The Man Who Wants Netflix to Save Hollywood

0:04Ever since Netflix announced a deal to acquire Warner Brothers back in December, some Hollywood creatives have been shaking in their boots. A lot of the concern is just sort of that these guys are the disruptors from Silicon Valley. They're a tech company. That's my colleague Joe Flint. What are they going to do? And we're all going to be making movies and TV shows based off their algorithms and creativity will fly out the window. So all the Netflix boogie monsters are coming out right now. The deal isn't yet finalized, but if Netflix is successful, the merger would create a Hollywood behemoth, marrying the world's biggest streaming service with one of Hollywood's most storied studios filled with important IP.

0:51Hollywood would prefer that no one buy Warner Brothers because anytime one of these companies gets sold, there's one fewer entity to sell a project to. There's one fewer company to do business with. And one of the men who'd be at the helm of this new entertainment juggernaut is Netflix co-CEO Ted Sarandos. Does Ted Sarandos want to be the king of Hollywood? Some might argue Ted is already the king of Hollywood, but if he gets the Warner deal, he'll have a castle to go with his kingdom. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Thursday, January 8th.

1:37Coming up on the show, the rise of Ted Sarandos and his fight to win Warner.

1:57All right, let's talk about Ted Sarandos' origin story. Where is he from, and how did he even wind up in the entertainment industry to begin with? Well, Ted grew up in Arizona, and he took a job in a video store when he was, you know, in between high school and sort of going to college. And he was a movie buff. And he always, honestly, he kind of loved the types of movies that weren't ever coming to Phoenix. He was a little bit of an indie movie fan. Sarandos rose to the ranks and worked his way up from store clerk to regional distributor. He's getting to know people, and doing deals with studios to acquire content to put on the shelves.

2:40So in the course of doing that, he starts to get a little bit of a, you know, reputation as a sharp guy when it comes to doing these sorts of deals. Sarandos eventually got on the radar of Reed Hastings, who was just a couple years into launching a mail-order DVD company called Netflix. In 2000, Hastings hired Sarandos to oversee content acquisition. But soon, Sarandos was thinking bigger. As Netflix, you know, kind of began to move its business from male DVDs to online, Ted was a very early advocate that, hey, we will need to do original programming of our own. You know, basically, it will help us control our own destiny.

3:21The more content we can own, the better for the future of this business. Here he is talking about this in a podcast a few months ago. Because I said, in this world where we're going to be a digital channel, And I don't know of any network that exists that doesn't have some form of original differentiating program from each other. So Sarandos set out to make some new TV shows. And the way he and Netflix approached Hollywood was totally different than the way things used to work. Historically, traditional studios paid directors, actors, and movie producers less up front. And then, if the show was popular, there was the promise of more money later on from reruns.

4:04Netflix flipped that on its head. They would pay more up front. They'd say, Joe, we love your show, and we're going to buy out whatever we think the back end, the rerun money will be. So we're going to give you all this money up front. And in return, of course, the show's ours now. You know, we're going to keep it for ourselves. It's going to live on our system. We're never going to take it out anywhere else. You just got to trust us that we're giving you the value it is. And at first, this was like, the town was like, Ooh, this is awesome. This is awesome. I don't have to wait around for this money.

4:33I don't have to wait 20 years for reruns. And here's a big fat check. Here's a big fat check. This is how Sarandos and Netflix were able to land their first big hit, the political drama House of Cards. He chose money over power. In this town, a mistake nearly everyone makes. So Netflix went out, you know, and famously went to David Fincher, who was shopping an American version of the TV show House of Cards. with Kevin Spacey, went to him and said, hey, we'll give you a two-year commitment. We will guarantee you two years, you know, two seasons, no, you know, no pilot, no nothing. Here's the money.

5:13Make your show. Netflix became very creator-friendly, and part of it was out of necessity to get deals, and I think part of it was to, you know, give themselves a little bit of an edge over their competitors. and the town reacted to that. They liked that. Netflix continued growing its original programming catalog with hit show after hit show. There was the gritty, character-driven women's prison dramedy Orange is the New Black. Tell her he said thanks. I don't say nothing. I'm just working next. And the revival of the cult favorite sitcom Arrested Development. Now the story of a family whose future was abruptly canceled.

