Netflix Executives Downplay Any Interest In Warner Acquisition

Netflix is also said to be among the interested buyers in Warner Bros. Discovery after the Hollywood media company officially put itself on the market earlier in the day, saying it had several potential interested suitors. But at Tuesday’s analyst call after releasing Q3 earnings, the company’s Co-CEOs made it pretty clear, though perhaps not absolutely definitive, that big media-company acquisitions aren’t big priorities.

“We have no interest in owning legacy media networks, so there’s no change there,” said Co-CEO Ted Sarandos. “We can be choosy.”

The comments came amid another big jump in revenues, 17%, but an earnings-per-share miss the company blamed on a complex Brazilian tax dispute. The biggest conversation of the day, however, is whether Netflix would actually buy one of the most storied media companies in Hollywood.

While buying intellectual property rights may have value, Sarandos said, “does it strengthen our existing capabilities somehow? Does it accelerate our existing strategy?”

Co-CEO Greg Peters noted that the latest round of consolidation in Hollywood doesn’t appear materially different from previous rounds, such as Disney’s 2019 purchase of most of Fox, or the successive previous deals involving Warner Bros., first with AT&T’s acquisition, and then the debt-laden 2023 merger led by Discovery Networks.

“None of those mergers were a fundamental shift in the competitive landscape, and we’ve seen a wide range of outcomes from those mergers,” Peters said. Importantly, none of those mergers “changes the substance of the challenge our competitors face.”

By that, Peters said it’s challenging, for Netflix or anyone else, to do all the things a company needs to do to compete globally in streaming video with content for a wide variety of markets in many languages and countries, with all the tech requirements for customer acquisition and retention, recommendation engines, pricing models and much else.

“You don’t get there by buying another company trying to develop those same capabilities,” Peters said. “We’ll do whatever we think will help us grow the business.’

WBD assets include highly regarded film and TV production studios, HBO, CNN, several other cable networks, a sprawling lot in Burbank, and streaming service HBO Max. Its well-regarded library of award-winning films and TV shows also includes the DC superhero universe of Superman, Batman and others.

Paramount Skydance CEO David Ellison had previously made it clear his newly merged company was interested in buying all of WBD, and reportedly made a $20/share bid that valued WBD at around $55 billion. Comcast, owner of NBCUniversal but also spinning off most of its cable networks into a separate company called Versant, is also said to be interested.

“I would be surprised if Netflix made a push for (WBD),” said Mark Mahaney, Evercore ISI’s head of internet research, on CNBC. “I think they’re in the market as a bidder (on sports and other content). They’re bidding on UEFA (the hugely popular European club championship tournament).”

Mahaney and numerous other analysts say it’s difficult to see what use Netflix would have with most Warner Bros. assets, which don’t fit its corporate priorities, beyond the productions it routinely licenses with Warner and other Hollywood studios.

“The only focus investors have is what was with the answer on (mergers & acquisitions)?” said LightShed Partners senior analyst Rich Greenfield on CNBC. “Are they a bidder? Are they not?”

Most of what Warner has wouldn’t be much use to Netflix, even a gold-standard asset such as HBO and its streaming service HBO Max, because they’re entwined with the production studios, cable providers and more.

“What you’d really want is the IP trove of Warner Brothers,” Greenfield said. “That would be the piece that’s most interesting to Netflix.”

The company hasn’t made many big IP deals, other than acquiring MillarWorld’s comic-book empire, and children’s author Roald Dahl’s literary estate.

“This would be a $50 (billion), $60 billion acquisition,” Greenfield said. You have to wonder is that really the best use of capital for the organization.”

Even if Netflix were to get involved, it’s generally shown extreme cost discipline, which means it frequently loses out on sports rights and other deals where a motivated competitor is willing to pay more.

“Netflix generally doesn’t get sucked in and overpay,” Greenfield said. “Even if they’re interested, it’s hard to say they walk away the winner, given the price discipline they’ve always shown.”

Netflix shares dropped almost 6% Tuesday after quarterly earnings fell well below expectations, a miss the company blamed on an unanticipated, ongoing dispute with Brazilian tax authorities.

Despite the earnings miss, revenues were up 17%. The fight with Brazilian authorities was blamed on dropping operating margins to 28%, well below previous guidance of 31.5%.

“Absent this expense, we would have exceeded our Q3’25 operating margin forecast,” Netflix wrote in its investor letter accompanying its earnings report. “We don’t expect this matter to have a material impact on future results.”

As described by CFO Spence Neumann, the Brazilian dispute involves an unusual tax on “contributions for intervention in economic domain,” or payments between a Brazilian company and a non-Brazilian one. In this case, Netflix Brazil pays its parent company for use of subscriber technology, which Netflix expected would not be affected by the tax. A Brazilian Supreme Court decision found otherwise, necessitating nearly four years of back payments.

“No other tax looks or behaves like this in any other major country we operate in,” said Neumann.

The earnings miss came amid what Netflix executives had touted as one of its best-ever slates, including meme-worthy goldmine KPop Demon Hunters, the latest season of Wednesday, a Happy Gilmore sequel, Korean hit Your Majesty, the Canelo vs. Crawford boxing match and more.

But the company’s next legs of growth will likely come from further growth in its ad-supported tier, now nearing its third year of existence after doubling revenues from last year’s relatively small number. The company announced a big ad deal with alcohol-giant AB Inbev was one example of its growing power there, Mahaney said.

“I think it’s a real legitimate leg of growth,” Mahaney said. “I think investors want to see more of those deals come through.”

The company also can continue to invest in live events and sports, such as that Canelo/Crawford boxing match. The company will again feature two Christmas DayNFL games, as it did last year, and recently announced a deal with Major League Baseball for the opening-day game of the New York Yankees next spring.

The company has been careful, however, to avoid pricey long-term deals for weekly broadcasts of a league’s matches, such as all the traditional media companies have done for decades.