1 00:00:00,120 --> 00:00:01,920 Welcome back everyone. Today on the Jezebel Carlson 2 00:00:01,920 --> 00:00:06,320 show, we have some massive news. This is ground shattering news. 3 00:00:06,800 --> 00:00:09,400 We have Netflix, biggest streaming company in the world, 4 00:00:09,400 --> 00:00:14,000 buying Warner Brothers and HBO. They're not buying Discovery. 5 00:00:14,400 --> 00:00:17,000 And therein lies the detail. There's a lot of nuances in this 6 00:00:17,000 --> 00:00:18,600 deal. And frankly, when I'm looking 7 00:00:18,600 --> 00:00:22,640 online and I'm, I'm browsing across X, the amount of bad 8 00:00:22,640 --> 00:00:25,920 takes on this I've seen are frankly just incredible. 9 00:00:26,360 --> 00:00:29,440 There are so many people that have no clue about this deal. 10 00:00:29,680 --> 00:00:31,080 They don't know what's going to happen. 11 00:00:31,080 --> 00:00:33,200 They don't understand the intricacies of it. 12 00:00:33,200 --> 00:00:35,600 They don't even understand what the deal is, what Netflix is 13 00:00:35,600 --> 00:00:37,080 actually buying, what they're not buying. 14 00:00:37,280 --> 00:00:40,280 They don't understand the strategic plan of Netflix, why 15 00:00:40,280 --> 00:00:43,680 Netflix is motivated to do this. They don't understand what the 16 00:00:43,680 --> 00:00:45,160 balance sheet will look like after it. 17 00:00:45,480 --> 00:00:48,680 And so there's just a ton of bad information being spread online, 18 00:00:49,160 --> 00:00:52,240 tons of bad takes, lots of people saying that this can't 19 00:00:52,240 --> 00:00:55,280 happen or that can't happen, and I've had enough. 20 00:00:55,280 --> 00:00:58,360 So I'm making this video just to clear things up. 21 00:00:58,400 --> 00:00:59,880 We'll be sharing the actual data. 22 00:00:59,880 --> 00:01:02,880 We'll be diving in and giving you a real insight into what 23 00:01:02,880 --> 00:01:06,920 this deal actually is and why Netflix wants to do it. 24 00:01:07,280 --> 00:01:11,720 So I also say this is someone that I've covered Netflix on 25 00:01:11,720 --> 00:01:13,080 this channel for literally years. 26 00:01:13,080 --> 00:01:15,400 You can go back throughout my history, I've been somebody 27 00:01:15,400 --> 00:01:17,960 that's covering Netflix and I've been right on it. 28 00:01:17,960 --> 00:01:20,920 I'll just point that out. Netflix is a company that I said 29 00:01:20,920 --> 00:01:23,960 would be a massive winner in the future going back all the way to 30 00:01:23,960 --> 00:01:28,080 2021 and they have been, Netflix has been an enormous winner. 31 00:01:28,080 --> 00:01:32,400 It's a company that I have over $115,000 invested into, the 32 00:01:32,400 --> 00:01:35,440 majority of that being gains. So this is one that I was buying 33 00:01:35,440 --> 00:01:38,720 during the Lowe's. I even even when they were 34 00:01:38,720 --> 00:01:42,040 losing subscribers, this is a company that I still stuck with. 35 00:01:42,040 --> 00:01:44,080 Now, again, today, Netflix announced that they're buying 36 00:01:44,080 --> 00:01:47,400 Warner Brothers Discovery, which includes the enterprise value of 37 00:01:47,520 --> 00:01:50,560 $82 billion. So this is a massive 38 00:01:50,560 --> 00:01:54,160 acquisition, and they say that they're buying Warner Brothers 39 00:01:54,160 --> 00:01:57,080 Discovery, But there is a lot of nuance to this of what they're 40 00:01:57,080 --> 00:01:59,400 actually buying and what they're actually not buying. 41 00:01:59,640 --> 00:02:02,120 This is the first thing that a lot of people are getting wrong, 42 00:02:03,120 --> 00:02:05,080 They say. Today, Netflix and Warner 43 00:02:05,080 --> 00:02:07,240 Brothers Discovery announced that they have entered into a 44 00:02:07,240 --> 00:02:10,840 definitive agreement under which Netflix will acquire Warner 45 00:02:10,840 --> 00:02:16,200 Bros, including its film and television studio, HBO Max and 46 00:02:16,200 --> 00:02:19,200 HBO. So notice what they're buying 47 00:02:19,200 --> 00:02:22,560 there, They're buying Warner Bros. 48 00:02:22,960 --> 00:02:24,920 So they're they're getting the the film studio. 49 00:02:25,320 --> 00:02:28,680 The film studio is the one that has like tenant, right? 50 00:02:28,680 --> 00:02:32,920 They're making Mad Max, The Matrix, like all those iconic 51 00:02:32,920 --> 00:02:35,360 movies, tons of them are come through Warner Bros, right? 52 00:02:35,560 --> 00:02:37,800 You see that you see that entrance whenever you go to a 53 00:02:37,800 --> 00:02:39,880 movie. Warner Bros, one of the most 54 00:02:39,880 --> 00:02:43,600 iconic film studios ever that has these massive film 55 00:02:43,600 --> 00:02:46,840 franchises, so many different partners that work with them and 56 00:02:46,840 --> 00:02:49,240 produce for them. Netflix is going to own that. 57 00:02:49,920 --> 00:02:53,920 The other thing that they're buying is HBO Max and HBO. 58 00:02:54,600 --> 00:03:00,080 So think about shows like House of Dragon, think about White 59 00:03:00,080 --> 00:03:04,480 Lotus, think about The Wire, think about Sex and the City, 60 00:03:04,480 --> 00:03:08,400 think about the, you know, the The Last of Us, all those type 61 00:03:08,400 --> 00:03:10,840 of series like all these Friends, another one. 62 00:03:11,040 --> 00:03:13,840 These are all owned by HBO Max and HBO. 63 00:03:14,400 --> 00:03:18,640 It's also probably the most prestige film studio or at least 64 00:03:18,640 --> 00:03:21,320 streaming studio in the world. Some of the most prestige, in 65 00:03:21,320 --> 00:03:25,560 fact, I'd say the most prestige TV series ever made come from 66 00:03:25,560 --> 00:03:28,600 HBO and HBO Max. That's what Netflix is buying. 