The Netflix/Warner Bros merger will create a better HBO (but it's probably the death of HBO Max)
When I first heard that Netflix was making a bid for Warner Bros, none of it made sense. It was a lot of money to spend for assets which, once integrated into Netflix, would just be absorbed into the Netflix machine with no remaining value evident in the years post-acquisition.
I was still holding to that line of thought late last week when the deal was announced. But, I’ve pushed through to the other side and am now bullish on what an interesting opportunity this is.
With the clarity of a Monday morning, I now see that the acquisition makes all the sense in the world.
Outside of a few vague statements to media and investors over what the combined company will look like, we don’t have a lot of hard facts about how the Netflix execs are looking at the combined company. This is because Netflix is well-aware it has several years of lawsuits and regulatory hurdles to work through, so why commit to a course of action when those public statements may create headaches down the track? Also, there’s likely components of this all that they don’t have answers to just yet.
Where my thinking was wrong…
I was locked into some ideas that I think have since become fairly commonplace following the announcement: what happens to all of the Warner Bros assets once absorbed into Netflix? Netflix doesn’t support theatrical releases…. HBO shows will just get absorbed into the Netflix eco-system and struggle with niche viewership numbers that don’t stand up to Netflix’s numbers… Warner Bros Television (the production company) will just be making shows for Netflix going forward…
But, all of that is looking at the acquisition the wrong way. It all supposes that Netflix as an entity will stay the same, while Warner Bros assets will be absorbed into it. The way we should be thinking about this is how Warner Bros now provides greater optionality for Netflix to grow and become bigger. It’s not what happens to Warner Bros? It is: How does Netflix change and look different at the end of this?
I suspect Netflix is going to look a lot more like a Warner Bros company at the end of it than it does the company we know it as today.
HBO is the upsell Netflix has needed
Netflix has been so successful that it has largely hit the ceiling on growth opportunities. Without more subscribers to onboard, the company has been looking for complimentary revenue streams (merchandise sales, licensing, experiences like Netflix House and restaurants, etc). All of that is relatively small-time compared to the core of the business.
Theatrical movies and all the licensing money that comes from Warner Bros will create those additional revenue channels.
But Netflix also has problems maximising value from its existing customers. It can only raise monthly subscription fees so much. Netflix has a tiered pricing model for subscribers, but outside of selling variations of user experience (offline downloads, concurrent signed-in user numbers, 4k or HD, ads or no ads), it has struggled to find a strong sell for customers to convert them into higher-tiered plans.
HBO delivers Netflix the upsell it needs. Netflix now has the facility to deliver an actual premium tier.
At first Netflix was competing with HBO for upscale, younger viewers with smart, premium dramas. As the company grew, it needed to appeal to a wider base of viewers and has settled into being more of a slightly upscale US network in the model of something like NBC - mainstream-appeal dramas and comedies, reality shows, documentaries, etc.
Now, it can keep selling itself as NBC, but also offer premium TV at a premium price.
Now Netflix has a lever to pull so it can move subscribers like myself who are happy paying AUS$9.99 a month for an ad-supported plan to pay for a top-end $28.99 a month plan.
It likely means the end of HBO Max as a platform. But it will keep HBO alive and bring it back a bit more to the space it occupied traditionally as a destination for premium scripted and first window movies.
And if you think this sounds a bit fanciful at my end, I’d direct you to some of the few statements actually made by the company, with these comments from Co-CEO Greg Peters:
“We think there’s a real opportunity in figuring out how we bring those titles in the right way, through some combination of plans, tiering etc. to unlock the value in those assets.”
HBO’s brand and programming are “clearly valued,” Peters said. “We believe that actually having more room to figure out how we allocate, you know, that content across a range of offerings, how we think about bringing that into our plans, of offering today, will actually unlock value that isn’t being unlocked today. And one of the most sort of obvious, I think, things to think about here is that we believe we’ve got the best tool for connecting incredible stories with people around the world, and we think actually bringing more of that Warner Bros. content into that tool, if you will, will just unlock value in and of itself.”
Under a model of HBO as the premium-tier Netflix experience, it keeps Casey Bloys’ existing team at HBO in place and, if anything, frees them up to focus on buzzy premium scripted without also having to manage Warner Bros licensed shows like the upcoming Harry Potter. Of course, that might be a shame because Bloys and co have done great work with shows like The Penguin and The Last of Us. The upcoming Lanterns also seems to be shaping up really well.
Less certain would be where Sarah Aubrey’s team sits in it all - charged with producing HBO Max original series, her remit has involved producing higher quality, but more broadly accessible shows. Notably, shows like The Pitt. That programming need doesn’t really exist within a combined Netflix/Warner Bros.
There will be an executive shake-up at the company and it’ll be interesting to watch which Warner Bros leaders make that move over to Netflix and where replacements happen within senior leadership at Netflix. There’s a lot of talent in both camps…
The Warner Bros / Netflix News Desk
Are you curious why Donald Trump didn’t start tweeting about the deal after it was announced? Apparently Netflix Co-CEO Ted Sarandos met with him last month. It is not known exactly what was discussed. Read: THR
The Writers Guild of America have come out against the merger. But they wouldn’t have been happy with whoever bought the business. Read: The AV Club
Jane Fonda has labelled it “catastrophic.” Read: Variety
Movie distributors in France are pretty upset at all of this. Read: THR
CNN has a lightweight visual gallery of the history of Warner Bros. Read: CNN
The regular ol’ News Desk
A newly-restored version of 1977’s Star Wars will be released into cinemas for its 50th anniversary in 2027. Read: Polygon
NBCU has joined YouTube as a potential suitor for the Oscars broadcast rights when the existing deal with ABC expires. Read: Deadline
Peacock has announced an erotic thriller series called Teach Me, which will star Mandy Moore. It sounds a lot like A Teacher, but less artful. Read: Deadline
The film Oppenheimer was timed to exactly three hours because IMAX projectors can’t go past three hours. IMAX is reportedly upgrading its 70mm projectors to handle longer films ahead of Christopher Nolan’s The Odyssey. Read: Dark Horizons
Star Trek: Starfleet Academy unveiled a first-look video at Brazilian comic convention CCXP over the weekend (it is in the trailer section below in this email). I was struck at this poster released for it… it’s a VERY different vibe for Star Trek:
Trailer Park
The Boys returns for its final season on April 8 at Prime Video.
Star Trek: Starfleet Academy debuts on Paramount+ Jan 15.
Paradise returns for season 2 on Hulu Feb 23.
That’s the newsletter for the second time today.
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