Would Netflix Really Embrace Theaters to Buy Warner Bros.?

0:00If you care about Hollywood, and I assume you do if you're listening to The Town, you should really be getting the whole story about Hollywood. That's what you get with Puck. I'm a founding partner at Puck, and I write a newsletter called What I'm Hearing. It's got exclusive news for insiders and analysis of the biggest stories. Puck has a bunch of great journalists. We just hired Kim Masters, who also covers Hollywood from the inside, plus media, sports, fashion, politics, and finance. It's a must-have for plugged-in people. Fans of the town get a discount on the description page of this episode or at puck.news slash the town.

0:31Go further into Hollywood by becoming a Puck member today. This episode is brought to you by Disney+. Experience the global phenomenon in the Variety special pre-recorded. Taylor Swift, The Era's Tour, The Final Show, and the documentary nonfiction series, Taylor Swift, The End of an Era. The Telegraph laws it as a dazzling, revealing, and emotional look behind the all-conquering entertainer of our times. Stream the concert film and get a behind-the-scenes look at the history-making tour in the docuseries now on Disney+. This episode is brought to you by Netflix, presenting Beef from creator, writer, and director Lee Sung-jin.

1:08The new installment of the eight-time Emmy-winning anthology series features powerhouse performances from Oscar Isaac, Carey Mulligan, Charles Melton, Kaylee Spaney, and legendary Korean actors Yoon Yeo-jung and Song Kang-ho. Esquire raves its hands-down the best TV show of the year, and IGN hails it a masterpiece. Lee Sung-jin's series remains an untouchable force. Beef for your Emmy Awards consideration. It is Monday, December 1st. We're in kind of a weird place with the ongoing sale of the studio conglomerate Warner Brothers Discovery. Our guy, David Zasloff, the CEO and architect of this fire sale, or split, whichever comes first, he set a deadline of today for suitors to submit sweetened bids after the first round of offers a couple weeks ago.

1:56Those bidders, remember it's paramount for all of the company and Comcast and Netflix for just the Warner Studio and HBO Max. They're now operating on two separate tracks, the deal makers, the lawyers and bankers and other strategists. They're now furiously working up their bids and doing meetings with Zaslav and his team to pitch their version of a deal. And separately, the spin doctors are out there trying to get a narrative going in the media about which of these suitors will pass regulatory muster and get approved or even lobbying the government directly, I'm told. Netflix is the leader in streaming.

2:28They'll never be allowed to buy HBO Max, the narrative goes. or Trump hates Comcast, so good luck there, guys. Larry Ellison is buddies with Trump, the other narrative goes, but the regulators overseas will punish him for that. Hearing a lot on all sides of this potential deal. And amid all the jockeying, we got a very interesting media leak last week to Lucas Shaw, a guy from Bloomberg. He reported that Netflix, in its pitch to Warners, had pledged to keep releasing movies in theaters. That's interesting, of course, because Netflix co-CEO Ted Sarandos is considered the enemy of movie theaters.

3:02He won't honor a robust theatrical window, so the major chains won't play Netflix titles. The assumption has been that Netflix would just shut down Warner's as a theatrical distributor and funnel its IP and production teams to Netflix if it gets the studio. But maybe not. Is Ted ready to throw that all away just to win over regulators who might be wary about consolidation or eliminating a major theatrical studio? Or is Ted hinting that Netflix is ready to fundamentally shift the Netflix business model if the company is able to buy a unique asset as premium as Warner Brothers. That's one of many questions being asked as the bidding for Warner Discovery hits the next phase, including how shameless can Paramount possibly be by agreeing to distribute Rush Hour 4 because Trump asked them to.

3:49Lots of questions. We got Lucas here to discuss it all. Today, it's the jockeying for Warner Discovery, a new phase, and would Netflix really change its business to get a deal done. From the Ringer and Puck, I'm Matt Bellany, and this is The Town.

4:06All right, we are here with Lucas Shaw from Bloomberg. Welcome back, Lucas. You have a nice holiday. I'm sure you've been gloating about the Zootopia 2 performance. You know, I was really just trying to lick my wounds from being benched for Jim Cameron. That hurt me deep. It was a very, very tight schedule. Craig and I had to go Go to Manhattan Beach. I know that's like out of your 30-mile zone. It was a nice day, though. We got to sit in his screening room. We got to partake of his popcorn. It was nice. He asked if he could be the typical Monday guy now going forward. Oh, wow. We should really consider it.

