The News
Netflix, facing dismal odds in Washington and an increasingly restive shareholder base, walked away from its deal for Warner Bros. Discovery Thursday.
The company said it wouldn’t match the $111 billion offered by Paramount, clearing the way for David Ellison to take over a storied movie studio in Warner Bros., a dominant but controversial news channel in CNN, and a rich content library that includes Harry Potter and Batman.
“This transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price,” Netflix co-CEOs Ted Sarandos and Greg Peters said in a statement.
As consolation, Netflix will pocket a $2.8 billion breakup fee from Warner Bros.
“We are excited about the potential of a combined Paramount Skydance and Warner Bros. Discovery and can’t wait to get started working together telling the stories that move the world,” Warner Bros. CEO David Zaslav said.
But having swung and missed at its first big M&A deal, and suggested that it needed something beyond the streaming reach and global content it produces and licenses from studios, it now has to reassure investors that its business is fine.
It has also learned a bruising lesson about dealmaking in President Donald Trump’s Washington. Sarandos seemed to have contained the administration’s preference for Paramount, which owns Bari Weiss’s right-leaning The Free Press and has been pushing CBS News rightward since buying it in October.
That lasted until a week ago, when Netflix board member Susan Rice criticized companies which “take the knee” to Trump. The president responded by calling for Netflix to fire her, which seemed to lengthen the odds that his Justice Department would approve a deal that some Republicans in Congress had already been criticizing as anti-competitive.
Netflix also publicly shrugged off concerns from state attorneys general as procedural rather than dire. Sarandos repeatedly stressed that the company was a “disciplined” buyer, all but inviting Paramount to put up the money needed to beat back Netflix’s offer.
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Rohan’s view
Hostile M&A is a bloodsport, but Netflix comes out especially battered. After building an empire by leapfrogging legacy Hollywood and ignoring news entirely, it made the case to investors that buying Warner Bros. was important enough to subject itself to a political spotlight — one that is unlikely to shut off just because the bidding war is over.
Sarandos will now have to answer investor concerns about what it does next and contend with an infuriated president who will likely continue to pay attention to the cultural programming Netflix puts out. One sign of just how damaging this chase has been: Netflix shares rose 10% in after-hours trading Thursday when it announced it was walking away. They’re still a long way from recovering from this misadventure.
Room for Disagreement
Senator Mike Lee, R-Utah, has a different theory: Netflix knew all along it might not win but was happy to force Paramount to pay more. He said that was monopolistic behavior that merited close antitrust scrutiny: “I am also concerned that this proposed transaction could operate as a so-called “killer non-acquisition,” effectively weakening a major competitor through the pendency of the merger review process,” he wrote in a letter to Netflix in January.