It’s a question many may be asking themselves or their closest business associates: How will Netflix convince federal regulatory agencies to get their respective approvals of the transformative $82.7 billion acquisition of Warner Bros. and its HBO assets? Are their red flags potentially thwarting Ted Sarandos from making the deal with David Zaslav?
MoffettNathanson Senior Analyst Rob Fishman has his thoughts.
In an investor note that cheekily opens with a December 2010 quote from then-Time Warner CEO Jeff Bewkes, describing Netflix. “It’s a little bit like, is the Albanian army going to take over the world? I don’t think so,” Bewkes said.
Two years later, in January 2013, Netflix Co-CEO Sarandos — then in the role of Chief Content Officer — said his goal for the DVD-by-mail turned streaming video giant was “to become HBO faster than HBO can become us.”
Today, “it appears the Albanian army has taken over the world and the question of convergence between Netflix and HBO has neatly been answered – they are now one combined force,” Fishman shared hours after the blockbuster deal was confirmed by Netflix.
The earliest reports of the deal with WBD surfaced on the 11pm Pacific local newscasts of several Los Angeles television stations. And, Fishman wasn’t alone in admitting that MoffettNathanson is “still coming to terms with the official announcement.”
It’s a deal in which Netflix expects the transaction to be accretive to GAAP EPS by year two — that is, if there aren’t any regulatory hiccups.
“One of the biggest questions around the announced Netflix Warner Bros Streaming & Studio deal is the likelihood of a smooth regulatory review,” Fishman notes. Netflix expects the transaction to close in 12 to 18 months, subject to all the required approvals. “Management believes the company is well positioned for this approval process but there has already been some vocal pushback in the U.S. and Europe about the combined market power Netflix would hold after owning Warner Bros.’ assets,” Fishman notes.
As concern from the creative community or other regulating bodies grows, Netflix could be forced to navigate a more complex regulatory process, he adds.
“Ultimately, we think the likelihood of approval comes down to how successful Netflix will be in defining the market beyond the traditional media landscape to include other companies like YouTube, Amazon, and other digital players like TikTok and social media as they compete engagement across the total day,” Fishman conncludes. “Should the deal fail to obtain approval or there is a final, non-appealable order preventing the transaction, relating to antitrust laws or foreign regulatory laws, Netflix will pay WBD a termination fee of $5.8 billion.”
With a deal between Netflix and WBD now official, what happens to Paramount Skydance?
It’s a matter Fishman addresses, as MoffettNathanson has “long believed” that the parent of CBS News & Stations was the most likely to acquirer for WBD. “We expected the company to be the most aggressive in pursuing these assets given the need to achieve their own objectives for growth with a combined portfolio of studio, streaming, and linear networks,” Fishman says. “We continue to believe an acquisition of WBD is of the greatest importance to Paramount under its new management in Skydance and Ellison.”
Such a deal would come minus HBO Max and the HBO brand.
