A transformative media transaction?

Today Netflix announced that it has won a landmark bid to acquire Warner Bros Discovery for an equity value of $72 billion. Netflix outbid its competitors, Paramount Skydance and Comcast, in order to acquire the Warner Bros’ studios, streaming platforms HBO and HBO Max and world class IP franchises including DC, Game of Thrones and Harry Potter. If approved by competition authorities, this takeover will have a significant impact in the broader entertainment sector and will likely be pivotal in the “war of the streaming services”. Streaming services and broadcasting channels have all been eying up strategic acquisitions in recent years in order to be able to remain competitive in a highly saturated market. Following this acquisition, Netflix will secure its place as a market leader in terms of both scale and catalogue depth.

There is no doubt that this transaction will be transformative for the Netflix brand by expanding its studio production capacity, increasing investment in original content and strengthening its position as a global leader in streaming. As a result of this acquisition, Netflix will also be the newest owner of TNT Sports UK & Ireland (previously BT Sport), which broadcasts the Premier League, Champions League and international rugby. Acquiring these broadcasting rights enables Netflix to develop a direct-to-consumer sports coverage strategy that will further transform the way that people watch sport. According to PWC, the number of US viewers who stream a sports event at least once a month is projected to rise to over 90 million. This transaction is therefore also part of a strategic direction to make Netflix a market leader in the future commercialisation of sport and viewership.

For mid-sized streaming platforms, public broadcasters, independent studios and rights holders, this transaction will mark the beginning of a very active M&A period. We are likely to see an increasing number of deals funded by private capital (including private equity) as market players look to acquire new IP-rich catalogues or scale up their businesses through M&A activity in order to consolidate costs and remain competitive with the US giants. For these mid-sized transactions, there is also likely to be a higher value placed on regulatory-clean assets that can acquired without the need for regulatory approvals, such as IP with limited territorial exclusivity.

Whilst the Netflix Warner Bros deal still requires competition law approval, which will look to address concerns around anti-competitive behaviour and the impact of consolidating streaming and broadcasting platforms on consumers, the market will likely react to this news as an opportunity to re-evaluate current assets with a view to exploring similar acquisitions in order to protect market share, consolidate resources and offer competitive pricing to consumers.