| Read in browser | ||||||||||||||
  Good afternoon from Los Angeles, and congrats to those of you who got any sleep this past week. In the days hours since we broke the news that Netflix was buying Warner Bros., two questions have surfaced again and again. Will this deal get approved? And is this good or bad for Hollywood? Anyone who says they know the answer to the first question is lying. Netflix must convince regulators that buying another streaming service won’t give it an unfair advantage. A few politicians have already expressed concern. Some were inevitable (like Elizabeth Warren). President Trump has notably been silent. As for the potential impact on Hollywood, some in organized labor have already said the deal must be blocked. The general feeling in the industry is dire. Most people in Hollywood would have preferred that Warner Bros. remain independent so that the industry doesn’t lose another buyer. Most folks believed up until a few days ago that Paramount Skydance would end up buying Warner Bros. — not Netflix. The streaming giant still triggers a strong reaction from those who blame the company for the industry’s transformation over the last decade. My colleague Chris Palmeri answered some questions about how this deal will change Hollywood. For this week’s newsletter, we bring you the definitive story of how Netflix outmaneuvered Paramount — and how Warner Bros. CEO David Zaslav pulled off the impossible, selling the company for more than it was worth when he took charge more than three years ago. The deal will make Zaslav a billionaire (if he wasn’t already). If by some miracle you want to listen to people talk even more about this deal, I spoke to David Gura for The Big Take podcast, Channels With Peter Kafka and Matt Belloni on The Town. We also posted a video clip from The Town, a harrowing prospect for my future. If you have any more information, try me at lshaw31@bloomberg.net or on Signal. And if you don’t already subscribe to this newsletter, fix that. Five things you need to know
Inside the Warner Bros. auctionNetflix Inc. co-Chief Executive Officer Ted Sarandos ventured to the White House in mid-November for a meeting with President Donald Trump. Over more than an hour, the two discussed a range of topics, including the auction of Warner Bros. Discovery Inc., according to people familiar with the interaction. Warner Bros. should sell to the highest bidder, Trump said, according to the people, who asked not to be identified divulging the details of a private conversation. Sarandos agreed, making the case for his company’s offer. The streaming TV leader wasn’t any kind of all-powerful monopoly, Sarandos argued, and had suffered its own subscriber losses a couple years earlier. Netflix doesn’t have broadcast networks or cable channels, Sarandos said, adding his competition isn’t only streaming services. Netflix is the fifth-or sixth-biggest distributor on TV, he said. Buying Warner Bros. would make the company about the size of YouTube in the US. Sarandos left with the impression that Netflix wouldn’t face immediate opposition from the White House, contrary to the claims of his rival bidder, Paramount Skydance Corp. The Ellison family that controlled Paramount was overestimating its political advantage and would likely underbid, Sarandos decided. That created an opening. On Friday, Netflix agreed to pay $82.7 billion, including debt, for Warner Bros. in one of the largest media deals ever. If successful, Netflix, a Silicon Valley-based streaming service once described as the Albanian army by former Time Warner CEO Jeff Bewkes will take over one of Hollywood’s oldest and storied studios, as well as HBO, its one-time inspiration. The story isn’t over just yet. Paramount, which triggered the auction of Warner Bros., may launch a hostile bid. Its brass was in Washington lobbying against Netflix, which also faces opposition from powerful Hollywood guilds. Warner Bros. must still spin off its struggling cable TV networks. Nor is the pilgrimage to the White House a guarantee that Trump’s Justice Department won’t try to block the deal. Sarandos’ efforts underscored the urgency of getting on the good side of a president eager to weigh in on almost any deal. On Dec. 3, two days before the Netflix agreement was announced, Paramount complained in a letter to Warner Bros. that the company was running a “tainted” sale. The Ellisons could use their connections to attempt to sour the White House on the merger. But for now Netflix has triumphed over Paramount and Comcast Corp., Warner Bros.′ third suitor, to seal a deal that will strengthen its already potent service reaching more than 300 million subscribers worldwide. The story of how Netflix won the auction – and how Paramount lost – is one of billionaire hubris, secret White House meetings, code names and record-setting amounts of debt. It advances Silicon Valley’s decade-long conquest of the entertainment business, as well as Netflix’s rise from puny DVD-by-mail startup to the pinnacle of Hollywood. The following report is based on conversations with more than a dozen individuals directly involved in the process, most of whom agreed to speak only on the condition of anonymity. The White House didn’t respond to a request for comment. Zaslav’s Surprise“Why now?” Warner Bros. CEO David Zaslav asked himself in early September when he first learned Paramount was exploring a bid for his company, according to people familiar with this thinking. More than three years after the messy merger of Warner Bros. and Discovery Inc., Zaslav felt the company had regained its footing, thanks to the international expansion of the HBO Max streaming service and the strong performance of his studio. After a series of public relations blunders – including the decision to scrap a finished movie — and massive jobs cuts, Warner shares, which had fallen as low as $6.64 in August 2024, had recovered half of their losses. Zaslav knew that Paramount was interested in buying his company, but he assumed CEO David Ellison would wait until after Warner Bros. had split its studio and streaming service from its cable channels. The son of software billionaire Larry Ellison, David had just completed the merger of Paramount and Skydance weeks ago. Warner Bros.