Chapter 1: What is the main topic discussed in this episode?
Hello and welcome to Decoder. I'm Nilay Patel, editor-in-chief of The Verge, and Decoder is my show about big ideas and other problems. Today I'm talking about the bidding war for Warner Bros. Discovery, which is the biggest story in the entertainment industry right now, and for good reason. It has pretty much everything you could want in a buzzy Hollywood saga. Big names, big money, big drama.
Right now, the winning bidder is Netflix. The streaming juggernaut has so far won the bidding process for Warner Bros., offering $83 billion for the movie studios, but not the cable channels.
Chapter 2: What is the current status of the Warner Bros. bidding war?
But Paramount Skydance simply won't go away, even though the official process is over. The company has bid, bid again, and is now attempting a hostile takeover to the tune of $108 billion for everything that Warner has, including those cable channels.
Paramount is run by David Ellison, the son of Oracle co-founder and tech billionaire Larry Ellison, and I have to say, his whole vibe feels ripped straight from an episode of Succession. This man is desperate to become a bona fide media mogul, using a combination of Paramount, his dad's ever-growing AI money, and the good graces of the Trump administration to make it happen.
Caught up in the middle of all this are HBO, CNN, and Warner Brothers Pictures.
Despite world-class brand recognition, legitimate mega-hits, and incredible franchises, these companies have been so historically comically mismanaged under a long series of clueless corporate parents that the whole bundle has ended up sold, merged, or spun off into something new more times than anyone can really count over the past two decades.
Seriously, it is mind-boggling how badly these companies have been run over the past 25 years. To help me make sense of all this, I wanted to talk with Julia Alexander, a Verge alum and now media correspondent at Puck News, who's one of the best in the business at analyzing corporate strategy, Hollywood, and what's next in entertainment.
Julia really helped me break down why Netflix wants Warner Brothers. And my David Ellison seems to think he's got a better, or even different, strategy than current Warner Bros. boss David Zasloff.
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Chapter 3: Why is Netflix the leading bidder for Warner Bros.?
Perhaps most importantly, we also discussed how the tech industry fits into the puzzle. Because as you'll hear Julia explain, the central pressure facing Hollywood today is the battle for our attention. And that battle is being fought by everything. Video games like Fortnite and Roblox, and of course, short-form video on YouTube, TikTok, and Instagram.
Soon all of these platforms could be flooded with cheap, endless AI video, and it seems that only a few companies, Netflix chief among them, seem to have any plan whatsoever for when that wrecking ball finally hits. If you're a decoder listener, you know that I love having Julia on, and you know I love talking to her about Hollywood and the entertainment industry. This episode's no different.
Okay, Puck Media correspondent Julia Alexander on the deal for Warner Bros. Discovery. Here we go. Julia Alexander, you're the media correspondent in Puck. Welcome back to Decoder. Thank you so much for having me. How are you? I'm good.
Chapter 4: What strategies is Paramount Skydance using in the bidding process?
I wanted you on because it feels like every day there is new, confusing information about who's going to buy Warner Brothers. It all kind of adds up to the same thing, which is Netflix is going to end up buying it. Paramount is going to make it really noisy until the inevitable. I love talking to you about the streaming business, about what's going on in media.
I want to start with a very basic question. This is what I really want to understand. As far as I can tell, every company that has ever bought Warner Brothers has killed itself. Why does Netflix want to buy Warner Brothers so badly?
It's a good question. And I'm sure we'll get into our favorite conversation going back to Randall Stevenson and AT&T back in 2016, 10 years ago. But why Netflix wants to buy it is not because Ted Sarandos or Greg Peters, who are co-CEOs, truly wanted to have to do this. They have to do it. They're a modern media company.
They have scaled to the point that they're going to scale based on their own capabilities. And so in order to to further engagement in order to increase retention, which is people not canceling the service, which has become the most important number to them as they kind of hit saturation in these big territories. They need big IP. They need big movies. They need a big library.
And Warner Brothers Discovery is up for sale.
All right. That was sort of the answer that I was expecting because that is the logical answer. Like that's the right answer. If you just take all the bits and pieces and you put them into the equation and you turn the crank, that's the answer you would get. That's the one that makes sense. Here's what I don't understand. Part of that answer is just because Warner Brothers is for sale.
The previous regime that controlled Warner Brothers killed itself as all previous owners of Warner Brothers do. And they put it up for sale. And so Netflix is like, we have no choice but to do this. Right next to that – Netflix is doing deals with Spotify to put ever cheaper podcasts all over its service. It is making ever cheaper reality television every single day that it can.
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Chapter 5: How has the management of Warner Bros. impacted its value?
It's doing what every big platform does, which is trying very hard to reduce the cost of content. And the cost of every minute that people spend watching content on its service because the reality is it's up against TikTok, which pays $0 for content. That's why I'm like this answer doesn't make sense.
Like paying a lot of money or big expensive IP when the reality is your biggest competitor pays $0 for content doesn't make any sense to me. How do you reconcile those two things?
Yeah. So I think you and a lot of Wall Street analysts feel very similarly. That's why Netflix's stock has kind of been down ever since the acquisition process was started. It's a really complicated answer. And I think that you have to look at two worlds that are happening at once.
