Netflix is eating Hollywood — because it has to

Today, we’re talking about the bidding war over Warner Bros. Discovery, which is the biggest story in the entertainment industry right now, and for good reason. It has pretty much everything you could want in a buzzy Hollywood saga — big names, big money, and big drama. To help me make sense of it all, I wanted to talk with Julia Alexander, a Verge alum and now media correspondent at Puck News who’s one of the best in the business at analyzing corporate strategy, Hollywood, and what’s next in entertainment. Julia really helped me break down why Netflix is the clear front runner to acquire Warner Bros., why David Ellison of Paramount Skydance is so desperate to win, and, perhaps most importantly, how the tech industry fits into this puzzle. Links: Netflix is buying Warner Bros. for $83 billion | The Verge Paramount launches hostile $108 billion bid to snatch Warner | The Verge Netflix revises Warner Bros. bid to an all-cash offer | The Verge Why Netflix needs Warner Bros. | Puck News The Warner Bros. bidding war Is over | Bloomberg The Son King of Hollywood | Vulture FCC Chair: ‘Legitimate competition concerns’ with Netflix’s Warner deal | Variety Netflix's Ted Sarandos to testify at antitrust hearing over Warner deal | Variety Subscribe to The Verge to access the ad-free version of Decoder! Credits: Decoder is a production of The Verge and part of the Vox Media Podcast Network. Decoder is produced by Kate Cox and Nick Statt and edited by Ursa Wright. Our editorial director is Kevin McShane. The Decoder music is by Breakmaster Cylinder. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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• 1:32Speaker 04

  Hello and welcome to Decoder. I'm Neelai Patel, editor in chief of The Verge, and Decoder is my show about big ideas and other problems. Today, I'm talking about the bidding war for Warner Brothers Discovery, which is the biggest story in the entertainment industry right now. And for good reason. It has pretty much everything you could want in a buzzy Hollywood saga. Big names, big money, big drama. Right now, the winning bidder is Netflix. The streaming juggernaut has so far won the bidding process for Warner Brothers, offering $83 billion for the movie studios, but not the cable channels. But Paramount Skydance simply won't go away, even though the official process is over. The company has bid, bid again, and is now attempting a hostile takeover to the tune of $108 billion for everything that Warner has, including those cable channels.

• 2:15Speaker 04

  Paramount is run by David Ellison, the son of Oracle co-founder and tech billionaire Larry Ellison, and I have to say, his whole vibe feels ripped straight from an episode of Succession. This man is desperate to become a bona fide media mogul, using the combination of Paramount, his dad's ever-growing AI money, and the good graces of the Trump administration to make it happen. Caught up in the middle of all this are HBO, CNN, and Warner Brothers Pictures. Despite world-class brand recognition, legitimate mega hits, and incredible franchises, these companies have been so historically comically mismanaged under a long series of clueless corporate parents that the whole bundle has ended up sold, merged, or spun off into something new more times than anyone can really count over the past two decades. Seriously, it is mind-boggling how badly these companies have been run over the past

• 3:00Speaker 04

  25 years. To help me make sense of all this, I wanted to talk with Julia Alexander, a Verge alum and now media correspondent at Puck News, who's one of the best in the business at analyzing corporate strategy, Hollywood, and what's next in entertainment. Julia really helped me break down why Netflix wants Warner Brothers, and why David Ellison seems to think he's got a better, or even different, strategy than current Warner Brothers boss David Zaslove. Perhaps most importantly, we also discussed how the tech industry fits into the puzzle. Because as you'll hear Julia explain, the central pressure facing Hollywood today is the battle for our attention. And that battle is being fought by everything: video games like Fortnite and Roblox, and of course, short-form video on YouTube, TikTok, and Instagram. Soon, all of these platforms could be flooded with cheap, endless AI video, and it seems

• 3:43Speaker 04

  that only a few companies, Netflix chief among them, seem to have any plan whatsoever for when that wrecking ball finally hits. If you're a Decoder listener, you know that I love having Julia on, and you know I love talking to her about Hollywood and the entertainment industry. This episode's no different. Okay, Puck Media correspondent Julia Alexander on a deal for Warner Brothers Discovery. Here we go.

• 4:14Speaker 05

  Julia Alexander, you're the media correspondent in Puck. Welcome back to Decoder.

• 4:17Speaker 06

  Thank you so much for having me. How are you?

• 4:20Speaker 05

  I'm good. I wanted you on because it feels like every day there is new confusing information about who's going to buy Warner Brothers. It all kind of adds up to the same thing, which is Netflix is going to end up buying it. Paramount is going to make it really noisy until the inevitable. I love talking to you about the streaming business, about what's going on in media. I want to start with a very basic question. This is what I really want to understand. As far as I can tell, every company that has ever bought Warner Brothers has killed itself. Why does Netflix want to buy Warner Brothers so badly?

• 4:53Speaker 06

  It's a good question, and I'm sure we'll get into our favorite conversation going back to Randall Stephenson and AT&T back in 2016, 10 years ago. But why Netflix wants to buy it is not because Ted Sarandos or Greg Peters, who are co-CEOs, truly wanted to have to do this. They have to do it. They're a modern media company. They have scaled to the point that they are going to scale based on their own capabilities. And so in order to further engagement, in order to increase retention, which is people not canceling the service, which has become the most important number to them as they kind of hit saturation in these big territories, they need big IP, they need big movies, they need a big library, and Warner Brothers Discovery is up for sale.

• 5:35Speaker 05

  All right. That was sort of the answer that I was expecting because that is the logical answer. Like, that's the right answer. If you just take all the bits and pieces and you put them into the equation and you turn the crank, that's the answer you would get. That's the one that makes sense. Here's what I don't understand. Part of that answer is just because Warner Brothers is for sale, right? The previous regime that controlled Warner Brothers killed itself, as all previous owners of Warner Brothers do, and they put it up for sale. And so Netflix is like, we have no choice but to do this. Right next to that, Netflix is doing deals with Spotify to put ever cheaper podcasts all over its service. It is making ever cheaper reality television every single day that it can.