′ CEO was reluctant to sell. A former corporate lawyer, he had spent almost all of his career climbing his way to the top of the media heap, first at NBC and then as CEO of Discovery. While Zaslav ran a bunch of unsexy cable networks, he routinely showed up on the list of the highest-paid executives in media. In buying Warner Bros., he had finally ascended to rarefied air, running one of Hollywood’s great studios. He moved into the former home of producer Robert Evans, playing tennis and hosting dinner parties with his famous friends. Warner Bros. rejected Paramount’s first bid as too low. Undeterred, Ellison made two more approaches, increasing his offer from $19 a share to $22 and finally to $23.50 on Oct. 13. The company also sent a letter to Warner Bros.′ board stating its case. Ellison’s argument was that Paramount and Warner Bros. are undersized in streaming and could join forces to compete with Netflix, Amazon.com Inc. and Walt Disney Co. Zaslav had made a nearly identical pitch when he merged Warner Bros. and Discovery. Ellison also stressed that he alone could get the deal approved by the Trump administration. Other possible suitors, like Comcast, Apple Inc. and Amazon, would never win regulatory approval, he believed. “Other potential acquirers of WBD — today or in the future — would need to overcome significant (perhaps insurmountable) hurdles given their dominant market positions” lawyers for Paramount wrote in an October letter to Warner Bros. attorneys. Paramount had an ace in the hole. “We have a good relationship with the administration,” Ellison said on stage at Bloomberg Screentime. Still, Warner Bros. rebuffed all three offers. Though the shares traded at about $12 in late August before the news of a potential suitor surfaced, the board was convinced the company was worth $30 a share. Shares of both companies soared when the news of Paramount’s interest became public. Zaslav and his advisers knew that Ellison wasn’t going to go away and that Warner Bros. could no longer just proceed with the planned spinoff of cable networks like CNN and TNT. On Oct. 21, the company announced it was reviewing its strategic options, inviting others to make an offer. Paramount now had competition. Hollywood had long speculated that Comcast, which owned NBCUniversal, coveted Warner Bros. Like Paramount, Comcast owns a third-tier streaming service in Peacock. Unlike Paramount, it had theme parks that would benefit from Warner Bros. characters like Superman and Batman. It already had Harry Potter attractions. Netflix was seen as an unlikely bidder. Co-founder and Chairman Reed Hastings had always avoided major deals, insisting he would rather build from scratch. Netflix had become Hollywood’s most valuable business without a major acquisition. Netflix management has debated pursuing just about every major asset put up for sale, including Electronic Arts Inc. and Fox. They had even debated acquiring Disney. But executives could never coalesce behind a deal. Nor did they want to hurt their stock price by overpaying for an asset that traded at a much lower multiple. They feared what a deal would signal to their investors. When asked about a potential acquisition of Warner Bros, Netflix co-CEO Greg Peters echoed his former boss and mentor. “One should have a reasonable amount of skepticism around big media mergers,” he said at Bloomberg’s Screentime conference in October. “They don’t have an amazing track record.” It’s true, Netflix wasn’t interested in most deals and had no interest in owning legacy cable networks. Peters’ dismissal led industry insiders to believe Netflix wasn’t interested. Yet Peters’ public skepticism masked the company’s private intent. Netflix had already reached out to Warner Bros. and expressed an interest in the company and even gave the company a heads-up that Peters’ would dismiss a potential deal in public. Sarandos was keen on Warner Bros., which owned a studio with a catalog that Netflix could use to bolster its streaming service. Sarandos had acquired the catalog of celebrated children’s author Roald Dahl and had tried to buy Paramount’s movie studio, reaching out directly to then-owner Shari Redstone proposing an acquisition. Warner Bros. was offering Netflix an opportunity to buy a studio and a catalog without the baggage of struggling cable networks. Netflix signed nondisclosure agreements and gained access to private files and data. The company code named its project Ace. Netflix’s core team – including Chief Financial Officer Spencer Neumann, corporate development head Devorah Bertucci, Chief Legal Officer David Hyman and Spencer Wang, vice president of finance, investor relations and corporate development – gathered on calls and video conferences to assess a potential deal. As Netflix constructed forward-looking financial estimates, it began to see how much value it could extract from HBO and Warner Bros. The company was already streaming Warner Bros. movies and TV shows on its service and knew how popular they are. Management believed Warner Bros. could reach a much larger audience with Netflix’s superior technology and larger customer base. The streaming leader would gain a library it could exploit for new material instead of always having to buy original ideas. The beloved HBO – a brand Netflix once emulated – would burnish its own. Netflix leaders met with their peers at Warner Bros. to present their vision and assuage any fears. They promised to continue releasing Warner Bros. movies in theaters and continue licensing its television shows to third parties. They argued Netflix was a better partner than Comcast or Paramount because the company didn’t already own a major studio, and thus wouldn’t fire as many people. Ellison and his allies remained confident that they had the inside