What started as a fact-finding mission for Netflix has resulted in one of the biggest media deals in the last decade and one that stands to reshape the global entertainment business landscape, people with direct knowledge of the deal told Reuters.
Netflix bought Warner Bros.
Netflix announced Friday that it has struck a deal to buy the TV, film studio and streaming division of Warner Bros. Discovery for $72 billion.
Although Netflix recently publicly shot down speculation of buying a major Hollywood studio in October, the streaming pioneer threw its hat in the ring when Warner Bros. Discovery launched an auction on October 21, after rejecting a trio of unsolicited offers from Paramount Skydance.
Details of Netflix’s planning and the Warner Bros. board’s deliberations are detailed here for the first time, based on interviews with seven advisers and executives.
Initially driven by curiosity about its business, Netflix executives quickly recognized the opportunity presented by Warner Bros., which went beyond Netflix subscribers’ ability to offer the century-old studio’s deep catalog of films and television shows. According to a person familiar with the business, library titles are valuable to streaming services because these movies and shows account for 80% of viewings.
Warner Bros.’s business units – particularly its theatrical distribution and promotion unit and its studio – were complementary to Netflix. According to a person familiar with the situation, the HBO Max streaming service will also benefit from insights learned years ago by streaming leader Netflix that will accelerate HBO’s growth.
Another source familiar with the process told Reuters that Netflix began flirting with the idea of acquiring studio and streaming assets after WBD announced plans in June to split into two publicly traded companies, separating its fading but cash-generating cable television network from the famed Warner Bros. studio, HBO, and the HBO Max streaming service.
Netflix and Warner Bros. did not respond to requests for comment.
Work ramped up this autumn, as Netflix began competing for the property against Paramount and NBCUniversal’s parent company, Comcast.
‘Strategic Flexibility’
Warner Bros. launched a public auction in October, after Paramount submitted the first of three ascending offers for the media company in September. Sources familiar with the proposal said Paramount aims to pre-empt the planned separation because the split would reduce the ability to combine traditional television network businesses and would increase the risk of a bid for the studio from the likes of Netflix.
Around that time, banker JPMorgan Chase & Co. was advising Warner Bros. Discovery CEO David Zaslav to consider reversing the order of the planned spin, first spinning off the Discovery Global unit containing the company’s cable television assets. According to sources familiar with the matter, this will give the company more flexibility, including the option to sell studio, streaming and content assets, which advisers believe will attract strong interest.
The sources said executives from the streaming service and its advisory team, which includes investment bank Moelis & Co., Wells Fargo and law firm Skadden, Arps, Slate, Meagher & Flom, have been holding daily morning calls for the past two months. The group worked throughout Thanksgiving week to prepare bids by the December 1 deadline – which included several calls on Thanksgiving Day.
Sources familiar with the deliberations said Warner Bros.’s board has been meeting similarly every day for the past eight days, leading up to the decision Thursday, when Netflix presented a final offer, which the sources described as the only offer they considered binding and complete.
The board supported the Netflix deal, which would provide more immediate benefits than Comcast. NBCUniversal’s parent proposed merging its entertainment division with Warner Bros. Discovery, creating a much larger entity that would rival Walt Disney. But sources said it would take several years to implement. Comcast declined to comment.
Paramount and Comcast dropped out
However, Paramount raised its offer to $30 a share on Thursday for an equity value of $78 billion for the entire company, according to sources familiar with the deal, but the Warner Bros. board had concerns about financing, other sources said. Paramount declined comment.
To reassure the seller about the expectation of a significant regulatory review, Netflix put forward one of the largest breakup fees in M&A history at $5.8 billion, a sign of its confidence it will win regulatory approval, the sources said. One source said, “No one can set fire to $6 billion without this conviction.”
By the time Netflix learned late Thursday that its offer had been accepted — news that was greeted by clapping and cheering on the group call — a Netflix executive admitted they thought they only had a 50-50 chance.