• 6:19Speaker 05

  It's doing what every big platform does, which is trying very hard to reduce the cost of content. In the cost of every minute that people spend watching content on its service, because the reality is it's up against TikTok, which pays $0 for content. That's why I'm like, this answer doesn't make sense. Like, paying a lot of money for big expensive IP, when the reality is your biggest competitor pays $0 for content, doesn't make any sense to me. How do you reconcile those two things?

• 6:51Speaker 06

  Yeah, so I think you and a lot of Wall Street analysts feel very similarly. That's why Netflix's stock has kind of been down ever since the acquisition process was started. It's a really complicated answer. And I think that you have to look at two worlds that are happening at once. So in order to like, set where Netflix is currently, and why the WBD deal is so appealing to them now. Netflix, every six months, puts out something called the Engagement Report. They basically look at how people are watching 99% of the content on Netflix. That equates to about 96 billion hours of content being viewed. And what we've seen happen over the last year and a half is a slowdown. There's kind of been this stagnation in engagement. And so we saw this year, and the most recent Engagement Report was released a couple of weeks ago,

• 7:35Speaker 06

  there was an increase of 2% overall engagement. But that was really only a 1% increase in engagement for the past six months. And if you compare that to what was happening in 2020, 2021, and of course, taking into account the pandemic, which really had a lot of effect on viewing on Netflix in a positive way. What we've also seen Netflix contend with is that the decrease in that engagement is coming from a decrease in the amount of licensed content on the platform. And so you're seeing Netflix start to realize that although engagement with original content is increasing, it's coming so at the expense of an overall household engagement decreasing. And so if you look at the other trends within streaming, and this gets to WBD, what people are spending a lot more time on is either, to your point, YouTube and Instagram, which is coming for TV sets now.

• 8:21Speaker 06

  TikTok, which will, I'm sure, relaunch their TV app down the line. And also, the free ad-supported television services like Tubi, like the Roku Channel, like Pluto TV. We're seeing huge engagement spikes in the US with those specific services. And so the data tells you something very specific. People want to watch free content, like, obviously. And people want to watch library content, which is what these free ad-supported services have. So if you're Netflix, there's two roads staring you in the face. One is the user-generated content side of the equation, which is what YouTube dominates, it's what Reels dominates, it's what TikTok dominates. And they're trying to figure out, they being Netflix, how to make some of those formats work on its own platform.

• 9:04Speaker 06

  And then there's the other side of the equation, which is, can we be, eventually down the road, a $40 a month premium offering if we have the vast majority of licensed content that people want and original content? So I think you're seeing them make both bets at the same time.

• 9:20Speaker 05

  Let me ask you about that split between original content and licensed content. In the before times, when we were both children and you were a Verge reporter, we were both like little babies. And Reed Hastings, the then CEO of Netflix, would run around and he would say this thing. We have to become HBO before HBO becomes us. And this was like a rallying cry for Netflix, especially around originals. And the idea was, at that time, HBO was on a generational run, right? It had Game of Thrones, it had Sex in the City, like, you just, you name it. HBO's original programming drove every conversation all over the place every single day. And Netflix's goal was to program original material at that level. Right, that's a stated goal. We have to become HBO before they become us.

• 10:03Speaker 05

  HBO never figured out its distribution on the internet in like, meaningful ways, so we can set that aside. But that was the idea. Netflix had to figure out original content as good as HBO's before HBO figured out internet distribution. Netflix doesn't seem to have done that, right? If the problem is, we have to go license someone else's library, the only conclusion you can draw is, well, they didn't figure out how to build their own library, they didn't figure out how to become HBO. Is that like a synthesis of the problem, or is there something else going on?

• 10:32Speaker 06

  I think that's part of it. And if you certainly look at why Netflix could never become HBO, we often forget, people in the industry, that HBO was always small. HBO had a small, dedicated base, and it benefited from the cable ecosystem, you know, like the greatest capitalist invention in history. The idea that they could just be a part of a different service, or a part of a service that people wanted, because they also wanted ESPN, ESPN2, and like ESPN8, or whatever else existed, meant that they could kind of be within the system and reap the rewards of it, even if they had a very small base overall compared to kind of what the Disney Networks and the NBC Universal Networks and the Paramount Networks. When you're Netflix and you're operating at scale, when you have 325 million global

• 11:16Speaker 06

  members, when you're kind of putting out these massive projects and trying to appeal to everyone, you can't be HBO. And so I think part of the realization for someone like Reed Hastings, or now, of course, Greg Peters and Ted Sarandos, was if we're not going to become HBO, because we're not going to make these kind of offbeat witty comedies, or these kind of dense dramas, and that's all we're going to do, then we can just buy them. HBO became much more appealing post kind of the 2018, 2019 AT&T acquisition, then really going into the 2022 WarnerMedia acquisition, when they started to do more Game of Thrones stuff and spinoffs, they started to do more DC stuff, they started to do a lot more kind of genre IP, which is where they see the vast majority of their big engagement happen,

• 12:00Speaker 06

  is on those IP shows, that you can see working under someone like Bella Bajaria, who's the head of content at Netflix, while Casey Boyes, who's the head of HBO, can continue doing what works really well for HBO. The thing about library, which is, again, the most important part of this conversation, is that it's really hard to build up a library in the time that Netflix needs to. Warner Brothers, including all the things that come with it, is 100 years old. There's just a lot of stuff in there, including shows like ER and Friends, and the things that people really want to watch, the movies that people really want to watch. And so in order for Netflix to get to that point, they would have had to have another, you know, 30, 40 years to build up the library. And because of the competition from YouTube and these free ad-supported services and Instagram,

• 12:44Speaker 06

  you know, you have Ted Sarandos saying Instagram is coming in a very Game of Thrones-like way, right, this, this way. I think in order to get there, they made a very traditional, for kind of this tech disruptor in the media space, they made a very traditional media play, which was just to go and buy someone and scale quickly in that regard.

• 13:01Speaker 05

  So let me ask you about the library, and I don't disagree with you, right? It's a hundred year history. It has been mismanaged in all ways. It's been mismanaged. But the IP is there, right? The shows are there, the history is there. Netflix could have been building that library this entire time. What is it about Netflix specifically that has prevented it from making an ER? Or anything with that kind of longevity? Because if I have to pick on the streamers, what I'll say, specifically Netflix, but I think all the streamers, is that they can't make that anymore. They've lost the ability to make that. And it's actually that it's like the legacy studios that still have those moves. Why hasn't Netflix been able to do it on its own?

