WEBVTT - Netflix’s $82 Billion Power Play for Warner Bros.

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<v Speaker 1>Bloomberg Audio studios, podcasts, radio news.

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<v Speaker 2>A tech powerhouse is buying one of Hollywood's oldest studios.

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<v Speaker 2>Netflix has announced a definitive agreement to acquire Warner Brothers Discovery.

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<v Speaker 2>It's a cash and stock deal valued at eighty two

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<v Speaker 2>point seven billion dollars including debt.

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<v Speaker 1>That became a three horse race between Comcast, Netflix, and Paramount.

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<v Speaker 1>At the outset of that, people thought that Paramount was

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<v Speaker 1>the favorite. Paramount came on really aggressive. They started this

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<v Speaker 1>process right. They made three unsolicited offers.

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<v Speaker 2>That's Lucas Shaw, who writes the screen Time newsletter for

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<v Speaker 2>Bloomberg and reports on the entertainment industry. He and his

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<v Speaker 2>team broke story after story as this deal came together,

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<v Speaker 2>and Lucas says, Friday's announcement was, if you step back,

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<v Speaker 2>a huge surprise.

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<v Speaker 1>Netflix has never done a deal anything close to this size.

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<v Speaker 1>I don't think they've ever done a deal that was

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<v Speaker 1>a billion dollars, let alone eighty three billion dollars. They

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<v Speaker 1>have been averse to the regulatory headaches to come with

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<v Speaker 1>deals like this. They've been they don't like the complications

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<v Speaker 1>internally of integrating and combining and all of that. Less

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<v Speaker 1>than two months ago, I interviewed co CEO Greg Peters,

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

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<v Speaker 1>There's been some reports around you guys being interested in

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<v Speaker 1>Warner Brothers Discovery. Is there any truth for that.

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<v Speaker 3>I'd say this, you know, we come from a deep

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<v Speaker 3>perriage of being builders rather than buyers. I also think

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<v Speaker 3>that it's you know, one should have a reasonal amount

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<v Speaker 3>of skepticism around big media mergers. They don't have an

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<v Speaker 3>amazing track record over you know, the history of time.

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<v Speaker 2>The companies expect it will take more than a year

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<v Speaker 2>for this deal to close, and regulators will have to

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<v Speaker 2>approve it. Netflix is not buying all of Warner Brothers Discovery.

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<v Speaker 2>It's not interested in CNN and TNT and other Warner

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<v Speaker 2>Brothers networks. What Netflix is getting is a huge library

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<v Speaker 2>of films and TV shows.

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<v Speaker 1>Warner Brothers is one of the great studios in the

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<v Speaker 1>history of Hollywood. Its movie studio is more than a

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<v Speaker 1>century old, has a rich history, owns a catalog of

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<v Speaker 1>great titles that are both appealing to people on a

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<v Speaker 1>streaming service, and also write for remakes and reimagining. Its

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<v Speaker 1>television studio is, by most metrics, the biggest and most

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<v Speaker 1>productive television studio in the world. It basically produces hit

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<v Speaker 1>shows for everyone. Then you throw an HBO, which is

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<v Speaker 1>one of the great brands in modern entertainment again, has

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<v Speaker 1>a tremendous library, has a programming team that has continued

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<v Speaker 1>to make shows that people want. That library, those titles

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<v Speaker 1>are what Netflix was interested in. They have always said

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<v Speaker 1>that is the one type of thing that they would buy.

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<v Speaker 2>The way the deal will reshape Hollywood remains to be seen,

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<v Speaker 2>but in the meantime, Lucas says it marks a milestone

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<v Speaker 2>for the entertainment industry.

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<v Speaker 1>It puts one of the oldest and most powerful studios

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<v Speaker 1>in the hands of a company that was until recently

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<v Speaker 1>seen and maybe still is seen as sort of a

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<v Speaker 1>Silicon Valley interloper.

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<v Speaker 2>I'm David Gera, and this is the big take from

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<v Speaker 2>Bloomberg News today on the show Netflix wins the bidding

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<v Speaker 2>war for Warner Brothers Discovery, the details of the deal,

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

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<v Speaker 2>and what if anything stands in the way. When Netflix

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<v Speaker 2>and Warner Brothers Discovery announced this deal, Netflix's co CEO

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<v Speaker 2>Ted Sarandos touted the quote incredible library of shows and

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<v Speaker 2>movies the company is acquiring, from Casablanca to The Sopranos

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<v Speaker 2>to Game of Thrones. Netflix customers will have a lot

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<v Speaker 2>more to watch. But Bloomberg's Lucas Shaw says Netflix may

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<v Speaker 2>have another motive.

