Chapter 1: What concerns do Hollywood creatives have about Netflix's acquisition of Warner Bros.?
Ever since Netflix announced a deal to acquire Warner Brothers back in December, some Hollywood creatives have been shaking in their boots. A lot of the concern is just sort of that these guys are the disruptors from Silicon Valley. They're a tech company. That's my colleague, Joe Flint. What are they going to do?
And we're all going to be making movies and TV shows based off their algorithms and creativity will fly out the window. So all the Netflix boogie monsters are coming out right now.
The deal isn't yet finalized, but if Netflix is successful, the merger would create a Hollywood behemoth, marrying the world's biggest streaming service with one of Hollywood's most storied studios filled with important IP. Hollywood would prefer that no one buy Warner Brothers because anytime one of these companies gets sold, there's one fewer entity to sell a project to.
There's one fewer company to do business with. And one of the men who'd be at the helm of this new entertainment juggernaut is Netflix co-CEO Ted Sarandos. Does Ted Sarandos want to be the king of Hollywood? Some might argue Ted is already the king of Hollywood, but if he gets the Warner deal, he'll have a castle to go with his kingdom.
Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Thursday, January 8th. Coming up on the show, the rise of Ted Sarandos and his fight to win Warner. All right, let's talk about Ted Sarandos' origin story. Where is he from and how did he even wind up in the entertainment industry to begin with?
Well, Ted grew up in Arizona, and he took a job in a video store when he was, you know, in between high school and sort of going to college. And he was a movie buff. And he always, honestly, he kind of loved the types of movies that weren't ever coming to Phoenix. He was a little bit of an indie movie fan. Sarandos rose to the ranks and worked his way up from store clerk to regional distributor.
He's getting to know people and doing deals with studios to acquire content to put on the shelves. So in the course of doing that, he starts to get a little bit of a, you know, reputation as a sharp guy when it comes to doing these sorts of deals. Sarandos eventually got on the radar of Reed Hastings, who was just a couple years into launching a mail-order DVD company called Netflix.
In 2000, Hastings hired Sarandos to oversee content acquisition. But soon, Sarandos was thinking bigger. As Netflix, you know, kind of began to move its business from male DVDs to online, Ted was a very early advocate that, hey, we will need to do original programming of our own. Basically, it will help us control our own destiny.
The more content we can own, the better for the future of this business. Here he is talking about this on a podcast a few months ago. I said, in this world where we're going to be a digital channel, and I don't know of any network that exists that doesn't have some form of original differentiating program from each other. So Sarandos set out to make some new TV shows.
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Chapter 2: How did Ted Sarandos rise to power in the entertainment industry?
Some creators begin to wonder, but am I getting paid enough? Is this really fair? How do I really know how popular it is if we don't test the waters to sell the rerun somewhere? Netflix is very cautious about the information they release in terms of who's viewing it, so I don't really know. Everyone's like, oh, wait a minute. Maybe this wasn't so good for us after all.
The other thing that's irked Hollywood is how Sarandos has approached releasing new movies. When Netflix got into movies, they made a big deal of not embracing the theatrical model. So... That became a concern to a lot of sort of Hollywood purists, we'll call them, as well as the movie theater industry, of course. Oh, my God, you can't not put a movie in the theaters. Are you insane, man?
Yes, they do release some movies theatrically, usually for award consideration, or a big enough director has the clout to persuade Netflix to drop it in a theater for a couple weeks. But, yeah, Ted's belief was, hey... People want to watch stuff at home, and we're about the customer first, okay?
And the movie-going experience, yes, maybe it's great for some things, but most people would just as soon sit at home. So, you know, that was kind of a turnoff to a lot of old Hollywood. All of this is why Hollywood was shaking in its boots when Netflix announced the deal to acquire Warner Bros., Netflix has already transformed the industry.
And by buying another major player, things are probably only going to change more. How has Ted Sarandos responded to all of these concerns in Hollywood? Ted has said, when he's asked that, are you guys ruining Hollywood? He will say, no, we're saving it. The box office is down. The L.A. film business is shaky. People are out of work. Your competitor's market share is sinking. But...
Netflix business is thriving. Have you destroyed Hollywood? No, we're saving Hollywood. You're saving Hollywood. They would tell you that they're spending a ton on content. How can we be ruining Hollywood? Look at how much money we invest in movies and TV shows. And we have a global system that reaches everyone. We believe in all this. We're not here to ruin it.
We're here to build it out and persevere and find even more of an audience and a new way to reach them. But to actually get Warner, Sarandos has a couple fights ahead of him. That's next. Before Netflix can seal the deal for Warner Brothers, it has to do two things. First, it has to fend off a rival bidder, Paramount. Then, it'll need to persuade regulators to approve the deal.
Let's start with Paramount. The company has deep pockets behind it, those of Larry Ellison, one of the richest men in the world. Paramount is still aggressively pursuing Warner. They are not taking no for an answer. David Ellison, Paramount's CEO, says they are, quote, finishing what they started after making six total offers.
Paramount, Skydance, amending its $30 per share all-cash offer for Warner Brothers Discovery. The Oracle co-founder and father of Paramount Skydance CEO David Ellison on Monday said he will personally guarantee more than $40 billion for the deal. So far, Paramount's pursuit of Warner hasn't been successful.
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