• 13:38Speaker 06

  A big part of it is the economics. So if you look at why a show like ER, which ran 15 seasons, a show like 30 Rock, which ran, I think, six or seven seasons, you know, any of these type of long running shows, big reason was that the advertising that supported it through the broadcast and even throughout the cable system with the ads they could bring in on top of the affiliate fees they were generating, meant that you could take bet on longer shows because you had to fill the shelf space. The ads were going to be there. You needed to have shows in order to do it. And as they built up those audiences, they could kind of go for a longer period of time. The efficiency metric, which is a term that every content planning and analysis team will use within streaming services, the efficiency metric was much, much higher for those types

• 14:22Speaker 06

  of broadcast shows during the heyday of broadcast.

• 14:24Speaker 05

  The efficiency is dollars out versus dollars in, right? You spend a dollar to make a show, you get so many dollars out?

• 14:30Speaker 06

  Precisely, yes, precisely. And so if you look at Netflix, up until very recently, they were staunchly against ads. And so everything that they did, their whole efficiency metric was, are people coming in for this type of show? And are they not canceling because of the show? Something that we call acquisition and retention. And so eventually, a show in its second or third season is just going to have less overall acquisition pull. And by that point, if it's not a phenomenal show, or it's only got four or five episodes or six episodes, Netflix loves the limited series in part because of this, you're going to just stop making those seasons. You're going to try a new show and go, well, maybe we can bring in a customer or retain a customer because of this instead. So now that the advertising economics are starting to come much more into play for premium services.

• 15:11Speaker 06

  Especially Netflix. I think you will see them try to get to their own ER. They tried with the show called A Pulse and I think they had a show called The Residence, which was very kind of procedurally and these didn't really work out for Netflix. So I think they do want to build it, but again, they've just, they feel like they've run out of time in order to do it. If they're going to compete in a heavily consolidated market and if they're going to compete specifically for sports rights, which is also key to this conversation and they're going to compete with companies like Amazon and Google on securing the, those sports rights, then they need to be able to increase their engagement, increase the amount of shows that they can have ads on kind of overnight. And this was just the best opportunity.

• 15:54Speaker 05

  This is like the shift from we have to become HBO faster than HBO can become us to we're competing with sleep, right? Like it's just, there's only so many minutes you have in the day to consume entertainment and Netflix wants to have all those minutes. The thing that I always think about is it's not, is zero sum, as that is made out to be. You know, Ben Affleck and Matt Damon were doing interviews about the rip, the movie they made and they were saying Netflix gives us notes to explain the plot throughout the movie because they know people are on their phones. How do you think about that dynamic here? If you just want to acquire Batman for cheap and someone can watch the Michael Keaton Batman, which is long since paid for, right? Like a long since paid for, it doesn't matter. And that can just be on in the, in the background while

• 16:39Speaker 05

  you're scrolling TikTok. Is that a win for Netflix?

• 16:42Speaker 06

  If the fact that somebody can put Michael Keaton's Batman on in the background, even if they're playing Candy Crush or watching Instagram reels, the fact that they still are opening Netflix to do so and not opening HBO Max or not going to something like Tubi, which may also have it, like that's the other thing is a lot of these titles are not exclusive. So really the option of where to get them is becoming more of a problem for a company like Netflix in this kind of highly contentious environment for attention. It is still a win. I think about this a lot with advertisers and of course you spend a lot of time thinking about ads and talking to advertisers and you never can promise the ROI, right? Even if you're saying this, we have 325 million subscribers, we have 190

• 17:27Speaker 06

  million monthly active users on our ad-supported tier, whether or not those ads are reaching people, unclear. And advertisers don't know. But the fact that they are seeing engagement with something like Batman, and maybe there's four ads on Batman, the hope is that, okay, well, maybe somebody is watching this, not in the background, and they are gonna look up. And so I think the question for Netflix really is, is this gonna be valuable for us in this race against YouTube and other potential mega-streamers, which they also saw with Paramount? The threat from Paramount was that, okay, if Paramount comes in and buys the Warner Brothers Discovery Library and keeps it exclusively, what does that do to our business? Is this more of an offensive or defensive strategic move from Netflix? The fact that having Batman and Paramount not having it, or someone else not having

• 18:12Speaker 06

  it, at the same time that they're trying to compete for slivers of attention with YouTube, I think is a win for Netflix. Now, is it a win at $83 billion? I don't think that's true. I think that's why the stock is down.

• 18:25Speaker 05

  I mean, I have to say, I think the most offensive move you can make with Warner Brothers is letting someone else buy it and commit inevitable suicide. That's just me. So I wanted to start there, because understanding why you would chase Warner, of all companies, in this environment with this administration, up against Donald Trump's friend Larry Ellison and his son at Paramount, there has to be a good reason. And it seems like the reason here is, well, it's for sale, and if we don't buy it, someone else will, and we're not gonna make a Batman on our own. And the economics of making even sitcoms that people like are out of our control, we might as well just have this library. That's all pretty nihilistic.

• 19:05Speaker 05

  Like, none of that makes me feel great about art, or the art of television, but so be it. We can come back to that in a minute. What's the status of the deal today? Are they just gonna win this one and we're just have to wait out more flailing?

• 19:18Speaker 06

  It feels pretty done. It feels like it's 99% there. I mean, obviously, there's the regulatory affair, which is where Larry Ellison and whoever else might want to help push people like the Trump administration or whoever he's talking to and making this a little bit harder for them or making it a little bit easier for Paramount. And I don't know what's happening there. And there's a lot of like allegedly is being thrown out about what that may look like. But like there was a, I was just reading something about how Ari Emanuel calls up Trump all the time. And you know, Ari is very close with a lot of people in Hollywood, including the Paramount side. And so there's just a lot happening at the entertainment level and the Hollywood level with this administration that makes it really interesting. But the deal is done.

