Netflix has begun exclusive talks to buy Warner Bros. What are the dangers of the deal?

Streaming service Netflix is in exclusive talks to buy the studio and streaming business of Warner Bros. Discovery - a deal that could change the balance of power in the media industry. Against this backdrop, resistance is growing in Hollywood: industry figures have asked Congress to intervene, fearing market concentration and a crisis for movie studios. Analysts are also expressing doubts - they warn that the purchase could put pressure on Netflix shares.

Netflix is in exclusive talks to buy the movie studios, television divisions and streaming assets of Warner Bros. Discovery, several media outlets reported , citing sources. This status means that during the negotiations, Warner Bros. Discovery is not considering competing offers.

According toReuters interlocutors, Netflix has submitted the highest bid among the bidders. According to the agency, the deal under discussion is valued at $28 per share, that is at a premium to the market. Trading on December 4, securities Warner Bros. Discovery ended at $24.54, and at the premarket on December 5 rose another 3.8%. Earlier it was reported that the terms of purchase from Netflix assumes payment of 85% of the cost in cash.

The agreement could be announced in the coming days, Reuters writes.

Netflix and Warner Bros. Discovery could not promptly comment to news agencies on the progress of negotiations.

Potential acquisition of part of the business of Warner Bros. Discovery by Netflix may significantly change the balance of power in the media market, predicts Reuters. Among other things, combining Netflix and HBO Max streaming services under one subscription may reduce the final cost for users, the agency suggests. According to Reuters, if regulators block the deal, Netflix is ready to pay $5 billion in compensation.

Reports of the impending purchase have caused alarm in Hollywood: a group of influential figures in the film industry appealed to the U.S. Congress to intervene if Netflix's bid is approved. According to Variety, they warned of the risk of a serious economic and institutional crisis for the industry, fearing that it would lead to excessive market concentration. In their opinion, the merger could undermine competition, reduce the volume of movie theater releases, narrow the variety of content and cause a new wave of layoffs in the industry.

At the same time, Paramount Skydance, which also claims to purchase, accused Warner Bros. Discovery that the sale process is being conducted with irregularities and is aligned in favor of Netflix. In a letter to WBD CEO David Zaslav, Paramount's lawyers demanded the creation of an independent special committee of board members with no conflict of interest to oversee the sale process and evaluate the incoming offers. "We urge you to give such a committee real authority to eliminate even the appearance of bias and ensure that the interests of shareholders are protected," the letter reads.

Paramount is seeking to buy the entire company, including Discovery, CNN and other TV channels. It submitted its bid - for about $60 billion - back in October. At that time, WBD's market capitalization was noticeably lower - according to public trading data, it was hovering around $40 billion - so the offer implied a significant premium to the market. But WBD's board of directors rejected the offer and launched a formal sale process, with new suitors emerging. Comcast was also among them.

Since then, WBD stock has risen significantly, more than doubling in value over the past three months, and the company is now capitalized at just shy of $60 billion.

Analysts at investment firm Brown Advisory said in a letter to investors that expectations of a possible merger between Warner Bros. Discovery and Paramount were one of the factors of pressure on Netflix shares in the third quarter, when they corrected from the historical maximum. Quotes of the streaming giant have lost about 5% over the past month, down 0.8% at the premarket on Dec. 5. Nevertheless, Brown Advisory emphasizes that it still views Netflix as a top-tier operator with significant long-term growth potential.

The cost of a potential deal remains a major source of concern for investors, the Motley Fool agrees, with Morningstar analysts adding that any realistic amount Netflix could pay for a piece of Warner Bros. could be devastating to its value. That said, Paramount, they argue, could benefit from the scale that HBO Max would provide to its second-tier streaming service.

Netflix has about 90 million subscribers in the US and 300 million worldwide. HBO Max has 58 million and 128 million, respectively. Because of the significant audience overlap, the combined revenue of the combined streaming service could decline, according to Morningstar's projections, unless Netflix doubles its subscription rate or maintains two separate services, both scenarios considered unlikely.

"[For now] we maintain fair value estimates for Netflix and Paramount - neither of which includes a potential purchase of Warner Bros. Our estimate of Netflix's fair value could decline if the company wins the asset fight. The impact of a possible deal on Paramount's performance is less clear and would depend on the price at which the company could acquire Warner Bros. Discovery," the analysts summarized .

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