Netflix Acquires Warner Bros Discovery Studios for USD 72 Billion
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Netflix has agreed to acquire Warner Bros Discovery's television, film studios, and streaming division for USD 72 billion. This significant deal grants the streaming pioneer control of one of Hollywood's most prized and established assets.
The agreement marks a dramatic turn for Netflix, which previously redefined how consumers watch movies and television shows. The company, known for disrupting the industry, will now operate as a mainstream studio itself.
Netflix Co-CEO Ted Sarandos stated on a call with investors that the acquisition was a rare opportunity. He acknowledged that some might be surprised, noting Netflix has typically been a "builder, not a buyer."
Sarandos added that the deal would help the company achieve its mission "to entertain the world, and bring people together through great stories." The agreement followed a weeks-long bidding war.
Netflix's offer of nearly USD 28 per share eclipsed presumed front-runner Paramount Skydance. Paramount Skydance had made a series of unsolicited bids to acquire all of Warner Bros Discovery, including its cable TV assets.
Netflix, which has spent a decade developing original series like "Stranger Things" and "Bridgerton," will gain access to Warner Bros’ vast content trove. This library, built over the last century, includes popular franchises such as "Game of Thrones," "Harry Potter," and DC Comics superheroes including Batman and Superman.
Sarandos commented that the two companies together would "help define the next century of storytelling." He had previously stated that "the goal is to become HBO faster than HBO can become us."
Warner Bros Discovery shares recently rose 3.2% to USD 25.33. Netflix shares fell about 0.2%, and Paramount shares declined 6.1%.
The Netflix deal is likely to face strong antitrust scrutiny in Europe and the United States. It would give the world's largest streaming service ownership of a rival, home to HBO Max and boasting nearly 130 million streaming subscribers.
Tom Harrington, head of television at Enders Analysis in London, predicted "resistance from parts of Hollywood and various unions." Harrington also suggested that HBO, described as a "creative jewel," would be "terribly exposed within Netflix."
David Ellison-led Paramount, which initiated the bidding war, questioned the sale process. Paramount alleged favourable treatment towards Netflix.
Some Members of Congress previously expressed concerns that a Netflix–Warner Bros Discovery deal could harm consumers and Hollywood. Cinema United, a global exhibition trade association, called the deal an "unprecedented threat" to movie theatres worldwide.
Former WarnerMedia CEO Jason Kilar said he could not think of "a more effective way to reduce competition in Hollywood than selling WBD to Netflix."
To address some concerns, Netflix stated the deal would provide subscribers with more shows and films. It also expects to boost its U.S. production and long-term spending on original content.
The company anticipates creating more jobs and opportunities for creative talent. Netflix argued during deal talks that a combination of its streaming service with HBO Max would benefit consumers by lowering the cost of a bundled offering.
Netflix Co-CEO Greg Peters told investors the company could package the streaming services together in a bundle. Alternatively, it could find ways to introduce HBO Max to Netflix subscribers.
The streaming service has a long history of building audiences for television series, such as "Breaking Bad" or the legal drama "Suits."
Netflix reportedly told Warner Bros Discovery it would continue releasing the studio's films in cinemas. This aims to ease fears that the deal would eliminate another studio and a major source of theatrical films.
Paolo Pescatore, a PP Foresight analyst, noted that "the current regulatory environment, this will raise eyebrows and concerns." Pescatore expects the combined dominant streaming player to be "heavily scrutinized."
Pescatore added, "We should expect this to wrangle on given Paramount Skydance pursuit for Warner Bros Discovery." Comcast, the third suitor, traded with little change.
Under the cash-and-stock deal, each Warner Bros Discovery shareholder will receive USD 23.25 in cash and about USD 4.50 in Netflix stock per share. This values Warner Bros Discovery at USD 27.75 per share, totalling about USD 72 billion in equity and USD 82.7 billion including debt.
The deal represents a premium of 121.3% to Warner Bros Discovery's closing price before initial reports of a possible buyout emerged.
The deal is expected to close after Warner Bros Discovery spins off its global networks unit, Discovery Global, into a separate listed company. This move is set for completion in the third quarter of 2026.
Netflix has offered Warner Bros Discovery a USD 5.8 billion breakup fee. If the deal collapses, Warner Bros Discovery would pay Netflix USD 2.8 billion.
Netflix expects to generate at least USD 2 billion to USD 3 billion in annual cost savings by the third year after the deal closes.
Analysts suggest Netflix is driven by a desire to secure long-term rights to popular shows and films. This reduces reliance on outside studios as the company expands into gaming and seeks new avenues for growth.
Netflix shares are up 16% this year, after surging more than 80% in 2024. Investors are concerned its rapid growth might be slowing, especially after it stopped disclosing subscriber figures earlier this year.
The company has leaned on its ad-supported tier to drive growth, but this is not expected to be a major revenue engine until next year. Analysts say Netflix's push into video games has stumbled amid strategy shifts and executive departures.
However, buying Warner Bros Discovery could deepen its gaming investment. Warner Bros Discovery is one of the few entertainment companies to achieve significant successes in the sector.
Its "Harry Potter" title, "Hogwarts Legacy," has generated more than USD 1 billion in revenue.
Netflix agreed to acquire Warner Bros Discovery's TV, film studios, and streaming division for USD 72 billion.
The deal includes access to Warner Bros’ extensive content library, such as "Game of Thrones" and "Harry Potter."
The acquisition is expected to face strong antitrust scrutiny in Europe and the United States.
Source: REUTERS