Netflix has agreed to buy Warner Bros Discovery’s film and streaming business for $72 billion (£54 billion) in a major Hollywood deal.
The streaming giant emerged as the winning bidder for Warner Bros, beating out rivals Comcast and Paramount Skydance after a draw.
Warner Bros. owns franchises including Harry Potter and Game of Thrones, as well as the streaming service HBO Max.
The acquisition creates a new giant in the entertainment industry, but still needs to be approved by competition authorities.
Ted Sarandos, Netflix’s co-chief executive, said the streamer is “very confident” it will get the necessary regulatory approvals and is “full steam ahead” to get them done.
He said that by combining the Warner Bros. library of shows and movies with the streaming platform’s series like Stranger Things, “we can give audiences more of what they love and help define the next century of storytelling.”
“Warner Bros. defined the last century of entertainment, and together we can define the next century,” he said.
When asked whether HBO should remain a separate streaming service, co-CEO Greg Peters said Netflix believes the HBO brand is important to consumers.
Netflix estimates it will achieve cost savings of $2 billion to $3 billion, primarily by eliminating duplication in the enterprise’s support and technology areas.
Films produced by Warner Bros. will continue to be released in theaters, and Warner Bros. Television Studios will continue to be able to produce for third parties, he said. Netflix plans to continue producing content exclusive to its platform.
Mr. Sarandos acknowledged that while the acquisition may have surprised some shareholders, it was a “rare opportunity” that could lead Netflix to success “for decades to come”, labeling it a “big day” for the companies.
David Zaslav, president and CEO of Warner Bros., added that the agreement will bring together “two of the world’s greatest storytelling companies.”
“By joining forces with Netflix, we will ensure that people around the world can continue to enjoy the world’s most moving stories for generations to come,” he said.
The cash-and-stock deal values Warner Bros. at $27.75 per share, giving the company a total enterprise value, including debt and stock, of approximately $82.7 billion. The equity value, or cash price, is $72 billion.
Both companies’ boards of directors unanimously approved the transaction.
The acquisition of Warner Brothers is expected to allow Netflix to expand its studio production capabilities and increase investment in original content.
Netflix is expected to complete the acquisition after Warner Bros. confirmed its previously announced plan to separate its streaming and studios division from its global networks division into two publicly traded companies next year.
The Global Networks segment includes cable channels such as CNN, as well as European sports brands and free-to-air channels.
Paolo Pescatore, founder of PP Foresight and technology media and telecoms analyst, said the sale was “a huge statement of intent and underlines Netflix’s desire to become a global leader in the new world order of streaming.”
But he warned that while the “surprising move” makes sense for Warner Bros., given the size of the deal, it could be “a headache for Netflix” as it tries to integrate the two companies.
The agreed-upon deal is for a portion of Warner Bros.’ business, but rival Paramount made a bid last October to acquire the entire company, including the cable network.
Warner Bros. vetoed the move before putting it up for sale.
Tom Harrington, head of TV at Enders Analysis, said it was difficult to gauge whether the deal would be approved by regulators, but if it went through it would have a huge impact on the film industry.
“If it passes, it will change the direction of Hollywood,” he said.
Mr Harrington said the newly merged company was likely to see a “significant decline” in television and film production, which would lead to resistance to the move from some in Hollywood and its unions.
For consumers, Mr. Harrington said the merger would likely lead to higher prices.
“Netflix will become more expensive, and even if HBO Max is shut down or non-essential, greater penetration among Netflix households will likely increase overall subscription revenue.”
Danny Hewson, head of financial analysis at AJ Bell, said Netflix had “offered an olive branch” to Hollywood with a promise to continue releasing Warner Bros. films on the big screen.
“This transaction will deliver significant cost savings if we can quickly resolve these important regulatory hurdles,” she said.
“How much of these savings are passed on to streaming platform subscribers, or whether Netflix will be seen as having too much pricing power, is one area that will face enormous scrutiny in the coming months.”