• 19:59Speaker 06

  And I think to understand about Larry Ellison and David Ellison, David Ellison, now the head of Paramount Global, is that David Ellison went after Paramount in an attempt to then go after a company like Warner Brothers Discovery. The idea was to build this mega streamer based on library and IP. And so that's why you're seeing David Ellison almost act very succession Kendall Roy like saying, you know, like Papa, buy me the train. Like, I want to be able to have this empire. And a big part of it is because after David Ellison bought Paramount, this was a company circling the drain. Sherry Redstone just wanted to get rid of it at this point and go up the highest that she could. David Ellison knew that Paramount on its own was never going to do much against Netflix or let alone YouTube or Instagram or TikTok.

• 20:45Speaker 06

  He needed Warner Brothers Discovery to come in. And so I think the fact that he went into that deal before or attempted to get a deal before Warner Brothers Discovery put itself up for auction, he went to David Zaslove and was like, I want to buy your company. And when David Zaslove then opened up the auction process in WBD and Netflix was a key bidder, you could see how much more desperate David Ellison was becoming every single month, raising the bid to 107 or 108 billion dollars to include the cable networks, which are worth absolutely nothing. Kind of reaching out to Warner Brothers Discovery shareholders and saying, we're going to go in all cash, and this is the best deal you can do. At the same time that Warner Brothers Discovery is saying, look, to your point, Eli, we are a company under duress.

• 21:29Speaker 06

  We are a company who believes has good assets, but we need someone else to take these assets and turn them into something, and we think that's Netflix. You do see how important owning this part of the Hollywood empire is to whether it's David Ellison or Ted Sarandos, because David Ellison is becoming much more unhinged in public in his attempts to kind of get it back. But, but the deal is all but there, although with Trump and this administration, never say never.

• 21:57Speaker 05

  You mentioned that the cable networks here. That is an important distinction. Netflix does not want the cable networks. Paramount has offered to buy all the cable networks. That all seems very silly to me. Like, these things are just getting shut down in the end anyway.

• 22:09Speaker 06

  Yeah.

• 22:10Speaker 05

  Does it matter who ends up with the cable networks?

• 22:11Speaker 06

  No, they'll sell to Apollo or someone to private equity, and then private equity will, you know, do what private equity does and kind of ride it out to the end and then just dump them. But those cable networks are done.

• 22:26Speaker 05

  We need to take a quick break. We'll be right back.

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• 23:56Speaker 04

  We're back with Puck Media correspondent Julia Alexander. Before the break, Julia was explaining to me why Netflix even wants to buy Warner Brothers Discovery and what it might do with it. We also started to get in the Paramount of it all and how the billionaire Ellison family is trying to swoop in and sabotage the Netflix deal with a hostile takeover bid. But now I want to focus on the media strategy of this all. Because at the end of the day, these mega mergers are at least supposed to be about combining strengths and achieving what a single company can't do on its own. But we've been watching people try this move with Warner for years now. David Zaslove merged Warner Media with Discovery and then utterly failed to do anything meaningful with his massive library of media assets. Before that, AT&T tried to do this after it acquired Time Warner in 2018. And before

• 24:38Speaker 04

  that, it was AOL. This idea is not new and it always seems to end the same way. And so here we have Paramount chief David Ellison promising to do, well, the same thing. And as unconvincing as it's been to Warner Brothers, which has already accepted Netflix's offer, I think it's worth trying to really nail down whether there's any substance at all to David Ellison's promises, or if it's just more Hollywood wish casting from a wannabe media mogul.

• 25:04Speaker 05

  And then the other piece of the puzzle, it's funny that David Zaslove seems to be emerging as a master operator here, right? He's, he's pushed a bidding process for a thing that everyone thinks sucks very high, which again, is the Warner Brothers way. Yeah. The mystique of Warner Brothers can overcome any idiocy of the people who run it, such that the next buyer thinks that they can do a good job. Just one of those things about Warner Brothers. This was Zaslove's plan, right? Zaslove's plan was the Paramount plan. I'll have a, I'll have a metric ton of reality slop on cable that funds high-end IP and then I'll be a famous movie guy and everyone will think I'm great. Straightforwardly, this was his plan. They would put up matrices of like ladies like reality shows and men like action comedies or like whatever that chart was during that process.

• 25:49Speaker 06

  Yeah.

• 25:50Speaker 05

  And they were going to upgrade the tech stack and merge the streamers. David Ellison has proposed the exact same plans, right? A four quadrant content matrix that appeals to everyone in America and he's going to pull together all the streaming tech stacks and bind efficiency. Like, the only new thing is I think he's very happy for AI to write the next Mission Impossible movie, which I don't think he's directly proposed to Tom Cruise yet, but he's certainly hinted at. What is different about the Paramount plan versus the existing Zaslove plan?

• 26:16Speaker 06

  I think you're giving Zaslove a lot of credit for having a plan. So that's great. I think he's, he's the type of guy, I mean, look, he's the type of guy, he came into Hollywood, he bought Robert Evans's, who's a famous producer, he bought his home, he's sitting behind Jack Warner's desk, he's throwing parties and con with Graydon Carter. Like, this is a guy who was always barely a cable magnet over at the NBC side and always wanted to be a Hollywood guy. And so I think he went into this, striking a deal with John Stanky, who was the, I think he's still CEO of AT&T, and John Stanky very clearly wanted to just get rid of this, was like, fine, we'll give it to you. And I think when you

• 26:55Speaker 06

  look at the original plan that David Zaslove had for what HBO Max is, what it was and what it kind of is today, the idea was just that if you have enough content, then you'll be able to kind of bring people over. And I think Paramount is very similar in that regard too, to your point, is David Ellison saying, we just need content, we just need to have enough of it that people are willing to spend more time here. And I think if you look at the Netflix side of the equation, they've pointed out some really interesting details and data, obviously coming from their side about why this is such a great deal, that I think does address some of those concerns, which is that there's already a strong overlap between HBO Max and Netflix subscribers, so the engagement is going to be there, unlike

• 27:37Speaker 06

  Discovery and HBO customers who are on opposite sides of the equation. You know, you've got Netflix coming out and saying, we think that we can do a better job with IP formation and kind of supporting IP and bringing this out to our global subscribers. We think we can do more with these IPs in different languages and different areas. We think we can do more with this opportunity for HBO in our international markets because of the collaborations that we have with different production companies. So they're already addressing a lot of the issues that Zaslove and Ellison's plan. Fail to address. And I think where you see David Ellison really coming in and saying, well, here's how we're going to build on what David Zaslove is doing and do it in a more helpful way is, of course, the other big debate at the center of this was just theatrical.

