Rich Greenfield: Netflix acquiring Warner Bros. won't create a monopoly — and Paramount's hostile bid probably won't move the board

Yes. Yes. Let's bring him in from the re room waiting room.

Thank you so much for taking the time to jump on the show at last minute. We're we're also celebrating

Christmas theme today.

Celebrating the holiday. I want some of your merch. Some of that merch. I'll wear overnight some to you. Thank you for joining uh last minute. So I know in what is it 12 minutes uh you have got to jump to another call. Uh so let's uh let's get right into it. Why don't you give kind of a quick intro on yourself and then we can talk about uh all the news.

Great.

So I follow Media Stocks. Uh firm is Lightshed. We founded it a little over six years ago. We talk all things tech media telecom. Um and we have been obviously following closely what happens with Warner Brothers. And you know, we've had a three-way bidding war. Comcast dropped out. So now we have a two-way bidding war. The board obviously chose Netflix. Paramount is unhappy and is trying to go over the top and go directly to shareholders um to get their offer accepted.

Uh h how do you think uh the antitrust stuff plays into this? Is that something that we're going to see a year from now once this like the the current back and forth is resolved or does it have an effect right now?

I mean the irony is like think about what we're doing right now. Yeah. Like you you guys actually what you guys are doing and your success to date

actually is what makes this antirustwise so difficult cuz just imagine

how do you look at this and say oh you can't look at YouTube you can't compare YouTube right like

you can't compare Twitter and live video like what is the market for

infinite there's infinite competition

well I mean so so that's the thing like you know Netflix started talking about YouTube as their competition for time you know over a decade ago.

Yeah.

You know, if you're looking at only streaming, are we only going to look at professional streaming? So, we're only going to look at Netflix, HBO Max, Disney Plus, and Hulu. If if that was the construct, let's just say we'll take the narrowest, you know, sort of silo to look at this. Netflix is 24% of time spent in streaming, premium streaming today. So, that's no YouTube, no linear TV. If you add on HBO Max, you get to 28%. Still doesn't seem to violate any antirust problem. It's certainly a lot, but it's certainly no 40 50% market share.

But, you know, when you watch the NFL on Netflix, you also watch the NFL on ABC and you watch the NFL on CBS. So, how is that not part of the competitive landscape? And heck, you know, YouTube, I don't know if each of you have YouTube TV, um, or have Sunday Ticket, but Sunday Ticket is on YouTube, right? Like, so to to sort of narrowly define the market as only being premium subscription streaming seems a little crazy. And even when you think about movie theaters, like mo some movies come out in movie theaters, some movies come out on streaming. Are we only going to look at this as sort of like what's the impact on movie theaters or are we going to think about hey, you know, if Netflix actually owns the movie movie studio, they'll still do some movies in theaters, but they're going to make a lot more movies in total. And so the antirust side of this is so complicated and I you look I I can certainly make the argument why this is illegal, but the question is would that actually hold up in court? A court actually has to come out and say this is illegal. That's where it gets much more difficult because if you remember back not that long ago, guys, you know, the government sued AT&T, Time Warner, under the Trump administration, the first Trump administration, and they lost in court and the deal closed.

Yeah. And it was kind of it kind of wound up being a bad deal, right? Or or it was it like it maybe they should have stayed separate. Is is that the way we remember that or no?

I mean, the way I certainly remember it is is when they told them they had to sell something, they should have sold something. they would have done a lot better off, you know, listening to the government, but they fought so they didn't have to sell anything.

The rest is history. But my point is, we're still a nation of laws. Like, you actually have to have a legal basis

Sure.

for blocking the transaction. You have to bring a lawsuit and win in court.

Yeah. Yeah. I was laughing to myself because I was looking for uh like the perfect tweet to sum up the the the fervor around, oh, this is going to create a monopoly. this is a that like you know Netflix is going to face antitrust for this and I sound I found a bunch of tweets that were people basically saying like I miss when Netflix was a monopoly and they had everything and now I have to go all over to all these six different bundles and I'm like that's anecdotal but it's still a funny funny sentiment out there.

