Why Netflix needs HBO: It is about extra than simply TV reveals and flicks

If you wish to know the way Netflix’s plan to amass Warner Bros. will have an effect on you, I counsel not getting your solutions from Netflix.

Final weekend, the streaming big emailed prospects implying the deal was performed (topic line: “Welcoming Warner Bros. to Netflix”) although that’s removed from being settled. Its press launch and assist web page are solely marginally extra informative, supplied you’ll be able to sift by all of the boilerplate proclamations and canned govt quotes.

In the end this deal is about energy. For Netflix, it’s a approach to fulfill its objective of being a singular supply for streaming, which in flip will assist it increase costs, freeze out rivals, and tilt the distribution of flicks and reveals in its favor. Anticipate a variety of preventing between Netflix, rivals, and authorities regulators earlier than that’s allowed to occur.

Model energy

Regardless of Netflix’s recognition, it doesn’t management many established leisure franchises. It has cultivated a handful, together with Squid Recreation, Stranger Issues, and Bridgerton, however none that actually rival these of Disney (Star Wars, Marvel), Paramount (Star Trek, Spongebob), or NBCUniversal (Despicable Me, Jurassic Park). Wikipedia’s checklist of the top-grossing media franchises solely contains one from Netflix, and it’s Chronicles of Narnia, the rights to which it acquired in 2018.

Shopping for Warner would give Netflix a secure of recognizable leisure manufacturers to construct round, together with DC properties equivalent to Superman and Batman, kid-friendly franchises equivalent to Minecraft and Looney Tunes, sci-fi staples equivalent to The Matrix and Dune, and HBO hits equivalent to Recreation of Thrones and The Sopranos. Whereas Netflix says HBO Max will stay separate for now, its press launch makes clear that the objective is to subsume Warner’s catalog and create new content material round it.

The broader content material roster may doubtlessly make Netflix higher, however it should additionally assist Netflix justify the worth will increase which have now turn into routine. It may additionally permit Netflix to increase different facets of its enterprise, equivalent to video video games and merchandising. (To that finish, it’s taking up Warner’s gaming division as properly.)

Weakening rivals

Ted Sarandos, who’s now Netflix’s co-CEO, famously mentioned in 2012 that the corporate’s objective was “to turn into HBO sooner than HBO can turn into us.” Currently, although, it’s making an attempt to be extra like cable—a singular supply of streaming that caters to a large swath of pursuits—earlier than cable turns into Netflix although its personal array of streaming providers. On the danger of being cynical, Netflix’s greatest motivation to take over Warner is likely to be to maintain it away from its rivals within the conventional TV enterprise. Paramount and Comcast had additionally been bidding on Warner, and Paramount has now launched a hostile takeover bid in hopes of convincing Warner shareholders that it’s providing a greater deal.

Very like Netflix, Paramount was additionally trying to take in all the HBO Max catalog into its personal Paramount+ streaming service. On this state of affairs, Paramount+ would turn into a critical competitor as an alternative of an also-ran, and Netflix would have much less latitude to boost costs with out subscribers defecting.

Netflix doesn’t even must seal the deal to realize its objective. As CNBC reporter Alex Sherman identified, Netflix has agreed to a $5 billion breakup payment if its Warner acquisition fails, however that’s nothing for a corporation value $450 billion, and it may take a pair years for Warner to be up on the market once more. Within the meantime Netflix may additional entrench itself by conserving the competitors weaker.

Shifting the film enterprise

Warner’s present plan is to launch 12 to 14 motion pictures into theaters per 12 months, and whereas Netflix says theatrical releases will proceed, it needs to get them onto its streaming service sooner. In an analyst name final week, Sarandos mentioned theatrical launch home windows would “evolve to be way more client pleasant, to have the ability to meet the viewers the place they’re, faster.”

That doesn’t imply Netflix would abandon theatrical releases outright, however the objective will shift towards selling Netflix properties quite than boosting theater income for its personal sake. Because the New York Instances notes, Netflix’s KPop Demon Hunters Singalong has been an enormous hit in theaters, and its collection finale of Stranger Issues—screening on 500 theaters in lockstep with the streaming launch—is already bought out in lots of locations. Anticipate extra event-driven spectacles, fewer easy screenings, and a better willingness to let individuals keep at house.

What it’s not about: Reside sports activities

One other notable side of the Netflix deal is what’s lacking: The corporate will not be shopping for Warner’s cable channels, together with TNT and TBS, as Warner plans to spin these off right into a separate firm. TNT will get its personal sports activities streaming service when that occurs, and its stay sports activities protection will disappear from HBO Max.

Which means Netflix received’t be getting any stay sports activities as a part of the deal. Against this, Paramount needs so as to add Warner’s total cable enterprise, and will use it to remodel Paramount+ into a significant supply of sports activities streaming.

Netflix may need different causes for passing over Warner’s cable enterprise, equivalent to not wanting to barter carriage offers or tackle as a lot debt from Warner’s earlier merger disasters. For now, although, it’s sustaining a conservative method to stay sports activities, avoiding costly full-season rights offers in favor of scattershot occasions, equivalent to Christmas NFL video games, the Paul-Tyson struggle, and the primary MLB recreation of the season subsequent 12 months. Netflix’s objective to turn into extra like cable doesn’t but prolong to sports activities, and buying Warner received’t change that.

What’s subsequent

Whereas Netflix is projecting confidence, it’s a good distance from proudly owning Warner Bros. in earnest. Antitrust hearings are probably, Paramount’s hostile takeover bid has to play out, and the Justice Division seems like a wild card below the Trump administration. Even when all the things goes easily, Netflix says it’ll take 12 to 18 months for the deal to shut.

Within the meantime, I’ll depart you with the one line in Netflix’s buyer letter that we all know for sure is true: “Nothing is altering right now.”

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