4:41I hate to do this live on the show, but I have some news to bring. Okay. Yeah, Zootopia in China was big. It gave me hope. Yes, okay. So we're going to talk about that in the call sheet. That is not our main topic today. We are going to get into some news that you broke. Was it last week, week before? We were off last week. It was the week before. Okay. You had a very interesting story about how Netflix is making some pledges. I don't want to call it a promise. Let's call it a pledge to Warner Brothers Discovery and their meetings. They're having these pitch meetings where they're going over how they would handle the company, what the deal terms and financial structure would be.

5:21And one of the things that the Netflix team said to the Warner's team is, we will keep putting movies in theaters. And your story, which was very good, also caused a lot of questions. I wrote about it. Others were going nuts on social media. Because when you report that Netflix says that they will keep movies in theaters, what does that actually mean? First of all, do we believe them? Why should we believe them? And secondly, what does it actually mean when Netflix says we will continue to put Warner Brothers movies in theaters if we own this company? There's two layers to it, right? Which is the first is the contractual obligations.

6:04So if Netflix buys Warner Brothers Discovery or parts of Warner Brothers Discovery, including the studio, those movies, Warner Brothers has agreed to release several of its movies in theaters. and Netflix will honor those so they do not get sued by talent. Right. Not just with talent, but also the theater owners. You have deals with exhibition. Yeah. They don't want to end up in a Scarlett Johansson Disney situation. They don't want to end up fighting with the theater owners, although I think they're generally more comfortable with that than fighting with talent. And then there's the, okay, once you get through some of those movies where they've already pledged to put them in theaters, what are they doing going forward?

6:43Does it influence, is it just the Warner Brothers movies that they're going to put in theaters? Are they going to start putting some original Netflix movies in theaters? What is the mix? And that's the one where, frankly, we don't know, right? They are clearly saying this to reassure this potential company that they would be a good owner and also to deflect potential regulatory scrutiny because people would not like it if a company that generally doesn't put its movies in theaters buys one of the major studios. It deals even more damage to a struggling theatrical business. Well, yeah, and your story dropped just as some Republicans in Congress were putting out letters saying that they have grave concerns about the Netflix bid and the consolidation in the streaming market and how this is the dominant player and yada, yada, yada.

7:31We know their arguments. Yes. My initial reaction when I heard that Netflix had said this to the Warner Brothers people was surprised, given all that we have discussed. Yeah, not our model. Ted, not our model, Sarandos. But when I thought about it more, it didn't shock me quite as much because if you listen to what Ted Sarandos has said about theaters, there have sort of been two key reasons why he doesn't want to put movies in theaters. One of them is not our model. We want to deliver for people at home. And that's not going to change if they buy Warner Brothers Discovery. But the other is they mostly make original movies, right?

8:07And those movies haven't performed very well in theaters. Well, partly because of Netflix. I mean, that's the whole thing is that Netflix has been actively contributing to the demise of movie theaters for over a decade now. This has been their whole MO in big negotiations with big filmmakers. I have talked to people who have been in those negotiations and Ted will say things like, if we do this, it sets our business back. Their whole model is to acclimate the customer to watching first-run, high-budget, A-list talent movies at home. Why would they throw that out the window in order to acquire a studio?

8:50Is the IP and the studio that important to them? You're focusing on this very small issue. And I only say that because take a step back. Netflix has also always said it's not interested in major transactions, that it would rather build than buy. And so the fact that they are contemplating a, let's call it a$60 billion deal. Yeah. So what you're saying is the Warner Studio is that special to them. They're willing to throw out the model, start over, add on this theatrical distribution apparatus, and change themselves into a for-the-right movie. theatrical distributor. They see an opportunity here that they need for their business.

9:35And we can argue whether it's coming from a position of strength, position of weakness, or a little bit of both, that they see an opportunity to do a transformational deal the likes of which the company has never done. And if they do that deal, then some of the things that they have long held sacrosanct or they've long said they wouldn't do, they would change their mind on. They might change their mind on theaters. It sounds like they will change their mind to some extent on syndication and producing for third parties because they'd be kind of crazy to buy the full Warner Brothers television studio and then keep it all for themselves.

