Plot twist in Netflix and Paramount battle to buy Warner Bros

Another week and another twist in the ongoing multibillion-dollar battle between Netflix and Paramount to buy Warner Bros.

Both bidders were on the offensive this week after Warner Bros agreed to reopen talks with Paramount for seven days, after the David Ellison-controlled media business said it would sweeten its offer.

Warner Bros already has a signed agreement with Netflix worth $US82.7 billion but this “exploratory” week with Paramount will give the latter the opportunity to increase its existing $US30 per share bid.

When in December Paramount lost the initial competition to woo Warner Bros, it launched a hostile takeover bid and has been a persist thorn in the side of Warner Bros’ board with its direct pleas to shareholders and commenced legal proceedings.

This week will give Paramount a chance to “discuss the deficiencies that remain unresolved” of its offer. Commentators expect that Paramount will increase its bid to up to $US33 per share.

Paramount has also agreed to foot the $US2.8 billion break-up fee with Netflix if Warner Bros was to change horses.

Paramount wants to buy all of Warner Bros’ assets including its cable TV division while Netflix, which has offered $US27.50 per share, is looking to acquire only its studios and streaming business which includes franchises such as DC, Harry Potter and all of its HBO library and programming.

The shift in Warner Bros’ heretofore block against Paramount has also moved Netflix on the offensive this week.

The streamer’s co-chief executive Ted Sarandos appeared on The Town podcast yesterday to continue to sell Netflix as the best owner of the legacy studio.

He called the Paramount acquisition “risky” and had described it as a “leveraged buyout” that will lead to job and budget cuts.

Sarandos also sought to assuage concerns around some of the common opposition points to Netflix taking control of a movie studio.

Foremost among that is that Netflix, as a streamer, has been resistant if not hostile to cinematic releases. The streamer has long been adamant its business model is keep viewers home and watching on their own devices rather than go to cinemas. Sarandos has previously described the cinema experience as “outmoded”.

He has again re-iterated a commitment to maintain Warner Bros’ output as cinema-first, with a window that will keep those movies in theatres for 45 days, which will be supported by splashy marketing campaigns.

“We’re buying a business model, and we’re going to continue to invest in it and grow it, not to kill it,” Sarandos said on The Town. He added that Netflix would also honour a premium video-on-demand (digital rental and/or purchase) before those films become available on a subscription streaming service.

“If we’re going to get into the theatrical business, we want to win,” he added.

Sarandos has made the theatrical window overture before but key critics remain sceptical of the long-term commitment.

Earlier this month, before Sarandos’ latest comments, director James Cameron, who has previously been on the record in arguing against the sale of Warner Bros to Netflix, wrote to a US Senator, Mike Lee of Utah, to cement his opposition.

Cameron wrote that it will be “a blow to the exhibition community (theatre owners and their tens of thousands of employees) at a critical time to have this production output redirected to streaming”.

He added that jobs losses will “spiral” from fewer films being made, which would lead to the closure of cinemas as well as service providers such as visual effects companies.

Cameron asked, “What administrative body will take them to task if they slowly sunset their so-called commitment to theatrical releases?

“But once they own a major movie studio, that is irrevocable. That ship has sailed.”

Cameron does not work with Paramount. He has made his films through 20th Century Fox, which was acquired by Disney in 2019.

On The Town podcast, Sarandos also said Netflix would keep HBO as a separate brand and re-commit to its position as a prestige entertainment house. He said it would leave HBO to operate “largely as it is today”.

In another sign that Netflix has sought to counter the seven-day talks with Paramount, Reuters reported overnight, citing two sources “with knowledge of the matter”, Netflix also has room to move if Paramount makes a new bid.

The Reuters article pointed out that Netflix is holding $US9.03 billion in cash and cash equivalents, so it could potentially improve on its current $US82.7 billion bid, which is financed by debt, a $US42.2 bridge loan, new credit facilities and cash.

Netflix has already changed the terms of its deal by shifting from a cash and shares offer to all cash.

Any transaction will need the approval of regulators in the US and the European Union. Paramount, which is owned and controlled by Ellison and his father, tech billionaire and Donald Trump supporter Larry Ellison, has repeatedly suggested that its bid would have an easier pathway through the government.

Critics of a potential Paramount ownership of Warner Bros has pointed to the Ellisons’ new management of CBS and the right-ward lurch of its news division, as well as the sources of its financing for the Warner Bros deal, which includes money from Middle Eastern sovereign wealth funds such as that of Saudi Arabia’s.