Netflix acquires Warner Bros., reshaping the Hollywood landscape in a "century deal"

Netflix acquired Warner Bros. Discovery's film production and streaming assets for $72 billion, merging the world's largest streaming platform with one of Hollywood's oldest studios, reshaping the entire entertainment industry landscape.

According to an article from Wall Street Insight, this deal ended a weeks-long bidding war, with Paramount Global and Comcast failing to secure the assets. On December 5th, Bloomberg reported that Warner Bros. Discovery owns the HBO Max streaming service and a vast film asset library that includes "Wonder Woman," "Harry Potter," and "Batman." The deal is expected to generate $2 billion to $3 billion in cost synergies, primarily from cuts in overlapping business units.

Netflix Co-CEO Ted Sarandos promised during an investor conference call to maintain Warner Bros.' current operating model, including continuing to release films in theaters. However, the world's largest theater industry association, Cinema United, warned that this acquisition poses an "unprecedented threat" to the global theater business, potentially leading to a 25% reduction in annual domestic box office revenue.

For the streaming industry, this deal means that the competitive landscape will narrow further. Analysts expect that subscription fees faced by consumers will continue to rise, while unsuccessful bidders like Paramount and Comcast will face greater pressure and may be forced to seek their own merger solutions.

Both parties have comparable asset scales; Netflix's first major acquisition

Warner Bros. Discovery's total revenue for fiscal year 2024 is projected to be $39.32 billion, a decrease of about 5% year-on-year. Its studio division generated $11.61 billion in revenue, also down 5%. The company's streaming division added 2.3 million subscribers in the third quarter, bringing its total global subscriber count to 128 million, a year-on-year increase of 16%.

Netflix's revenue is expected to grow by about 16% to $39 billion in 2024, with a total subscriber count reaching 301.6 million for the year. The company primarily generates revenue through subscriptions while also launching ad-supported subscription plans. In 2024, Netflix is set to release 589 new original titles, an increase of nearly 4% from 2023.

Reports indicate that this is Netflix's first major acquisition. Warner Bros. Pictures Group, DC Films, and Warner Bros. Television Group will be integrated under Netflix. Warner Bros. Animation, which began with the iconic "Looney Tunes" series in the 1930s, has produced classic works such as "The Iron Giant," "The Lego Movie" series, and "Happy Feet."

The theater industry is in panic, fearing a shortened release window

Unlike traditional film studios, Netflix has never followed the conventional theatrical release model. This has raised serious concerns among theater operators about the future of the industry.

Fandango's analysis director Shawn Robbins stated, "There is no doubt that this could be the least desirable outcome for many theater owners." Cinema United CEO Michael O'Leary said in a statement:

"Netflix's acquisition of Warner Bros. poses an unprecedented threat to the global cinema business. The negative impact of this deal will ripple from the largest chain theaters to single-screen independent cinemas in small towns across the U.S. and the world."

Cinema operators are most concerned about the shortening of the release window. Before the pandemic, films typically screened in theaters for 70 to 90 days before entering the home market. After the pandemic, this window has shortened to 30 to 45 days. However, Netflix usually only releases films in theaters minimally, just to meet eligibility requirements for awards season or as a limited-time weekend event.

Sarandos stated in an investor call on December 5 that Netflix will release about 30 films in theaters this year. He said:

"My main objection is the long exclusive window, which we believe is not consumer-friendly." He added that film distribution "will evolve to be more consumer-centric, able to meet audience demands more quickly."

According to CNBC, several cinema operators are concerned that Netflix's acquisition of Warner Bros. Discovery will lead to a significant decrease in the number of films available for theatrical release each year, thereby affecting annual box office revenue. One cinema operator stated:

"All we can do is trust Netflix's promise. They committed in the deal to continue releasing classic Warner Bros. films in theaters. But does that mean a one-week window, a four-week window, or no window at all? Netflix must fundamentally change its streaming-first corporate philosophy. We can only wait and see. This is not optimistic for the cinema industry."

Wedbush analyst Alicia Reese noted in a research report that theater schedules are booked through 2029, so any buyer must fulfill these contracts for at least the next four years.

Cinema United has communicated with regulators at the federal, state, and international levels. A group of top industry participants sent an open letter to Congress detailing the economic and institutional impacts that could arise if the merger is approved.

According to Variety, the letter states that Netflix will "effectively hold the power of life and death over the theatrical market," potentially changing the landscape of theatrical films and reducing the licensing fees paid for post-theatrical windows.

Streaming Competition Landscape Narrows, Consumers Face Price Pressure

According to the Los Angeles Times, if Netflix completes this acquisition, the competitive landscape of the streaming industry will significantly narrow, which could have adverse effects on both consumers and content creators.

Tim Hanlon, founder of media consulting firm Vertere Group, stated:

"This means one less competitor, which ultimately harms consumers because their choices will be reduced, leading to price increases. I think this is also a huge detriment to content creators looking to market their works, as they lose a sales channel."

Ross Benes, a senior analyst at Emarketer, pointed out that Netflix has aggressively raised prices, increased advertising, and stopped allowing users to share passwords. "Absorbing a competitor with strong content will only make its service more expensive and reduce consumer choices," he said Investment research firm Third Bridge analyst John Conca believes:

"Netflix's control over the streaming market will become more solidified, as there are now a lack of merger options capable of challenging its leadership. After Comcast and Paramount missed their opportunities, concerns about their viability have been raised, considering their scale disadvantages in acquiring essential content."

Media business analyst Robert Fishman noted in a report from MoffettNathanson that Paramount and Comcast's bids for Warner Bros. Discovery were due to their respective streaming platforms, Paramount+ and Peacock, failing to achieve the scale necessary for success. If Netflix successfully acquires, these two losers may have to consider their own mergers. Fishman wrote that Paramount and Comcast's NBCUniversal "will consider evaluating some streaming combination of Paramount+ and Peacock, or even a broader deal."

For The Walt Disney Company, analysts believe it will not be significantly affected. Hanlon stated, "I think Disney will be fine. This doesn't really change anything. It has a lot of intellectual property and various business models." Disney has been actively expanding its streaming business, including launching a direct-to-consumer product for sports media ESPN.

Richard Swain, a partner at brand strategy firm Further, believes consumers may quickly adapt to the new streaming landscape. "I believe there will be a lot of reactions, including memes and jokes," Swain said, "but they will soon realize, 'I might have fewer subscriptions to manage.' I believe Netflix will raise prices. But ultimately, consumers value convenience."

Some analysts point out that if HBO Max is merged into Netflix, smaller niche streaming platforms may benefit. Former NBCUniversal streaming executive Evan Shapiro stated:

"With one less major streaming subscription, high-end subscribers can save money each month to subscribe to more niche services, and with one less major movie buyer, smaller platforms gain greater leverage in negotiations with artists."

Niche platforms focused on documentary programming like Curiosity Stream and art film specialty platform Criterion Collection can continue to find room for growth amid competition from larger platforms