5:55The supernatural, nostalgic, coming-of-age drama Stranger Things. Stop it! You're freaking her out! She's freaking me out! I bet she's deaf. So we talk about House of Cards, we talk about Orange is the New Black, we talk about Stranger Things, all these very expensive high-end dramas. But, you know, Netflix has to expand, of course, and Sarandos, you know, one of the areas he really leaned into and is still leaning into is stand-up comedy, which, of course, had been HBO's bread and butter. And Netflix went out, they signed Chris Rock and Dave Chappelle and all these other big stand-ups to huge deals.

6:31At a time when HBO was reassessing how much this genre was actually worth, Netflix thought, no, these specials are good, they build attention and publicity for us, and we want to be in the comedy business. After leading the charge on multiple hits, which helped bring in tons of subscribers to the platform, Sarandos was promoted to co-CEO in July 2020. And not long after taking the job, Sarandos faced one of his first controversies involving one of those comedians, Dave Chappelle. One thing I think people respect Ted for, at least on the talent side of the business, is that he has shown a willingness to stand up for his talent.

7:12We saw that with Dave Chappelle a few years back. He did a stand-up special. He had jokes and commentary that upset the transgender community. There was some upset at Netflix as well. There were protests outside Netflix. Netflix employees were upset. Ted stood by. He didn't take the special off. He didn't issue any statements condemning what Chappelle said. But I think that sent a message.

7:46So Netflix in its early days was wooing Hollywood, aka the town. And you said that at first people there liked it. So how did they become a company that people started to fear? Well, anytime you get big, you start to toss your muscle around. So Netflix grew, had tremendous success, grew a lot of subscribers. And with that comes, you know, power. Because they were growing so fast and spending so much, they became kind of the one place you could come to do business. But at the same time, once you've sort of taken over the landscape, well, you don't spend as much. You spend a ton of money to get the talent in there.

8:30But once you've got that, well, you don't have to spend as much money anymore. Netflix also doesn't release much data about how many people are watching its shows. So it's hard to know what a show's market value actually is. Some creators begin to wonder, but am I getting paid enough? Is this really fair? How do I really know how popular it is if we don't test the waters to sell the rerun somewhere? Netflix is very cautious about the information they release in terms of who's viewing it, so I don't really know. Everyone's like, oh, wait a minute. Maybe this wasn't so good for us after all.

9:07The other thing that's irked Hollywood? is how Sarandos has approached releasing new movies. When Netflix got into movies, they made a big deal of not embracing the theatrical model. So that became a concern to a lot of sort of Hollywood purists, we'll call them, as well as the movie theater industry, of course. Oh my God, you can't not put a movie in the theaters. Are you insane, man? Yes, they do release some movies theatrically, usually for award consideration or a big enough director has the clout to persuade Netflix to drop it in a theater for a couple weeks. But yeah, Ted's belief was, hey, people want to watch stuff at home.

9:48And we're about the customer first, okay? And the movie-going experience, yes, maybe it's great for some things, but most people would just as soon sit at home. So, you know, that was kind of a turnoff to a lot of old Hollywood. All of this is why Hollywood was shaking in its boots when Netflix announced the deal to acquire Warner Brothers. Netflix has already transformed the industry. And by buying another major player, things are probably only going to change more. How has Ted Sarandos responded to all of these concerns in Hollywood? Ted has said, when he's asked that, are you guys ruining Hollywood?

10:27He will say, no, we're saving it. The box office is down. The L.A. film business is shaky. People are out of work. Your competitors' market share is sinking. But Netflix business is thriving. Have you destroyed Hollywood? No, we're saving Hollywood. You're saving Hollywood. They would tell you that they're spending a ton on content. How can we be ruining Hollywood? Look at how much money we invest in movies and TV shows. And we have a global system that reaches everyone. We believe in all this. We're not here to ruin it. We're here to build it out and persevere and find even more of an audience and a new way to reach them.