• 28:21Speaker 06

  And who is more committed to the theatrical release and in Hollywood, like to the rest of the world, that might not matter much, just based on the data of how little we are going to movie theaters. But to Hollywood, that is the central debate.

• 28:34Speaker 05

  Because that's where the money is, right? It's there where the money was and hopefully the money will be again, right? You buy a ticket to a movie. That's a very high price compared to a month subscription to Netflix. That money might get distributed differently. Is that the only reason people care about theatrical? Or is it just the idea of movie theaters?

• 28:51Speaker 06

  We it's certainly the nostalgic factor. I mean, it's a group of creatives built on nostalgia. I do think we have a lot of sentiment analysis data, looking at this over the past few years, that movies released in theaters are more memorable to audiences. I mean, a big part of that is the marketing push that accompanies it. And so people are just more aware of it. But we see that engagement from theatrical releases on streaming is also much higher than streaming originals. And so to your point about money and why Hollywood would be interested in this, it's really hard to build yourself to be the next big, you know, Leonardo DiCaprio or Scarlett Johansson, if you're not in theaters. And so I think this component of we have a nostalgic love for movie theaters. We want these more

• 29:34Speaker 06

  communal events, but we also don't want to be relegated to Netflix slop in an era of AI slop is a big reason why I think you saw parts of Hollywood look at Paramount and David Ellison originally as the savior of Hollywood. I think now, once people have started doing the math on it and realize that that would mean Paramount had to release, you know, a movie almost every other week, which is an impossible load for a company like that to do. And precedent, by the way, from the Disney Fox deal tells us that that was never was going to happen, as we've seen kind of happen with Fox Searchlight films going direct to consumer for a lot of them. I think it was worked out in Netflix's favor in saying like, we're still committed, even if they're not, it's giving Hollywood enough time to kind

• 30:17Speaker 06

  of process what may or may not happen, knowing that Paramount is a little bit less likely to kind of come through.

• 30:24Speaker 05

  Yeah, I think the last commitment I saw from Netflix was a 45 day theatrical window. And even that's like a pretty soft commitment. Like that's not written down anywhere. That's like Serendos. So yeah, 45, a month and a half, then it's just Netflix again. Let me ask you this question again, though, because I think I'm getting it, but I just want to try one more time. What is actually different between Paramount's plan and the Warner Brothers Discovery plan? Because it feels to me like a bunch of cable channels that are dying, subsidizing a bunch of IP that no one has a plan to actually execute on. But the person at the top just wants to be a Hollywood guy.

• 31:04Speaker 06

  Yeah, that there is no difference. And in part because they have the same businesses. They're coming from the same position. The only difference is that David Ellison has a personal bank from someone valued a couple hundred billion dollars who can kind of come in and say, you know, his father, Larry Ellison, and we'll just continue to fund this. But there's no discernible difference between what David Ellison wants to do, at least that he's publicly said, versus what David Zaslove tried to do for the last few years. I think if you compare the eras of like Warner Brothers and Warner Media and Warner Brothers Discovery and whatever else it's been over its last 20 years, Time Warner, I think when you, when you look at it, the only person who really came in and said, I

• 31:46Speaker 06

  have an idea for what we want to do to make this a differentiated company in 2022, 2021, was Jason Kilar, who is this kind of technologist futurist, who was the CEO of Warner Media for a couple of years, but who also damaged the reputation of that company with Hollywood.

• 32:02Speaker 05

  And that's because in the pandemic, he said, we're going straight to streaming with every movie. I think he forgot to soften the blow by saying, and then when the pandemic is over, we'll stop that.

• 32:11Speaker 06

  Yeah. Yeah. He's a more Silicon Valley in that way than he is Hollywood. But, but I think if you look at what he tried to do. Like with Warner Media assets, he said, we should have a CNN streaming service that was CNN Plus. And like, that didn't go anywhere. It launched for a couple of weeks and then it was shut down. And so what are they doing now? Mark Thompson, who's the one CNN is going to launch streaming service. And so like, this idea of what Jason Kilar wanted to do, which may or may not have worked long term, I think was the last point that there was a plan to do something on the innovation side with the assets as opposed to just collecting more assets. And under Zaslev and under Paramount's plan, it is just a collection of the assets.

• 32:53Speaker 05

  So the part of Ellison's plan that is somewhat different is the presence of his father, Larry Ellison. A lot of the argument for why Paramount should get the deal over Netflix is that Larry Ellison exists. That'd be like straightforwardly. They're like, but we have a rich guy. Like, look at how rich this guy is. And I'm looking at that and I'm talking to reporters, especially Liz Lopato about that. And it seems bananas to me that Larry Ellison, who's wealth keeps increasing every day with the hype bubble surrounding AI, wants to trade out of AI money, wants to trade out of Oracle stock to backstop media money, which is the most under pressure, undervalued, right? Like, if I have Oracle stock, I would not be like, you know what I should do with it is I should

• 33:38Speaker 05

  buy Warner Brothers. Like, that's not rational. Why do you think Larry Ellison is willing to backstop a Warner Brothers deal with his own Oracle stock?