67 00:03:29,160 --> 00:03:31,720 What they're not buying is Discovery. 68 00:03:32,160 --> 00:03:35,400 So even though it says here they've entered into a agreement 69 00:03:35,400 --> 00:03:38,560 with Warner Brothers Discovery, they're not buying Discovery. 70 00:03:38,600 --> 00:03:40,640 They're not buying the cable TV assets. 71 00:03:41,120 --> 00:03:44,120 They're not buying all that old antiquated stuff where we 72 00:03:44,120 --> 00:03:47,760 broadcast on cable television and they have kind of like the 73 00:03:47,760 --> 00:03:50,560 daytime shows, right? Just kind of the slop that gets 74 00:03:50,560 --> 00:03:53,360 broadcasted there. Netflix isn't getting any of 75 00:03:53,360 --> 00:03:56,640 that. So this is a pureplay precision 76 00:03:56,640 --> 00:04:01,440 deal just to buy the production studio of Warner Bros, all the 77 00:04:01,440 --> 00:04:05,120 content that comes along with it and the specific prestige 78 00:04:05,120 --> 00:04:09,440 content from HBO Max and HBO. Those services are highly 79 00:04:09,440 --> 00:04:12,120 tailored, prestige boutique content. 80 00:04:12,560 --> 00:04:15,280 And Netflix has carved out a deal where they're just getting 81 00:04:15,280 --> 00:04:19,000 that, nothing else. Now, this is, it's a bit 82 00:04:19,000 --> 00:04:21,160 different than most deals that happened like this. 83 00:04:21,160 --> 00:04:24,440 For example, one of the the big deals that happened that was the 84 00:04:24,440 --> 00:04:27,640 most similar to this one was Disney buying Fox. 85 00:04:28,240 --> 00:04:30,720 Disney just recently, you know, a couple years ago, they bought 86 00:04:30,720 --> 00:04:33,760 Fox and all the assets along with it for around $70 billion. 87 00:04:33,760 --> 00:04:36,240 So roughly a little bit less than what Netflix is paying, but 88 00:04:36,240 --> 00:04:39,840 around the same price. And that deal, Disney got all 89 00:04:39,840 --> 00:04:42,240 the legacy assets, so they didn't just get like The 90 00:04:42,240 --> 00:04:45,760 Simpsons, they got everything, all the cable assets as well. 91 00:04:46,040 --> 00:04:48,360 So it makes it a more complex deal where they're getting a lot 92 00:04:48,360 --> 00:04:51,040 of this antiquated legacy stuff along with it. 93 00:04:51,480 --> 00:04:53,280 And that's different with Netflix here. 94 00:04:53,600 --> 00:04:56,480 So the first big point that I want to highlight is this is far 95 00:04:56,480 --> 00:04:58,360 more tailored to what Netflix is wanting. 96 00:04:58,680 --> 00:05:01,360 Netflix does not want legacy cable TV assets. 97 00:05:01,360 --> 00:05:04,040 They don't want Discovery. They don't want or need any more 98 00:05:04,040 --> 00:05:07,560 reality TV shows that are on the the daytime television. 99 00:05:07,840 --> 00:05:08,880 They already have enough of that. 100 00:05:09,160 --> 00:05:11,680 What Netflix wants is higher quality movies. 101 00:05:12,080 --> 00:05:13,440 They're getting that with Warnermedia. 102 00:05:13,760 --> 00:05:16,000 Netflix has had ambitions to make better movies. 103 00:05:16,000 --> 00:05:17,720 They just can't make the studios themselves. 104 00:05:18,000 --> 00:05:21,200 So they're acquiring Warner Brothers to make better movies, 105 00:05:21,600 --> 00:05:24,960 to buy better franchises. Things that you can't replicate, 106 00:05:24,960 --> 00:05:26,360 you can't create out of thin air. 107 00:05:26,440 --> 00:05:29,160 They're buying it. The other thing is the HBO and 108 00:05:29,160 --> 00:05:31,840 HBO Max. This is, again, when I look at 109 00:05:31,840 --> 00:05:34,600 what Netflix is lacking overall in their library. 110 00:05:35,160 --> 00:05:39,120 Netflix is a great technologist. They're a company where they can 111 00:05:39,120 --> 00:05:43,200 create highly scalable technology, very easy to browse, 112 00:05:43,200 --> 00:05:46,240 very easy to use. It works on every device, right? 113 00:05:46,240 --> 00:05:49,040 They they're completely global. They're like in every country in 114 00:05:49,040 --> 00:05:51,240 the world. They're so good with technology, 115 00:05:51,240 --> 00:05:52,840 they're so good with user experience. 116 00:05:53,040 --> 00:05:56,280 They're so good at scaling their costs across and advertising it, 117 00:05:56,520 --> 00:05:59,960 making their stuff go viral. What they're not good at is 118 00:05:59,960 --> 00:06:02,440 making consistently high quality content. 119 00:06:02,800 --> 00:06:05,000 That's been the weakness of Netflix for a long period of 120 00:06:05,000 --> 00:06:07,480 time. They can have some random hits, 121 00:06:07,920 --> 00:06:11,240 but most of the big hits they have are also, and in a lot of 122 00:06:11,240 --> 00:06:13,800 ways they're acquired. K Pop Demon Hunters was a hit 123 00:06:13,800 --> 00:06:16,800 that Sony made the Netflix acquired, they blew it up. 124 00:06:17,240 --> 00:06:20,520 You also have Wednesday, that was one that MGM Studios owned. 