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Speaker 1: Bloomberg Audio studios, podcasts, radio news.

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Speaker 2: A tech powerhouse is buying one of Hollywood's oldest studios.

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Speaker 2: Netflix has announced a definitive agreement to acquire Warner Brothers Discovery.

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Speaker 2: It's a cash and stock deal valued at eighty two

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Speaker 2: point seven billion dollars including debt.

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Speaker 1: That became a three horse race between Comcast, Netflix, and Paramount.

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Speaker 1: At the outset of that, people thought that Paramount was

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Speaker 1: the favorite. Paramount came on really aggressive. They started this

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Speaker 1: process right. They made three unsolicited offers.

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Speaker 2: That's Lucas Shaw, who writes the screen Time newsletter for

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Speaker 2: Bloomberg and reports on the entertainment industry. He and his

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Speaker 2: team broke story after story as this deal came together,

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Speaker 2: and Lucas says, Friday's announcement was, if you step back,

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Speaker 2: a huge surprise.

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Speaker 1: Netflix has never done a deal anything close to this size.

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Speaker 1: I don't think they've ever done a deal that was

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Speaker 1: a billion dollars, let alone eighty three billion dollars. They

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Speaker 1: have been averse to the regulatory headaches to come with

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Speaker 1: deals like this. They've been they don't like the complications

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Speaker 1: internally of integrating and combining and all of that. Less

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Speaker 1: than two months ago, I interviewed co CEO Greg Peters,

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Speaker 1: and he said, these types of deals don't usually work.

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Speaker 1: There's been some reports around you guys being interested in

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Speaker 1: Warner Brothers Discovery. Is there any truth for that.

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Speaker 3: I'd say this, you know, we come from a deep

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Speaker 3: perriage of being builders rather than buyers. I also think

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Speaker 3: that it's you know, one should have a reasonal amount

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Speaker 3: of skepticism around big media mergers. They don't have an

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Speaker 3: amazing track record over you know, the history of time.

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Speaker 2: The companies expect it will take more than a year

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Speaker 2: for this deal to close, and regulators will have to

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Speaker 2: approve it. Netflix is not buying all of Warner Brothers Discovery.

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Speaker 2: It's not interested in CNN and TNT and other Warner

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Speaker 2: Brothers networks. What Netflix is getting is a huge library

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Speaker 2: of films and TV shows.

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Speaker 1: Warner Brothers is one of the great studios in the

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Speaker 1: history of Hollywood. Its movie studio is more than a

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Speaker 1: century old, has a rich history, owns a catalog of

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Speaker 1: great titles that are both appealing to people on a

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Speaker 1: streaming service, and also write for remakes and reimagining. Its

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Speaker 1: television studio is, by most metrics, the biggest and most

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Speaker 1: productive television studio in the world. It basically produces hit

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Speaker 1: shows for everyone. Then you throw an HBO, which is

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Speaker 1: one of the great brands in modern entertainment again, has

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Speaker 1: a tremendous library, has a programming team that has continued

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Speaker 1: to make shows that people want. That library, those titles

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Speaker 1: are what Netflix was interested in. They have always said

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Speaker 1: that is the one type of thing that they would buy.

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Speaker 2: The way the deal will reshape Hollywood remains to be seen,

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Speaker 2: but in the meantime, Lucas says it marks a milestone

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Speaker 2: for the entertainment industry.

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Speaker 1: It puts one of the oldest and most powerful studios

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Speaker 1: in the hands of a company that was until recently

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Speaker 1: seen and maybe still is seen as sort of a

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Speaker 1: Silicon Valley interloper.

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Speaker 2: I'm David Gera, and this is the big take from

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Speaker 2: Bloomberg News today on the show Netflix wins the bidding

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Speaker 2: war for Warner Brothers Discovery, the details of the deal,

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Speaker 2: what it means for US viewers, how Netflix's rivals are reacting,

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Speaker 2: and what if anything stands in the way. When Netflix

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Speaker 2: and Warner Brothers Discovery announced this deal, Netflix's co CEO

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Speaker 2: Ted Sarandos touted the quote incredible library of shows and

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Speaker 2: movies the company is acquiring, from Casablanca to The Sopranos

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Speaker 2: to Game of Thrones. Netflix customers will have a lot

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Speaker 2: more to watch. But Bloomberg's Lucas Shaw says Netflix may

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Speaker 2: have another motive.