• 33:48Speaker 06

  Couple of different theories on this, and they get more outlandish and subreddity as they go on. But there's part of me that sees almost this parallel to what Larry Ellison might be thinking of doing. And I don't speak to Larry Ellison on the regular. So I'm really just kind of projecting here, what he would might want to do to why AT&T originally bought Time Warner, which was this idea of things are happening on phones. And we, I want to have some level of investment in TikTok. I want to have some level of investment in what people are watching. And can we create some kind of integration? Using the cloud computing aspects that we have to make this so that we collect a lot

• 34:30Speaker 06

  of data. So we collect a lot of data and and we do something with this and down the road, what actually is worth the the gold bars is not the content, but kind of everything we're collecting around that content, which is very Mark Zuckerberg, right? It's very like Sundar Pichai, very much like this is what we where a lot of the value of what we do comes in. But the issue there is like you have to have people on these platforms in order to collect that amount of data to make it valuable, in order to kind of find what's really fascinating or interesting and worth doubling down on investment wise, you have to have the audience. And Paramount Plus, even with a combined HBO Max, makes up a sliver of of attention and engagement in the United States. Both of them barely

• 35:12Speaker 06

  have any global presence. They don't have really any global owned and operated presence because all their streaming platforms are in conjunction and partnership with other companies and other distribution platforms in order to kind of try and scale. And TikTok, which was down apparently this weekend in its first US debut again, or re-debut, like whether or not TikTok has the staying power now versus whether people go over to Instagram or YouTube Shorts, like that question of who ends up winning that kind of short form battle, I think makes it really questionable. But I agree with you. I don't think someone who clearly smart, as Larry Ellison, looks at a decaying asset in a decaying industry in a hyper competitive attention ecosystem and goes like, yeah, this thing's worth

• 35:55Speaker 06

  110 billion, or whatever, 105, 106 billion cash. And by the way, we're going to go to Warner Brothers Discovery shareholders and say like, you're going to get a bigger payout, basically, and you should go with us and don't worry about the rest of this business because you're going to get you're going to get paid out for it. I don't see why he would do that unless there's something far more compelling within what the assets will help generate down the road that are not just pure engagement of people watching Michael Keaton's Batman.

• 36:21Speaker 05

  Yeah.

• 36:22Speaker 06

  Because the only other answer is like, he's a dad with guilty father issues.

• 36:26Speaker 05

  I will say the only things you can do with data at that scale are target advertising or send drones to kill you. And I don't know which one it is. It is unclear, like, but that's what you can do with the data. There's not much else with data at scale. And I'm not sure Paramount has that ad business. I'm not sure that if you combine Paramount with Warner Brothers with TikTok, you get that ad business. That's not really TikTok's ad business either.

• 36:50Speaker 06

  Right.

• 36:50Speaker 05

  There's just a set of question marks there.

• 36:53Speaker 06

  I agree. I agree completely. And I think it's a desperate attempt, especially in this kind of meta and Google age, just where it feels difficult to even try and compete at that scale. And then again, looking at Netflix or even Disney. Disney streaming services have pretty strong engagement. They've got active subscribers. They've got a pretty active ad base. And Disney famously very good at advertising, like they just have a great ad business. And so if you're coming in this late to the game on a Hail Mary in hope that having enough movies and TV shows, enough sports, right? They just paid $7.7 billion for UFC. It just debuted on their platform on Saturday.

• 37:34Speaker 06

  And you have enough overlap, maybe with a TikTok. And even that is like a huge question. That is like, is this even part of it? It becomes further unclear as to why this is the deal to make. And I remember thinking about this. I was talking to an analyst. And I was like, you know, if I had $110 billion in cash, and I do not, if I had that, I would be looking at Epic Games. I'd be looking at Roblox. I'd be looking at other areas where there seems to be deep levels of engagement and deep level of young kind of consumers. Let's say they're emerging kind of 15, 16 plus consumer base. Where you've got a lot of brands like FIFA who want to partner, Disney who wants to partner with Fortnite.

• 38:19Speaker 06

  I don't know why I would be spending all my efforts on Warner Brothers Discovery unless I was deeply, like unless I deeply love my son. And this is what my son really wanted. He wanted to do this. And if that's the basis for why Paramount is upping their bid and kind of acting so dramatically in public about it. That should be far more concerning to shareholders than anything else.

• 38:43Speaker 05

  Let me ask you about the other side of this, the Warner Brothers shareholder side. They keep rejecting Paramount. I think they're up to eight times they've said no to Paramount. Is it just the stink of desperation? Or is the Netflix deal that much better?

• 38:57Speaker 06

  I think the Netflix deal includes some kind of optimism for the future of what that could look like. And I think the Paramount deal is a last ditch effort to cling to relevancy. I think shareholders know that, especially shareholders who have been, by the way, with WBD this long. There was a lot of exit points that they could have taken and just said like, I'm gonna get rid of this. I'm like, I'm not going to be here. Obviously, many of them hoping for like a big sale in this kind of moment. But I do think Netflix, there's a coolness to it. And I was talking to this media investor a while back, and we were talking about when knowing when to sell. And the thing they said to me, and they work with a lot of kind of notable

• 39:40Speaker 06

  athletes, they said to me, they're like, my biggest concern is you have founders and CEOs who do not want to sell because they think that they're still riding the level of cool. But cool is a very quick factor that goes away. And so you have to know when, okay, this is my off put, and I'm going to go here. And I think there's a level with Netflix where there are still riding that cool. There is this level of like, it's Netflix, we think this could be a really big business. It's exciting to kind of see play out. This is the first major acquisition that Netflix has done. The one before this was, I think, the Roald Dahl library for about $750 million, $800 million versus, again, like, the Paramount side where the cool has been gone for years, for decades. And so, again, it just feels like Netflix seems to have a better plan. How much they stick to, to your point, we

• 40:25Speaker 06

  don't know. How much they actually stick to beyond what they're contractually obligated to stick to, who knows? But the fact that they have the big movies and the big TV shows, and they're the number one premium streamer, I think really does do a lot for shareholders.

• 40:44Speaker 05

  We need to take another quick break. We'll be right back.

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• 42:14Speaker 04

  We're back with Puck Media correspondent Julia Alexander. Before the break, we were talking about the strategy of the two competing offers for Warner Brothers Discovery and why it seems obvious that Netflix has emerged as the clear winner. But as you've heard Julia say throughout this conversation, the old Hollywood is dying. Linear TV is in permanent decline and now you have a bunch of entertainment giants reduced to decaying brands, whose only value lies in the mountains of old TV shows, movies, and aging franchises that they don't really know what to do with. Netflix is the only one of these companies that you could reliably even call a tech company. And that helps explain why Warner Brothers sees its future in Netflix when it comes to competing against short-form video, gaming, and the dominance of YouTube. So I wanted to finish this conversation by talking with Julia about what the future of Hollywood might look like, especially now that staring down the barrel of an internet

• 42:58Speaker 04

  rife with AI slop and a tech industry more emboldened than ever to lay claim to our attention.

