Paramount and Netflix Engage in Competitive Bidding for Warner Bros.

In a significant development in the media industry, both Paramount Skydance Corp. and Netflix Inc. are competing for Warner Bros. Discovery Inc., with their contrasting bids spotlighting the challenges facing traditional cable networks. Paramount has made a bold move with a cash offer of $30 per share, valuing Warner Bros. at approximately $108.4 billion, including debt. This offer aims to challenge Netflix’s recent agreement, which proposes acquiring Warner Bros.’ studios, streaming, and HBO businesses for $27.75 per share in cash and stock.

The divergence in valuations of Warner Bros.’ struggling cable channels, such as CNN and TNT, underpins the financial implications of these bids. Warner Bros. previously announced plans to spin off these channels, which are among the least desirable assets in today’s television landscape. Analysts suggest that the valuation of these assets could range from $1 to $4 per share, indicating that the perceived worth of these channels could significantly influence the bidding war.

Paramount’s strategy involves substantial financial backing, with $11.8 billion sourced from the family of CEO David Ellison and an additional $24 billion from Middle Eastern sovereign wealth funds. Furthermore, RedBird Capital Partners and Affinity Partners, led by Jared Kushner, are also involved in this bidding process. Notably, a text message from one of Paramount’s bankers indicated that the current offer of $30 per share is not the final proposal, suggesting that the bidding could escalate further.

Investor Reactions and Market Dynamics

Both companies are keenly aware of the potential regulatory hurdles they may face. During a recent conference in New York, Netflix’s co-CEOs, Ted Sarandos and Greg Peters, expressed confidence in their agreement with Warner Bros., citing the expectation of approval. Warner Bros. is expected to respond to Paramount’s hostile offer within ten business days, increasing the urgency and intensity of the bidding process.

The competitive landscape highlights the growing significance of a robust library of films and television shows in the streaming sector, the only expanding segment of the media industry. Acquiring Warner Bros. would enhance Paramount’s streaming service, currently boasting around 80 million subscribers, while Netflix’s existing subscriber base exceeds 300 million households globally.

The decline of the cable television business is evident, with Warner Bros. experiencing a 26 percent drop in its cable TV audience in the third quarter of 2023. This trend is forecasted to continue, particularly as the company faces challenges from the loss of National Basketball Association games to Amazon. Last year, revenue for Warner Bros.’ networks decreased by 5 percent, totaling $20.2 billion.

Strategic Considerations and Future Implications

Jon Klein, a former executive at CNN and CBS, noted that Paramount’s new bid reflects its interest in the intellectual property and streaming capabilities of Warner Bros. Paramount’s Chief Operating Officer, Andrew Gordon, remarked on the lack of clarity regarding the value of the cable assets to be spun off, estimating it at around $1 per share.

Market analysts, including Matthew Dolgin from Morningstar Research, have indicated that the worth of Warner Bros.’ cable channels could bridge the gap between the competing bids. As both Paramount and Netflix navigate this high-stakes bidding war, the outcome will not only influence their respective market positions but also shape the future of the media landscape.

As the situation develops, the involvement of former President Donald Trump in raising antitrust concerns regarding Netflix’s deal adds another layer of complexity to the negotiations. The active participation of his son-in-law with Paramount further underscores the interplay between politics and business in this high-profile acquisition attempt.

This bidding war for Warner Bros. serves as a pivotal moment for the media industry, revealing the challenges faced by traditional cable networks and the ongoing shift towards streaming and digital content consumption.