Netflix to buy Warner Bros Discovery

December 5, 2025

It’s merger Friday!  Big merger announcements almost always happen on Mondays.  So it was a surprise this morning when Warner Brothers Discovery announced Netflix as the winner of the three-way bidding war.  We’ll get into all the details below.

Old Hollywood Goes Digital

Well, that was dramatic.  In one of the largest and most talked-about deals of the year, Netflix has agreed to acquire Warner Brothers and HBO for $83 billion dollars.  Batman, Harry Potter, and Rachel Greene are packing their bags and moving down the street to Netflix.

Warner Brothers Discovery (WBD) owns three big things:  

(1) Warner Brothers studio and film library,

(2) HBO streaming and library, and

(3) several cable channels (CNN, TNT, Discovery, etc.)

Netflix is buying TWO of those things — Warner Brothers and HBO.  The cable channels will become a separate business and will trade as a separate stock.  There were two other bidders – Paramount Skydance (PSKY) and Comcast (which owns NBC Universal).  

What do I think?

I gotta admit.  I didn’t expect Netflix to win.  It’s a big deal for Netflix, no doubt.  But for the other two bidders – Comcast and Paramount – a deal would be transformative.  In a “transformative” deal, you’re less concerned about trivial factors like “price”.  Instead, you talk about a mythical pot of gold at the end of some mythical rainbow.  And what is possible when the two armies are combined.  “We will be unstoppable!”  Etc etc.

Meanwhile, Netflix is several times larger than these other companies.  And its stock has been on fire the last few years.  So it has to talk about mundane things like “impact to earnings” and “return on investment”.  

Given this, I thought Paramount would bid a sky high number (pun intended) that was not necessarily grounded in “financials” but rather in “vision”.   But, as has happened many times before, I was wrong.  Perhaps Papa Larry Ellison wasn’t willing to write a blank check for whatever price was necessary.

What happens now?

This fight is far from over.  There is a decent chance that this deal never closes.

Why not?  Well, first, we have to wait for WBD to spin off its cable TV channels.  That will take at least a year.  After that, the parties have to navigate regulatory approvals.   Since it’s a combination of big companies in the same business, this will receive an “extended” review by the DOJ.  The Trump administration has already weighed in and said they view this deal with “heavy skepticism”.  That could take as long as a year.  Senator Elizabeth Warren this morning called the deal an “anti-monopoly nightmare”.  Then, since they’re global companies, they also need international regulatory approval.  

And then there’s the elephant in the room.  On top of a regular DOJ anti-trust process, we cant ignore who sits in the Oval Office.   Paramount is run by David Ellison.  His father, Larry Ellison, is the founder of Oracle and the second richest man on earth.  Larry Ellison provided a lot of the funding for the purchase of Paramount.  Importantly, he is a large supporter of the Trump administration.  

Then, on the other side of the table, Reed Hastings (co-founder of Netflix) is an avid critic of the Trump administration and a supporter of California Governor Gavin Newsom.   So, presumably, the Trump administration was rooting for Paramount to win.

So we have two buyers.   One is funded by a Trump supporter.  The other was founded by a Trump critic.  Now, hypothetically of course, if the DOJ were influenced by the President’s opinion, this might be a roadblock to final passage.

If that alone were not enough, consider this.  Paramount’s bid was for all three parts of the business — Warner Bros, HBO, and the cable channels (read: “CNN”).   If Paramount had won, CNN would come under Ellison’s editorial control.  They could fire anchors, rework the programming, etc.  Presumably, that outcome is a very appealing one for the Trump administration who has been very critical of CNN.  

On top of all that, you also have Hollywood.  They are likely furious.  In modern film,  you have two camps here.  The old studios – Warner Bros, Paramount, Universal, Disney/Fox – and the “new” mega studios – Netflix, Apple, Amazon, etc.   The old studios have been trying to fight off Netflix by BECOMING Netflix.  They all launched their own streaming services.  The old guard probably was willing to merge with one of its brethren.  But being acquired by one of the “new” guys must leave a bad taste in their mouth.  

Well, who cares what Hollywood thinks?  Well, Hollywood has two main assets.  First, there is the film library of all the movies and TV shows that have been made over the past 100 years.  That’s a great asset and easily monetizable.  The second asset is the studios.   The studios are really about people.  The best directors, the best actors, the best writers – these folks go where they want.  And the demand for them is high.  Netflix will now have to convince the stable of talent at Warner Bros that it’s in their best interest to stay.   For an analogy, imagine you just bought the Dallas Cowboys.   But all the best players and coaches in the league hate you.  And they don’t want to work with you.  That’s a problem.  Same thing here.  Netflix needs to do some sweet-talking.

What do I think about the stocks?

Netflix is almost certainly overpaying for these assets.   WBD stock was trading $10-12/share over the past 3 years.   When Paramount Skydance (PSKY) came sniffing around, the stock jumped.   This morning, it’s trading at $25/share.  That alone is telling.

It’s hard to see where the return on investment will come from.  Will Netflix raise the price on its subscriptions now?  Or will it run HBO as a separate streaming entity?  Both ideas seem questionable.  But that’s the only way that I can see how NFLX will fully monetize the library assets that it’s buying.

For the near future, Netflix will be a merger arb plaything.  And even in a good scenario, it will take years for it to generate a positive ROI on this deal.  So to quote one of my favorite movies, “the only winning move is not to play.