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In a landmark Hollywood transaction, Netflix has reached an agreement to acquire Warner Bros. Discovery’s film and streaming divisions for $72 billion (£54 billion).
The streaming giant ultimately prevailed in the bidding process for Warner Bros., surpassing competitors Comcast and Paramount Skydance after a protracted negotiation.
Warner Bros. holds the rights to prominent franchises such as Harry Potter and Game of Thrones, as well as the HBO Max streaming service.
The proposed acquisition is poised to establish a new dominant force in the entertainment sector, though the deal remains subject to regulatory approval from competition authorities.
The transaction has drawn criticism from some within the film industry, including the Writers Guild of America, who express concerns about potential adverse effects on workers and consumers.
Netflix co-chief executive Ted Sarandos stated the streamer’s “high confidence” in securing the necessary regulatory approvals and affirmed their commitment to pursuing this goal “full speed.”
He articulated that the integration of Warner Bros.’ extensive library of shows and movies with Netflix’s original series, such as Stranger Things, would “give audiences more of what they love and help define the next century of storytelling.”
“Warner Bros. defined the last century of entertainment, and together we can define the next one,” Sarandos added.
In response to a question regarding the future of HBO as a separate streaming entity, co-chief executive Greg Peters acknowledged the brand’s significance for consumers but cautioned, “We think it’s quite early to get into the specifics of how we’re going to tailor this offering for consumers.”
Netflix anticipates realizing $2 billion to $3 billion in savings, primarily through the elimination of redundancies in support and technology functions.
Warner Bros. films will continue to premiere in cinemas, and its television studio will maintain the ability to produce content for third parties. Netflix will continue to produce content exclusively for its own platform.
Characterizing the acquisition as a “big day” for both companies, Mr. Sarandos recognized that the move might surprise some shareholders but emphasized it as a “rare opportunity” to position Netflix for sustained success “for decades to come.”
David Zaslav, president and chief executive of Warner Bros., echoed this sentiment, asserting that the agreement would unite “two of the greatest storytelling companies in the world.”
“By coming together with Netflix, we will ensure people everywhere will continue to enjoy the world’s most resonant stories for generations to come,” he stated.
The cash-and-stock transaction is valued at $27.75 per Warner Bros. share, resulting in a total enterprise value—encompassing the company’s debts and the value of its shares—of roughly $82.7 billion. The equity value, reflecting the cash price, stands at $72 billion.
The boards of directors of both companies have unanimously endorsed the agreement.
The Writers Guild of America’s East and West branches issued a joint statement on Friday asserting that “this merger must be blocked”.
“The outcome would eliminate jobs, push down wages, worsen conditions for all entertainment workers, raise prices for consumers, and reduce the volume and diversity of content for all viewers,” it said.
Michael O’Leary, chief executive of trade organisation Cinema United, said the merger posed “an unprecedented threat” to the global cinema business.
“The negative impact of this acquisition will impact theatres from the biggest circuits to one-screen independents in small towns in the United States and around the world,” he said.
Netflix will finalize the acquisition following Warner Bros.’ completion of its previously announced plans to separate its streaming and studios division from its global networks division into two distinct entities next year.
The global networks division will be rebranded as Discovery Global and will encompass its cable channels, including CNN and TNT Sports in the US, alongside its Discovery and free-to-air channels in Europe.
TNT Sports International will remain with the streaming and studios division that is being sold to Netflix.
Paolo Pescatore, founder and technology media and telecom analyst at PP Foresight, described the sale as “a huge statement of intent and underlines Netflix aspirations to be a global leader in the new world order of streaming”.
However, he cautioned that while the “surprising move” made sense for Warner Bros., it could “provide a headache for Netflix” when trying to combine the companies given the size of the deal.
While the agreed deal is for part of the Warner Bros business, rival Paramount had tabled a bid to buy the whole company, including its cable networks, in October.
Warner Bros rejected this move before putting itself up for sale.
Prior to the deal’s announcement, Tom Harrington, head of television at Enders Analysis, noted the difficulty in predicting regulatory approval but emphasized the potential for a significant impact on cinema should the acquisition proceed.
“Were it to go through it would reorient Hollywood,” he said.
Mr. Harrington anticipated “big reductions” in television and film output from a newly merged entity, potentially triggering resistance from various segments of Hollywood and relevant unions.
For consumers, Mr. Harrington suggested a merger was likely to lead to higher prices.
“Netflix would get more expensive and even though HBO Max would be shuttered/become non-essential, the greater penetration of Netflix households would likely mean an increase in total overall subscription revenues.”
Danni Hewson, head of financial analysis at AJ Bell, said Netflix had “offered an olive branch” to Hollywood with the promise it would continue to release Warner Bros films on the big screen.
“If this deal can clear those significant regulatory hurdles quickly there are likely to be considerable cost savings to be made,” she said.
“How much of those savings get passed to streaming platform subscribers or whether Netflix will be seen to have too much pricing power is one of the areas that will face a huge amount of scrutiny in the coming months.”
With additional reporting by Natalie Sherman
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