The Rundown – Deep Dive: The Economics Behind Netflix’s Warner Bros Acquisition

Date: December 7, 2025
Host: Zaid Admani

Episode Overview

In this special weekend episode, Zaid Admani explores the landmark $83 billion acquisition of Warner Bros Discovery by Netflix, examining the historical context, financial mechanics, strategic rationale, risks, and the potential impact on Hollywood and streaming. The episode breaks down Wall Street’s reaction, likely regulatory hurdles, the bull and bear cases, and what it might mean for consumers and investors alike.

Key Discussion Points & Insights

1. Historical Context of Netflix in Hollywood

• [00:35] Zaid recaps Netflix’s journey: starting as a DVD mail service in 1998, being underestimated by Blockbuster, moving to streaming in 2007, and then entering original content with House of Cards in 2013.

• Notable quote:

  “Netflix has been the underdog in Hollywood since the beginning. ...By the time the late 2000s came along, Blockbuster was in decline and eventually went out of business because of Netflix's DVD service.” (00:38)

• He cites Time Warner’s 2010 CEO dismissing Netflix:

  “Time Warner CEO Jeff Bewkas said that worrying about Netflix was like worrying that the Albanian army would take over the world.” (01:25)

• House of Cards marked the turning point:

  “It felt like an HBO style show. And that was really a turning point when Netflix became a serious threat to traditional Hollywood studios.” (02:03)

2. Details of the Deal

• [02:20] Warner Bros Discovery put itself up for sale amid financial struggles.
• Netflix was not expected to bid, especially after public statements against media mergers.
• Competing bids came from Paramount and Comcast, but Netflix’s offer was highest.
• Acquisition terms:
  • $23.25/share in cash plus $4.50 in Netflix stock
  • Equity value: $72B
  • Enterprise value: $82.7B (including $11B Warner debt)
• Netflix is acquiring only the TV/film studio, HBO, HBO Max, and Warner’s prized IP (DC superheroes, Harry Potter, The Matrix, Game of Thrones, Friends).
• Cable channels (TNT, CNN, Discovery Channel) are spun off into Discovery Global—Netflix wanted no part of the declining cable business.

3. Wall Street Reaction & Bear Case

• [04:54] Netflix shares dropped ~3% on announcement.
• Reasons for concern:
  • Netflix likely overpaid:

    "Netflix paid a 27 times EBITDA multiple... way higher than the 11 times EBITDA multiple that other media giants like Disney and Paramount trade at." (05:18)

  • Netflix taking on major debt: raises $50B in new debt plus $11B from Warner's own.
    • “If this deal closes, Netflix will have over $75 billion in debt...” (06:01)
  • Opportunity cost: Funds used for the deal can’t go toward new content, sports, gaming, etc.
  • Overlap: Many HBO subscribers are already Netflix users, limiting subscriber growth.
  • Integration challenges:
    • “Netflix has never done a deal anywhere close to this big. And Netflix famously has a totally different culture than traditional Hollywood studios.” (07:01)
  • Regulatory and legal distractions could consume senior leadership’s focus.

4. Integration & Business Model Challenges

• Hosts recalls Netflix’s prior skepticism of big media M&A. Greg Peters, Netflix co-CEO, previously said:

  “One should have a reasonable amount of skepticism around big media mergers. They don't have an amazing track record over history.” (03:24)

• Peters later reversed this stance after the acquisition announcement, claiming Netflix will succeed where AOL and AT&T failed because “Netflix actually knows how to run an entertainment business.”

• Netflix’s streaming-first model contrasts with Warner’s theatrical releases; unpredictable how these approaches will mesh.

5. Bull Case & Potential Upsides

• [08:39] Combined Netflix and Warner Bros would create an unparalleled entertainment powerhouse:

  • 320M Netflix global subs + 128M HBO Max subs
  • Acquisition blocks rivals like Paramount and Comcast from accessing Warner’s assets.
  • Netflix expects $2–$3B annual cost savings by year three.