11:09But to actually get Warner, Sarandos has a couple fights ahead of him. That's next.

11:27Before Netflix concealed a deal for Warner Brothers, it has to do two things. First, it has to fend off a rival bidder, Paramount. Then, it'll need to persuade regulators to approve the deal. Let's start with Paramount. The company has deep pockets behind it, those of Larry Ellison, one of the richest men in the world. Paramount is still aggressively pursuing Warner. They are not taking no for an answer. David Ellison, Paramount's CEO, says they are, quote, finishing what they started after making six total offers. Paramount Skydance amending its$30 per share all cash offer for Warner Brothers Discovery.

12:09The Oracle co-founder and father of Paramount Skydance CEO David Ellison on Monday said he will personally guarantee more than$40 billion for the deal. So far, Paramount's pursuit of Warner hasn't been successful. In a letter to shareholders made public earlier this week, Warner said the amended Paramount offer wasn't superior or even comparable to the$72 billion Netflix deal. The question becomes, is Paramount going to come back now with a sweeter offer? And if they do, does Netflix come back with a sweeter offer too? Or does Netflix say, eh, no, we're out? Paramount has said its offer is superior to Warner Brothers' agreement with Netflix and, quote, represents the best path forward.

12:56If Netflix is able to fend off Paramount, it will then face its second challenge, getting the deal past government regulators, who will get to weigh in on whether the merger creates anti-competitive issues. Clearly, President Trump has expressed a lot of interest in this deal. Typically, normally, a president doesn't necessarily weigh in on deals that are going to go before independent agencies, whether it was the FCC, the DOJ, the FTC. President Trump, he's expressed some concern about Netflix. He's praised Netflix and Ted Sarandos, but also said their size is a concern. At a congressional oversight hearing yesterday, Cinema United, a trade organization representing movie theater owners, argued that this merger would be disastrous for movie theaters, local economies, and consumer choice.

13:49Sarandos has said that Netflix is confident the deal will win approval because it's, quote, pro-consumer and pro-innovation. He spoke about it last month. So we think it's going to be great for consumers, really great for creators. You know, we invest heavily in production, and then we intend to run those businesses exactly like they run today. So what is Netflix doing in D.C.? Netflix kind of went on a PR offensive, if you will. They've got a website set up and it has all these, you know, details on the deal. Why Netflix and Warner means even more choice and value for fans. Why it will define the next century of storytelling.

14:28Why these are complementary businesses to deliver more choice and value for consumers. So they're doing that right now. Sarandos has also had a couple meetings with President Trump. He visited Mar-a-Lago in December of 2024 after Trump won, but before Trump took office. Ted was one of the many CEOs who went to give their respects, I'll say, and dine down there. And he did go to the White House before this deal with Warner was officially announced. Netflix has been hiring lobbyists as well who have close Republican and Trump ties. Their head of their D.C. office was in Trump's first administration.

15:20So there's a lot of that sort of road paving going on, if you will. So, you know, not a surprise, but but nonetheless, for Netflix, something new because, you know, this is the other part of the game they've kind of stayed out of. They produced House of Cards, but they haven't really had to play House of Cards. Right. They haven't had to play House of Cards. So, yeah, this is a new sort of thing for them to have to go there and really, you know, grease the wheels, if you will.

15:55Late last year, Sarandos and his co-CEO, Greg Peters, had a photo shoot on the Warner Brothers studio lot alongside the head of Warner Brothers. They toured sound stages. They met with some other execs and people there. It was almost a victory lap, even though the deal hasn't closed. You know, walking around the lot and seeing all that history. And look, Ted Sarandos is a lover of old Hollywood. He loves creatives. He loves the quote-unquote Hollywood magic. For Sarandos, acquiring Warner Brothers would mark the culmination of his rise, from just a guy who loved movies working in a video store to one of the most powerful people in Hollywood.

16:47If this deal goes through and is successful, I mean, you just, you'd pitch it as a movie. A guy in a video store ends up running all of Hollywood. But yeah, it'll have been an amazing and incredible run for him.

17:29Thanks for listening. See you tomorrow.