Netflix is taking a massive swing at the future of entertainment, and Hollywood will never be the same.
The streaming giant has agreed to buy Warner Bros. Discovery’s studio and streaming businesses for an equity value of $72 billion, the companies said on Friday. It’s by far Netflix’s biggest acquisition in its history and is one of the largest ever in the entertainment industry.
“Warner Bros. has helped define the last century of entertainment, and together, we can help define the next one,” Netflix co-CEO Ted Sarandos on a call after the deal’s announcement.
The seismic cash-and-stock deal, which has a total enterprise value of $82.7 billion, will bring together Netflix’s streaming platform with Warner Bros.’ century-old studio, HBO, HBO Max, and some of the most iconic franchises in film and television.
The acquisition is expected to close after WBD spins off its Global Networks division into a separate publicly traded company, Discovery Global, which includes WBD’s TV networks like CNN, TNT, and TBS. The process is expected to take 12 to 18 months, the companies said.
Netflix investors don’t seem thrilled with the deal, as its stock slid 3.9% in premarket trading on the news. WBD shares surged 3.3%.
Shares of rival bidders Paramount also retreated by 2.9%, while fellow suitor Comcast’s stock was little changed.
‘Our mission has always been to entertain the world’
Sarandos said the merger strengthens the company’s core mission.
He called Warner Bros.’ catalog “incredible” and said that bringing together classics such as “Citizen Kane” with Netflix hits like “Stranger Things,” “KPop Demon Hunters,” and “Squid Game” would allow the company to entertain the world “even better.”
Sarandos said this merger would let Netflix give audiences “more of what they love” while helping shape the next century of global storytelling.
Netflix plans to preserve Warner Bros.’ existing operations, including its theatrical release pipeline.
WBD staffers have questions
Several WBD employees said they were on edge about a Netflix acquisition.
One longtime HBO software engineer said they were worried about their job if the Netflix acquisition went through. Their reasoning was that Netflix already has a top-notch tech platform, so they might not keep many software engineers if the tech giant came out on top and collapsed HBO Max’s platform into its own.
Another WBD streaming employee expressed a similar concern about Netflix and their personal job security.
A third WBD streaming employee had a very different take, saying he was rooting for Netflix to win.
“I think Netflix is cooler and more hip than Comcast and Paramount,” this person said. They said they weren’t too concerned about their job security with a deal, adding that in past transactions involving WBD’s assets, reorgs took a long time to come to fruition.
Why Netflix wants this deal
Warner Bros. grants Netflix access to some of the most recognizable titles in modern entertainment, including enduring sitcoms like “Friends” and “The Big Bang Theory,” as well as prestige television from HBO, franchises like “Harry Potter,” and classic movies like “The Wizard of Oz” and “Casablanca.”
While Netflix built its empire on original programming, it has long lacked the kind of heritage intellectual property that more established studios, such as Disney, have.
If regulators approve the deal, Netflix subscribers are likely to get a wider selection of premium content on the platform.
Netflix expects the acquisition to deliver $2 billion to $3 billion in annual cost savings by the third year and to boost earnings by the second year.
WBD shareholders will receive $23.25 in cash per share and $4.50 in Netflix stock, Netflix said. The agreement values WBD at $27.75 per share.
Regulators are expected to scrutinize the deal closely. It still requires approval from the Department of Justice, the Federal Trade Commission, and WBD shareholders.
The fallout for rival bidders
Netflix’s victory is a surprise for many media industry insiders and a loss for David Ellison’s Paramount Skydance.
Netflix already has the largest paid streaming service by both subscribers and engagement, so the consensus among media analysts was that it didn’t necessarily need HBO Max and its content.
Paramount was the first bidder for WBD and the only suitor willing to swallow the whole company. Many industry insiders thought Ellison’s apparent rapport with Trump could help a Paramount-WBD deal get a headache-free approval process.
Comcast was also in the mix. Rich Greenfield of LightShed Partners made the case that Comcast should go all out to buy WBD’s studio and streamer, writing that it was time for the company “to make a bold move to change the narrative around Comcast.” Without HBO Max, Greenfield said its Peacock streamer would be “stranded without an obvious merger partner and at a meaningful content deficit.”
Instead, Netflix appears poised to acquire HBO Max and its large subscriber base. Meanwhile, Paramount+ and Peacock could fall further behind.