125 00:06:20,560 --> 00:06:22,800 Netflix acquired the rights to it and blew it up. 126 00:06:23,240 --> 00:06:27,200 Netflix is good at taking high quality content that doesn't 127 00:06:27,200 --> 00:06:30,880 have great distribution, putting on their platform and making it 128 00:06:30,880 --> 00:06:34,440 have explosive distribution. So when I look at what Netflix 129 00:06:34,440 --> 00:06:36,920 really wants, what would be really accretive for the 130 00:06:36,920 --> 00:06:40,600 company, what would be very valuable is a highly tailored 131 00:06:40,600 --> 00:06:43,120 library of incredibly high quality content. 132 00:06:43,400 --> 00:06:45,440 And that's exactly what HBO Max has. 133 00:06:45,880 --> 00:06:48,240 Again, they have shows like The Sopranos. 134 00:06:48,240 --> 00:06:51,240 You have the Penguin, right? You have the whole DC Universe. 135 00:06:51,560 --> 00:06:55,840 You have Superman, you have Batman, you have White Lotus, 136 00:06:55,840 --> 00:06:58,960 you have the The Game of Thrones is kind of done, but you have 137 00:06:58,960 --> 00:07:01,520 the House of Dragon and the new series that they're coming out 138 00:07:01,520 --> 00:07:03,560 with. You have The Last of Us. 139 00:07:03,880 --> 00:07:07,840 It goes on and on. They have like 30 plus extremely 140 00:07:07,840 --> 00:07:11,360 high quality series that keep people glued week by week. 141 00:07:11,880 --> 00:07:15,360 But the problem with HBO, the problem with Warnermedia is 142 00:07:15,360 --> 00:07:16,480 they're not as good at technology. 143 00:07:16,480 --> 00:07:17,760 They're not as good at distribution. 144 00:07:18,040 --> 00:07:21,320 That's why they have 100 million subscribers, not 330 million 145 00:07:21,520 --> 00:07:23,480 like Netflix. So in terms of what they're 146 00:07:23,480 --> 00:07:25,520 actually buying, I want to emphasize this again. 147 00:07:25,880 --> 00:07:29,160 Netflix is getting exactly what they want out of this deal and 148 00:07:29,160 --> 00:07:32,240 more importantly, they're not getting what they don't want. 149 00:07:32,480 --> 00:07:34,760 They're not buying any of the legacy media assets. 150 00:07:34,760 --> 00:07:39,480 They're not buying any of the kind of slow moving, declining 151 00:07:39,480 --> 00:07:42,240 cable assets. They're just getting the content 152 00:07:42,480 --> 00:07:44,400 that they compare with their distribution. 153 00:07:45,120 --> 00:07:47,520 Now, the way that this works is they're going to be taking on an 154 00:07:47,680 --> 00:07:50,920 enormous amount of debt. This is another point of 155 00:07:51,240 --> 00:07:53,920 contention, another point that confuses a lot of people. 156 00:07:54,280 --> 00:07:56,120 When we look at the amount of debt that Netflix is going to 157 00:07:56,120 --> 00:07:59,600 take on between the the two companies after the acquisition, 158 00:07:59,600 --> 00:08:01,120 it's going to be like $80 billion. 159 00:08:01,120 --> 00:08:04,800 So they'll have a net debt of around seventy, $80 billion. 160 00:08:05,160 --> 00:08:09,000 Netflix is paying for this in part, small part around $5 per 161 00:08:09,000 --> 00:08:13,040 share in equity, but the majority in debt and Netflix 162 00:08:13,040 --> 00:08:16,000 always does that because they consider that their equity is 163 00:08:16,000 --> 00:08:19,000 worth a lot more than cash. So they like paying for things 164 00:08:19,000 --> 00:08:20,600 with money rather than with equity. 165 00:08:21,080 --> 00:08:23,520 So they're not diluting the shareholder that much on an 166 00:08:23,520 --> 00:08:25,800 equity basis. They're paying for this, the 167 00:08:25,800 --> 00:08:29,040 huge majority of it with cash. Now you may be saying, Joseph, 168 00:08:29,200 --> 00:08:31,800 that's a lot of debt. Aren't you concerned with the 169 00:08:31,800 --> 00:08:34,120 amount of debt they're taking on with this acquisition? 170 00:08:34,679 --> 00:08:36,440 That's the next thing that I want to point out. 171 00:08:37,039 --> 00:08:40,039 Netflix is a company that's in an extraordinarily strong 172 00:08:40,039 --> 00:08:43,640 financial position. This is not a struggling company 173 00:08:43,640 --> 00:08:47,240 doing a defensive acquisition. They're on the offense. 174 00:08:47,400 --> 00:08:49,080 They're growing, they're acquiring. 175 00:08:49,320 --> 00:08:51,640 They're a company that has global scale. 176 00:08:52,160 --> 00:08:54,720 We look at their revenue growth and this is what it looks like. 177 00:08:55,320 --> 00:08:57,240 This is not a struggling company. 178 00:08:57,520 --> 00:09:00,440 They're growing faster than most big companies in the world. 179 00:09:00,440 --> 00:09:03,080 They're growing right in line with the likes of Google. 180 00:09:03,520 --> 00:09:06,600 So Netflix has top line revenue growth like crazy. 181 00:09:06,920 --> 00:09:09,600 And while they've done that, they've always bumped up their 182 00:09:09,600 --> 00:09:13,120 operating margins overtime. Every single year, their net 183 00:09:13,120 --> 00:09:16,280 income growth looks like this overtime, just staggering that 184 00:09:16,280 --> 00:09:19,720 income growth. Their free cash flow growth is 185 00:09:20,000 --> 00:09:21,640 incredible. It's exponential. 