Netflix announced it will buy Warner Bros. Discovery’s studios and streaming assets, beating Paramount Skydance and Comcast who were also bidding for the assets. We discuss the implications for the streaming industry and winners and losers. Plus, Meta cuts spending on the metaverase and stocks on our radar. Travis Hoium, Lou Whiteman, and Jason Moser discuss: - Netflix buys WBD - Mark Zuckerberg cuts metaverase spending - Where will disruption come from next? - Stocks on our radar Companies discussed: Netflix (NFLX), Disney (DIS), Hims & Hers (HIMS), Meta Platforms (META), Alphabet (GOOG), Delta (DAL), Salesforce (CRM). Host: Travis Hoium Guests: Lou Whiteman, Jason Moser Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What are the details of Netflix's acquisition of Warner Bros. Discovery?
Netflix is buying Warner Brothers Discovery. Are the streaming wars finally over? Motley Fool Money starts now.
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From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Travis Hoey.
Chapter 2: How will this acquisition impact the streaming wars?
I'm joined by Lou Whiteman and Jason Moser. Guys, we got to start with the news of the day. That is Netflix buying Warner Brothers Discovery, or at least part of Warner Brothers Discovery. They're going to be spinning off WBD's Global Networks, Discovery Global, that's the old TV station, CNN, TNT, stuff like that. But Netflix is going to pay $82.7 billion in total.
Warner Brothers Discovery shareholder, if you are a shareholder, you're going to get $23.25 worth of cash, $4.50 in Netflix stock. Netflix is also taking out $59 billion worth of debt to finance this deal. There's a $5.8 billion breakup fee.
Chapter 3: What are the financial implications of Netflix's acquisition?
There's a lot going on here, Lou, but what is your first reaction? This news came out early on Friday, and I think it was frankly surprising because it wasn't Netflix that seemed like they were in the lead. It was Paramount, Sundance, and Skydance. I can't get these names correct. Skydance, yeah. Suddenly, Netflix is the winner.
In 2013, Netflix co-CEO Ted Sarandos said, the goal is to become HBO faster than HBO can become us. Spoiler alert, or what is this? Is this a surprise ending or something? They are going to become HBO in a weird way.
Chapter 4: What are the potential risks associated with Netflix's new debt?
The first reaction is, wow! I think it makes sense. I can't help but make the stupid joke about 25 years ago, there was a market-defining deal where the target had Warner in the name and it marked the top. I think this is different though, because I do think that AOL might have been coming from a place of desperation. Netflix sees an opportunity here.
Netflix sees, I think, an amazing opportunity to get a great content library in a world where it's getting harder for them to license because everybody has a competing product. Nobody wants to give Netflix their content anymore. Yes, it's a lot of debt. Yes, it's a lot of risk. Yes, we'll see what regulators have to say.
Chapter 5: How does Meta's spending cut affect its future in the metaverse?
But this makes sense. And I think as a consumer, I probably like this outcome too. So there's a lot of wow here, but I think a lot to like.
Jason, what were your thoughts when you saw this deal? It made me think these annual price increases for Netflix probably even can go a little bit further because they now really take that top position of, if you have streaming, I haven't had cable for over a decade now, Netflix is one of those you have to have if you don't have a cable subscription.
I agree. It's a bedrock streaming subscription for virtually every household. I think that only becomes more the case with a deal like this. It's funny, you saw Ted Sarandos saying, I know that some of you are surprised we made this deal. We tend to like to build things rather than buy them, but they just view this as a unique opportunity.
Chapter 6: What are the next disruptions expected in the streaming industry?
as Lou said there, to go ahead and get a catalog of just some very valuable IP, some very valuable content that they know customers like. You look at Netflix, around 300 million subscribers there. With HBO Max and all of this, that's a little bit less than half of that. They're going to add some subscribers.
There's clearly some overlap there, but they're going to bring some new subscribers into the mix there. More so, they will have just a ton of additional content that comes with it. I think the one thing, I'm not as excited about the deal. I understand why they're doing it. But it also makes me a little nervous from what we were talking about earlier, the Disney perspective.
What I mean by that is, you think about this, Disney has a market capitalization today around $186 billion.
Chapter 7: Which stocks should investors keep an eye on after this acquisition?
That's on $94.5 billion in revenue and $12.3 billion in net income. Netflix, on the other hand, has around $435 billion market capital and just over $43 billion in revenue and $10.5 billion in net income. I think one of the things that's really held Disney back over the last several years, one of a few, I think they relate to this streaming game, better late than never.
But right, that Fox acquisition, I think, set them back a little bit because it was such a large commitment. I just worry about this from Netflix's perspective in that it is such a large commitment. It could take some time to really flow through the financials and make as much sense. But generally speaking, I do understand the move.
If there's a company that's going to be able to execute this, I think it's Netflix, so I get why they're doing it.
Definitely true.
Chapter 8: What insights can we gain from the latest earnings reports?
I would say, though, it matters what you buy. I see more logic here. Disney, Fox, I see what they were doing, but I do think the target matters and the target is better. Travis, on the pricing thing as a consumer, all I'd notice is that if you actually do want this content, I doubt Netflix raises their price by $11 per month.
The minimum to be a Warner Brothers streaming customer was $11 per month. I think that speaks to the optionality here. Some of what the studios are upset about, will movies go to the theaters anymore, some of those questions, I think Netflix can give in on that pretty easily and maybe
And they have made some promises that they're going to keep having theatrical releases. But also Ted Sarandos was the one who said that basically we don't care about theaters. So this is – there is some natural tension in the deal. And a lot of times what happens with these kind of deals is you make a promise or a commitment –
And five or 10 years from now, you kind of forget about that and nobody's really following up.
But let's look at the other way. And maybe I'm being too Pollyanna here, but does the bigger studio presence mean that it makes more economic sense to sort of lean into the theater as another source of revenue?
Yeah, and with $59 billion in debt, maybe you need to think about that.
Right. Well, that's it. I'd offer new ways to tackle that. I don't know. I think there's a lot of ways to play out. Disney has had good management and less good management over the year. The one thing, again, I would say, too, is that if you're going to bet the jockey, I'm going to bet on Netflix's management team to work through some of the wrinkles, iron out the wrinkles here.
I don't want to be too positive. Like I said, I still wonder if it gets through. especially globally, with antitrust. But I do think that, man, you're putting a really smart people in charge of even more great assets. As an investor, there's a lot to like about that.
I think that makes perfect sense, too. The other thing to think about, too, is because of all of these assets they're bringing in, and this could go one of two ways, but there's a distinct possibility we will see more levels for subscriptions coming from Netflix. Do you think there's going to be a Netflix Plus? Netflix Max. Let's get a little bit more creative. You're catching my drift there.
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