Paramount’s plan to buy Warner Bros. Discovery was already very bold.
But if Gerber Kawasaki Wealth and Investment Management CEO Ross Gerber is right, it will soon cost a lot more.
Gerber elaborated in a Bloomberg interview.
This week, the investment advisor said he thinks Netflix’s recent offer for Warner Bros. may be more about keeping competitors out than about closing a deal.
Netflix doesn’t need to win; just raise the price
It sounds like something out of the HBO series “Succession.”
Netflix doesn’t want to buy all of Warner Bros.’ businesses. The $30-a-share offer is for the studio and streaming assets, not the old cable networks like CNN. That means it doesn’t have to deal with the more political pieces and the debt that comes with them.
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On the other hand, Paramount has already given more than Netflix.
Billionaire Larry Ellison supports it, and his son David is responsible for the effort to bring together old-school Hollywood companies. But Warner’s board has said “no” so far, and Gerber says Paramount will need to add another $10 billion to have a chance.
That, Gerber says, may be precisely what Netflix wants: “If Netflix loses, they really win.”
A Wall Street insider thinks the Netflix-Warner Bros. Discovery deal is about more than just streaming.
Photo by PATRICK T. FALLON on Getty Images
Why buying Warner Bros. could hurt Netflix’s business model
Shareholders of Netflix didn’t like the company’s first offer. After the bid was made, the stock fell.
Gerber says this is for a good reason: Buying Warner would burden Netflix’s clean, capital-efficient business model with old, heavy baggage.
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“The valuation of Netflix is predicated on the business model that they have today,” he said. “If they succeed, it changes the business model.”
He used Disney’s long process of integrating Fox as a warning — and Warner Bros. Discovery’s own troubled history, since the merger doesn’t exactly make people feel good about it.
If Netflix lets Paramount accept the asset and the risks, it might not have to deal with those problems.
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We should also consider strategic clarity. Netflix has long seen itself as the new streaming giant and has no interest in older media assets.
Acquiring a big firm like Warner might change that identity and require the company to deal with markets and rules it has evaded in the past.
Ellison wants control and maybe CNN, too
Gerber added that the Ellisons might be looking for more than simply money.
Gerber stated, “The only reason Ellison wants the legacy cable is to shut down CNN for [President Donald] Trump.” That may sound like a conspiracy, but he also said that Netflix is a liberal corporation that would probably keep CNN the way it is now. Paramount might not.
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The White House twist isn’t a sideshow. Bloomberg says the Trump administration has backed the Ellisons’ side in the bidding process.
If people see CNN as a political tool instead of just a news outlet, the bidding battle for Warner Bros. becomes more than just a fight for streaming market share.
The battle is over who has the most influence on the story.
$10 billion isn’t much when your name is Ellison
Gerber thinks that Paramount will probably come back with a better offer, one that is more solidly based on Ellison’s wealth. And if the management does, he thinks Netflix will be happy with the outcome.
“What’s another $10 billion to the Ellisons?” Gerber said. “When you’re worth hundreds of billions of dollars, another $10 billion is like a pizza.”
It may sound silly, but it shows how much more money a tech billionaire-led Paramount has than Wall Street’s usual way of doing things. The Ellisons might see overpaying as a good thing if it meant getting a key piece of Hollywood power.
But Wall Street won’t be as understanding if the deal goes sour.
What’s at stake for Netflix, Paramount investors
People who own shares in either Netflix or Paramount should pay attention to how this struggle evolves. Walking away might constitute a success for Netflix that helps investors once again believe in its concentrated strategy.
It might cost Paramount a lot to get Warner Bros., and it might have to prove that heritage assets can still work in a world where streaming is the main focus.
This could be one of the most important mergers in Hollywood history because it involves both streaming and political power. And Netflix might win simply by not doing anything.
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