“Wicked: For Good” isn’t the only blockbuster shaking up Hollywood this holiday season.
Netflix and Warner Bros. Discovery announced Dec. 5 that the streaming giant will acquire Warner Bros., including its film and television studios, HBO Max and HBO. The equity value of the agreement is $72 billion, with an enterprise value of $82.7 billion.
“This acquisition brings together two pioneering entertainment businesses, combining Netflix’s innovation, global reach and best-in-class streaming service with Warner Bros.’ century-long legacy of world-class storytelling,” Netflix said in a press release announcing the news.
“Beloved franchises, shows and movies such as ‘The Big Bang Theory,’ ‘The Sopranos,’ ‘Game of Thrones,’ ‘The Wizard of Oz’ and the DC Universe will join Netflix’s extensive portfolio including ‘Wednesday,’ ‘Money Heist,’ ‘Bridgerton,’ Adolescence’ and ‘Extraction,’ creating an extraordinary entertainment offering for audiences worldwide.”
It’s a seismic event in the entertainment world — one that makes a lot of sense, according to Michael D. Smith, professor of information technology and policy at Carnegie Mellon University.
“This is an obvious place for Warner’s content to go,” Smith tells TODAY.com. “Netflix has the strongest streaming platform in the world, and this is going to create more value for Netflix than any other streaming platform.”
The two behemoths will now come together to offer content at a point in time when the streaming wars continue to evolve. There is no shortage of streaming services, but Netflix and Warner Bros. have appeared to create a new centralized home for entertainment.
“Our mission has always been to entertain the world,” Netflix co-CEO Ted Sarandos said in a statement. “By combining Warner Bros.’ incredible library of shows and movies — from timeless classics like ‘Casablanca’ and ‘Citizen Kane’ to modern favorites like ‘Harry Potter’ and ‘Friends’ — with our culture-defining titles like ‘Stranger Things,’ ‘KPop Demon Hunters’ and ‘Squid Game,’ we’ll be able to do that even better. Together, we can give audiences more of what they love and help define the next century of storytelling.”
Here's what might happen next, according to Smith.
What will happen to HBO Max?
HBO Max is currently one of the plethora of streaming options, but Smith believes it will come to an end.
“I can’t imagine a world where they keep HBO Max as a separate platform. I’ve got to believe the ultimate plan is to merge those things in,” he says.
Netflix's statement has not indicated the future of HBO Max, which currently houses HBO and Discovery+ content.
Will Netflix prices go up?
The elephant in the room for consumers now may very well be what happens to the cost of Netflix. Will the subscription price increase again?
Smith says he doesn’t know.
“They keep raising their prices, and what that tells me is they’re able to see when we raise our prices, how many subscribers do we lose?” he says. “And so the fact that they keep raising their prices says to me we’re not losing a whole lot of subscribers.”
Smith says consumers are willing to tolerate a price increase — to a point.
“Basically, you raised my Netflix price five bucks, I go, ‘OK.’ Now, you raise it 50 bucks, you’ve gotten my attention,” he says. “I don’t think they’ll raise it a whole lot, but I think we’ll probably see an increase in Netflix prices. I don’t think they’re going to see a whole lot of loss of subscribers because the subscribers are going go, ‘Holy crap! I can watch ‘Friends’ now and ‘Harry Potter’? Sure!”
Smith sees the value in this particular transaction.
“For me, what it’s going to mean is I can cancel my HBO Max subscription and I’ll pay a little bit more for Netflix,” he says. “So, for me, as someone who subscribes to both, it’s going to be a great deal.
“For people who didn’t subscribe to HBO Max, I think Netflix is going to have to say, ‘Hey, you want to watch ‘Harry Potter’? You want to watch ‘Friends’? You want to watch some of these other shows we got and now for $5 more, whatever the price is going to be, you can watch it. So, I think you make this a pretty compelling consumer proposition to justify any price increase.”
How will the merger change what's on Netflix?
Netflix and Warner Bros. noted how the acquisition will affect the choices viewers have when it comes to what to watch, without getting into specifics.
“Today’s announcement combines two of the greatest storytelling companies in the world to bring to even more people the entertainment they love to watch the most,” said president and CEO of Warner Bros. Discovery David Zaslav in the press release.
The press release, meanwhile, said "beloved franchises, shows and movies" from HBO and Warner Bros. "will join" Netflix's portfolio, indicating content offerings will change.
Indeed, bringing two titans of entertainment together makes sense, according to Smith.
“This is entirely consistent with the economic theory of bundling,” Smith says. “The economic theory of bundling says the biggest bundle wins. And Netflix has a pretty big bundle, and it just got a lot bigger.”
What does this mean for the future of streaming?
Netflix acquiring Warner Bros. may also hint at what’s to come in streaming.
“We’re starting to see consolidation, and we’re going to end up with a smaller number of platforms,” Smith says. “It’s confusing to the customer to subscribe to six different platforms. This creates a lot of consolidation on the customer side. It also creates a lot of value on the platform side.”