186 00:09:21,800 --> 00:09:24,280 By the end of this year, it will be above $9 billion. 187 00:09:24,760 --> 00:09:27,920 So Netflix is already generating $9 billion. 188 00:09:28,280 --> 00:09:30,680 Analysts estimates were that next year would be well above 189 00:09:30,680 --> 00:09:32,600 $10 billion and so on and so forth. 190 00:09:32,600 --> 00:09:34,600 Their operating margins go up, their revenue grows. 191 00:09:35,160 --> 00:09:38,080 There are estimates that in five years, I believe Netflix could 192 00:09:38,080 --> 00:09:39,960 have tripled their free cash flow. 193 00:09:40,280 --> 00:09:42,560 So instead of being at 9 billion, they'd be at roughly 194 00:09:42,560 --> 00:09:46,560 $30 billion in free cash flow. That's an incredibly healthy, 195 00:09:46,560 --> 00:09:49,920 profitable company. If Netflix on their normal 196 00:09:49,960 --> 00:09:53,880 trajectory in five years could be generating $30 billion in 197 00:09:53,880 --> 00:09:57,560 free cash flow per year, they could pay off the $70 billion in 198 00:09:57,560 --> 00:10:00,440 two years, all the debt for this acquisition in two years. 199 00:10:01,360 --> 00:10:04,880 But that doesn't factor in the asset that they're buying and 200 00:10:04,880 --> 00:10:06,880 the cash flow that that asset produces. 201 00:10:06,920 --> 00:10:09,000 We also need to factor in what they're buying. 202 00:10:09,280 --> 00:10:12,840 If we bring that up here, Warner Brothers Discovery is a company 203 00:10:12,840 --> 00:10:16,240 that is also, again, they have a lot of debt, but look at the 204 00:10:16,240 --> 00:10:18,680 trend over time. When we look at Warner Bros debt 205 00:10:18,720 --> 00:10:21,400 over time, this is what they've been doing with their debt. 206 00:10:21,680 --> 00:10:26,120 It peaked at $48 billion and now it's down below 30. 4 billion. 207 00:10:26,560 --> 00:10:29,120 They've been paying off their debt steadily with their own 208 00:10:29,120 --> 00:10:31,800 cash flows. This is without Netflix's help. 209 00:10:32,480 --> 00:10:35,760 So it is true that this deal will result in a lot of debt, 210 00:10:36,120 --> 00:10:38,840 but it will also result in increased cash flows for both 211 00:10:38,840 --> 00:10:40,840 Netflix and Warner Brothers Discovery. 212 00:10:41,240 --> 00:10:43,360 There's a lot of other things that that help out with the 213 00:10:43,360 --> 00:10:45,800 financial situation. For example, in a company like 214 00:10:45,800 --> 00:10:48,800 Netflix combines with a company like Warner Bros, They don't 215 00:10:48,800 --> 00:10:53,000 need 2 legal counsels. They don't need 2HR departments, 216 00:10:53,360 --> 00:10:55,440 they don't need 2 central management systems. 217 00:10:55,800 --> 00:10:58,920 So you also can erase a lot of expenses with their general and 218 00:10:58,920 --> 00:11:01,440 administrative. Netflix said that in this deal 219 00:11:01,440 --> 00:11:05,520 they expect around $2.8 billion of expenses to be reduced. 220 00:11:05,960 --> 00:11:08,840 So already just with the deal with the general and 221 00:11:09,040 --> 00:11:11,600 administrative expenses to run the two companies where they 222 00:11:11,600 --> 00:11:15,400 only really need one, they can erase almost $2.8 billion 223 00:11:15,400 --> 00:11:17,920 annually just in expenses to run the company. 224 00:11:18,040 --> 00:11:20,120 So we can look at this already and we know that this is a 225 00:11:20,120 --> 00:11:23,840 massive acquisition, an 80 plus billion dollar enterprise 226 00:11:23,840 --> 00:11:27,440 acquisition from one really big company, Netflix that has over 227 00:11:27,440 --> 00:11:31,040 300 million subscribers to another pretty big company, you 228 00:11:31,040 --> 00:11:33,800 know HBO and Warnermedia that has 100 million subscribers. 229 00:11:34,200 --> 00:11:36,080 So it is a a very big acquisition. 230 00:11:36,360 --> 00:11:38,080 Now that we understand what they're actually buying, what 231 00:11:38,080 --> 00:11:40,640 they're paying, how it affects their balance sheet, I think 232 00:11:40,640 --> 00:11:43,000 it's good to look at the realistic chance of this deal 233 00:11:43,000 --> 00:11:44,560 making it through regulatory authority. 234 00:11:44,560 --> 00:11:46,600 That's always the biggest question mark that investors 235 00:11:46,600 --> 00:11:48,760 have. And right now the biggest take 236 00:11:48,760 --> 00:11:52,040 across social media is there's no way this is getting past 237 00:11:52,040 --> 00:11:54,360 regulators. They're going to shut this down. 238 00:11:54,800 --> 00:11:58,160 After all, how could the biggest streaming company buy another 239 00:11:58,160 --> 00:12:01,360 big streaming company? Well, that's not really the full 240 00:12:01,360 --> 00:12:03,720 story. There is some concern in 241 00:12:03,720 --> 00:12:06,320 particular with the nuances of different relationships. 242 00:12:06,320 --> 00:12:11,320 For example, there's David Ellison, 40% owner of Oracle, 243 00:12:11,320 --> 00:12:14,600 the CEO, and then you have a son or sorry, that's Larry Ellison. 