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<v Speaker 1>If you wanted a more pessimistic take on why Netflix

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<v Speaker 1>is doing this and why they're doing it now, it

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<v Speaker 1>would be that Netflix growth has slowed over the years,

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<v Speaker 1>that it is looking ahead at the future of the

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<v Speaker 1>company and trying to figure out how it will next grow,

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<v Speaker 1>and it's not sure, and so it is doing the

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<v Speaker 1>classic kind of big company thing where it's going to

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<v Speaker 1>grow through acquisition and believe that buying another big company

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<v Speaker 1>is going to solve something for them. I think there's

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<v Speaker 1>reason to be skeptical that this will have a huge impact.

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<v Speaker 1>Is adding the Warner Brothers library going to make people

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<v Speaker 1>more likely to sign up for Netflix less likely to cancel?

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<v Speaker 1>And it might on the margins, But is it going

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<v Speaker 1>to do so to the tune of paying seventy eighty

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<v Speaker 1>billion dollars for something You were on the conference call

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<v Speaker 1>Friday morning. You've been talking to sources. What do they

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<v Speaker 1>say about what this experience is going to be like

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<v Speaker 1>for viewers. Is everything going to.

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<v Speaker 2>Be branded as Netflix is going to kind of live

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<v Speaker 2>on as Warner Brothers going to live on as a

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<v Speaker 2>discrete property within that empire. What's it going to look

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<v Speaker 2>like for you and for me?

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<v Speaker 1>It's unclear at the moment. They are saying that Warner

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<v Speaker 1>Brothers will continue to sort operate in its current form,

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<v Speaker 1>so that means Warner Brothers movies will still be released

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<v Speaker 1>in theaters, Warner Brothers Television Studio will still produce for

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<v Speaker 1>third parties, Warner Brothers Studio will continue to license it's

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<v Speaker 1>film and television to third parties, and HBO will continue

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<v Speaker 1>in some form as well. They're not going into a

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<v Speaker 1>tremendous amount of detail beyond that. I'm sure they have

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<v Speaker 1>a lot of thoughts on it. I wouldn't be surprised

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<v Speaker 1>if they haven't even answered that, because keep in mind

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<v Speaker 1>that it's been basically a month of them really being

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<v Speaker 1>in it with this deal, and they've been focused on

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<v Speaker 1>getting the deal done. They've obviously run models on what

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<v Speaker 1>it would look like and ya YadA, YadA, YadA, but

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<v Speaker 1>they now have twelve to eighteen months to try to

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<v Speaker 1>figure out what they actually want to do with this

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

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<v Speaker 1>the consumer, other than am I going to get movies

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<v Speaker 1>in theaters? Is what's going to happen with HBO and

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<v Speaker 1>HBO Max. Am I going to continue to pay for

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<v Speaker 1>that as a separate service? Is it going to be

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<v Speaker 1>an ad on to Netflix? Are they just going to

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<v Speaker 1>fold all that stuff into Netflix. I think what they're

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<v Speaker 1>going to do is they're going to take some of

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<v Speaker 1>the titles that are in the library right now, say Friends,

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<v Speaker 1>and that would just be available to all Netflix customers.

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

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<v Speaker 1>they will either fully integrate that in the Netflix and

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

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<v Speaker 1>I think the slightly more likely scenario is that they

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<v Speaker 1>create a add on where you can add on HBO

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<v Speaker 1>for five or ten dollars a month to your Netflix subscription.

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<v Speaker 1>Because this is already something that Amazon and Apple and

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<v Speaker 1>others do right they sell channels, and if Netflix is

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<v Speaker 1>trying to be the app that you come to to

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<v Speaker 1>watch everything, why not make that the base.

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<v Speaker 2>What does this mean for the entertainment business? I saw

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<v Speaker 2>a former Warner Brothers CEO tweet after this deal was announced.

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<v Speaker 2>If I was tasked with doing so, I could not

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<v Speaker 2>think of a more effective way to reduce competition in

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<v Speaker 2>Hollywood than selling Warner Brothers Discovery to Netflix. How does

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<v Speaker 2>this change the terrain of Hollywood?

