(CNN) — Netflix has triumphed in the bidding war for Warner Bros. and HBO, announcing a deal that could combine two of the three biggest streamers with one of the largest traditional movie and television studios.
If the deal goes through, it will fundamentally reshape Hollywood at a precarious time for the entertainment business. It would give Netflix control of some of the industry’s most valuable intellectual property, including Batman, Harry Potter and Game of Thrones, and would give a company that historically had very little interest in movie theaters oversight of the studio that put more butts in seats than any other this year.
But first it will be subjected to intense regulatory review in the US and other countries.
Netflix announced the blockbuster deal with Warner Bros. Discovery on Friday morning. It has agreed to buy the legendary TV and movie studio and assets like the HBO Max streaming service for $72 billion, plus debt.
The announcement jolted Hollywood and jumbled expectations about the next steps for Warner Bros. Discovery, which is also the parent company of CNN.
Warner Bros. Discovery (WBD) said it is moving forward with its plans to split into two publicly traded halves in 2026. Once the split takes effect, Netflix intends to acquire the Warner half. The other half, Discovery Global, will house CNN and other cable channels.
WBD now expects the split to take effect in the summer of 2026.
But this mega-media merger saga is far from over. Paramount and Comcast, the other media giants known to have submitted offers for WBD, may continue to pursue the company.
Netflix’s (NFLX) stock fell more than 2% in early trading, while Warner Bros. Discovery’s (WBD) stock gained 2%.
Surprise turn of events
For several weeks Paramount was thought to be the frontrunner in the auction for WBD. Paramount executives, who want to buy all of WBD – including its cable assets – exuded confidence about their merger proposal and their mutually beneficial relationship with President Trump.
But Netflix surprised many with the boldness of its bids: The streaming giant submitted two proposals earlier this week that vaulted it ahead of Paramount’s offers, according to sources familiar with the matter.
Netflix co-CEO Ted Sarandos acknowledged the shock on a call with Wall Street analysts Friday morning.
“I know some of you are surprised that we’re making this acquisition. And I certainly understand why. Over the years we have been known to be builders, not buyers,” Sarandos said. “But this is a rare opportunity, and it’s going to help us achieve our mission to entertain the world and to bring people together through great stories.”
Sarandos told Bloomberg recently that most media transactions don’t end well – a statement he was asked about on Friday’s call.
“I think it is true, like historically, many of these mergers haven’t worked. Some have,” Sarandos said. “A lot of those failures that we’ve seen historically is because the company that was doing the acquisition didn’t understand the entertainment business. They didn’t really understand what they were buying. We understand these assets that we’re buying.”
Sarandos added that past merger failures happened because the acquiring company was no longer growing and needed a merger to gain ground. That’s not the case for Netflix, he noted, which continues to add subscribers and pad its bottom line with increased engagement.
Antitrust concerns
Netflix agreed to the same costly breakup fee that Paramount proposed during the auction process, a source familiar with the matter told CNN. This means the would-be buyer will pay WBD billions of dollars if the deal is not completed.
That’s critical because the biggest X factor is regulatory approval. Some American politicians have already raised concerns about the potential consolidation.
This “should send alarm to antitrust enforcers around the world,” Sen. Mike Lee wrote on X.
In recent weeks Paramount CEO David Ellison was viewed as the Trump administration’s favored buyer of WBD. Paramount fanned doubts that regulatory agencies controlled by Trump would approve other proposed deals.
Now some analysts expect a political and legal battle will ensue. But the US is just one of many markets that will take a close look at the transaction. Paramount was said to face a particularly uncertain regulatory environment in Europe.
Netflix executives previewed their arguments for regulators on Friday, asserting that the assets are complementary in nature and that the deal will create “more opportunities for the creative community.”
Greg Peters, the Netflix co-CEO, said Warner Bros. “has helped define entertainment for more than a century,” and “with our global reach and proven business model, we can introduce a broader audience to the worlds they create—giving our members more options, attracting more fans to our best-in-class streaming service, strengthening the entire entertainment industry and creating more value for shareholders.”
Hollywood expresses doubt
That’s the pitch. But many entertainment industry heavyweights have already heaped doubt on it.
Cinema United, a trade association representing movie theater owners, said the deal “poses an unprecedented threat to the global exhibition business,” given Netflix’s general aversion to theatrical releases.
Netflix, anticipating these objections, said Friday that it “expects to maintain Warner Bros.’ current operations and build on its strengths, including theatrical releases for films.”
A combination of Netflix and HBO would end one of the great media industry rivalries of the past decade. A recent Bank of America analyst report put it this way: “If Netflix acquires Warner Bros., the streaming wars are effectively over. Netflix would become the undisputed global powerhouse of Hollywood beyond even its currently lofty position.”
This is a developing story and will be updated.