Netflix & Warner Bros: The Biggest Deal In Hollywood History

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2:32Hello and welcome to this episode of The Rest is Entertainment with me, Marina Hyde. And me, Richard Osman. Hello, Marina. Hello, Richard. How are you? I'm very well. Have you had a nice week? I've had a busy week The Christmas onslaught is most certainly upon us Is that your new movie, The Christmas Onslaught? The Christmas Onslaught Right, what are we going to talk about this week, Richard? We're only going to talk about one thing this week But it's a big thing Luckily Yeah, isn't it just We're going to talk about a tiny thing this week Imagine if it was in the new episode of Celebrity Gladiators And we had to do 50 minutes on it Actually, I could do that Oh good, we could, easily Yeah, we could actually, that was a bad example We are going to talk about possibly the biggest deal in the history of Hollywood Netflix agreeing to buy Warner Brothers We're going to talk about what it means for consumers and what it means for the industry as well, and a few little kind of just behind-the-scenes stuff behind that deal.

3:16And obviously, this deal is in no way signed off. It will take a very long time to push through. If it goes through, indeed, even during all our recordings today, Paramount have made a higher offer for$30 a share, and I don't think that's going to be the last we hear of this one. So the situation is very much developing. But talking of old-school television, what's on our desks here? the double issue of the Radio Times. Thank you, Radio Times, for sending it to us. That is not an ad. No, this is not sponsored content, but it's an annual tradition for me and I am thrilled that I have it because last time I had to go to lots of different news agents to find this for you, Richard, and this time we got sent it.

3:54Thank you. We got sent it, so you have to think of something else as my present. Yeah. Netflix. What does it all mean? Okay, so surprise news on Friday. To some extent, a surprise. Not a surprise to you because you were just about the only person who predicted it. Everyone was saying that David and Larry Ellison were going to buy Warner Brothers. And you said, I wouldn't be at all surprised if Netflix enter into this race and win it. We knew that Netflix was slightly in the race because they'd only just revealed it. But one mega, mega power player thought that Netflix would get it. And I think that power player is a very sort of...

4:25And her name is Marina Hyde. If only. What is the deal? They've paid$72 billion for it, or they've agreed it. It's almost all cash. Yeah, they're taking on 10 billion of debt as well, which is why their headline figure is 82 billion. But really, they're paying 72. But it's basically 10 times the amount of the deal to buy Paramount, which we spent the earlier parts of this year talking about. Speaking of Paramount, Paramount Skydance, who is owned by David Ellison and his dad, the richest man in the world, Larry Ellison. Now, they've lost out because they really wanted it, along with Comcast, who are also part of the bidding process.

5:04I also made a cheeky late bid. Yeah, and you also made a cheeky late bid, which was underreported. Yes, it was. But by the way, Comcast might still be in it because they haven't taken the cable channels, which are part of this, but we'll get to that in a minute. Okay, but essentially, the biggest streamer in the US is going to take over the third biggest, which is HBO Max, and various other parts of the Warner's entertainment empire, which we'll talk about. as for why it's like a one-time opportunity unless disney was for sale this is it this is the biggest prestige thing netflix could do and also i do think people sort of slightly underestimate netflix's existence within the market as a sort of reseller of course we know they make lots of things but given how much they have they are sort of a reseller of other content people yeah they are they license things from you know you can watch suits on netflix for instance or all these other shows they are a reseller to some extent of other content but this gives them a really significant content machine and to some extent therefore de-risks that reseller model that they're involved in we know the channels business is dying maybe these cable channels that they've kind of hived off they'll go maybe they'll go with comcast it makes sense for them to put things together like tobacco or anything like that the channels business is dying slower than you'd think when you say they're buying a lot of content warner brothers if you buy warner brothers and Warner Brothers Studios, which is the film, and the TV side of it, you are getting Friends.

6:30You're getting Big Bang Theory. You're getting Harry Potter. You're getting Game of Thrones. You're getting the DC universe. You're getting HBO Max. Everything on HBO. They're getting a gaming vertical, which they've never really had. The TV production business is actually very significant because Warner makes TV for lots of different people, not just for sort of, you know, HBO or whatever. And they don't have to have the cable networks, which make obviously zero sense with Netflix's business. So they will hive those off. They're essentially buying the studio lot. With the iconic water tower, you may know the pictures of the WB, so that's a big piece of real estate.

