Why Netflix's $82B Warner Bros. Acquisition is a Gigantic Mistake

I think this is the stupidest deal. And

I have to say that in the history of dumb media deals. It's very hard to sort of uh you know pass them. AT&T's

purchase of Time Warner in 2018 at the time appeared to be the world's dumbest deal. They ended up of course um

deal. They ended up of course um spinning that off. This is even stupider. In fact, this is such a stupid

stupider. In fact, this is such a stupid deal. I would even I'm even beginning to

deal. I would even I'm even beginning to wonder whether Netflix knows this deal will not get through that, but they are just trying to screw up Paramount and

delay Paramount's ability to actually buy Warner.

>> Okay. So, I want to unpack all of those things and all those thoughts. Let's

let's go to what they're actually agreeing to buy. What part of the business is this? They're only buying the film studio. Um, you know, Warner

Brothers, it's a it's an iconic film studio and they're buying Max streaming service. Those are the dual assets, but

service. Those are the dual assets, but they're not buying the parts of the business that actually make the most money, which are the cable channels,

which are declining. So, that makes sense. Thank God for that. Um, but the

sense. Thank God for that. Um, but the price they're paying is absolutely enormous. And the problem is this is not

enormous. And the problem is this is not going to add to anything. Is anybody I mean almost everybody who can have

Netflix has it already. Who is pay for Netflix now that you can get uh you know HBO Max on it? They they actually

admitted this morning there's an awful lot of um overlap between the two um subscriber groups. So, this doesn't give

subscriber groups. So, this doesn't give Netflix anything except debt and the need to spend the next 18 months negotiating with the government to try

to get this uh deal approved. And I

think in the end it it will get opposed and the thing will just, you know, collapse. So, I I think it's a gigantic

collapse. So, I I think it's a gigantic mistake by >> So, you don't think the deal will go through at all?

No, >> I don't think there's any chance that the government is going to allow the largest streaming service to buy one of the other very big streaming services,

particularly as Paramount, which was competing to buy Warner, is close to the uh administration and will obviously do

a very um you know, intense job in arguing why this deal should be opposed.

>> So, on the call this morning, I mean, what is the Putting aside the idea that maybe Netflix did this as a as a way to sort of stop the other companies from getting their hands on this property,

what is the strategic rationale then that the executives are saying and look, you look at the stock this morning, it's not like the stock has fallen off a cliff this morning for Netflix.

>> The stock had already fallen 15% uh in the last 6 weeks or so. So I think this this is already expected. um the

strategic rationale that they gave was not really there. They said this would give consumers more choice which makes no sense because

consumers can already get all of this uh content. They just have to pay for both

content. They just have to pay for both services. So putting

services. So putting um how does that give them more choice?

this they said that this would create jobs which is really a fascinating argument given that you know they've already said they're going to uh cut

cost. So this will actually destroy

cost. So this will actually destroy jobs. Um they really didn't say anything

jobs. Um they really didn't say anything that actually made any um logical sense.

So that's why I'm beginning to think maybe this entire thing is just a a fake effort to sort of delay Paramount.

I mean, I I do think that there's a defensive element to it. They wanted to prevent anyone else getting their hands on these on these assets cuz that might

have uh affected them because it might have, you know, made um somebody who's competing with them even more effective.

But really, they're also just paying such a high price that I don't think it's worth it.

>> Right. So, let's talk about why was Warner Brothers Discovery. Why was it going up for sale in the first place?

Talk us a little through the history here.

>> It's a long history. Um, Time Warner was sold in 2018 to AT&T because the management at that time decided that they uh they could see the writing on

the wall. The company was predominantly

the wall. The company was predominantly the cable channel business which is in decline. So, they decided they would

decline. So, they decided they would just exit. AT&T bought it. AT&T was

just exit. AT&T bought it. AT&T was

obviously a disastrous buyer. They don't

understand the entertainment industry.

So, after a few years, they decided to um sell it. Uh Discovery bought it. Uh

they understand the entertainment industry, but in buying it, they took on debt, a huge amount of uh debt, and they've had to spend the past three

years cutting costs to try to make the uh deal work. And I think and and so far the stock has done really badly. Um so I

think people saw the opportunity um to sort of move in and this was sparked by Paramount which is the Ellison family's

company. Um they are trying to expand

company. Um they are trying to expand and they made an offer which led the company to put the sorry led the board

to put the company on the market. But um

it seems that the board didn't want to sell to Paramount. I'm not sure why. Um

but in any case, this is where we are now.

>> Right. And so now thinking about this, you know, in in the scenario here where you're saying the deal doesn't go through, I guess I I'm I'm trying to keep it open to a possibility that may

maybe it goes through, right? And then

Netflix has to take on all this debt to to to to fund this this acquisition.

debt of course just like you pointed out debt is the thing that dragged down a number of the media companies in the first place uh I mean 3 four years from

now what happens I mean to to to the to the business that it's acquired >> well I think if the deal does go through Netflix will then spend several years

cutting cutting cutting I think that they will raise prices um it will you know I I just think that u we'll will

end up maybe in the same place that we are in now. They'll

probably end up I mean I'm not sure.

It's really hard to tell, but I definitely think this will be good for them in the end.

>> Great. Well, Martin, I want to thank you for coming on and I know you just published a piece on this as well, which I encourage everyone to read. We will

link it in the show notes. That is

Martin Piers, the co-executive editor here at the information