By Zaheer Kachwala
Jan 21 (Reuters) – “YouTube is not just user-generated content and cat videos anymore,” Netflix CEO Ted Sarandos said on Tuesday.
Making a compelling case for why the streaming giant wanted Warner Bros Discovery’s studio and streaming assets, Sarandos noted how tech giants such as Alphabet’s YouTube had changed what television viewing meant and forced Netflix to change tack to keep up.
“TV is not what we grew up on … Oscars and the NFL are on YouTube. Networks are simulcasting the Super Bowl on linear TV and streaming. Amazon owns MGM. Apple is competing for Emmys and Oscars, and Instagram is coming next,” he said.
“They are TV. So we all compete with them in every dimension, for talent, for ad dollars, for subscription dollars, and for all forms of content.”
Sarandos and his co-CEO Greg Peters spent a large portion of the post-earnings call talking effusively about how strong and complementary Warner Bros’ services were, a sharp change from the long-held company credo: build, don’t buy.
Having offered $82.7 billion in cash to buy Warner Bros’ film and television studios, its extensive content library and major entertainment franchises – including “Game of Thrones” and “Harry Potter” – Netflix is embroiled in a bidding war with Paramount Skydance.
Netflix’s co-CEOs had not thought they would make an offer for the assets when they first started the due diligence process on Warner Bros, they said. “When we got into the hood, there were several things we saw that were just really exciting,” Peters said.
“We have often in our Netflix history debated building a theatrical business, but we were busy investing in other areas, and it never became our priority. But now with Warner Bros, they bring a mature, well-run theatrical business with amazing films, and we’re super excited about that addition,” he said, in a reversal of Netflix’s former position that theaters were an outdated model with audiences preferring stay-at-home streaming.
“And then you get to the streaming side of things, HBO. It is an amazing brand. It says prestige TV is better than almost anything. Customers know it. They love it. They know what it means,” Peters said, adding that Warner’s television studio was also a healthy business and complemented Netflix’s own, expanding its production capability.
INVESTORS ARE NOT CONVINCED
With the expensive deal hanging over its head, Netflix delivered a tepid revenue beat for what is usually one of its strongest quarters, and forecast equally dull prospects for the new year. The company’s stock fell nearly 6% premarket on Wednesday.
While a strong content line-up, including the final season of hit sci-fi series “Stranger Things,” helped revenue growth, high costs associated with the Warner Bros acquisition have made people apprehensive about the long-term payoff, analysts said.
Netflix said previously that it had obtained commitments for a $59 billion bridge loan to support the Warner Bros’ deal. On Tuesday, it increased the bridge loan commitment by $8.2 billion to support its all-cash $27.75 per share offer.
Netflix also told investors it would pause share buybacks to help fund the Warner Bros’ deal, and that it has already incurred $60 million in costs related to securing financing.
The deal is expected to face considerable scrutiny from lawmakers and competition regulators as high-profile acquisitions threaten to monopolize the market and leave consumers with fewer choices.
But Sarandos on Tuesday moved to ease those concerns by reiterating the deal would be “pro-consumer” and “pro-worker”, and that the acquired businesses would require new teams and would allow more opportunities for creatives.
The deal “allows us to gain access to 100 years of Warner Bros deep content and IP for development and distribution in more effective ways that will benefit consumers and the industry as a whole,” he said.
(Reporting by Zaheer Kachwala in Bengaluru; Editing by Sayantani Ghosh and Anil D’Silva)
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