244 00:12:14,600 --> 00:12:17,880 Then you have a son, David Ellison, son of Larry Ellison, 245 00:12:18,280 --> 00:12:21,520 who dad gave him a lot of money, which is it was fine, but he has 246 00:12:21,520 --> 00:12:23,280 a lot of money. He used that money to buy 247 00:12:23,280 --> 00:12:25,440 Skydance. Then with Skydance, he bought 248 00:12:25,440 --> 00:12:28,640 Paramount Global. And then David Ellison was on a 249 00:12:28,680 --> 00:12:30,680 a terror hair. He wanted to keep acquiring 250 00:12:30,680 --> 00:12:33,480 different companies. He wanted to buy Warner Bros 251 00:12:33,480 --> 00:12:37,960 Discovery, the whole thing, but he got outbid and he's not happy 252 00:12:37,960 --> 00:12:41,120 about that. So David Ellison and his company 253 00:12:41,120 --> 00:12:44,000 is complaining to the Trump administration saying, hey, 254 00:12:44,000 --> 00:12:47,800 look, go after him. You know, you got to stop 255 00:12:47,800 --> 00:12:50,520 Netflix from buying this asset, so they'll sell it to us. 256 00:12:51,200 --> 00:12:55,160 And Trump is really good friends with David Ellison's dad, Larry 257 00:12:55,160 --> 00:12:57,240 Ellison, who is a supporter of Trump. 258 00:12:57,480 --> 00:13:01,120 He's a good friend to him. So you also have this political 259 00:13:01,120 --> 00:13:05,040 dynamic in the background. Trump likes Paramount Global. 260 00:13:05,040 --> 00:13:08,320 He likes Larry Ellison a lot more than he likes Netflix. 261 00:13:08,680 --> 00:13:11,840 So Trump is probably more inclined to say, hey, the 262 00:13:11,840 --> 00:13:15,360 Department of Justice or whoever, go after him, go after 263 00:13:15,360 --> 00:13:18,560 Netflix, really have a multi year investigation into this 264 00:13:18,560 --> 00:13:20,720 deal, make it hard to pass, right? 265 00:13:21,080 --> 00:13:22,960 And that's kind of like doing a buddy a deal. 266 00:13:23,520 --> 00:13:26,360 Now, even without that, even without the Trump dynamic, it's 267 00:13:26,360 --> 00:13:28,560 still the regulator's job to look at this deal. 268 00:13:28,560 --> 00:13:31,280 So anytime this type of a, this big of a transaction goes 269 00:13:31,280 --> 00:13:33,320 through, they're going to be inclined to look at this deal 270 00:13:33,320 --> 00:13:35,360 regardless. But there's just that added 271 00:13:35,360 --> 00:13:38,520 dynamic that makes it even bigger for Netflix and even 272 00:13:38,520 --> 00:13:41,400 bigger hurdle. But even though a lot of people 273 00:13:41,400 --> 00:13:44,000 think this deal is unlikely to go through, I don't think so. 274 00:13:44,240 --> 00:13:45,960 I think that this deal is going through. 275 00:13:46,000 --> 00:13:47,880 I think it has a high likelihood of doing so. 276 00:13:48,360 --> 00:13:52,880 First of all, Netflix put a break up fee of $5.8 billion, 277 00:13:53,360 --> 00:13:56,400 meaning that if the deal doesn't go through, Netflix is paying 278 00:13:56,400 --> 00:13:59,600 almost $6 billion. That shows that they are highly 279 00:13:59,600 --> 00:14:01,400 confident that this deal is going to go through. 280 00:14:01,760 --> 00:14:04,040 Netflix would not have done that if they didn't believe there is 281 00:14:04,040 --> 00:14:06,320 a clear path to having this deal settle. 282 00:14:06,920 --> 00:14:11,520 The other thing is that Warnermedia and Discovery they 283 00:14:11,520 --> 00:14:15,680 put in place that they have to pay around $2 billion if they 284 00:14:15,680 --> 00:14:18,560 back out of the deal. So if Paramount gives them a way 285 00:14:18,560 --> 00:14:21,720 better offer and then they back out of the deal, they have to 286 00:14:21,720 --> 00:14:23,560 pay an additional $2 billion to Netflix. 287 00:14:23,920 --> 00:14:26,160 So both of them are pretty locked into making this thing 288 00:14:26,160 --> 00:14:27,800 complete. And there's reason to believe 289 00:14:27,800 --> 00:14:30,960 that this deal could go through. The reason is, is because when 290 00:14:30,960 --> 00:14:33,400 we look at some of the data here, for example, we can look 291 00:14:33,400 --> 00:14:35,600 at some of the the TV Nelson data. 292 00:14:36,440 --> 00:14:39,840 When you divide up a market, you look at the streaming companies 293 00:14:39,840 --> 00:14:41,600 and what they would be if they combined. 294 00:14:41,920 --> 00:14:45,440 This is the best gauge for that. The Nelson total TV viewing 295 00:14:45,440 --> 00:14:47,280 time. When we look at Netflix, it 296 00:14:47,280 --> 00:14:51,160 makes up 7.5% of the streaming market. 297 00:14:51,600 --> 00:14:54,040 So this is just counting the streaming market. 298 00:14:54,280 --> 00:14:57,120 When you factor in all of television and cable TV and 299 00:14:57,120 --> 00:15:00,760 sports, they're even smaller, but Netflix just in streaming 300 00:15:01,040 --> 00:15:04,200 7.5%. Now there is a caveat here. 301 00:15:04,600 --> 00:15:05,920 They're including YouTube in this. 302 00:15:06,680 --> 00:15:08,720 Regulators may say YouTube's not streaming. 303 00:15:08,880 --> 00:15:11,200 That's a very difficult argument to make. 304 00:15:11,640 --> 00:15:14,520 It's YouTube is a direct competitor to Netflix. 305 00:15:15,320 --> 00:15:18,760 But even, you know, whether or not you include YouTube, Netflix 306 00:15:18,760 --> 00:15:21,600 is still a very small portion of the total streaming market. 