Hollywood’s old guard has always rejected the idea that Netflix could ever revolutionize the entertainment industry. “It’s a bit like asking, ‘Is the Albanian army going to take over the world? I don’t think so,'” said Jeff Bewkes, former CEO of Warner Bros. parent company Warner Bros., said in 2010.
But on Friday, Netflix — launched in the 1990s as a DVD-by-mail rental service — reached an $83 billion deal to buy Warner Bros., the modern successor to the Bewkes Company and home of the legendary movie studio. This acquisition puts an end to an improbable trajectory, worthy of Hollywood, and consolidates the domination of the technology industry over entertainment.
Once again, traditional entertainment giants have underestimated the streaming pioneer who has revolutionized the industry over the past two decades. Monday morning, Polymarket estimated Netflix’s chances of acquiring Warner Bros. less than 5%.
The deal marks the culmination of Netflix’s evolution into a Hollywood powerhouse with a market value of $450 billion. Leaders managed to accomplish this by quickly and quietly putting together a solid proposal, while publicly downplaying their interest.
Netflix co-CEO Ted Sarandos acknowledged Friday that many people would be surprised by the bold bid for Warner Bros., but said it was a “rare opportunity” that couldn’t be ignored.
If the deal is approved, Netflix will control some of the jewels of the entertainment industry: the Warner Bros. studio. and Warner Bros. – including the Harry Potter, Batman and DC Comics franchises – HBO, which is still the envy of the television industry, with hits such as Game of Thrones, The White Lotus and The Sopranos, and Warner’s premium streaming service, HBO Max.
The auction also represented a resounding triumph for Warner Bros. CEO David Zaslav, who a few weeks ago seemed on the verge of being dethroned by the ambitious 42-year-old David Ellison. But Zaslav managed to spur a bidding process, spurring his company’s stock price decline and finding a buyer willing to keep him at the helm of Warner Bros. Studios. Business.
Barely was the ink dry after Ellison completed his $8 billion acquisition of Paramount this summer when he turned his attention to Warner and began making offers in September.
Zaslav was angered by these proposals, as he had announced plans to split up Warner Bros. Business, which would allow him to continue running the studio, streaming group and HBO – the most glamorous and fastest-growing parts of the company – and divest from the traditional TV networks that were putting pressure on the stock price.
But Warner’s board realized it had to act quickly or risk losing control of events, according to people familiar with the matter. Warner Bros. Business officially launched an auction in October while Zaslav searched for other buyers. “It was obvious (Paramount) wasn’t going to give up,” said one person involved in the sales process.
Internally at Warner, the sales process took place under the code name Project Sterling, with bidders given pseudonyms: Noble for Netflix, Wonder for Warner, Prince for Paramount and Charm for Comcast.
With a voracious appetite for assets, abundant capital thanks to the support of his father, Larry Ellison, one of the richest men in the world, and having secured additional investments from Apollo and Saudi Arabia, it appeared that Warner Bros. was in Ellison’s hands. US President Donald Trump appeared to publicly advocate for Warner to end up in Paramount’s hands, telling reporters that the Ellisons were “my friends”.
Netflix, for its part, seemed to downplay its interest. Co-CEO Greg Peters said at a Bloomberg conference in October that “we have a long tradition of being builders, not buyers.” “Large media mergers… don’t have very good results,” he added.
To maintain auction momentum, Warner imposed an unusually tight schedule, giving bidders days to review terms that would normally take weeks. “It was so important, it affected so many people, that we had to move on and not waste time,” said a person close to the CEO of Warner Bros.
For six weeks, board members were called into near-daily emergency meetings, all-night drafting sessions and a long weekend of difficult negotiations.
Bidding reached its peak this week, with final bids expected on Monday morning (1). Netflix, Paramount and Comcast presented very different proposals. Thursday evening, after hours of debate, the board of directors met in executive session and reached a unanimous verdict: accept Netflix’s offer.
Netflix wasn’t the obvious favorite. The company had never attempted an activity of this magnitude. But in the boardroom, one factor outweighed price: Netflix had presented a comprehensive offering.
“Netflix was prepared to do this deal in all material respects,” said a person involved in the sale negotiations. His team spent 10 straight days responding to every request, strengthening contract terms and agreeing to a $5.8 billion severance fine, one of the largest on record.
The board wanted a proposal they could sign immediately. Netflix was the only bidder whose documentation was fully ready for signing that evening. “Within minutes of the vote, the contracts were signed,” said one person involved.
Netflix’s offer met all of the Warner board’s requirements and the company was willing to adopt the requested changes to finalize the deal. Paramount and Comcast, on the other hand, were still seeking to negotiate certain terms, people familiar with the matter said.
Even Netflix employees say that, until recently, they considered themselves mere spectators at the company. “We always thought the chances of this working for us were slim, because Paramount entered the race very early and very strongly, even though we thought our proposition and strategy was better,” one executive said.
Zaslav could retain operational control of Warner even after the Netflix acquisition, although no formal deal has yet been signed, a source familiar with the matter said. That’s an advantage he wouldn’t have under the Paramount deal, where he would share the CEO role with Ellison.
Netflix said it expects to finalize the deal in 12 to 18 months. But sources close to U.S. regulators said the process could take longer because the transaction is expected to face serious antitrust hurdles. Combining two of the largest U.S. streaming platforms will likely be seen as anticompetitive, a person close to Trump administration regulatory officials said.
Netflix executives say they are confident in their ability to overcome any antitrust concerns, pointing to the large and diverse entertainment market where audiences flock to digital platforms like YouTube.