I mean the reality is like honestly how often do you turn on HBO Max? Like honestly like how often are you actually watching that? I mean the viewership is actually pretty small. Like I love Last of Us. I like White Lotus, but I'm not just turning it on. I mean, the biggest problem HBO has is it's not a daily use.

Totally. Yeah. Yeah. No, it's like a Sunday night once a week. When there's a show that's so big in the zeitgeist, if I'm not watching it, people will actively call me out and be like, "You're not watching White Lotus. You're not watching Success. You're not You're not watching Game of Thrones." And I feel like I'm crazy. And so I I call it like FOMO TV, which is really good. It's like if I'm not if I'm not tapped into Game of Thrones, I feel like I'm missing out. Um Netflix hasn't been able to cover that as much. I feel like they haven't created as much of that. Do you What do you think this says about Netflix? Is it is it an admission that they have yet to create that much IP that will be around in 50 years? Batman, I think, is going to be around in 50 years. Squid Game, I don't know if we're going to be able to see Squid Game Halloween costumes in 50 years. What do you think this deal says about Netflix's position?

Look, I think it what it says more than anything is that, you know, I mean, Netflix has certainly had a bit more trouble growing engagement over the course of the last year. It's picking up. It's doing better. I mean, they've definitely had a very good slate in the last 6 months. But engagement isn't growing as much as I think investors would like it to be, especially, you know, again, look who's growing engagement the fastest in all of television. It's YouTube. YouTube,

which is, you know, probably obvious to a lot of people who are not senior media executives, right? But like if you look at like consumers, they certainly know I have three kids. I certainly see the growth of YouTube. There's no doubt that that is the that is the the fastest growing place. And I think AI is only going to accelerate that as it gets easier and easier to create higher quality content across the the YouTube userenerated ecosystem.

So I think part of this is Netflix is looking at this going, we need even more IP to play with. If we had all of this IP, we could make even more content. We could move faster. We could I mean, think about it. You were watching things like Ballers.

Yeah.

Not and Six Feet Under, not on HBO. People were watching it on Netflix because they licensed it to Netflix. Netflix has this incredible algorithm that helps content get discovered. Yeah.

And I think that's a huge power to this transaction is elevating stuff that is in this Warner Brothers catalog that people just haven't been watching. And so I think that's what Netflix is looking at here is how can we take 1 plus 1 and make it equal more than two by making more content.

Do you believe that in the K-pop Demon Hunters example that if K-pop Demon Hunters had not been on Netflix and instead been a Warner Brothers small theatrical release, you know, and then put out somewhere that it wouldn't have been this phenomenon and the fact that stuff can kind of go viral in the Netflix algorithm. Do you do you like that uh thesis?

I mean, stuff does go viral. I mean, Netflix impacts culture, right? I mean whether it was Squid Game, look at this show, you know, this this series in the UK, Adolescent, that premiered on Netflix and blew up all around the world and started having, you know, parents were having some very tough conversations with kids after that because of sort of how impactful it was and how moving like content really does go viral on Netflix and it's part of it's the algorithm, part of it's the interface, part of it's the global infrastructure and you know again you need a service that is used a lot. You know, think about Tik Tok, think about reals. Why are those algorithms so good at finding stuff that the two of you want to watch every day? It's because they have so many inputs. It's learning. It's seeing your behavior. The more you engage, the better the algorithm is. The problem with so many of these services, you just mentioned it with HBO, but it would be the same thing with Hulu or Disney Plus or any of these other services. You don't use them that much. And so, there isn't that much data to train the algorithm. That is what Netflix is really good at. And I think that's the opportunity of putting these two companies together. It's certainly what Paramount is hoping to get by trying to buy this. Paramount needs a bigger streaming service that is used more often because Paramount Plus like HBO Max are both lightly used services.

Sure. Sure. Yeah, that makes sense.

Okay, let's let's talk about uh the uh $ 108 billion. That feels like a a crazy number. Uh why why do you do like the the original Netflix bid, you know, felt uh felt rich? uh and this feels like on another level. How do you how do you how do you

tripled in value over the last uh like six months?