307 00:15:22,000 --> 00:15:25,200 When you look at Warner Bros Discovery way down there, 308 00:15:25,480 --> 00:15:28,240 they're 1.5%. So when you combine those 309 00:15:28,240 --> 00:15:34,440 together, you know you get 9%. That is not a monopolistic 310 00:15:34,440 --> 00:15:37,560 market share. Even with Netflix buying Warner 311 00:15:37,560 --> 00:15:40,760 Brothers Discovery and combining their streaming together, 312 00:15:41,000 --> 00:15:42,720 they're still smaller than YouTube. 313 00:15:43,520 --> 00:15:45,880 So if they're a monopoly, so is YouTube. 314 00:15:45,880 --> 00:15:48,960 In streaming. Even if you took YouTube out of 315 00:15:48,960 --> 00:15:52,680 this and you just had the market share, they're still not above 316 00:15:52,680 --> 00:15:55,200 30%. That's taking YouTube out of the 317 00:15:55,200 --> 00:15:57,200 picture. So no matter which way you look 318 00:15:57,200 --> 00:16:01,760 at this, Netflix does not have a monopolistic grasp on the 319 00:16:01,760 --> 00:16:04,360 streaming market. It's highly fragmented and 320 00:16:04,360 --> 00:16:06,960 Warner Brothers Discovery small enough that regulators will have 321 00:16:06,960 --> 00:16:09,920 a difficult time arguing that this makes them some big bad 322 00:16:09,920 --> 00:16:12,040 monopoly. It's just going to be very 323 00:16:12,040 --> 00:16:15,160 difficult by the numbers. The other aspect of this, what 324 00:16:15,160 --> 00:16:17,800 Netflix is actually doing here, is they're not just buying HBO 325 00:16:17,800 --> 00:16:20,400 Max in the streaming market. They're also buying a production 326 00:16:20,400 --> 00:16:24,360 studio, which is the Warner Bros production, and that is 327 00:16:24,360 --> 00:16:27,160 vertical. That is not a horizontal market 328 00:16:27,160 --> 00:16:29,800 share increase. That is expanding vertically. 329 00:16:30,120 --> 00:16:32,560 Netflix does not have some big movie studio. 330 00:16:32,960 --> 00:16:34,760 That's not a huge business for Netflix. 331 00:16:35,240 --> 00:16:37,280 The companies that have that are Comcast. 332 00:16:37,440 --> 00:16:40,480 Comcast has Universal, so Universal buying this would 333 00:16:40,480 --> 00:16:42,240 actually be more difficult than Netflix. 334 00:16:42,680 --> 00:16:46,640 Also, Paramount has a massive movie business, so Paramount 335 00:16:46,640 --> 00:16:49,240 buys Warner Bros. That's going to be another thing 336 00:16:49,240 --> 00:16:51,360 where they're looked at more critically than Netflix. 337 00:16:51,720 --> 00:16:55,320 So Netflix is not a monopoly. If you combine the streaming 338 00:16:55,320 --> 00:16:58,120 time in any reasonable way, they're not monopolistic. 339 00:16:58,120 --> 00:17:00,720 It's not anti competitive and when you look at what they're 340 00:17:00,720 --> 00:17:03,480 doing with buying the movie studios, that is a vertical 341 00:17:03,480 --> 00:17:06,680 move, not a horizontal which is in a different market. 342 00:17:07,000 --> 00:17:09,880 Having movies go to the movie theater, having a big roduction 343 00:17:09,880 --> 00:17:13,160 movie studio is different than having streaming watch time. 344 00:17:13,640 --> 00:17:16,640 So in either case, I think that Netflix has a very strong 345 00:17:16,640 --> 00:17:19,720 argument that by doing this move, they're not becoming 346 00:17:19,720 --> 00:17:21,800 monopolistic, they're not anti competitive. 347 00:17:22,119 --> 00:17:24,079 I think they can make that argument and pass it through 348 00:17:24,079 --> 00:17:25,640 regulation. Now, a few other things that 349 00:17:25,640 --> 00:17:28,720 I'll mention is that Netflix is also doing a few minor changes 350 00:17:28,720 --> 00:17:30,960 to their business model. They've done this routinely over 351 00:17:30,960 --> 00:17:33,760 time and it's one of the things that Netflix is best at is 352 00:17:33,760 --> 00:17:36,880 adapting and changing, changing their game plan over time, but 353 00:17:36,880 --> 00:17:40,280 still keeping to the plan, which is growing a massive 354 00:17:40,280 --> 00:17:42,560 entertainment business. It's highly profitable with ever 355 00:17:42,560 --> 00:17:44,720 growing margins. The things that they're changing 356 00:17:44,720 --> 00:17:48,680 now is Netflix has said even if they buy Warner Bros, they will 357 00:17:48,680 --> 00:17:51,440 guarantee a theatrical release window. 358 00:17:51,880 --> 00:17:54,080 So they're gonna guarantee that if you make your movie for 359 00:17:54,080 --> 00:17:56,200 Warner Brothers Discovery, you'll have your movie in the 360 00:17:56,200 --> 00:17:58,600 theater. That's one thing that's very 361 00:17:58,600 --> 00:18:01,920 important to the film makers. Like they, they love cinema, 362 00:18:01,920 --> 00:18:04,360 they love the movie theaters. They don't love it going 363 00:18:04,360 --> 00:18:07,400 straight to streaming things. Going to straight to streaming 364 00:18:07,400 --> 00:18:09,400 is like viewed as lesser than, right? 365 00:18:09,400 --> 00:18:11,800 It's not really cinema. It's not the same thing. 366 00:18:12,160 --> 00:18:14,680 So that's a big thing that Netflix is saying that they'll 367 00:18:14,680 --> 00:18:16,280 do. They'll make it so that when you 368 00:18:16,440 --> 00:18:19,000 you film and you produce for Warnermedia, it's going to go to 369 00:18:19,040 --> 00:18:22,160 theater and then it will be to a bigger audience and streaming. 