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Speaker 1: If you wanted a more pessimistic take on why Netflix

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Speaker 1: is doing this and why they're doing it now, it

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Speaker 1: would be that Netflix growth has slowed over the years,

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Speaker 1: that it is looking ahead at the future of the

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Speaker 1: company and trying to figure out how it will next grow,

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Speaker 1: and it's not sure, and so it is doing the

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Speaker 1: classic kind of big company thing where it's going to

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Speaker 1: grow through acquisition and believe that buying another big company

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Speaker 1: is going to solve something for them. I think there's

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Speaker 1: reason to be skeptical that this will have a huge impact.

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Speaker 1: Is adding the Warner Brothers library going to make people

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Speaker 1: more likely to sign up for Netflix less likely to cancel?

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Speaker 1: And it might on the margins, But is it going

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Speaker 1: to do so to the tune of paying seventy eighty

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Speaker 1: billion dollars for something You were on the conference call

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Speaker 1: Friday morning. You've been talking to sources. What do they

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Speaker 1: say about what this experience is going to be like

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Speaker 1: for viewers. Is everything going to.

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Speaker 2: Be branded as Netflix is going to kind of live

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Speaker 2: on as Warner Brothers going to live on as a

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Speaker 2: discrete property within that empire. What's it going to look

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Speaker 2: like for you and for me?

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Speaker 1: It's unclear at the moment. They are saying that Warner

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Speaker 1: Brothers will continue to sort operate in its current form,

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Speaker 1: so that means Warner Brothers movies will still be released

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Speaker 1: in theaters, Warner Brothers Television Studio will still produce for

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Speaker 1: third parties, Warner Brothers Studio will continue to license it's

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Speaker 1: film and television to third parties, and HBO will continue

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Speaker 1: in some form as well. They're not going into a

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Speaker 1: tremendous amount of detail beyond that. I'm sure they have

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Speaker 1: a lot of thoughts on it. I wouldn't be surprised

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Speaker 1: if they haven't even answered that, because keep in mind

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Speaker 1: that it's been basically a month of them really being

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Speaker 1: in it with this deal, and they've been focused on

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Speaker 1: getting the deal done. They've obviously run models on what

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Speaker 1: it would look like and ya YadA, YadA, YadA, but

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Speaker 1: they now have twelve to eighteen months to try to

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Speaker 1: figure out what they actually want to do with this

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Speaker 1: asset that they've bought. You know, the big question for

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Speaker 1: the consumer, other than am I going to get movies

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Speaker 1: in theaters? Is what's going to happen with HBO and

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Speaker 1: HBO Max. Am I going to continue to pay for

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Speaker 1: that as a separate service? Is it going to be

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Speaker 1: an ad on to Netflix? Are they just going to

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Speaker 1: fold all that stuff into Netflix. I think what they're

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Speaker 1: going to do is they're going to take some of

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Speaker 1: the titles that are in the library right now, say Friends,

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Speaker 1: and that would just be available to all Netflix customers.

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Speaker 1: There's no reason to gate keep that on HBO. With HBO,

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Speaker 1: they will either fully integrate that in the Netflix and

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Speaker 1: just raise the price of Netflix. I think that's less likely.

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Speaker 1: I think the slightly more likely scenario is that they

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Speaker 1: create a add on where you can add on HBO

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Speaker 1: for five or ten dollars a month to your Netflix subscription.

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Speaker 1: Because this is already something that Amazon and Apple and

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Speaker 1: others do right they sell channels, and if Netflix is

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Speaker 1: trying to be the app that you come to to

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Speaker 1: watch everything, why not make that the base.

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Speaker 2: What does this mean for the entertainment business? I saw

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Speaker 2: a former Warner Brothers CEO tweet after this deal was announced.

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Speaker 2: If I was tasked with doing so, I could not

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Speaker 2: think of a more effective way to reduce competition in

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Speaker 2: Hollywood than selling Warner Brothers Discovery to Netflix. How does

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Speaker 2: this change the terrain of Hollywood?

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Speaker 1: It is like the ultimate conquest of this tech takeover

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Speaker 1: of the entertainment business that you now have Netflix buying

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Speaker 1: Warner Brothers. I think the only thing that could be

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Speaker 1: more symbolic would be Netflix buying Disney or Apple buying Disney.

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Speaker 1: A lot of people are worried about the concentration of

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Speaker 1: power or like the more day to day stuff, and

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Speaker 1: I don't know that it immediately changes it that much.

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Speaker 1: It may change it less than Paramount buying Warner Brothers, right,

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Speaker 1: because then you have two studios that are very similar combining.

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Speaker 1: Part of the Netflix argument was like, we don't really

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Speaker 1: have a studio like Warner Brothers. We can keep it

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Speaker 1: mostly intact. We will not fire as many people. But

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Speaker 1: I do think that the average person in Hollywood is

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Speaker 1: freaked out because they didn't really think this was going

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Speaker 1: to happen, right. I think most people thought Ellison was

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Speaker 1: going to do it. The Paramount bid and now having Netflix,

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Speaker 1: this company that is completely up ended the business model

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Speaker 1: in the entertainment business that is, you know, respected, but

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Speaker 1: also in some cases sort of feared and loathed by many.

