Silicon Valley’s Hollywood takeover is almost complete

Asked about the impact of streaming on traditional cable networks, David Zaslav was blunt.

“Netflix never should’ve happened,” he said in an interview in 2015, lamenting how slow his industry had been to adapt to technological change.

A decade later those words are likely to resonate ever more with Zaslav, who now leads Warner Bros Discovery (WBD). Netflix, once the scrappy streaming challenger, has struck an $83bn (£62bn) deal to take control of WBD’s studio and streaming business.

Zaslav – who is one of Hollywood’s highest-paid executives with an annual pay package topping $50m – will probably emerge unscathed from the transaction.

More broadly, however, Netflix’s shock victory in a fiercely competitive bidding war signals a major reshaping of the US media landscape.

After more than a century under the auspices of California’s liberal media elite, Hollywood is falling ever further under the iron grip of the tech bros.

WBD’s appeal to Netflix is self-evident. The Hollywood studio boasts one of the strongest libraries of film and TV series – ranging from the Harry Potter franchise and DC Universe hits such as Batman to classics including Casablanca and Citizen Kane and perennial TV favourite Friends.

Through HBO, the streaming giant will also gain some of the biggest TV dramas in recent years – including Game of Thrones, Succession, The White Lotus and The Last of Us.

The value of this extraordinary back catalogue is evident in the price. Netflix is coughing up $27.75 per share for the assets, implying an enterprise value of $82.7bn.

Netflix’s successful bid, while not entirely out of the blue, has shocked many onlookers. Paramount, which was recently acquired for $8bn by the billionaire Ellison family, was widely considered the frontrunner.

Paramount, whose second largest shareholder is RedBird Capital, the US private equity fund that last month pulled out of its bid to buy The Telegraph, has been on a feverish acquisition spree since the summer.

Unlike other suitors, it was preparing a bid for the whole of WBD – including networks such as CNN.

The Ellison family’s ties to Donald Trump further boosted their credentials. The US president is believed to have supported a Paramount bid, which would have put his political ally in control of Left-leaning CNN.

Paramount’s fury at its impending defeat was evident in a letter sent to Zaslav last night, which accused WBD of having “abandoned the semblance and reality of a fair transaction process” and “embarked on a myopic process with a predetermined outcome that favours a single bidder”.

Netflix also saw off competition from Comcast, the US owner of Sky. The defeat will spark further soul-searching at the British broadcaster, which was already gearing up for the loss of its exclusive rights to HBO shows when the HBO Max service launches in the UK in March.

Sky has long presented itself as an “aggregator”, providing a one-stop shop for the plethora of different streaming services on offer. As this array of streaming services consolidates, the value of Sky’s position in the market will be eroded.

In a sign of its shifting priorities, the company is now in discussions to buy up ITV’s broadcasting business for £1.6bn.

Netflix’s clean sweep

The bidding war has been a blockbuster Hollywood spectacle for media watchers on both sides of the Atlantic. Beneath the drama and theatrics, however, a much bigger story is unfolding.

Netflix’s acquisition of WBD cements its astonishing rise from mail order-DVD provider to doyen of global entertainment.

When Netflix launched its streaming service back in 2007, it was viewed with relative indifference by Hollywood’s incumbent – who were happy to offer up their films and shows for some extra licencing revenues.

But as the Los Gatos-based company began making its own programming, it soon posed a direct challenge.

Thus began a period of profligate spending, as incumbents and new rivals battled it out to win over subscribers – whose demand for more entertainment reached unprecedented heights during Covid-induced lockdowns.

To the victor, the spoils. Netflix, having emerged triumphant from the streaming wars, is now cementing its dominance over Hollywood.

It is not just Netflix, however. In 2022, Amazon, which has muscled into the streaming market through its Prime Video service, splashed out $8.5bn to acquire MGM, the studio behind the James Bond franchise.

The same year, Apple staked its claim on Hollywood by winning the best picture Oscar for its feature film CODA. Paramount, meanwhile, is now controlled by Larry Ellison, the Oracle founder who has used his tech wealth to tighten his grip on media.

Disney and Comcast-owned Universal are now the two surviving major studios beyond Silicon Valley’s grasp.

Questions will now be raised about the future of Warner Bros Discovery’s traditional networks, which include CNN, TNT Sports in the US and Discovery.

The company will spin off these assets prior to the Netflix takeover – leaving them on the block for any interested bidder.

End of traditional cinema

And while WBD has hailed the deal as a new chapter for the over 100-year-old studio, in reality it signals the company’s failure to adapt to the digital age.

WBD was itself formed through a $43bn mega-merger in 2022, with bosses saying the deal would give it the scale required to compete in the streaming age. Just three years later, it has split back in two and is being subsumed by its largest streaming rival.

Netflix’s swoop has already ruffled feathers in Hollywood. The companies have said they expect cost savings of up to $3bn a year within three years, sparking fears of significant job cuts.

Jason Kilar, former chief executive of Warner Media, wrote on X: “If I was tasked with doing so, I could not think of a more effective way to reduce competition in Hollywood than selling WBD to Netflix.”

Others fear it could spell the end of traditional cinema, with Netflix shunning theatrical releases in favour of premiering shows on its streaming service.

James Cameron, the director of Titanic and Avatar, said this week that a deal with Netflix would be a “disaster”. Netflix has insisted it will maintain Warner Bros’ current operations and continue theatrical releases for films.

The deal, which will bring together two of the largest streaming services in the US, will likely also face regulatory scrutiny amid concerns it could push up prices for subscribers. As a result, Netflix could be forced to forgo HBO to get the deal over the line.

That is not to mention the potential political influence Trump could exert through the FCC, the US media regulator led by the president’s appointee and acolyte Brendan Carr.

Netflix has said it doesn’t expect the deal to close for 12 to 18 months, suggesting drawn-out regulatory scrutiny is on the cards. It has also agreed to pay a $5.8bn termination fee if the deal fails to materialise.

For Netflix, however, these hurdles are a small price to pay as the streaming giant cements its domination of Hollywood once and for all.