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<v Speaker 1>It is like the ultimate conquest of this tech takeover

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<v Speaker 1>of the entertainment business that you now have Netflix buying

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<v Speaker 1>Warner Brothers. I think the only thing that could be

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<v Speaker 1>more symbolic would be Netflix buying Disney or Apple buying Disney.

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<v Speaker 1>A lot of people are worried about the concentration of

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<v Speaker 1>power or like the more day to day stuff, and

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<v Speaker 1>I don't know that it immediately changes it that much.

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<v Speaker 1>It may change it less than Paramount buying Warner Brothers, right,

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<v Speaker 1>because then you have two studios that are very similar combining.

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<v Speaker 1>Part of the Netflix argument was like, we don't really

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<v Speaker 1>have a studio like Warner Brothers. We can keep it

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<v Speaker 1>mostly intact. We will not fire as many people. But

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<v Speaker 1>I do think that the average person in Hollywood is

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<v Speaker 1>freaked out because they didn't really think this was going

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<v Speaker 1>to happen, right. I think most people thought Ellison was

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<v Speaker 1>going to do it. The Paramount bid and now having Netflix,

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<v Speaker 1>this company that is completely up ended the business model

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<v Speaker 1>in the entertainment business that is, you know, respected, but

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<v Speaker 1>also in some cases sort of feared and loathed by many.

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<v Speaker 1>Now being in possession of this crown jewel and with

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<v Speaker 1>great un certainty about what that will look like. I

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<v Speaker 1>just think people are uncertain, but uncertain because change is scary,

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<v Speaker 1>not because they really know what's going to happen.

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<v Speaker 2>When you look at the numbers here, Warner Brothers shareholders

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<v Speaker 2>receiving twenty seven to seventy five a share in cash

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<v Speaker 2>and stock in Netflix. Total equity value of the deal

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<v Speaker 2>seventy two billion, enterprise value eighty two point seven billion.

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<v Speaker 2>What makes those numbers make sentence for Netflix? And I

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<v Speaker 2>guess looking at the other side of the coin, what

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<v Speaker 2>made this a compelling argument for the board of Warner

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<v Speaker 2>Brothers Discovery.

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<v Speaker 1>When news first broke that Paramount was interested in buying

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<v Speaker 1>Warner Brothers, the company was trading for at less than

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<v Speaker 1>fifteen dollars a share, So it's getting paid, depending on

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<v Speaker 1>how you calculate it, about double what it was trading

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<v Speaker 1>app before all this started. So that's obviously a good

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<v Speaker 1>deal for the shareholders. As for how the number works

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<v Speaker 1>for Netflix. They swear that they've run their models and

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<v Speaker 1>they actually think that there is more value to be

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

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<v Speaker 1>going to say that when you do the deal, because

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<v Speaker 1>you're trying to justify it to your shareholders, to your

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<v Speaker 1>board members. I think there's been some concern among investors

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<v Speaker 1>over the last month, and Netflix share prices ticked down

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<v Speaker 1>pretty consistently as it's become more and more likely that

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<v Speaker 1>this is going to happen. I think shareholders and investors

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<v Speaker 1>and board members are probably also a little nervous that

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<v Speaker 1>just about what this will mean for this company. One

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<v Speaker 1>of the reasons it has succeeded is focus and not

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<v Speaker 1>doing things like this. But look, they get to the

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<v Speaker 1>math clearly because they think that they can improve the

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<v Speaker 1>core business of Netflix by adding some of those Warner

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<v Speaker 1>Brothers properties. It will allow them to reduce churn, raise prices,

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<v Speaker 1>make it even stickier, maybe if they do sell Hbo

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<v Speaker 1>as an add on. And they are now venturing into

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<v Speaker 1>businesses that are complementary that they have avoided, whether that's

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<v Speaker 1>consumer products, theatrical releases, Warner Brothers owns, video game studio,

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<v Speaker 1>Netflix has tried to get video game business going and

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

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<v Speaker 1>believe that this makes them more valuable in the future.

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<v Speaker 1>Whether that will be true, time will tell.

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<v Speaker 2>One of Netflix's rival bidders was Paramount sky Dance. That

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<v Speaker 2>company has complained about how the bidding war unfolded, raising

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<v Speaker 2>the question of whether it will pursue legal action. We'll

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<v Speaker 2>get into that after the break. The competition for Warner

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<v Speaker 2>Brothers Discovery began after Paramount sky Dance made an unsolicited

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<v Speaker 2>offer to buy the company. For a while, it seemed

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<v Speaker 2>like Paramount Skydance, fresh off another media megadeal, was the

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<v Speaker 2>front runner, but in late October, Warner Brothers announced it

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<v Speaker 2>was considering a broad range of options. Comcast and Netflix

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<v Speaker 2>through their hats in the Ring and Bloomberg's Lucas Shaw

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<v Speaker 2>says in the end, personality and ego may have been

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<v Speaker 2>big factors.