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Speaker 1: Now being in possession of this crown jewel and with

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Speaker 1: great un certainty about what that will look like. I

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Speaker 1: just think people are uncertain, but uncertain because change is scary,

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Speaker 1: not because they really know what's going to happen.

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Speaker 2: When you look at the numbers here, Warner Brothers shareholders

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Speaker 2: receiving twenty seven to seventy five a share in cash

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Speaker 2: and stock in Netflix. Total equity value of the deal

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Speaker 2: seventy two billion, enterprise value eighty two point seven billion.

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Speaker 2: What makes those numbers make sentence for Netflix? And I

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Speaker 2: guess looking at the other side of the coin, what

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Speaker 2: made this a compelling argument for the board of Warner

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Speaker 2: Brothers Discovery.

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Speaker 1: When news first broke that Paramount was interested in buying

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Speaker 1: Warner Brothers, the company was trading for at less than

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Speaker 1: fifteen dollars a share, So it's getting paid, depending on

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Speaker 1: how you calculate it, about double what it was trading

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Speaker 1: app before all this started. So that's obviously a good

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Speaker 1: deal for the shareholders. As for how the number works

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Speaker 1: for Netflix. They swear that they've run their models and

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Speaker 1: they actually think that there is more value to be

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Speaker 1: extracted than they have in the deal. Now, you're obviously

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Speaker 1: going to say that when you do the deal, because

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Speaker 1: you're trying to justify it to your shareholders, to your

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Speaker 1: board members. I think there's been some concern among investors

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Speaker 1: over the last month, and Netflix share prices ticked down

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Speaker 1: pretty consistently as it's become more and more likely that

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Speaker 1: this is going to happen. I think shareholders and investors

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Speaker 1: and board members are probably also a little nervous that

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Speaker 1: just about what this will mean for this company. One

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Speaker 1: of the reasons it has succeeded is focus and not

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Speaker 1: doing things like this. But look, they get to the

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Speaker 1: math clearly because they think that they can improve the

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Speaker 1: core business of Netflix by adding some of those Warner

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Speaker 1: Brothers properties. It will allow them to reduce churn, raise prices,

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Speaker 1: make it even stickier, maybe if they do sell Hbo

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Speaker 1: as an add on. And they are now venturing into

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Speaker 1: businesses that are complementary that they have avoided, whether that's

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Speaker 1: consumer products, theatrical releases, Warner Brothers owns, video game studio,

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Speaker 1: Netflix has tried to get video game business going and

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Speaker 1: it hasn't been super successful. So you know, they clearly

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Speaker 1: believe that this makes them more valuable in the future.

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Speaker 1: Whether that will be true, time will tell.

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Speaker 2: One of Netflix's rival bidders was Paramount sky Dance. That

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Speaker 2: company has complained about how the bidding war unfolded, raising

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Speaker 2: the question of whether it will pursue legal action. We'll

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Speaker 2: get into that after the break. The competition for Warner

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Speaker 2: Brothers Discovery began after Paramount sky Dance made an unsolicited

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Speaker 2: offer to buy the company. For a while, it seemed

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Speaker 2: like Paramount Skydance, fresh off another media megadeal, was the

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Speaker 2: front runner, but in late October, Warner Brothers announced it

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Speaker 2: was considering a broad range of options. Comcast and Netflix

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Speaker 2: through their hats in the Ring and Bloomberg's Lucas Shaw

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Speaker 2: says in the end, personality and ego may have been

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Speaker 2: big factors.

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Speaker 1: I think, you know, Paramount came on really aggressive. They

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Speaker 1: started this process right. They made three unsolicited offers, and

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Speaker 1: there was a confidence and some might even say an

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Speaker 1: arrogance in the way that they went about it, where

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Speaker 1: they felt all along, we are the only ones who

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Speaker 1: can get this deal approved, we are the best offer.

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Speaker 1: I think they looked around and they were like, there's

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Speaker 1: no way that Comcast is going to be able to

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Speaker 1: do this. Trump wouldn't allow it. Amazon and Apple probably

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Speaker 1: don't want to do it, and even if they did,

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Speaker 1: is Trump really going to allow it? And I just

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Speaker 1: think most people never thought Netflix was going to go

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Speaker 1: this far. You know, you look at the leaders. David

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Speaker 1: Ellison doesn't really have a relationship with David's As I have.

