'It's expensive'. How could the biggest deal with Warner Bros. drag Netflix stock down?

The historic deal will bring together streaming giant Netflix, which has radically changed the media industry in recent years, with legendary movie studio Warner Bros. Discovery (WBD), whose library includes The Wizard of Oz, the Harry Potter universe and the DC Comics franchise. Also included in the deal is HBO Max content, including "The Sopranos Clan," "World of the Wild West" and "Game of Thrones." Analysts note that if approved by antitrust agencies, this merger will significantly impact both Netflix and the entire media industry.

- The WBD deal has the potential to negatively impact Netflix in the short term, despite the potential benefits in the future, according to LightShed Partners co-founder Rich Greenfield. "The math here is going to be a sore spot for Netflix for a while. There's no doubt about it," he said on CNBC. - It's expensive. They [at Netflix] believe the deal will be profitable in year two. We'll have to see exactly how they achieve that, but it may just be a matter of having a ton of content that they can sell off dramatically." Greenfield explains that the deal price is so "huge" that he has "no idea how Paramount can outbid that."

The deal includes both cash and stock, and the purchase price is valued at $27.75 per share of WBD stock. The takeover is expected to be completed within 12 to 18 months. Meanwhile, Netflix has pledged to pay back compensation of $5.8 billion if the deal is not approved. "It's just too much," Greenfield added.

He notes, however, that Netflix's long-term benefit could be significant: if the commercial potential of Warner Bros. intellectual property can be unlocked and scaled. "The library of Warner Bros. - is a deposit that is just dust today. But the volume of [content] production will now increase dramatically."

- The deal could also affect the movie theater market, Quartz points out, stressing that it remains to be seen whether Netflix will honor commitments previously made by Warner Bros. Discovery, and whether it will continue to release movies in theaters. And while the streaming platform has formally already assured that all distribution commitments will be honored, there "remain serious concerns in the industry and among government officials about this," Wedbush analyst Alicia Reese wrote in a note to investors. "Shares of movie theater chains, including Cinemark, AMC and Marcus, have declined recently amid concerns about Netflix winning [the deal], given the likelihood that Netflix will attempt to significantly reduce distribution in theaters or eliminate it altogether for most films," Quartz quoted the analyst as saying.

US President Donald Trump's administration is also treating the deal between Netflix and Warner Bros. Discovery with "a lot of skepticism," an unnamed senior Trump administration official told CNBC. Representatives of the U.S. Senate from both parties also criticized Netflix, Reuters reports.

"This deal looks like an antitrust nightmare," said Democratic Senator Elizabeth Warren. - Netflix and Warner Bros. together would create a media giant that controls nearly half of the streaming market - potentially driving up subscription prices, reducing content choices and jeopardizing American workers."

"Netflix has built a great service, but consolidating its dominance in this way could mean the end of the Golden Age of Streaming - for creators and viewers alike," Republican Senator Mike Lee wrote on social media X.

Reuters previously pointed out that the deal, which would give the world's largest streaming service ownership of rival HBO Max, which owns HBO Max and has nearly 130 million subscribers, is likely to face intense antitrust scrutiny in the U.S. and Europe. PP Foresight analyst Paolo Pescatore agrees: "In light of the current regulatory environment, the deal will cause confusion and concerns [in the market]," he points out (quoted by Reuters). - The dominant player in the streaming market will come under intense scrutiny if the merger goes through. We should expect it to cause controversy."

"While we believe the Justice Department will likely still try to challenge the Netflix deal, there are elements of the so-called 'Trump transaction tax' that Netflix could pay - and that could possibly lead to approval of the agreement," New Street Research analyst Blair Levin wrote in a note to clients cited by Barron's.

Another contender for WBD's assets, Paramount Skydance, which has already submitted five bids to buy the studio, should not be discounted, Benchmark Research analyst Matthew Harrigan said. "In our view, Paramount Skydance is unlikely to back down and continue the fight," he wrote (quoted in Barron's). However, the analyst said it would be extremely difficult for Paramount to outbid Netflix. Harrigan noted that the market value of Warner's entire business could now exceed $30 per share. The last price offered by Paramount was $24 a share.

Netflix shares were up 1% in trading on Friday after the deal was announced, before collapsing 2.5% to $100.6. Despite this, analysts at Evercore ISI reiterated an Outperform rating on Netflix on Dec. 5, noting that "fundamentals are strengthening."

"We recognize that Netflix stock has recently reacted significantly to news of potential strategic transactions. However, we believe the company's long-term fundamental outlook continues to improve due to its compelling consumer offering, impeccable history of strategy execution, and strengthened position in the global competitive landscape," Evercore Investing.com quoted Evercore as saying in a note

Shares of Warner Bros. Discovery, meanwhile, on the contrary, went up. They rose nearly 4% in trading on Dec. 5, reaching about $25.5 per share. If they continue to rise, they could close at their highest level since April 13, 2022, the Wall Street Journal points out. Back then, the company's securities were trading at $26 per share. This happened right after the merger of WarnerMedia with Discovery.

This article was AI-translated and verified by a human editor