7:02All of that. They're buying the catalogue. They are buying... The film library. The film library, and they're buying HBO Max. And IP rights to some of the biggest things, many of which are still live or recently extended and can be spun off into all sorts of different things. And when you say it like that, everyone should have made a bid. Yeah, I know. Why didn't we buy? Yeah, mad, mad. The hurdles. well let's just I don't know if we can get over those but whether it will go through there are obviously significant regulatory hurdles we should say that this deal has gone down poorly in Hollywood because there are regulatory hurdles there's obviously antitrust you know you that's as I say if it's the biggest streamer taking over the third biggest it obviously reduces competition there's the Trump of it all he wanted the Ellisons to have it because the Ellisons have shown themselves to be almost willing to be some apparently some form of state sponsored media to the extent as we discussed last week of even really agreeing to release Russia for which is above and beyond but you know he wants people to be MAGA or certainly not to be woke as it were he hates Disney Trump he and they've got themselves into all sorts of difficulties because they're perceived to have gone far too the wrong way as far as he's concerned.

8:18Netflix is just sort of perceived as to be not MAGA enough. Elon Musk, I saw, has recently tried to sort of say, oh, you should all cancel Netflix because it's too woke or whatever it is. That hasn't kind of got huge traction. And the EU, he said we should cancel. I noticed this week. Yes. I mean, they haven't been particularly MAGA. And, you know, Trump wants fealty and all of those sorts of things. Ted Sarandos, who's one of the co-CEOs of Netflix, but the one we always talk about, we will have a couple of mentions of Greg Peters, the one we don't in this particular item. But so Sarah and us went to the Oval Office last week to talk about this.

8:50And Trump has said, I saw Trump said maybe on Sunday night, we're recording this on Monday morning, he said on Sunday night, I don't know, that's going to be... Well, he said, I will definitely be getting involved. Yeah. Oh, no. In some ways, this deal has united against it. Trump, the unions, Bernie Sanders. All of Hollywood. All of Hollywood. All the guilds, by the way. Well, not all the guilds, but the writers, the directors and the screen actors will have their negotiations in the middle of this because a deal like this takes forever to go through. It will not go through in 2026. It will probably be in the first quarter of 2027.

9:2618 months or so, probably. They take a long time to go through these things. And by the way, maybe the Ellisons aren't even out of it and we can talk about that. So the guilds and the actors and what have you are against it for the same reason why you're always against this sort of thing, which is suddenly there are fewer customers. And the more power that's in the hands of one customer means terms of trade are very different. If I'm an independent TV producer, and by extension, all the people who work for me on a project, actors, all the trades, everything like that, if I've got 10 different places to take something, everybody I pitch to knows that.

9:58They know that there's lots of other people that I can go to. And therefore, when we negotiate, when I've got something they want, I have something. The fewer customers there are, if say Netflix and Warner Brothers becomes this sort of mega corporation and one of the few games in town, they are much more able to say, take it or leave it. It's just absolute classic. The fewer customers there are, the harder it is to be a seller. It's already sort of, you can see going out as a Republican line, oh, this is reducing competition. You can be sure they wouldn't have minded that if that was something, if it was somebody else and they've been told to like Netflix.

10:33But anyway, well, actually, let's talk a little bit more about the specifics of the deal at the start. Now, was this just a masterstroke by Netflix or did the Ellisons mess this up? I think to some extent, yes. Netflix have really maxed out in cash, as you say. Something like 63 billion in the deal is cash. And they've borrowed that. Larry Ellison, the Logan Royal in all of this, is the richest man in the world or whatever, or the second richest that just bobs up and down that number, doesn't it? He was talking about, you know, they're patchworking together like a Middle East fund and Apollo and all these other things.

11:07It's like maybe that sounds less good, but also they're offering sort of tech to Hollywood. That's their offer because of Oracle. They could go nuclear. The Ellicott's can now say this is a complete stitch up. And in fact, they are very angry. They could say this is a complete stitch up. You know, you've got whatever it is, 27, 28 dollars a share. We're going to offer 35 dollars a share. Your board has lied to you, you know, Warners or whoever. they haven't looked after you. The chair of the board of Ornors is a guy called John Malone. Now, he is, he's so interesting. People don't really talk that much in all of these kind of big things about it.

11:40You talk about Ted Sarandos and you talk about the Ellisons or whatever. John Malone, I think, is really the sort of puppet master in all of this. He's at the top of the top of the top, John Malone. It's interesting. He doesn't have sort of control of anything, really, but he is just plugged in in every situation. He is the chairman and the largest voting shareholder in various things. one of which is Warners. But he's a very, very clear strategic thinker. And he's interesting because he's not sort of totally without vanity because none of them are. But he is not one of those people who feels like I have to acquire and acquire and acquire.

12:12In fact, you know, in the case of lots of things he's done, they're separating all sorts of aspects of them. And you can see that's what's happened with some, and he's not involved in ITV, but look what happened with ITV. They're separating bits of the company all over. This is the big trend in these media companies. separating bits of their company to see which could be valued, who could be most valuable to someone else as a piece of their jigsaw. And this is the trend that you're seeing. If you're buying companies, you buy a company that is strong in an area that you're weak and different bits of different companies are strengths to different companies.