• 43:05Speaker 05

  When you think about the reception that these various studios and these various deals got in Hollywood, there has been a pretty quick flip, right? There was an immediate reaction to Netflix from Hollywood that was pretty negative. I think Hollywood did not want Netflix to consolidate even more power, to have even more influence over creative. And then Paramount showed up and suddenly Netflix, like you said, seems cool again. Why don't people want Paramount? Like, you have a billionaire nepo baby who just wants to make big budget movies and he's gonna spend his dad's money to do it. Like, why aren't more creatives trying to butter him up to get that cash?

• 43:39Speaker 06

  It's two names, and they are heavily related to entertainment in a way that Hollywood detests, and it's Neil Mohan and Sam Altman. And at this point, Netflix is cool because Netflix has proven that it's committed to, maybe not theatrical, but committed to filmmakers, right? They took on The Irishman, the big Martin Scorsese movie when no one else would do it. They're obviously committed to the television side of the equation, and they produce a lot of really great TV. No one's ever doubted that. At the same time, when they first came in, and they were the disruptors, and they were disrupting the theatrical model and kind of how writers and actors are getting paid on the TV side of the equation, it was scary because people don't like change, and Hollywood is especially antiquated in its approach to things, and so they especially don't like change.

• 44:23Speaker 06

  And then, at the same time, you know, Netflix hit 10 years, 11 years of producing original content, proved itself. At the same time that Sam Altman came in and was like, "We're gonna take people's likeness, and we're just gonna let people do what they want, and the next Star Wars movie is gonna come out of Sora 2," or whatever. And Neil Mohan is going out and saying, "By the way, television is YouTube. We're premium content. Our creators make premium content. We make up the vast majority of engagement on TV sets." We know that 10 years ago, less than that, you were worried about anti-Semitic content on our platform, and now we're the future of TV, partnered with the NFL and the Oscars. But I think when you look at that deep concern about Silicon Valley's encroaching impact on the traditional media business, you have a lot of traditional media players who say, "Okay, well, who's our best bet? Who's our best guy?"

• 45:08Speaker 06

  And the best guy at this point is Netflix and Disney. And so if the fight is like, "Well, we'd rather Netflix have Warner Brothers Discovery, and that creates enough engagement to continue supporting the artistic community, so it's not just Mark Rober and Mr. Beast on Netflix and Amazon," then we're gonna support that versus the guy who we don't know can get this through.

• 45:28Speaker 05

  So it's basically just doubt, right? It's doubt in David Ellison to compete with YouTube, to compete with any disruption from AI. I mean, and to be clear, David Ellison keeps waving at AI as though it's important. I don't know what he thinks is important about AI, but he, right, he keeps gesturing at it as though something will happen and he'll be cool because of it. Do you know what David Ellison thinks about AI? Because I have not been able to figure it out.

• 45:50Speaker 06

  I think it's whatever Bob Iger also thinks about AI. And I think, well, maybe not, because I think Bob Iger looks at OpenAI and says, man, imagine if we didn't sue Google and YouTube in 2007, and instead we just asked for a stake in that business and what that would have become, kind of like AI, Yahoo, and Google. I mean, I would love to know what David Ellison thinks about AI. I think he's a guy who deeply does love technology. If you read through the letter he sent to staff when the Paramount deal was first done with Skydance, he used the term tech and technology more than film, television, entertainment, streaming. He loves technology. What he thinks he's going to accomplish by loving AI, beyond the enterprise side of it, beyond the like, you know, use this for your Microsoft Word

• 46:35Speaker 06

  or whatever, and including it in more original content at a time when there was the longest writer's strike in a very long time and actor's strike because of artificial intelligence less than two years ago. I don't know what he's gonna think that he's trying to accomplish. But he's, again, he's a guy who's making a lot of manic moves very publicly. And I think that's off putting to a town very well known for kind of keeping up a very stoic face at times and kind of moving slowly through technological changes.

• 47:03Speaker 05

  Yeah, I would love, if David wants to come on the show, I'd love to ask him what he thinks the word technology means specifically. I also would put that right next to, you're trying to buy a library of content made before any of this technology existed.

• 47:14Speaker 06

  Yeah.

• 47:15Speaker 05

  Because the thing that audiences find valuable is well crafted things from the past. And there's no evidence that all this technology can make a well crafted thing in the future. And in fact, most of the AI slop that I see trades on the IP of the past. Like, you know, Sora does not explode into the public consciousness unless you can make Michael Jackson do things. Like, you need, you need literally a monoculture figure to make the AI seem relevant. Otherwise, you just have literally pure slop, which no one cares about. I'm unclear, like I said, David, if you want to come on and tell me what your plan is, I would love to hear it. Let me end by asking one of the more Julia questions I can, I can think of. We keep talking about these things like they're different businesses and they have

• 47:59Speaker 05

  different scopes, right? YouTube versus Netflix versus TikTok versus whatever. And it feels like the pressure is making them all the same business, right? So if you're like, I don't like what Neil Mohan is saying as CEO of YouTube, I'm going to place my bets on Netflix. That feels divorced from the fact that Netflix is just another app on your phone that is soon to introduce vertical video scrolling as a discovery mechanism to get you to do whatever next transaction they're going to do. That is divorced from the fact that Amazon has live shopping notifications in its app today, and that is right next to Instagram turning itself into some sort of like chaotic AI-powered QVC. They're all the same bit, like they all have the same economics fundamentally, right?

• 48:44Speaker 05

  Compared to, there used to be TV where you had your cable carriage agreements and your guaranteed advertising and that sat next to movies, which had a theatrical window and then a pay one window and then like whatever, right? They're like radically different businesses with different economics and they produce different art. All of these feel like the same business to me right now, no matter what. How does any of that get differentiated ever again?