10:04They could. But again, that's another one where they're telling Warner Brothers that they're not going to do that and it breaks with tradition. Yeah, they'd be producing like half the hits on Apple. Yeah. But also that's, you know, billions of dollars in revenue that they would be turning down if they just kept it all for themselves. And they have to do... I'm sure they've done the math on what is the net benefit we're going to get from adding all of this stuff to our catalog. If Netflix does this deal, the price of Netflix will go up like$4 to$5 in no time. I mean, that might be too big. I also think it's a talent question.

10:37Ted can't like the fact that there is an upper echelon of filmmaker that not only will not work with Netflix, but actively endeavors to undermine Netflix because of the model, because of the fact that they are slowly killing theaters. And as they like to say, he's a cinema guy, loves filmmakers, loves movies, likes personally going to movies and theaters, he says. But he can't change the fact that we are all seeing through their awards campaigns and their two-week theatrical window in 400 theaters. We all see through that and we know what their ultimate endgame is and it's to boost Netflix at the expense of theaters.

11:19So maybe this will change that narrative. I think their endgame is to boost Netflix and if it in some way affects theaters, so be it. I don't think the goal is let's kill theaters. No, they didn't write on a napkin, let's kill theaters. But neither did YouTube or TikTok write on a napkin, let's kill television. They just have their model and it's eyeballs at all expense. And the expense is television. So I'm curious, where are you on this? Are you a believer? That Netflix is interested in this? Like you, I was not at all. I have been swayed by the not our model messaging for the last decade. But then as I started thinking about it more, and as you look at the evolution of the Netflix business, you start to ask the question, okay, they've conquered streaming.

12:09They are the number one streamer. They have worked with pretty much all the talent, minus top filmmakers. Well, and even a lot of top filmmakers. There's a very small group of top filmmakers that hasn't worked with them. Yeah, it's bigger than they would like us to know. Who's on the list besides Nolan, Cameron? I mean, there's a ton. We don't have to go through them all, but they lose packages all the time because of this. No, no, no, but that's different. They lose stuff because of it. But if you made a list of the 20 best filmmakers working today... Oh, like the Never Netflix crew? Like 17 of them have made a movie for Netflix.

12:43Doesn't mean they're going to rush back. Sure, I mean, but do you count Spielberg? Mark Spielberg has produced for Netflix, but he ain't directing for Netflix, that's for sure. Who else is on the list? Joe Kaczynski, Tarantino, Kugler, people with top leverage. I bet Greta Gerwig would love to get out of that Narnia deal. Coron, Del Toro, Fincher, they've all done it. No, Del Toro. I mean, those are all Netflix people. But they're putting their projects that they can't get made elsewhere on Netflix. That's the reality. Don't you guys think it's a much easier sell for Ted Sarandos to say, look, I know I said one thing before, but we're changing our tune because I think this is best for our company.

13:22And I actually think releasing movies theatrically is great. And it's easier to be like, we changed our tune. We said we weren't going to do ads. Now we're doing ads. Like, isn't it better to evolve and adapt? That's the second half of what I would say. Like, if you look at the evolution of the company and you look at what the next 10 years might look like for the company, maybe it is time to evolve into a more full service entertainment company. He killed theaters and now he can save them. Sure, but it's not necessarily about killing or saving. It's about getting into different businesses. And while we think of that as maybe getting into gaming or experiential consumer products, maybe it also means getting into licensing titles to other outlets.

14:05Maybe it also means putting 10 movies in theaters and building up that business, which as we know, can be a very lucrative business with the right movies. And maybe that is what they're thinking, that it's time for Netflix to evolve beyond just being the dominant streamer. If they end up doing this deal, I don't think that them saying we're going to put movies in theaters will feel even like an admission of failure or some huge switch. Because the deal is so big that, of course, certain things about how the company operates would change. I guess. It would be one thing if there was no deal and we woke up tomorrow and they said, we're going to start putting movies in theaters.

14:47But you go and buy one of the biggest studios in the world. And of course, things start to change a little bit. Right. But then it gets to the question of why are you buying it if you have to change your entire model to buy it? That's ultimately a choice. If we assume they're serious about Warner Brothers, which is a question... Would you say it's a change their entire model if they're doing 60 movies a year and 10 of them are in theaters, but 50 of them are not? Yeah, because then it gets to the question of, okay, which movies get theaters? And what does it mean to put movies in theaters? I mean, Jim Cameron got into this in my chat with him, where it's like, yeah, it's easy for Ted to say we are going to put movies in theaters.

