Why did Netflix strike its nearly $83 billion deal for Warner Bros. after dismissing major deals for years? How confident are they that they can navigate the regulatory environment in the U.S. and around the world? What will the deal mean for Hollywood creatives, and the other companies that Warner Bros. produces TV programming for?
In a wide-ranging call with Wall Street analysts early Friday morning, Netflix co-CEOs Ted Sarandos and Greg Peters addressed many of those questions, with Sarandos framing the deal as a “rare opportunity.”
Of course Netflix has never done a deal anywhere close to this size, or as Sarandos acknowledged on the call: “I know some of you are surprised that we’re making this acquisition, and I certainly understand why. Over the years, we have been known to be builders, not buyers.”
In fact, Peters was asked about Netflix’s interest in Warner Bros. at a Bloomberg event in October, where he noted that deals “don’t have an amazing track record,” but left the door open to a deal for WBD. It was a door that the company ended up opening.
“Historically, many of these mergers haven’t worked,” Peters said when asked about those comments. “A lot of those failures that we’ve seen historically is because the company that was doing the acquisition didn’t understand the entertainment business. They didn’t really understand what they were buying. We understand these assets that we’re buying, the things that are critical in Warner Bros. are key businesses that we operate in, and we understand. A lot of times, the acquiring company, it was a legacy, non-growth business that was looking for sort of a lifeline that doesn’t apply to us.”
The executives also sought to soothe concerns from filmmakers and other creatives concerned about what the deal would mean for their work.
“I think this is a good story, because this is a a healthy, growing business that is going to help another business grow in a more healthy way, and open up audience reach that these creators have never had before,” Sarandos said. “I think the opportunities are great for American production and for the entertainment industry as a whole, to be much more active than it has been over the last several years.”
Netflix says that it will continue to release films theatrically, though Sarandos indicated that the company does not necessarily intend to maintain the status quo when it comes to theatrical releases.
“I think over time, I think the windows will evolve to be much more consumer-friendly, to be able to meet the audience where they are quicker,” Sarandos said. “I’d say right now, you should count on everything that is planned on going to the theater through Warner Bros. will continue to go to the theaters through through Warner Bros. and Netflix movies will take the same strides they have, which is some of them do have a short run in the theater beforehand, but our primary goal is to bring first-run movies to our members, because that’s what they’re looking for.”
Netflix indicated that they intend to add WB’s content spend on top of the $16 billion or so that Netflix is already spending on films and series, though CFO Spence Neumann told analysts that there will likely be some “content efficiency in there over time as well.”
And then there’s the regulators. Paramount’s main argument to WBD’s board was that the deal cannot stand up to regulatory scrutiny. Sarandos pushed back on that, telling analysts “we’re highly confident in the regulatory process.
“This deal is pro-consumer, pro-innovation, pro-worker, it’s pro-creator, it’s pro-growth,” he continued. “And you know, our plans here are to work really closely with all the appropriate governments and regulators, but we’re really confident that we’re going to to get all the necessary approvals that we need. These two businesses are complementary, as Greg said earlier, and they’re also loved businesses, which is really fantastic.”
Of course, Netflix also agreed to an eye-popping $5.8 billion termination fee should the deal be blocked.
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