Streaming giant Netflix (NFLX) has solidified its hold as the undisputed leader of streaming services in the U.S. with 67 million subscribers.

Meanwhile, media companies like Paramount Skydance (PSKY), Disney (DIS), and Warner Bros. Discovery (WBD) have attempted to close this wide gap in recent years to no avail.

But despite being the leader of the pack, it seems Netflix is looking to secure its market leadership even further as it has recently made a play for Warner Bros.’ streaming and media assets.

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Streaming giant Netflix (NFLX) has solidified itself as the no. 1 streaming option for millions of Americans despite the glut of options that have flooded the streaming space over the past few years.

The company currently has a 67 million-strong subscriber base in the U.S. and enjoys a cancellation rate of only 2% since May 2023.

Meanwhile, Hulu, Disney+, Paramount+, and HBO Max are trailing by a wide margin, at 39 million, 36.5 million, 34.5 million, and 23.8 million subscribers, respectively.

Media companies like Paramount Skydance (PSKY), Disney (DIS), and Warner Bros. Discovery (WBD) have spent years attempting to close the gap, as streaming has become more ubiquitous. However, none of these firms have come close in challenging Netflix, especially in terms of pricing power and profitability.

Now, Netflix is attempting to solidify its market leader even further by joining the race for the acquisition of Warner Bros., which is still pursuing its plan to be spun off into two publicly-traded companies by 2026.

The race for the acquisition of Warner Bros. began a couple of months ago when Paramount Skydance sent an unsolicited, all-cash deal which valued shares at $20. CEO David Zaslav, who reportedly expected a valuation upwards of $30 in any deal, rejected the initial bid.

Since then, bidding for Warner Bros. and its cable and streaming assets have expanded into a three-horse race which includes Comcast Corporation (CMCSA) and Netflix. Unlike Paramount Skydance, the latter companies are only interested in the studios and streaming assets of Warner Bros., leaving out its cable unit in the offers made thus far. 

Warner Bros. is currently entertaining second round bids from all three companies, with reports stating that the company is planning to wrap up the auction process by Christmas.

While the full details of Comcast and Paramount Skydance’s offers have yet to be revealed, reports have indicated that Netflix recently made an all-cash offer for the entertainment and streaming units of the company and has worked to secure billions of dollars in financing to fund the acquisition.

The primary driver behind Netflix’s bid is Warner Bros’. vast media and streaming properties which include HBO Max, Discovery+, DC Studios,  Warner Bros. Motion Picture Group, Warner Bros. Television, and exclusive media rights for UFC’s U.S. matches and some sports-rights deals in leagues like the NFL and college sports. 

Even though Netflix is already the undisputed leader in the U.S. streaming space, it lags behind Google’s YouTube, Comcast, and Paramount in terms of total TV usage, making the acquisition all the more attractive.

Should Netflix’s bid prove successful, this acquisition would enable it to deepen its vast movie and television library with intellectual properties like DC and HBO that both possess strong brand recognition. 

While this acquisition looks promising in theory, there are still a few hurdles Netflix would have to surmount, chief of which is regulatory scrutiny. It’s been reported that White House officials have concerns about a potential merger. 

It remains to be seen whether Netflix’s acquisition will push through, but if it does, it will help secure the streaming giant’s dominance for years to come. However, should Warner Bros. or Comcast succeed in their bids, then Netflix will face intensified competition.

Regardless of the result, Warner Bros.’ sale will have industry-wide implications, making it something investors should watch out for.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research