So in order to set where Netflix is currently and why the WBD deal is so appealing to them now, Netflix every six months puts out something called the engagement report. They basically look at
how people are watching 99 of the content on netflix that equates to about 96 billion hours of content being viewed and what we've seen happen over the last year and a half is a slowdown there's kind of been a stagnation in engagement and so we saw this year the most recent engagement report was released a couple weeks ago there was an increase of two percent overall engagement but that was really only a one percent increase in engagement for the past six months
And if you compare that to what was happening in 2020, 2021, and of course, taking into account the pandemic, which really had a lot of effect on viewing on Netflix in a positive way. What we've also seen Netflix contend with is that the decrease in that engagement is coming from a decrease in the amount of licensed content on the platform.
And so you're seeing Netflix start to realize that although engagement with original content is increasing, it's coming so at the expense of an overall household engagement decreasing. And so if you look at the other trends within streaming, and this gets to WBD, what people are spending a lot more time on is either, to your point,
YouTube and Instagram, which is coming for TV sets now, TikTok, which will, I'm sure, relaunch their TV app down the line, and also the free ad-supported television services like Tubi, like the Roku channel, like Pluto TV. We're seeing huge engagement spikes in the U.S. with those specific services, and so the data tells you something very specific.
People want to watch free content, like obviously, and people want to watch library content, which is what these free ad supported services have. So if you're Netflix, there's two roads staring you in the face. One is the user generated content side of the equation, which is what YouTube dominates. It's what Reels dominates. It's what TikTok dominates.
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Chapter 6: Why does Netflix need to acquire Warner Bros. now?
And the idea was at that time, HBO was on a generational run, right? It had Game of Thrones, it had Sex and the City, like you just, you name it, HBO's original programming drove every conversation all over the place every single day. And Netflix's goal was to program original material at that level. This is a stated goal. We have to become HBO before they become us.
HBO never figured out its distribution on the internet in meaningful ways, so we can set that aside. But that was the idea. Netflix had to figure out original content as good as HBO's before HBO figured out internet distribution. Netflix doesn't seem to have done that.
Chapter 7: What role does the tech industry play in the entertainment bidding wars?
If the problem is we have to go license someone else's library – The only conclusion you can draw is, well, they didn't figure out how to build their own library. They didn't figure out how to become HBO. Is that like a synthesis of the problem or is there something else going on?
I think that's part of it. And if you certainly look at why Netflix could never become HBO, we often forget people in the industry that HBO was always small. HBO had a small, dedicated base and it benefited from the cable ecosystem, you know, like the greatest capitalist invention in history.
The idea that they could just be a part of a different service or part of a service that people wanted because they also wanted ESPN and ESPN2 and like
ESPN 8 or whatever else existed, meant that they could kind of be within this system and reap the rewards of it, even if they had a very small base overall compared to kind of what the Disney networks and the NBC Universal networks and the Paramount networks.
When you're Netflix and you're operating at scale, when you have 325 million global members, when you're kind of putting out these massive projects and trying to appeal to everyone, you can't be HBO.
And so I think part of the realization for someone like Reed Hastings or now, of course, Greg Peters and Ted Sarandos was if we're not going to become HBO, because we're not going to make these kind of offbeat, witty comedies or these kind of dense dramas. And that's all we're going to do. Then we can just buy them.
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Chapter 8: How does the competition with platforms like TikTok affect Netflix's strategy?
HBO became much more appealing post kind of. the 2018, 2019 AT&T acquisition, and then really going into the 2022 WarnerMedia acquisition. When they started to do more Game of Thrones stuff and spinoffs, they started to do more DC stuff.
They started to do a lot more kind of genre IP, which is where they see the vast majority of their big engagement happen is on those IP shows that you can see working under someone like Bella Bejaria, who's the head of content at Netflix, while Casey Bloys, who's the head of HBO, can continue doing what works really well for HBO.
The thing about library, which is, again, the most important part of this conversation, is that it's really hard to build up a library in the time that Netflix needs to. Warner Brothers, including all the things that come with it, is 100 years old. There's just a lot of stuff in there, including...
Shows like ER and Friends and the things that people really want to watch, the movies that people really want to watch. And so in order for Netflix to get to that point, they would have had to have another 30, 40 years to build up the library.
And because of the competition from YouTube and these free ad-supported services and Instagram, you know, you have Ted Sarandos saying Instagram is coming in a very Game of Thrones. like way, right? This way.
I think in order to get there, they made a very traditional, for kind of this tech disruptor in the media space, they made a very traditional media play, which was just to go and buy someone and scale quickly in that regard.
So let me ask you about the library. And I don't disagree with you, right? It's 100-year history. It has been mismanaged in all the ways it's been mismanaged. But the IP is there, right? The shows are there. The history is there. Netflix could have been building that library this entire time.
What is it about Netflix specifically that has prevented it from making an ER or anything with that kind of longevity? Because if I have to pick on the streamers, what I'll say, specifically Netflix, but I think all the streamers, is that they can't make that anymore.
Right.
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