12:48So there are companies for whom buying the broadcast business of Warners and those cable channels actually consolidates something that they've already got that they're weak in. and that's a it happens when you break up any big company you will sell off different bits to people who need those bits and will pay a premium for them which is what's happening here rather than to retain the sort of vanity of thinking you have to be one enormous thing yeah which is a very sort of clear way of thinking strategically in the modern landscape and to be clear what netflix are have a weakness in is library depth of library and content production production capabilities and Warners are incredibly strong in both of those.

13:25So it fits perfectly for Netflix and in a funny kind of way works quite nicely. If you want to keep the Warner Brothers brand going, which one presumes that they do, this is a way perhaps to protect Warner Brothers for the next 50 years as well as a major entity in Hollywood. Yeah, and do you think that, look at already what's happened with the Ellisons and Paramount. David Ellison can come back and say, well, you know, my dad's the richest guy in the world. It's like, yeah, okay, well, am I getting your dad or you? If it's Logan, fine, let's talk. If it's Kendall, I don't know. Are you a serious person?

13:55You have not yet proved yourself to be serious people. And maybe he will, and maybe he'll be one of those great sort of second gen kind of power players like Rupert Murdoch himself or Michael Corleone or some of those people. And maybe he won't. And also Paramount Skydance has a market cap of something like 14 billion. Netflix has 425 billion market cap. I mean, if I were the person charged with deciding who Warner should go to, I think I would probably feel a little bit safer with someone like Ted Sarandos than with Larry Ellison. Yeah, that's a bigger risk. Yeah. You always have to say in anything like this, the losses are, there will be huge layoffs, whatever people say.

14:35The HBO of it all is very interesting. There will be huge kind of cultural clashes really between the sort of Netflix way of doing things. and HBO who sort of like to set themselves up as the anti-Netflix, you know, don't worry, if you're making television for us, you don't have to expect that someone is just second screening it, so you can't even have a B-plot. You know, they're not those people. They think they're very different. And also, you know, I feel sorry for them because I've talked to a lot of HBO people in my time. They had been through three different owners in a decade, and now they've got a fourth, and you've got to do all the cultural reorientation all over again.

15:10So I think that is hard. And HBO Max, we can talk about how that will exist, but it's not going to exist as a separate streaming service once the deal goes through it. Do you not think it definitely will? Because there is an argument that it could still. There is an argument that what Netflix are doing here is not consolidation. It's not bringing everything inside the castle. It's diversification. It's understanding that there are other markets to be in and there are other ways of doing business that Netflix don't do. And so buying Warner Brothers, keeping HBO Max as its own standalone thing, keeping a lot of those brands as standalones, still selling friends off to different places rather than keeping it all in-house.

15:48There's an argument that Netflix is future-proofing itself by buying a business which it then allows to continue to run in the same way that it's doing now. But you would say that the HBO Maxes of this world will go and will all come under the same value? I will say that they will monetize it, but they will put it, it will be like a tile on your home screen, on your Netflix home screen. And it will be, as so often, much of what this Netflix disrupted, the old TV or the old cable market, it tries to come and resemble it. It's like, oh, there'll be a premium thing, will there be? I can pay for HBO, just like it used to do on cable.

16:23But I would say this, which is, you know, Netflix has 300 million subscribers. HBO has 120 million. So Netflix is much bigger. but HBO, that's still a big business. If you bundle those together, you are not going to be able to charge as much as you would for Netflix and HBO by themselves. I mean, no one is going to swallow that extra cost for one subscription to something called Netflix. I wouldn't have thought. Whereas if they are standalone, and there are, you know, in terms of scale, in terms of, you know, the backroom, there's all sorts of economies that they can make. But in terms of two big brands that are both making a lot of money and both making a lot of prestige television, you happen to own them both.

17:02It's like there's lots of brands out there in the shops which are owned by the same person, but you wouldn't know. They look like they're competing. There's an argument to say that HBO Max continues on its way, continues with an amazing management team, which it does have, which has incredible relationships with lots of showrunners who might be more reluctant to go to Netflix. There's an argument that says we just keep that running as it is. And then every now and again, like something will move from BBC 2 to BBC 1 you go oh actually we will we will have that for Netflix. There is an argument for that I actually think that the way things are going if you look at maybe this is like the start of their kind of Amazon channels Amazon don't do lots of things but increasingly people use it as a kind of home screen and all the different apps they access through Amazon so Amazon aggregates all of those things and they make a lot of money simply by virtue that people are coming into them via Prime or whatever.

