Why Netflix wants HBO: It’s about more than just TV shows and movies

If you want to know how Netflix’s plan to acquire Warner Bros. will affect you, I suggest not getting your answers from Netflix.

Last weekend, the streaming giant emailed customers implying the deal was done (subject line: “Welcoming Warner Bros. to Netflix”) even though that’s far from being settled. Its press release and help page are only marginally more informative, provided you can sift through all the boilerplate proclamations and canned executive quotes.

Ultimately this deal is about power. For Netflix, it’s a way to fulfill its goal of being a singular source for streaming, which in turn will help it raise prices, freeze out rivals, and tilt the distribution of movies and shows in its favor. Expect a lot of fighting between Netflix, rivals, and government regulators before that’s allowed to happen.

Brand power

Despite Netflix’s popularity, it does not control many established entertainment franchises. It has cultivated a handful, including Squid Game, Stranger Things, and Bridgerton, but none that truly rival those of Disney (Star Wars, Marvel), Paramount (Star Trek, Spongebob), or NBCUniversal (Despicable Me, Jurassic Park). Wikipedia’s list of the top-grossing media franchises only includes one from Netflix, and it’s Chronicles of Narnia, the rights to which it acquired in 2018.

Buying Warner would give Netflix a stable of recognizable entertainment brands to build around, including DC properties such as Superman and Batman, kid-friendly franchises such as Minecraft and Looney Tunes, sci-fi staples such as The Matrix and Dune, and HBO hits such as Game of Thrones and The Sopranos. While Netflix says HBO Max will remain separate for now, its press release makes clear that the goal is to subsume Warner’s catalog and create new content around it.

The broader content roster could potentially make Netflix better, but it will also help Netflix justify the price increases that have now become routine. It could also allow Netflix to expand other aspects of its business, such as video games and merchandising. (To that end, it’s taking over Warner’s gaming division as well.)

Weakening rivals

Ted Sarandos, who is now Netflix’s co-CEO, famously said in 2012 that the company’s goal was “to become HBO faster than HBO can become us.” Lately, though, it’s trying to be more like cable—a singular source of streaming that caters to a wide swath of interests—before cable becomes Netflix though its own array of streaming services. At the risk of being cynical, Netflix’s biggest motivation to take over Warner might be to keep it away from its competitors in the traditional TV business. Paramount and Comcast had also been bidding on Warner, and Paramount has now launched a hostile takeover bid in hopes of convincing Warner shareholders that it’s offering a better deal.

Much like Netflix, Paramount was also looking to absorb the entire HBO Max catalog into its own Paramount+ streaming service. In this scenario, Paramount+ would become a serious competitor instead of an also-ran, and Netflix would have less latitude to raise prices without subscribers defecting.

Netflix doesn’t even have to seal the deal to achieve its goal. As CNBC reporter Alex Sherman pointed out, Netflix has agreed to a $5 billion breakup fee if its Warner acquisition fails, but that’s nothing for a company worth $450 billion, and it could take a couple years for Warner to be up for sale again. In the meantime Netflix could further entrench itself by keeping the competition weaker.

Shifting the movie business

Warner’s current plan is to release 12 to 14 movies into theaters per year, and while Netflix says theatrical releases will continue, it wants to get them onto its streaming service sooner. In an analyst call last week, Sarandos said theatrical release windows would “evolve to be much more consumer friendly, to be able to meet the audience where they are, quicker.”

That doesn’t mean Netflix would abandon theatrical releases outright, but the goal will shift toward promoting Netflix properties rather than boosting theater revenue for its own sake. As the New York Times notes, Netflix’s KPop Demon Hunters Singalong has been a huge hit in theaters, and its series finale of Stranger Things—screening on 500 theaters in lockstep with the streaming release—is already sold out in many places. Expect more event-driven spectacles, fewer straightforward screenings, and a greater willingness to let people stay at home.

What it’s not about: Live sports

Another notable aspect of the Netflix deal is what’s missing: The company is not buying Warner’s cable channels, including TNT and TBS, as Warner plans to spin those off into a separate company. TNT will get its own sports streaming service when that happens, and its live sports coverage will disappear from HBO Max.

That means Netflix won’t be getting any live sports as part of the deal. By contrast, Paramount wants to add Warner’s entire cable business, and could use it to transform Paramount+ into a major source of sports streaming.

Netflix might have other reasons for passing over Warner’s cable business, such as not wanting to negotiate carriage deals or take on as much debt from Warner’s previous merger disasters. For now, though, it’s maintaining a conservative approach to live sports, avoiding expensive full-season rights deals in favor of scattershot events, such as Christmas NFL games, the Paul-Tyson fight, and the first MLB game of the season next year. Netflix’s goal to become more like cable doesn’t yet extend to sports, and acquiring Warner won’t change that.

What’s next

While Netflix is projecting confidence, it’s a long way from owning Warner Bros. in earnest. Antitrust hearings are likely, Paramount’s hostile takeover bid has to play out, and the Justice Department feels like a wild card under the Trump administration. Even if everything goes smoothly, Netflix says it’ll take 12 to 18 months for the deal to close.

In the meantime, I’ll leave you with the one line in Netflix’s customer letter that we know for certain is true: “Nothing is changing today.”

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