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<v Speaker 1>I think, you know, Paramount came on really aggressive. They

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<v Speaker 1>started this process right. They made three unsolicited offers, and

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<v Speaker 1>there was a confidence and some might even say an

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<v Speaker 1>arrogance in the way that they went about it, where

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<v Speaker 1>they felt all along, we are the only ones who

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<v Speaker 1>can get this deal approved, we are the best offer.

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<v Speaker 1>I think they looked around and they were like, there's

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<v Speaker 1>no way that Comcast is going to be able to

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<v Speaker 1>do this. Trump wouldn't allow it. Amazon and Apple probably

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<v Speaker 1>don't want to do it, and even if they did,

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<v Speaker 1>is Trump really going to allow it? And I just

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<v Speaker 1>think most people never thought Netflix was going to go

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<v Speaker 1>this far. You know, you look at the leaders. David

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

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<v Speaker 1>In fact, he they fought a lot over this South

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<v Speaker 1>Park kind of licensing deal that Warner Brothers sued over.

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<v Speaker 1>Now that predated David Elison taking over Paramount, but David

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<v Speaker 1>Elison did not solve it coming into Paramount. Meanwhile, Ted

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<v Speaker 1>Sarandas has spent a lot of the last year becoming

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

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<v Speaker 1>watching UFC fights, and I think people probably underestimate how

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<v Speaker 1>much that stuff matters. Like David's As love to CEO

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<v Speaker 1>the company. A lot of people on the board like him,

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<v Speaker 1>Like I spoke with someone who sort of travels in

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<v Speaker 1>these circles last night, and that was what they chalked

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<v Speaker 1>it up to was like Ted knew how to play

0:12:10.320 --> 0:12:13.920
<v Speaker 1>the game in David Ellison didn't, and that pushed him

0:12:13.920 --> 0:12:16.120
<v Speaker 1>over the edge. If the deals are pretty equal, which

0:12:16.240 --> 0:12:16.720
<v Speaker 1>they are.

0:12:17.080 --> 0:12:18.440
<v Speaker 2>I know that you saw the letter that I did

0:12:18.520 --> 0:12:22.200
<v Speaker 2>from Quinn Emmanuel Paramount's law firm, directed to David's as

0:12:22.280 --> 0:12:24.360
<v Speaker 2>Lava as all of this was in its late stages,

0:12:25.000 --> 0:12:28.480
<v Speaker 2>kind of crying foul about this process, alleging that Paramount

0:12:28.480 --> 0:12:31.960
<v Speaker 2>had been unfairly maligned here as it unfolded. Does Paramount

0:12:32.000 --> 0:12:36.720
<v Speaker 2>have any recourse here legally? Can it push any buttons,

0:12:36.720 --> 0:12:40.640
<v Speaker 2>move any levers regulatorily? What's it able to do going

0:12:40.679 --> 0:12:41.160
<v Speaker 2>forward here?

0:12:41.440 --> 0:12:43.720
<v Speaker 1>Well, they've been laying the groundwork for that, sending these

0:12:43.800 --> 0:12:47.000
<v Speaker 1>letters to Warner Brothers, saying that the process was unfair,

0:12:47.400 --> 0:12:50.720
<v Speaker 1>the management was biased towards Netflix and steered it that way,

0:12:50.760 --> 0:12:52.880
<v Speaker 1>and they made a last minute change to David tasaf

0:12:53.000 --> 0:12:56.160
<v Speaker 1>contract that made it easier for the Netflix deal, and YadA, YadA, YadA.