370 00:18:22,160 --> 00:18:25,320 So the film producers should get the best of both worlds. 371 00:18:25,600 --> 00:18:27,560 But many of them are still going to be concerned about this. 372 00:18:27,560 --> 00:18:30,280 They don't like Netflix. Many people complain online 373 00:18:30,800 --> 00:18:32,480 because Netflix is highly disruptive. 374 00:18:32,880 --> 00:18:36,640 The other thing that Netflix said they're going to do is the 375 00:18:36,640 --> 00:18:39,280 HBO brand is so good, it's so prestige. 376 00:18:39,600 --> 00:18:43,200 The Netflix is not going to just consume HBO, put on the platform 377 00:18:43,520 --> 00:18:46,480 and have the Netflix brand encompass HBO. 378 00:18:46,640 --> 00:18:48,880 They believe that would be destructive to the brand value 379 00:18:48,880 --> 00:18:51,360 of HBO. Instead, they're going to keep 380 00:18:51,360 --> 00:18:55,080 HBO as a separate streaming service with all that with all 381 00:18:55,080 --> 00:18:59,440 that prestige boutique content. Then Netflix can also take 382 00:18:59,440 --> 00:19:03,280 selective shows off of HBO, show them to their Netflix audience 383 00:19:03,520 --> 00:19:06,200 and get hundreds of 1,000,000 more people exposed to the HBO 384 00:19:06,200 --> 00:19:08,160 service. They can also bundle the 385 00:19:08,160 --> 00:19:10,640 services together. So you can sign up for Netflix 386 00:19:10,640 --> 00:19:13,400 and for like 3 bucks more you could buy HBO for example. 387 00:19:14,240 --> 00:19:17,600 And that's a thing that HBO needs because Netflix has 300 + 388 00:19:17,600 --> 00:19:20,440 1,000,000 subscribers. HBO is at like 100 million. 389 00:19:21,040 --> 00:19:24,120 The, the extra 200 million people that are watching Netflix 390 00:19:24,120 --> 00:19:27,000 that aren't watching HBO, well, those are 200 million people 391 00:19:27,000 --> 00:19:29,040 that could be cross sold this service. 392 00:19:29,400 --> 00:19:32,400 So Netflix view this, they view this as highly accretive, 393 00:19:32,720 --> 00:19:35,360 something where they can introduce enormous amounts of 394 00:19:35,360 --> 00:19:38,880 people to this new service if they get it, so that more people 395 00:19:38,880 --> 00:19:42,040 are exposed to HBO's content, more people have access to it. 396 00:19:42,360 --> 00:19:45,720 They they use their technological savvy to scale 397 00:19:45,720 --> 00:19:47,480 their content, which they've done before. 398 00:19:47,840 --> 00:19:50,280 This could be extremely accretive to the company and it 399 00:19:50,280 --> 00:19:52,120 solves one of the biggest problems for Netflix. 400 00:19:52,240 --> 00:19:55,240 I have some familiarity here. I run a subscription company. 401 00:19:55,240 --> 00:19:58,120 I run Qualtrim. It's very successful. 402 00:19:58,120 --> 00:20:01,240 We have 12,000 subscribers. It's revenuing 7 figures now. 403 00:20:01,680 --> 00:20:03,640 And so I have a little bit of experience here. 404 00:20:03,720 --> 00:20:06,080 And two of the biggest things that you're worried about when 405 00:20:06,080 --> 00:20:09,800 you're running a subscription company of any kind is customer 406 00:20:09,800 --> 00:20:14,160 acquisition, bringing new people in, enticing them, making it so 407 00:20:14,160 --> 00:20:16,800 that your product looks attractive enough for people to 408 00:20:16,800 --> 00:20:19,400 sign up for. And then the second thing is 409 00:20:19,400 --> 00:20:22,400 retention, meaning just keeping your customer after you've 410 00:20:22,400 --> 00:20:25,080 gained them. Those two things are the hardest 411 00:20:25,080 --> 00:20:28,200 part of any any streaming service, any subscription 412 00:20:28,200 --> 00:20:32,200 service, any SAS company, any membership company of any kind, 413 00:20:32,800 --> 00:20:34,840 acquiring users and retaining users. 414 00:20:35,320 --> 00:20:38,760 What Netflix believes they're doing here is they're making it 415 00:20:38,760 --> 00:20:44,000 so that their content library, their offering is so unmatched, 416 00:20:44,120 --> 00:20:48,240 so indisputably good that they will be able to acquire any 417 00:20:48,240 --> 00:20:51,240 customer in the world that wants high quality entertainment. 418 00:20:51,720 --> 00:20:55,520 Anyone that values any type of long form, high quality 419 00:20:55,520 --> 00:20:58,960 storytelling, they're going to sign up for this offering. 420 00:20:59,520 --> 00:21:01,760 And then not only that, they're going to stay. 421 00:21:02,320 --> 00:21:05,280 Again, the biggest problem, one of the biggest ones is not just 422 00:21:05,280 --> 00:21:07,680 customer acquisition, but it's keeping the customer. 423 00:21:08,120 --> 00:21:10,360 When you have churn, which is people that leave the 424 00:21:10,360 --> 00:21:13,560 subscription every single month, that is very costly. 425 00:21:13,840 --> 00:21:16,400 In fact, in most cases, you don't actually have to even 426 00:21:16,400 --> 00:21:18,240 raise prices. You just have to keep your 427 00:21:18,240 --> 00:21:20,120 average customer there for longer. 428 00:21:20,560 --> 00:21:22,960 Netflix solves that second problem. 