Look, I think you have to step back. Remember

on the on the Warner Brothers um Warner Brothers is splitting into two companies. Paramount is trying to buy the whole thing. So, you know, you some of this is a little bit confusing,

right? Paramount is buying everything, meaning the cable network. So, they're buying CNN. They're buying the Discovery Channel Food Network. Netflix is not. Netflix is just buying the Warner Brothers studio which includes the gaming studio, the film and the TV studio as well as HBO, whereas Paramount is buying everything. And so these are a little bit apples and oranges. That's why 2775 is actually greater than 30, at least in the if you're the Warner Brothers board, they said that 2775 plus the spunout company is a bigger number than 30. Yeah,

we can debate that. But they believe that they are getting 31 or $32 in value because of the spunoff company.

You know, that's the reality here. I don't think this tender offer on the face of it is going to move the board. I think the real question for all of your viewers out there is is this going to cause Paramount to raise their bid further? Because I don't think that I I doubt Warner Brothers comes back and says, you know, we like this better. My guess is they're going to say this is still an inferior offer versus Netflix. Sorry. And then it'll be up to Paramount to say, do they want to go to 32 or 34 or 36? Like where do they want to go next? Do they have more money?

Yeah. And uh just to be clear, I I believe that the Netflix deal leaves behind the the the cable assets which are about $5 a share. Warner Brothers is still is currently at $27 a share. So it implies like a 12 billion value on those assets. So you should add that to Netflix offer if you want to get like the fair market of the full value.

No, cuz you have you you have debt attached to it. So you got you got debt that's being left on it. So look, you're somewhere between,

let's just say in round numbers, you're probably $2 to $3. Could you be at, you know, Paramount says it's only a dollar, other people say it's at four. Let's just say it's somewhere in the middle. It's $2 to $3 a share is probably a reasonable starting point for what this asset is worth. I mean, look, it's hard to know. it doesn't trade yet. So, we're talking about the value of a theoretical public company.

That is a dangerous thing to opine on, especially when you're a levered company because very small differences in valuation have a pretty meaningful impact. And so,

look, I think the the reality is the question is now the Warner board already made their decision. Mhm.

The only way I think this, you know, I'd be surprised if the Warner board did anything different unless there was a notably superior offer

from Paramount.

Yeah.

Which we'll see in time. You know, this like you're already levering up a lot. I mean, you know, I think one of the things that was really misunderstood, there was this story going around for weeks that, you know, Larry Ellison was writing a check himself. like he was buying this with his, you know, he'd be selling his oracle stock and he was basically buying this.

The reality is is Ellison is putting up a portion of the dollars, but a lot of the dollars are actually coming from capital they've raised from the Middle East.

You know, you've got 24 plus billion dollars is coming from three

double their double their double the Ellison's investment, right?

Correct. And so the question is is there more capital? Like is Ellison not willing to spend more? You know, he's backstopping the whole thing, but how much money does he actually want to put in? How much leverage will banks put on this? That is a big question. You know, you're you're probably and when you close this deal, you're probably around six times, maybe even a little bit more times levered. That's a pretty high leverage. They'll work it down quickly, but it is a pretty high leverage on on media assets in 2020. I'd probably close in 2020, late 26, 27. That's a lot of leverage.

Yeah. Well, and and uh you got to look at or Oracle. uh itself is uh is is pretty levered. So they're the uh father son are going all in.

Yeah. Look, I I don't know. I mean, look, I there are certainly regulatory issues. I mean, it's funny how Hollywood was was coming out and Hollywood was like, "Oh, we we don't like this Netflix transaction." Um but, you know, combining two studios, I mean, Disney and Fox merged and Fox is uh you know, Fox has basically, you know, been reduced to almost nothing. I mean, they don't make a lot of movies anymore, you know, and so, you know, putting two studios together, they can say they're going to make 30 movies. It would be hard to imagine in three or four years anybody making 30 movies. I mean,

I don't know about, you know, you guys, but like attendance to movie theaters.

Yeah.