track. Trump had publicly praised both David and his father Larry, the billionaire founder and executive chairman of Oracle Corp. Trump had also spoken out against other possible buyers, like NBC owner Comcast. Darrell Issa, a prominent Republican congressman, expressed concern that Netflix’s acquisition of Warner Bros. would create a monopoly. The White House held a meeting to discuss whether Netflix was already a monopoly and needed to be regulated with or without the deal. Dinner at Trump’sTrump never spoke out publicly against Netflix. He and Sarandos had developed a friendly relationship dating back to dinner at Trump’s Mar-a-Lago Club in December 2024. Sarandos had deep ties with the Obama and Biden administrations because of his wife, Nicole Avant, who was an ambassador to the Bahamas under Obama. He had close relationships with world leaders all over the globe. When Trump won, he realized Netflix didn’t have close ties with anyone in the president’s orbit and wanted to fix that. Over dinner at Trump’s Florida resort, the two traded stories and struck up a bond over their childhoods and their shared love of entertainment. They have remained in touch ever since. Warner Bros. received three initial bids on Nov. 20. Netflix submitted the highest offer, at $27 a share. It was pledging to pay in primarily cash by raising more than $50 billion in debt. At this point, it became clear to everyone at Warner Bros. that Netflix was serious. Warner Bros. expressed concern about Paramount’s financing. The company was relying on billions of dollars from Middle Eastern sovereign wealth funds, which would invite a review from the US government’s security apparatus. Even if it passed, that was an additional inconvenience. Though Paramount had denied a report that it was receiving money from those funds, they were participants in its bid. Warner Bros. asked all three companies to submit binding offers by Dec. 1, the Monday after Thanksgiving. The company told the bidders that while they might have another chance to bid, they also might never hear back. Read More: Netflix’s Thanksgiving Deal Sprint Set Up Surprise Warner Win On Dec. 1, Netflix once again submitted the highest offer. It also pledged a $5.8 billion breakup fee, should the deal fail to pass a regulatory review or fall apart for some other reason. That was one of the largest cash break-up fees in history. Paramount promised a similar fee, but its offer fell short of Netflix’s. Warner Bros. decided to give Paramount one more try – its sixth in total – calling on the Ellisons to improve their offer and clear up any concerns about financing. While Paramount had increased its offer again and had Larry’s considerable fortune behind it, Warner Bros. was concerned by what it saw in the paperwork. By this point, Paramount began to sense it was losing out. Its lawyers sent a letter to Warner Bros. questioning the fairness of the process. When Sarandos walked into the premiere of a documentary about the New Yorker magazine in New York Dec. 4, he still didn’t know if Netflix had won. “Before we get going, no comment,” he joked during introductory remarks. But within the next couple hours, Warner Bros. notified Netflix that it had won. The company had agreed to buy Warner Bros.′ studios and streaming operations for $27.75 a share. Warner Bros. investors would also receive stock in their company’s cable networks’ spinoff, valued at $3 to $4 a share. A couple hours after that, Bloomberg reported the deal was Netflix’s. The Netflix team stayed up all night finalizing the plans and preparing for an announcement Friday morning. Zaslav assured his staff that this was a great deal and that Netflix would keep most of them employed. (Netflix has targeted at least $2 billion in cost savings, but less than Paramount or Comcast had proposed.) Paramount, which always assumed it would win, was left fuming. Ellison acolytes lobbied anyone who would listen that their deal was better and that the Netflix one would never get approved. “I know some of you are surprised that we’re making this acquisition, and I certainly understand why,” Sarandos said Friday on call with analysts and investors. “We’re not expert at doing large-scale M&A,” Peters added on the same call. “But we’ve done a lot of things historically that we didn’t know how to do.” The best of Screentime (and other stuff)
Paramount’s next moveParamount still believes that it made the best offer for Warner Bros. But it didn’t win the auction. So where does David Ellison go from here? If Ellison is still interested in Warner Bros., he has three options.
If Ellison — or another bidder — comes back over the top at a higher price, say $35 a share, then the board (and shareholders) would have to reconsider. The #1 album in the world is…Stray Kids’ Do It. The Korean group claimed its eighth No. 1 album. Traditional album sales accounted for almost all of the sales — a sign that fans were buying up physical and digital copies more than actually listening to the music. The No. 1 movie in the US is…Five Nights at Freddy’s 2. The horror sequel grossed about $63 million domestically, outpacing last week’s winner Zootopia 2. The latter film is still the top dog abroad, eclipsing $900 million worldwide. Deals, deals, deals
Weekly playlistSpotify says I have the taste of a 74-year-old. But almost everyone I know was branded a septugenarian by the streaming service’s year-end review. Me thinks Spotify screwed up. My top five albums of the year were Haim’s I quit, Wet Leg’s Moisturizer, Clipse’s Let God Sort Em Out, Lily Allen’s West End Girl and Kids Return’s 1997. More from BloombergGet Tech In Depth and more Bloomberg Tech newsletters in your inbox:
We’re improving your newsletter experience and we’d love your feedback. If something looks off, help us fine-tune your experience by reporting it here. Follow us
You received this message because you are subscribed to Bloomberg’s Screentime newsletter. If a friend forwarded you this message, sign up here to get it in your inbox.
|
