Netflix's New Goal May Be to Buy HBO Before HBO Can Be Bought
Lucas Shaw
As expected, the overtures from Paramount Skydance to buy Warner Bros Discovery is bringing everyone out of the woodwork to also look at the deal. And while it doesn't sound like anyone is as serious as Paramount head David Ellison right now, WBD head David Zaslav would sure like to spur on some other bidders:
Zaslav doesn’t want to do the deal — at least not at that price — and fears the Ellisons will sway shareholders to their side. So, nearly three years after the creation of Warner Bros. Discovery – an unsuccessful stretch that led to this precarious moment — Zaslav is trying to reclaim control over his company and his narrative.
The 65-year-old media mogul projected confidence on the call. Apple and Amazon are interested, Zaslav told staff. And, if you read the press, you’d know that Netflix and Comcast are as well. Whether any of those companies will actually bid for all or part of Warner Bros. is still unclear. But the company will now open its books to any interested parties, hoping to find another buyer or force the Ellisons to offer considerably more.
Shaw's report frames Paramount as the most likely buyer followed by Comcast. But the tech players here remain wildcards. Apple and Netflix have both publicly downplayed the interest, but they're also clearly at least somewhat interested here. Certainly interested enough to have some conversations:
For all of Zaslav’s confidence, executives at Warner Bros. aren’t sure Apple or Amazon will take a real run at the company. Entertainment is a marketing expense for those companies, which make most of their money from consumer electronics, e-commerce and cloud computing. Like every other major technology company, they are more concerned with winning at AI than the Oscars.
Apple services boss Eddy Cue has told people he would at least like to look. Amazon media boss Mike Hopkins is going to take a look as well.
But Apple has generally eschewed major M&A, and it’s hard to imagine CEO Tim Cook explaining to shareholders why his company’s biggest deal ever is for a shrinking media company that would provide a marginal lift to its core business. Amazon, at least, has already made a major investment in media.
It does feel like in a perfect world, Eddy Cue would swoop in to scoop up just the Warner Bros studio plus HBO Max streaming service. He wanted to buy HBO years ago but was rebuffed. And now with those parts of the company on the verge of being split off, perhaps he was sitting on the sidelines just waiting for that to happen... But this Paramount offer may make it so that he can't wait.
But that's an issue because it would have to be a massive deal to buy the entirety of WBD – something probably north of $75B to get it done ahead of Paramount. And are Apple shareholders going to love that at a time when all of Wall Street views them as behind in AI and waiting for them to make a deal there? I'm not saying that's right or wrong – in fact, you could certainly argue that Apple shouldn't do some massive AI deal right now, especially with prices way overheated (but you can also make the case for such a deal simply to re-wire the internal culture and building mentality for the future, if you believe AI is the future).
Regardless, if the stock market opens one day to Apple having spent almost $100B on an movie studio, a streaming service, and some television channels... they're probably not going to be happy. And that's a reality Tim Cook has to weigh here, no matter how much Cue might love to get his hands on HBO (and how much that might actually make sense for Apple TV – the artist formally known as 'Apple TV+' as they go for true streaming scale).
Shareholders of Amazon might be even more annoyed to see the company trying to buy WBD after the MGM deal hasn't exactly gone swimmingly, or done much of anything to help their bottom line – and James Bond's mission in that regard got billions of dollars more expensive recently for Amazon to get full control. This is another company with some real long term questions around AI still at the moment. One that just laid off, um, 30,000 workers.
Netflix? Well, this is not the type of deal that Netflix does. But that doesn't mean they should never do this type of deal. It's certainly more directly in their wheelhouse versus the other tech players...
While Netflix looks at potential deals, it doesn’t pursue them. It built up its own studio while watching rivals waste time and resources on failed mergers and integrations.
This time feels a little different. Hastings is spending more time on a ski resort than Netflix, and co-CEO Ted Sarandos has told friends he is interested in Warner Bros. While Sarandos doesn’t want cable networks, he has described the company’s assets as an opportunity. He would love to own its intellectual property, including HBO’s. (It would be ironic if Netflix, which once modeled itself after HBO, bought the company and essentially shut down its network.)
Not only has Sarandos apparently told friends this – he said as much on Netflix's earnings call! His comments made it pretty clear that if they could just buy Warner Bros and HBO, Netflix would be interested. But if it comes with the other WBD baggage, they'd be less interested. So, the same boat Apple is in (and undoubtedly Amazon too – probably even Comcast as the TV stations would be a regulatory nightmare for them, but they need a streaming service and content to bulk up Peacock into a real player).
So basically, it sounds like if Warner Bros Discovery is able to split themselves into two early next year, there will be a lot of bidders for the studio + streamer part of the business. But this Paramount offer has thrown that path for a loop – which is undoubtedly exactly why they did it: they're far more likely to win against the above larger players if they can dictate that the terms are taking on the entire turkey, not just the good bits.
So can Zaslav figure out a way to just sell Warner Bros and/or HBO Max ahead of that split? The problem with waiting is that Ellison is undoubtedly going to go hostile. And if they have the money...
Forget Netflix's goal to become HBO before HBO can become Netflix. The goal now may be for Netflix to buy HBO before someone else does...