over the history of time,” Netflix co-CEO Greg Peters told an industry conference in October.
True enough. Stock in Walt Disney has dropped by about 20 per cent since its $71.3-billion blockbuster deal in 2019 to buy most of the assets of 20th Century Fox. Netflix stock has more than tripled in that time.
Netflix has become one of the world’s most powerful entertainment companies by making first-run movies and shows that are exclusively available to its subscribers. And that remains its “primary goal,” says Netflix co-CEO Ted Sarandos, who said earlier this year that traditional movie-going is “an outmoded idea, for most people.”
To be sure, Netflix has pivoted before. The company was founded in 1997 as a video rental-by-mail service. It started streaming in 2007. Netflix has since launched an advertising tier.
Advertising had always been anathema to Netflix, decried by Netflix co-founder Reed Hastings as “exploiting users.” But when subscriber growth stalled a few years ago, Netflix started accepting ads as an additional source of revenue growth.
Today, Netflix is willing to risk a culture clash between a quintessential Hollywood studio and its own Silicon Valley ethos to obtain exclusive use of more movies and TV shows.
In 1986, Ted Turner almost bankrupted himself buying the film library of MGM, when he could have simply rented the films for his broadcasting company. A critic at the time said the deal was like the bride who buys the U.S. Postal Service to mail her wedding invitations.
If Netflix stumbles with a Warner acquisition, we could be watching a rerun.
