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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Winning the battle for Warner Bros Discovery will arm Paramount Skydance in its battle against streaming giant Netflix. But for Netflix, losing out on WBD — as it did on Thursday after Paramount raised its bid to $111bn — could be helpful in a wider war: the one against YouTube.
The short-form video platform owned by Google is still very different from Netflix, Paramount and WBD’s HBO Max. It predominantly serves up user-generated content. But the lines are blurring. YouTube’s march into longer and more glossily produced media, and its appeal to younger viewers who distinguish less between the two, could be existential.
Snagging WBD would have stocked up Netflix’s war chest, with over 100 years of back catalogue, killer brands such as Harry Potter and Batman, and control over some of Hollywood’s most prestigious movie studios. So far, Netflix has managed on its own; subscriber numbers have swelled by nearly two-thirds since 2020. But sustaining growth gets ever harder.
Nonetheless, buying WBD for $83bn would have cost Netflix financial flexibility. The deal would have left it with debt equivalent to nearly four times its enlarged ebitda; that ratio is below one today. Co-chiefs Ted Sarandos and Greg Peters would have faced the distraction of distributing movies for cinematic release — something not really in Netflix’s DNA.
It would also have taken up precious executive brain space. Google’s video platform wins 12.5 per cent of streaming time, versus 8.8 per cent at Netflix, according to Nielsen. YouTube is getting creative: it shows NFL games and the Oscars. AI content is a game-changer. Sarandos told analysts in January that TV was no longer “what we grew up on”.
Paramount is in a different place. The extra content from WBD will help it close a yawning content gap. David Ellison’s company lags Netflix and HBO Max when it comes to original content, new releases, variety, quality and technical performance, according to consumer surveys by HundredX. That’s why both Netflix and Paramount’s share prices rose strongly on Friday.
But make no mistake, Ellison has a YouTube problem too. It’s one he will have to address while also integrating a huge acquisition, reassuring actors, moviemakers and employees, and servicing a debt load equivalent to around four times ebitda. In “net promoter scores”, which gauge a user’s likelihood of recommending a product, YouTube easily beats Netflix, Paramount and HBO, and has for years.
Ellison may have a secret weapon: his father and backer Larry also runs software giant Oracle, which now part-owns the US operations of another formidable short-form video platform, TikTok. Perhaps there is a future deal that brings the whole family empire together. In the meantime, Paramount will have to prove it can walk, talk, chew popcorn and manage its sizeable debts, all at once. Netflix may find it had a lucky escape.
