Netflix co-CEOs try to reassure staff over WBD deal as Paramount circles and stock slides

Ted Sarandos (left) and Greg Peters

Netflix co-CEOs Ted Sarandos and Greg Peters have insisted the streamer’s proposed acquisition of Warner Bros Discovery (WBD)’s studio and streaming assets is a “strong way to create and protect jobs” as Paramount continues efforts to derail the deal with its own bid.

In a Q&A-style internal memo sent to employees on Monay, the co-CEOs reiterated their continued interest in completing the US$82.7bn transaction and explained why they believe Netflix’s deal creates less disruption for the wider global production ecosystem and raises fewer antitrust concerns.

“Our position hasn’t changed: we strongly believe that Netflix and Warner Bros joining forces will offer consumers more choice and value, allow the creative community to reach even more audiences with our combined distribution, and fuel our long-term growth,” said Sarandos and Peters in the memo, which was shared as part of a securities filing.

“We made this deal because their deep portfolio of iconic franchises, expansive library, and strong studio capabilities will complement – not duplicate – our existing business.”

On December 5, Netflix announced it had entered a definitive agreement to acquire WBD’s film and TV studio, library, IP and HBO Max for US$72bn in equity value and more than US$10bn in debt assumption. Paramount countered on December 8 by launching a hostile bid for the entirety of the company (including its global linear networks) for US$108.4bn, claiming WBD’s board had not thoroughly reviewed its most recent offer.

Netflix’s deal, if completed, would take the streaming giant into several new business lines, including third-party licensing, wide theatrical distribution and producing for external platforms and networks. For that reason, Netflix claims that its combination with WBD would not cause as many job losses as Paramount’s.

Netflix has said it expects US$2-3bn in annual cost savings from its deal, while Paramount said its offer would see upwards of US$6bn in “synergies.”

For its part, David Ellison-led Paramount has claimed its proposal has a much clearer path to regulatory approval, would result in greater combined content spending, means more films receive wide theatrical releases and, more broadly, represents a better outcome for the US and international content business.

In a letter sent to WBD shareholders last week, Ellison also claimed Netflix’s deal was a “blatant attempt to eliminate” an international streaming competitor in HBO Max. On December 8, WBD confirmed receipt of Paramount’s bid and said it would respond within 10 business days.

The stock market has not reacted favourably to Netflix’s pursuit of WBD. Since its interest emerged in late October, Netflix stock is down more than 20%, with Wall Street analysts expressing concern that a drawn-out battle to best Paramount – and then navigate a highly complex regulatory process in the US and Europe – will provide an enormous distraction.

Elsewhere in their letter to staff, Sarandos and Peters said they remain confident their deal will prevail and ultimately gain regulatory approval. It will not be an easy road, however, and Netflix has already acknowledged it will take between 12 and 18 months.

Several US senators, including Elizabeth Warren and Bernie Sanders, have already raised antitrust concerns. One potential wild card in the process is president Donald Trump, who has indicated he will be “involved” in whether the deal, which is set to be scrutinised by the Department of Justice, is approved or not.

In Netflix’s view, a combination with WBD does not raise concerns over market concentration. Citing Nielsen data, the streamer said its current share of overall TV watching time in the US is 8%, compared with YouTube at 12.9% and Disney at 11.4%. A combination with WBD would put Netflix/WBD at around 9.2%, said Netflix.

The prospect of yet another mega merger has created panic and consternation in Hollywood, with several unions, guilds and other groups coming out in opposition to the deal. Among them, the Writers Guild of America urged regulators to block it, saying “the world’s largest streaming company swallowing one of its biggest competitors is what antitrust laws were designed to prevent.”

In Netflix’s letter to staff, one question asked: “Some feel this is the end of Hollywood. What’s our response to that?” Sarandos and Peters’ reply was: “This is something that we’ve heard for a long time – including when we started the streaming business. Our stance then and now is the same: we see this as a win for the entertainment industry, not the end of it.

“This deal is about growth: Warner Bros brings businesses and capabilities we don’t have, so there’s no overlap or studio closures. We’re strengthening one of Hollywood’s most iconic studios, supporting jobs and ensuring a healthy future for film and TV production.”