17:55Those channels, that would be CNN, TNT, the movie channel, you've got Discovery, you've got HGTV, where I always watch Hometown. So, you know, there's business there, but it's not necessarily Netflix's business. I think that it's unlikely that Netflix will want to just have this separate thing. I think they will want to use it as a premium tier. I think they'll want to have all different kinds of stratification of pricing models, much like cable, much like old TV used to be. The main thing that people are most initially impressingly worried about is cinema. Warners, who are committed to releasing movies in cinemas and so on, and Netflix, we know what they think about movies in cinemas.

18:37And it's interesting. It's Ted Sarandos said in a rather sort of tired investors call after they've done this deal, it's not like we have this opposition to movies in theatres. Well, it is actually. But he also said, and I think this is far more significant, what he said is windows will evolve to be consumer friendly. So a window is how long, in the case of a theatrical release window, how long a movie will be in the cinema before it is available somewhere else. Now, normally the next window is PIVOD, is paid, you can rent it at home, but you pay for it, and then streaming. But except in the case of Netflix, where everything goes straight to the service and they have these tiny windows for awards plays.

19:17You know, I was able to see the Thursday Murder Club for a week and I'm able to see in the cinemas before it went on to Netflix. I saw Jay Kelly last week, which I enjoyed very much. Yeah, really. Yeah, me too. That's immediately on Netflix. Well, actually, I think it had a week because it's one of their awards plays. So they have to get it out there in cinemas. The new Knives Out, you can see for a week and then... And so Ted has historically either wanted no window at all or the shortest possible window. I mean, think what he said earlier this year. We covered this. People were asking about the struggling box office because it was in that really bad quarter.

19:51And he said, well, what does that say? What's the consumer trying to tell us? That they'd like to watch movies at home. Thank you. The studios and the theatres are duking it out for trying to preserve this 45-day window. That's just completely out of step with the consumer experience of just loving a movie. And then he said, you know, everyone wants to say, oh, I want to make movies. I want people to cry together in the theatre. Well, it's an outdated concept. Okay. Ted Sarandos does not care about a supposed random cinema lover in Notionalville, USA. He cares about the people who pay him subscriptions for his service.

20:26He cares about the subscribers he would like to win. And he cares about both of those groups of people, ideally paying him more for that service. Again, counterpoint and the idea that this is not just consolidation, it's diversification. and that Ted Sarandos has been around long enough to know that he's in a wonderful business at the moment but wonderful businesses never you know blockbuster video used to be a wonderful business there's an argument for saying I wouldn't mind having a movie on which every now and again when I have a meeting with a particularly recalcitrant director who for whatever reason wants their movie to be in a cinema that he can say great we'll do that through through Warners we will send us up an absolutely separate deal it's just it's just another negotiating thing that he can news at the moment he can't do that at the moment he doesn't have that uh power that capability but if if i were him and i had a big movie studio and i felt there were 300 million dollars to be made theatrically by having a 45 day window on three projects a year that then come to netflix maybe i would do that there's an argument that you don't even need that long and that actually all the the big returns in movies come in week one and two and then actually then they become more valuable when they go onto the service or whatever.

21:41I had a slightly you idea at the weekend. They've got a long time to think before this goes through and they think, okay, if we are doing all sorts of different stratified payment models and you can have a premium thing which involves max, could you not say certain levels of subscribers, you can go and see our movies for free, but you can see them theatrically. Don't forget cinemas are food courts. They make their money off food retail. Could you not say we want to keep those theatres open? It won't be all of them, but we want to keep them open in a different way. You can pay for a way of watching that means that you can go and see our movies because there are many more movies.

22:17Netflix puts, I don't know, three in a year or something like that. As we talked in our Christmas gift guide about Curzon membership, which is where you pay your money and you can watch stuff on the Curzon website or you can watch stuff in the cinemas. But I do just think that there's money left on the table. If, for example, you look at the money that Disney had just made out of Zootopia, particularly in China. I mean, an insane amount of money, you know, the sort of money that even, you know, Ted Sarandos has got to sit back and go, okay, that feels like something I should be doing something different with, not just opening it for a week and then putting it on Netflix.

22:53You know, I think that there's an argument for saying Netflix are doing this deal because it gives them more options as to how to release content and how to deal with creatives and how to deal with talent. that's all i'm saying in that regard is that i don't think they will necessarily shut down every way of doing business that warner brothers are currently involved in i think they might be able to explore as you've said before you know netflix have essentially they've taken every trick of old linear tv which is oh we're gonna have adverts now we're gonna schedule things now we're gonna have live sports events now they have a track record for saying oh i'll tell you what will do why don't we open this big movie in the cinemas for four weeks yeah they often say they'll never do something until they do and there's on how many areas until it until it makes a load of money for them and i that's what i think about this deal i think is a diversification deal which is their understanding that there might be different ways of making money in the next 15 years i will hope that be the case i think it doesn't look great for cinema unless people start to radically rethink things but i'm holding my thoughts you hold all of your thoughts and let Let us go to a break.

24:00More Netflix after this.

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