• 49:08Speaker 06

  The word that gets passed around a lot in different executive meetings is quality and not in the sense of we need to protect quality, but more from the nihilistic point of view of does quality matter? The question of no one thought YouTube was TV, a lot of these Hollywood executives still thought it was just cat videos up until like the Nielsen gauge started breaking out YouTube consumption on TV sets. People are worried that if quality doesn't matter, it's just scale, then how do you play into this? And it wasn't a concern until, as you just perfectly outlined, the ad dollars were going across all these same platforms. It used to be that Netflix or even, you know, back in the day, Disney and CBS and whatever

• 49:53Speaker 06

  it might be, had one level of ad spend. And then there was, you know, search ad spend, right? And there was like social video before we called that ad spending YouTube video and whatever it was. And now all of these companies have started to realize that where the real money is going to be over the next few years, outside of the mobile social space and kind of the e-shopping space happening inside these different apps is on connected TV sets. We're spending more time with our connected TV sets. And so the the amount of dollars that is left over from linear as they move over to CTV is very, very, very high. It's why the Nielsen gauge has become this big problem in Hollywood because YouTube can use it to say, we want these bigger TV brand or ad deals and we can work with their creators on that and the brands on it with the podcasts, because those are playing out

• 50:37Speaker 06

  on TV living room sets, all that stuff. It's what's encouraging Adam Mosseri to say, let's be on TV sets. And it's also what's concerning the Netflix's and the Paramount's and the WBDs of the world. Because if they can't rely on that guaranteed collection of revenue going to their services, because now you've got these big disruptors coming in, then they have to find out ways to either lean into the lower quality content that people seem to want, and that's not to diss many YouTubers, I'm saying it's just on average what how they think of it, or go the other way and be super high premium content. So kind of going back to what we started this conversation on, why does Netflix want WBD at the same time they want podcasts? They don't know the answer. They don't know.

• 51:20Speaker 06

  They don't know if the idea is to go $50 a month in 10 years and have the best quality stuff in the world, and that's the differentiator in a world of AI slop, or if they should have more podcasts and more UGC videos in order to kind of glean on to that audience. And so I think we used to talk about attention across all these different formats as something completely different, but the reality is, is that all those little slippers of attention that they once thought they could have are completely melded into each other. Now what's left is crumbs. They're fighting for crumbs. And so the fighting just means that it went from being, you know, maybe we'll bid on a Martin Scorsese movie, or we'll bid on the UFC, to now we're actually going to spend $83 billion in order to kind of protect our future. It's the most expensive defensive bet in entertainment in a very long time.

• 52:05Speaker 05

  The last outstanding piece of this puzzle is regulatory approval, which we've been hinting at throughout this conversation. Obviously Larry Ellison is a big Trump supporter. David Ellison, his son, made enormous changes at CBS News after buying Paramount. Trump seems very pleased with them. In classic Trump fashion, he's not even hiding the idea of a quid pro quo, right? He's just saying to the anchors of CBS News, like, I got you your job. It feels very obvious that Warner shareholders want to go with Netflix. The Trump administration could get in the way of that, right? The Federal Trade Commission could say, we're initiating anti-monopoly review. They could push it towards Paramount. Does that seem likely to happen? Is Netflix ready for that outcome?

• 52:43Speaker 06

  Netflix is super ready. They seem, they had an earnings call a couple weeks ago. They seem to feel pretty confident, although how much of that is just public posturing? We never know. What I will say is they're sowing the seeds very, very well of saying that, you know, if this is a conversation about premium video, then yes, we are the biggest. But to your last point, Neelai, what is video in 2026? And so they keep pointing out YouTube's advantage and Instagram's advantage. And I think the case, I keep thinking about the regulatory stuff is the most recent. You'll have to correct me if I'm wrong. I think it was DOJ meta, right? It wasn't FTC meta.

• 53:21Speaker 05

  It's FTC meta.

• 53:22Speaker 06

  It was FTC meta where Meta was like, people come here not to connect with friends. They love video, right? Like they love watching stuff. Now, if you're Ted Sarandos and Greg Peters, you're like, thank God. Cause now we can say, look, people are spending time on Facebook, watching video. They're spending time on Instagram. Instagram is coming to TV sets and they can point to YouTube's growth where they, if you look at a chart of Netflix versus YouTube in the United States, Netflix has like a very little slope in terms of increased engagement. And YouTube is like on a huge swing upwards on TV sets. And so I think if they can look at the precedent of what is video on all these major distribution platforms, which Facebook, you know, is now a part of, they have, I think, the advantage of being able to say that we're competing against all these guys.

• 54:05Speaker 06

  But of course, again, as we said earlier, in the Trump administration and the Trump era, never say never about how this could go.

• 54:12Speaker 05

  Do you think if Netflix buys Warner Brothers, they will succeed where literally every company in the past has failed?

• 54:17Speaker 06

  I think it will ultimately, similar to the 2019 conversation about Disney and Fox, it will ultimately be that it was probably a good thing to own. They probably should have done it at half of the price. And somehow David Zaslove and Rupert Murdoch are the two that, you know, came out swinging and winning in this world. But no, I think it'll do well for Netflix because they have the audience and it will be vastly, vastly overpriced in three or four years when we look at that deal.

• 54:44Speaker 05

  Julia, this has been great. We're gonna have to have you back soon. Every time I talk to you, I feel like we should just do this every single week. I assume there's gonna be more twists and turns in this saga, so we'll have you back real soon.

• 54:54Speaker 06

  Absolutely.

• 54:57Speaker 04

  I'd like to thank Julie Alexander for taking time to speak with me and thank you for listening to Decoder. I hope you enjoyed it. If you'd like to let us know what you thought about this episode, or really anything else, drop us a line. You can email us at [email protected]. We really do read all the emails. Or you can hit me up directly on Threads or Blue Sky. We're also on YouTube. You can watch full episodes at DecoderPod. And we have a TikTok and an Instagram. They're at DecoderPod as well, and they're a lot of fun. If you like Decoder, please share it with your friends and subscribe wherever you get your podcasts. If you really like the show, hit us with that five-star review. Decoder is production of The Verge and part of the Vox Media Podcast Network. The show is produced by Kate Cox and Nick Stat. It's edited by Ursa Wright. Our editorial director is Kevin McShane. The Decoder music is by Breakmaster Cylinder. We'll see you next time.

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