0:12:57.040 --> 0:13:00.120
<v Speaker 1>I was told by someone close to David ELL's and

0:13:00.240 --> 0:13:03.400
<v Speaker 1>on Thursday night that they would inevitably sue Warner Brothers

0:13:03.440 --> 0:13:08.000
<v Speaker 1>over this. I don't know if they will. I'm not

0:13:08.040 --> 0:13:10.240
<v Speaker 1>a legal expert on that, so I'm not sure exactly

0:13:10.240 --> 0:13:13.720
<v Speaker 1>how it'll play out and whether they will choose to

0:13:13.760 --> 0:13:17.400
<v Speaker 1>fight it themselves or whether they will really lobby the

0:13:17.440 --> 0:13:20.640
<v Speaker 1>president hard and legislators hard. I mean, we've already seen

0:13:21.160 --> 0:13:24.480
<v Speaker 1>politicians on both sides of the political aisle come out

0:13:24.520 --> 0:13:28.679
<v Speaker 1>and say they're against the deal, Daryl Isa well before

0:13:29.280 --> 0:13:32.720
<v Speaker 1>Elizabeth Warren just Friday morning. I'm sure we'll see more

0:13:32.800 --> 0:13:35.760
<v Speaker 1>come out, and I guess, you know, the big open

0:13:35.800 --> 0:13:39.360
<v Speaker 1>question is where exactly does Donald Trump stand on this,

0:13:39.520 --> 0:13:41.959
<v Speaker 1>because he is seen as being close to the Ellisons.

0:13:42.000 --> 0:13:45.080
<v Speaker 1>But I also know that Netflix has been putting in

0:13:45.080 --> 0:13:47.880
<v Speaker 1>the time to try to improve its relationship with the administration.

0:13:49.400 --> 0:13:51.240
<v Speaker 2>Do you see this as a done deal or how

0:13:51.320 --> 0:13:55.200
<v Speaker 2>much are you thinking that that you know, potential regulatory difficulty,

0:13:55.280 --> 0:13:59.199
<v Speaker 2>legal difficulties could complicate this process coming out the way

0:13:59.200 --> 0:14:00.360
<v Speaker 2>both of these companies hope it will.

0:14:00.880 --> 0:14:03.600
<v Speaker 1>I think it's a lot of that is going to

0:14:03.640 --> 0:14:07.000
<v Speaker 1>depend on where the presidential administration lands on it. You know,

0:14:07.040 --> 0:14:09.800
<v Speaker 1>Netflix's argument against Paramount was always that it wouldn't fly

0:14:09.920 --> 0:14:14.480
<v Speaker 1>master overseas or with state attorneys general. It's possible that

0:14:14.520 --> 0:14:16.200
<v Speaker 1>states will come out to try to fight it if

0:14:16.240 --> 0:14:18.959
<v Speaker 1>there's enough outcry. It's certainly possible this will get reviewed

0:14:19.280 --> 0:14:22.760
<v Speaker 1>in other countries, given Netflix's might in much of the world.

0:14:23.320 --> 0:14:26.600
<v Speaker 1>But I feel like it's really hard to predict or

0:14:26.640 --> 0:14:30.320
<v Speaker 1>guess on on anti trust and deals right now because

0:14:30.720 --> 0:14:35.520
<v Speaker 1>our kind of political situation is so unorthodox, and so

0:14:35.600 --> 0:14:37.920
<v Speaker 1>much of this deal also depends on, like, how are

0:14:37.920 --> 0:14:41.800
<v Speaker 1>you defining a market right? If you are looking very

0:14:41.880 --> 0:14:47.640
<v Speaker 1>narrowly at market share in Hollywood produced streaming content, whereas

0:14:48.520 --> 0:14:53.720
<v Speaker 1>Hollywood streaming services like specifically hollowed, so excluding you know, YouTube,

0:14:54.120 --> 0:14:57.400
<v Speaker 1>then Netflix has a substantial share of that market. If

0:14:57.440 --> 0:15:01.240
<v Speaker 1>you're looking at streaming, Netflix is the second biggest player,

0:15:01.720 --> 0:15:05.240
<v Speaker 1>but it's a minority. It's a minority in the market,

0:15:05.280 --> 0:15:06.920
<v Speaker 1>less than a third of the market. Even with this,

0:15:06.960 --> 0:15:10.920
<v Speaker 1>it'd probably be less. If you're looking at television in

0:15:10.960 --> 0:15:13.400
<v Speaker 1>the US, Netflix is less than ten percent of the market.

0:15:13.400 --> 0:15:16.000
<v Speaker 1>The combined company still smaller than YouTube, So a lot

0:15:16.000 --> 0:15:17.800
<v Speaker 1>of it's going to depend on how people look at

0:15:17.800 --> 0:15:20.360
<v Speaker 1>it and what they see as fair or unfair.

0:15:26.560 --> 0:15:29.080
<v Speaker 2>This is the big take from Bloomberg News. I'm David Gerrett.

0:15:29.200 --> 0:15:32.360
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