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Speaker 1: In fact, he they fought a lot over this South

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Speaker 1: Park kind of licensing deal that Warner Brothers sued over.

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Speaker 1: Now that predated David Elison taking over Paramount, but David

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Speaker 1: Elison did not solve it coming into Paramount. Meanwhile, Ted

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Speaker 1: Sarandas has spent a lot of the last year becoming

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Speaker 1: buddies with David's as. I've sitting courtside at Nicks games,

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Speaker 1: watching UFC fights, and I think people probably underestimate how

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Speaker 1: much that stuff matters. Like David's As love to CEO

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Speaker 1: the company. A lot of people on the board like him,

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Speaker 1: Like I spoke with someone who sort of travels in

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Speaker 1: these circles last night, and that was what they chalked

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Speaker 1: it up to was like Ted knew how to play

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Speaker 1: the game in David Ellison didn't, and that pushed him

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Speaker 1: over the edge. If the deals are pretty equal, which

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Speaker 1: they are.

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Speaker 2: I know that you saw the letter that I did

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Speaker 2: from Quinn Emmanuel Paramount's law firm, directed to David's as

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Speaker 2: Lava as all of this was in its late stages,

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Speaker 2: kind of crying foul about this process, alleging that Paramount

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Speaker 2: had been unfairly maligned here as it unfolded. Does Paramount

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Speaker 2: have any recourse here legally? Can it push any buttons,

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Speaker 2: move any levers regulatorily? What's it able to do going

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Speaker 2: forward here?

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Speaker 1: Well, they've been laying the groundwork for that, sending these

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Speaker 1: letters to Warner Brothers, saying that the process was unfair,

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Speaker 1: the management was biased towards Netflix and steered it that way,

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Speaker 1: and they made a last minute change to David tasaf

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Speaker 1: contract that made it easier for the Netflix deal, and YadA, YadA, YadA.

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Speaker 1: I was told by someone close to David ELL's and

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Speaker 1: on Thursday night that they would inevitably sue Warner Brothers

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Speaker 1: over this. I don't know if they will. I'm not

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Speaker 1: a legal expert on that, so I'm not sure exactly

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Speaker 1: how it'll play out and whether they will choose to

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Speaker 1: fight it themselves or whether they will really lobby the

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Speaker 1: president hard and legislators hard. I mean, we've already seen

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Speaker 1: politicians on both sides of the political aisle come out

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Speaker 1: and say they're against the deal, Daryl Isa well before

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Speaker 1: Elizabeth Warren just Friday morning. I'm sure we'll see more

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Speaker 1: come out, and I guess, you know, the big open

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Speaker 1: question is where exactly does Donald Trump stand on this,

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Speaker 1: because he is seen as being close to the Ellisons.

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Speaker 1: But I also know that Netflix has been putting in

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Speaker 1: the time to try to improve its relationship with the administration.

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Speaker 2: Do you see this as a done deal or how

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Speaker 2: much are you thinking that that you know, potential regulatory difficulty,

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Speaker 2: legal difficulties could complicate this process coming out the way

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Speaker 2: both of these companies hope it will.

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Speaker 1: I think it's a lot of that is going to

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Speaker 1: depend on where the presidential administration lands on it. You know,

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Speaker 1: Netflix's argument against Paramount was always that it wouldn't fly

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Speaker 1: master overseas or with state attorneys general. It's possible that

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Speaker 1: states will come out to try to fight it if

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Speaker 1: there's enough outcry. It's certainly possible this will get reviewed

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Speaker 1: in other countries, given Netflix's might in much of the world.

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Speaker 1: But I feel like it's really hard to predict or

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Speaker 1: guess on on anti trust and deals right now because

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Speaker 1: our kind of political situation is so unorthodox, and so

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Speaker 1: much of this deal also depends on, like, how are

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Speaker 1: you defining a market right? If you are looking very

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Speaker 1: narrowly at market share in Hollywood produced streaming content, whereas

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Speaker 1: Hollywood streaming services like specifically hollowed, so excluding you know, YouTube,

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Speaker 1: then Netflix has a substantial share of that market. If

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Speaker 1: you're looking at streaming, Netflix is the second biggest player,

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Speaker 1: but it's a minority. It's a minority in the market,

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Speaker 1: less than a third of the market. Even with this,

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Speaker 1: it'd probably be less. If you're looking at television in

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Speaker 1: the US, Netflix is less than ten percent of the market.

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Speaker 1: The combined company still smaller than YouTube, So a lot

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Speaker 1: of it's going to depend on how people look at

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Speaker 1: it and what they see as fair or unfair.

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Speaker 2: This is the big take from Bloomberg News. I'm David Gerrett.

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