• Iconic IP acquisition:

  • Netflix to own Harry Potter, DC Superheroes, Matrix, Game of Thrones, Sopranos, etc.
  • Anticipation of more spin-offs:

    “Netflix points to the hit series Wednesday, which is based off the Addams Family IP, as a perfect example of how Netflix plans to leverage its new assets with spin offs.” (09:35)

• Boost to Netflix's fast-growing ad business:

  “Ads become a better and higher margin business with scale... That’s why I wouldn’t be surprised if Netflix doesn’t raise the price of their ads tier plan.” (10:21)

• Theatrical potential:

  “We saw Netflix experiment with this already when they released a sing along edition of K Pop Demon Hunters in theaters, which ended up becoming the number one movie in the US for a weekend.” (10:46)

6. Regulatory & Political Backlash

• [11:01] Netflix confident, agreeing to a $5.8B breakup fee if deal fails to close.
• Bipartisan political opposition:
  • Senator Elizabeth Warren:

    “Deal looks like an anti monopoly nightmare that would force Americans into higher subscription prices and fewer choices.” (11:32)

  • Congressman Ro Khanna: Concerned about impact on movie theaters and increased AI use in film.
  • Sen. Mike Lee (R): Flags multiple concerns.
• Backlash from creative community:
  • Anonymous producers warn Congress:

    “The combination of Netflix and Warner’s would, quote, hold a noose around the theatrical marketplace.” (12:06)

• Key to regulatory approval: If Netflix can argue it competes not just with Hollywood but with YouTube, TikTok, Amazon, etc., the case for monopoly is weaker.

7. Competitive Dynamics: Paramount's Role & Alternative Scenarios

• [13:13] Paramount, led by David Ellison, bid $30/share for all of Warner Bros Discovery, including cable.
  • Rumors of a potential hostile bid and higher offer.
• Speculation:

  “Maybe Warner’s knows this deal won’t get approved from the regulators and they’re just going to pocket the $5 billion breakup fee and then eventually merged with Paramount down the line.” (14:25)

8. Host's Perspective & Closing Thoughts

• Zaid’s consumer take:

  “The joke that I made on Instagram this week was that the best part about Netflix buying HBO is that we're going to have one less streaming app to deal with, because I think we're all sick of how many streaming apps there are these days.” (14:52)

• Ownership consolidation may be convenient for users, but as an investor, Zaid is skeptical:

  “I'm still leaning more bearish about this deal, especially as an investor.” (15:08)

• Believes Netflix faces major regulatory drama, distraction, and a heavy debt burden.

• Admires Netflix’s history of resilience, but questions if this gambit is necessary:

  “Netflix has always been the underdog of Hollywood. They've been counted out so many times in their history that I almost don't want to bet against them.” (15:53) “Whatever happens, though, regarding this deal, I hope they make a Netflix documentary about it someday.” (16:03)

Notable Quotes & Memorable Moments

• “Netflix paid a 27 times EBITDA multiple... way higher than the 11 times EBITDA multiple that other media giants like Disney and Paramount trade at.” (05:18)
• “If this deal closes, Netflix will have over $75 billion in debt on their balance sheet.” (06:01)
• “Lawmakers on both sides of the aisle have already raised red flags. Unsurprisingly, Senator Elizabeth Warren released a statement saying the deal looks like an anti monopoly nightmare...” (11:32)
• “Netflix has always been the underdog of Hollywood. They've been counted out so many times in their history that I almost don't want to bet against them.” (15:53)
• “Whatever happens, though, regarding this deal, I hope they make a Netflix documentary about it someday.” (16:03)

Timestamps for Important Segments

• 00:35 – Netflix’s humble beginnings and Blockbuster rivalry
• 02:20 – How the deal came together and terms explained
• 04:54 – Wall Street reaction, overpayment, and debt burden
• 06:01 – Combined entity’s scale and deal challenges
• 08:39 – The potential for a streaming powerhouse and IP value
• 10:21 – Netflix’s ad business as a major upside
• 11:01 – Regulatory and political backlash
• 13:13 – Paramount’s competing bid and speculation
• 14:52 – Host’s consumer and investor perspective
• 15:53 – Reflecting on Netflix’s historical resilience

Summary

This deep dive examines one of the most consequential deals in media: Netflix’s acquisition of Warner Bros Discovery. Zaid Admani unpacks historical context, financials, strategic implications, and potential ramifications for markets, consumers, and competitors. The episode balances the excitement of a new media titan being formed with the sober realities of overpayment, regulatory gauntlets, industry backlash, and the risks that could make or break Netflix’s future. Both investors and content consumers are left with key questions as the fate of streaming and Hollywood’s next era hangs in the balance.