Like just actual butts and seats.

Yeah.

Is almost 50% lower in 25 than it was in 2019. So, pre and post pandemic.

Huge change.

50% reduction.

Yeah. in in seats, you know, you know, butts and seats. Like that's a huge change. And so the movie business, I mean, the funny thing is everyone is talking about like, oh my god, the movie business can't change or, you know, don't hurt the movie business or don't change the theatrical experience. Consumers are voting with their feet. Consumers have pulled back dramatically on going to movie theaters. I think the movie theater business needs to change and needs to adapt to the realities of like unlimited content. I mean, look at what we're doing right now. I mean, you're directly competing with a service like CNBC. Like, there is competition keeps growing from this thing called the internet, and it's not stopping anytime soon.

Uh what uh what should viewers be looking out for this week as the story evolves?

I guess it is very little this I mean, look, who knows? I mean, Netflix is going to speak in a few minutes, which is why I've got to hop. Um but, you know, I think investors are probably going to be trying to figure out two things. one, um, you know, is Paramount really willing or able to go higher than $30 a share in cash, number one. And two, what is, you know, if they do, what is Netflix's willingness to go above their current bid? I mean, it clearly seems like Netflix raise their offer a couple of times.

Yep.

And so, will Netflix ultimately, in order to seal this, not seal this, but to to ensure that it doesn't become unsealed, will Netflix have to raise their bid? I think those are the two things. And as both of you said, the price for this is already pretty astronomical. I mean, this was an asset trading at $6 or $7 a share not that long ago. Now we're talking about effective

a friend that I'm sure I'm sure you're friends with, too, who was like, there are no other biders here. And he's like, it could not be more connected. This was like six weeks ago. He he was just fully convinced

when there were those rumors of a bidding war emerging and people were debating. People didn't think there would be one. They thought

Paramount just running away with it. Yep.

But yeah, here we are.

Yeah. No. And I and I think this is Netflix looking opportunistically and going, "Hey, you know, can we really see what's how the industry is changing? Can we opportunistically acquire this content and, you know, basically light a fire under it?" meaning like really really accelerate the visibility and growth and in of all of this content cuz there's just there is so much content inside of Warner Brothers that has been lying that like you know think about when Disney bought Marvel and you got things like Black Panther right and you know Guardians of the Galaxy things that you didn't know were really sitting in that library my guess is there is so much content to play with that's what's really going on here and I think that's why Netflix I mean again I would agree six weeks ago we wrote piece. There was no way in my mind that Netflix was buying this. I was totally and utterly wrong.

Yeah,

makes makes a lot of sense. Last last last last question. Who do you like for uh just film and television enthusiasts, who do you think is uh who do you think they're better off with uh owning owning Warner Brothers?

I think the reality is both of these companies are going to inject I mean they both want this asset because they want to build with it. M

so I think ultimately putting either the you know putting Netflix and their global platform behind this putting the Ellison's with their you know second wealthiest family in the world behind it. Either way I think if you're you know if you love content you're going to get a lot more content out of this combined company than you are today. I mean HBO again doesn't make many shows in a given year.

You're going to get a lot more content.

Fantastic. Thank you for

any picks for movie of the year personally.

Would you like to see

of the year?

Did you see anything or are you also just scrolling short form? Honestly, it's like actually I haven't seen a movie. I I mostly stick to analyzing the stocks. I

I I mean look I I mean Avatar's coming out in a couple of weeks. It's always hard to bet against. It's always hard to bet against Jim Cameron. I mean my guess is it probably won't all be in this calendar year but it probably will be the biggest single dollar, you know, from a box office standpoint. probably the biggest bo even even if it doesn't live up to the last couple of Avatars in box office, it probably still is the biggest box office film of the year.

That's a great reminder. We got to figure out how to get everyone uh to see that in the biggest IMAX in Los Angeles in the theater because that's going to be a wild experience. Uh well, thank you so much for taking me if you learn anything at it. I'll I'll fill people in.

Have a great rest of your day

and get me some merch. I want some merch.

We're on it, guys. Text your address.

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