15:30But does that mean a 45-day window? Does that mean 4 ,000 theaters? Or does it mean 1 ,500 theaters? Like, what does it mean? Is it going to be Warner Brothers as we know it? Or is it just going to be theaters for the seven movies a year that they know can get to four or 500 million worldwide? And if that's the case, then what happens to the other Warner Brothers movies that do get a chance in theaters and those filmmakers? Many, many questions here. And it's easy for people to say this during a bake-off process. It's a lot harder to know what's going to actually happen when the deal closes. Yeah.

16:09Unless there are specific concessions. And I've already heard people saying, okay, Netflix, you want to buy Warner Brothers? The government should put a condition on it that you have to release for the next 10 years, 15 movies in theaters with full windows, full marketing expense. and we're going to have you account to us every year for whether you've done that. Are these people who are antitrust experts or people who are just wishful thinkers? Wishful thinkers, of course. But there are conditions that get put on. I mean, they're usually like sell this or divest this. For any of the prospective buyers of Warner Brothers, there will be conditions on a deal.

16:47I don't know that they will govern theatrical, but I've certainly heard about certain things that Netflix has already said it would probably do to try to ease the deal through, much as I'm sure Paramount and Comcast have made similar promises on uncertain aspects, right? Don't you guys think that the reputational risk for Ted of backtracking on a theatrical pledge after you acquire Warner Brothers would be irreparable in Hollywood? And instead, he could be somebody who, like if he says, yeah, we're going to release movies in theaters, and then they acquire Warner Brothers, and he's like, just kidding.

17:19We're going to do the bare minimum. We're going to do exactly once we fulfill the deals that Warner Brothers had with Exhibition, we're going to put everything on Netflix. Don't you think the damage to his reputation would be, is it completely not worth it for him? I don't think that it would be a draconian statement like that. I think they would just kind of back into it. And yes, for Batman and Superman and Minecraft, they would do it, but it's everything else. Yeah. I think that's the most likely outcome, which is the proven franchise. Same way that like, I've had this conversation with people at Netflix, right?

17:55Like the whole Dan Lin strategy of having like one tentpole movie a quarter. So if you take the four tentpole Netflix movies and like the five or six tentpole Warner Brothers movies, and that's your theatrical slate, and the rest of it goes direct too. And yes, that'll include some movies that Warner Brothers puts in theaters right now that maybe shouldn't be in theaters. I'd be curious what they do with the horror movies, I have to say. Yeah, and some of these auteur driven movies, like they certainly wouldn't give a chance to something like Sinners or One Battle After Another. I mean, those would go straight to the service with the requisite awards campaign.

18:25But those movies would never get made for the new Netflix because of Coogler and PTA. They would never go to that studio if it couldn't be released theatrically. They would if they didn't have any other choices, which may be a world we're leading towards. Well, but Coogler clearly did on Sinners. Yes, that is true. But the thing is, we're talking about this without talking about the specifics. Like when you put a Batman movie in theaters, there is a$200 million marketing campaign associated with that. Which is also something that Netflix really doesn't want to do. Exactly. And there is an entire three-year plan of partnerships and marketing alliances and TikTok strategies.

19:04And does Netflix want to all of a sudden be in that business? I think it is a much larger change than maybe you're giving it credit for. Well, no, no. I'm not saying it's not a big change. I just think that the huge change would be Netflix buying Warner Brothers. And this would be a downstream effect of it, right? The change to Netflix and to the broader entertainment industry of Netflix buying one of these big studios is huge. And then what flows from that are several changes to both how Warner Brothers operates and how Netflix operates. So I'm just saying this is like a derivative effect. Much as like what would happen with any of these deals?

19:46what happens to HBO Max streaming service, right? And in the case of Comcast, it probably gets combined with Peacock. In the case of Paramount, it gets combined with Paramount+. In the case of Netflix, maybe it doesn't exist. Yeah. Or it becomes a tile on Netflix or a branding moment on Netflix. And then they suck up the subs and the library and then it goes bye-bye.