429 00:21:23,480 --> 00:21:27,280 How could you cancel a Netflix subscription when they have the 430 00:21:27,280 --> 00:21:30,960 whole wheel of content of Netflix, all the shows that they 431 00:21:30,960 --> 00:21:34,280 create, all the documentaries, all the spin offs, all the 432 00:21:34,880 --> 00:21:37,440 comedies, you know, all the stuff that they do. 433 00:21:37,880 --> 00:21:42,720 Plus you throw in the value of HBO as well, plus Warner 434 00:21:42,720 --> 00:21:46,040 Brothers Studios. I mean, it's an offering that is 435 00:21:46,040 --> 00:21:48,880 unparalleled. You would have to stick with 436 00:21:48,880 --> 00:21:51,600 Netflix. You'd be very unlikely to cancel 437 00:21:51,600 --> 00:21:53,040 it. They do have many competitors. 438 00:21:53,040 --> 00:21:55,640 You have YouTube, you have Amazon Prime Video, you have 439 00:21:55,640 --> 00:21:58,520 Apple TV. But even those guys could not 440 00:21:58,520 --> 00:22:00,760 compete with Netflix. I mean, they they really would 441 00:22:00,760 --> 00:22:03,400 have a very difficult time offering the breadth of their 442 00:22:03,400 --> 00:22:05,560 content. And all that means for Netflix 443 00:22:05,560 --> 00:22:07,680 is that people sign up, people stick around. 444 00:22:07,920 --> 00:22:11,440 That's what they want. If they do that, which I think 445 00:22:11,440 --> 00:22:14,280 this would accomplish, this would work out to Netflix's 446 00:22:14,280 --> 00:22:16,880 benefit. There are number of streaming 447 00:22:16,880 --> 00:22:22,640 subscribers would go from 300 + 1,000,000 to 500 million to 700 448 00:22:22,640 --> 00:22:24,440 million. We're talking about a company 449 00:22:24,440 --> 00:22:28,880 here that could have a billion subscribers at one point, all of 450 00:22:28,880 --> 00:22:33,720 them paid subscribers or on ad tears that are also paid across 451 00:22:33,720 --> 00:22:36,840 different types of formats. But you could have a a streaming 452 00:22:36,840 --> 00:22:40,440 service that could literally double from 300 million to 600 453 00:22:40,440 --> 00:22:42,440 million. Now, there's a lot of other 454 00:22:42,440 --> 00:22:45,880 things that I could go into. For example, one of the biggest 455 00:22:45,880 --> 00:22:49,120 expenses that Netflix pays for is licensing content from Warner 456 00:22:49,120 --> 00:22:51,840 Bros. So they license show like shows 457 00:22:51,840 --> 00:22:55,080 like Dune, they license shows, you know, boutique series from 458 00:22:55,080 --> 00:22:56,760 HBO. They wouldn't have those 459 00:22:56,760 --> 00:22:59,440 licensing expenses anymore. They could be able to just share 460 00:22:59,440 --> 00:23:02,600 that content across libraries. So that actually reduces their 461 00:23:02,600 --> 00:23:06,880 content spin because so much of Netflix's content is licensed. 462 00:23:07,280 --> 00:23:09,840 One of the biggest companies that they license content from, 463 00:23:09,920 --> 00:23:12,400 they would own. So even though it looks like 464 00:23:12,400 --> 00:23:15,560 it's really expensive, there's a lot of ways this is less 465 00:23:15,560 --> 00:23:17,920 expensive than it looks. The reduction in general 466 00:23:17,920 --> 00:23:21,360 administrative, the reduction in advertising, the reduction in 467 00:23:21,360 --> 00:23:24,840 customer acquisition, the longer retention, the reduction in 468 00:23:24,840 --> 00:23:27,840 price of licensing content. There's so many different tools 469 00:23:27,840 --> 00:23:29,160 that Netflix could work with here. 470 00:23:29,640 --> 00:23:32,240 So I believe that what Ted Sarandos and Greg Peters are 471 00:23:32,240 --> 00:23:35,760 doing, the Co CE OS of this company is they're buying 472 00:23:35,760 --> 00:23:38,360 exactly what they want, which is high quality content. 473 00:23:38,640 --> 00:23:40,560 They believe they can get this through the finish line. 474 00:23:40,600 --> 00:23:43,320 They believe that regulators do not have a strong argument to 475 00:23:43,320 --> 00:23:47,080 shut this down and it positions Netflix to dominate the future. 476 00:23:47,120 --> 00:23:50,280 So this is a massive deal expected to be a creative to 477 00:23:50,280 --> 00:23:54,800 Netflix on a GAAP basis one year after its close, meaning there's 478 00:23:54,800 --> 00:23:58,040 going to be one year ahead, probably 2026 where things look 479 00:23:58,040 --> 00:24:00,840 a little rocky. The deal should close mid to 480 00:24:00,840 --> 00:24:03,960 late 2026. After it does, there's a year 481 00:24:03,960 --> 00:24:06,320 where they're paying down debts, they're they're cutting costs. 482 00:24:06,640 --> 00:24:08,920 And then the very next year, this is profitable for the 483 00:24:08,920 --> 00:24:11,040 company on a going forward basis. 484 00:24:11,400 --> 00:24:14,760 And then they have that massive library to raise margins, make 485 00:24:14,760 --> 00:24:18,200 it more profitable, bring in more subscribers and become the 486 00:24:18,200 --> 00:24:19,720 biggest entertainment company in the world. 487 00:24:19,840 --> 00:24:21,240 So that's what it looks like so far. 488 00:24:21,240 --> 00:24:22,560 Hope you enjoyed this little summary. 489 00:24:22,800 --> 00:24:23,520 See you next time.