20:16built for creators of every kind firefly helps you generate edit and experiment fast because the asks aren't getting smaller the budgets aren't getting bigger and the timelines oh yeah still tight with all the best creative ai models in one place firefly brings your ideas to life unlock a better way to make with adobe firefly this summer fanduel is the best place to bet on goals. Including equalizers? Uh-huh. Balls? Yep. Headers? Every goal is worth more on FanDuel. So let there be goals. New customers get 350 in bonus bets guaranteed when you bet$5 for seven days. 21 plus in present and select states.

20:54First online real money wager only. Minimum$5 wager required for seven consecutive days. $5 first deposit required. Bonus issue does not withdraw bonus bets, which expires seven days after receipt. Restrictions apply. See full terms at fanduel.com slash sportsbook. Gambling problem? Call 1-800-GAMBLER or 1-800-MY-RESET. I'm just curious because we haven't talked about this in a little bit because I feel like you and I for most of or a lot of the auction process have been it's kind of Paramount's to lose. Have your feelings on that changed or wavered at all? They have. I think that the overseas regulatory issues and state regulatory issues are a bigger problem for Paramount than many might believe.

21:36Everyone thinks, oh, they're best friends with Trump. They're bending over for Trump. Whatever they want, Trump is going to let them do. And that may be true, but he's not the only player here. And if the other side of the aisle has all these state attorney generals that are looking at this and being like, how do we stick it to Donald Trump? Maybe we become the problem for his state-sponsored media company, Paramount Skydance. And that becomes a bigger problem for them. Also, everyone dismisses it, but the fact that Oracle stock is down 30%, Larry Ellison's going to be like, wait a second, spending$60,$80 billion was a lot more palatable a year ago.

22:18Well, he's not spending it. I know, I know. He's bringing in partners, whatever. Or he's borrowing against and all that stuff. Yeah, I get it. Ultimately, the money's not a problem, but maybe the willingness to let Junior do this is a little bit less strong than it once was. But I got to say, the fact that Paramount is altering its business as well, I mean, talk about Warner's altering their business, Paramount distributing Rush Hour 4, a movie that not only did Paramount pass on, every other company in town passed on. and Josh Greenstein, who was formerly at Sony, Sony passed on it when he was there.

22:57Now he's running film at Paramount and they are now doing this. That is a pretty clear sign that Paramount is willing to change its model if it helps Paramount get this deal. That's not changing its model. That's just buying a movie that's probably going to fail. Right, well, no, but it's doing things that it would not otherwise. Sure, it is contorting itself in order to please the powers that be. I had one reader text me when I broke that news last week that this is the clearest sign yet that Larry is calling the shots and not David. Because David knows or would know this would be hugely controversial in town.

23:36There's a reason why Paramount passed on it. Brett Ratner is not someone that he wants to stand next to at a premiere. He is pretty radioactive. and this movie, who's clamoring for Rush Hour 4? Anyone? That's a pretty clear sign that if Larry talked to Trump, Trump said do it, Larry said to David, do it. You don't think it's just that David is a rational actor who sees it as a cost of doing business and the benefit of making a movie that could potentially work, although probably not, to make the president happy is good for him as he's going at. his bigger, it's sort of like our debate a little bit about the theaters and Netflix.

24:17It's like, yes, this is something significant, but it's sort of tied into this larger pursuit. Like the big target for all these people is Warner Brothers, and they're doing the things that they feel like they need to do to get that target. I get that. And I think David is on board with that. But because all the reporting suggests this is a conversation between Larry and the president, to me that suggests that the message came down from higher ground to do this. I don't know that it's a you should do it conversation so much as like knowing how some of this stuff works. It could be a Donald Trump tells Larry, you know, I'd really love to see someone make this Rush Hour 4 movie.

24:56And Larry says, hey, David, Trump wants this to happen. I think it'd be a good idea because it could help with the other deal you're trying to do. I don't know if it's like a edict, right? We don't know the father-son dynamic. Or maybe it is. We don't know. We really don't know is the point. And nobody knows what they talk about. But there are huge ramifications for this. Why do you think Comcast, like all of the discussion is about Paramount and Netflix and just nobody's talking about Comcast other than Charlie Gasparino random stories? Yeah, it's Gasparino. The funny thing is Zaslav, I think, would prefer Comcast.