AfriPulse
Never say never. In December 2010, Jeff Bewkes, then CEO of Warner Bros. parent Time Warner, famously compared up-and-coming streaming and DVD-by-mail company Netflix to the military of a small country in Southeast Europe. “It’s a little bit like, is the Albanian army going to take over the world?” Bewkes said when asked whether Netflix was a threat to Hollywood giants. “I don’t think so.”
Netflix founder Reed Hastings took it in stride, eventually calling Bewkes a comedian and signaling that he wasn’t hurt by the comment. The following April, Bewkes extended an olive branch of sorts. ”I do have a fondness for subscription television, and Netflix is subscription television,” he added. “So, welcome, brother!”
On Friday, Warner Bros. owner Warner Bros. Discovery rolled out the red carpet to welcome Netflix, led by chairman Hastings and co-CEOs Ted Sarandos and Greg Peters, inside the gates of its venerable lot, unveiling a mega-deal valued at $82.7 billion to sell its studios and streaming operations to Netflix.
In contrast to the Bewkes commentary of old, WBD president and CEO David Zaslav had nothing but praise to heap on Netflix. “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,” he said in a statement unveiling the deal, which gave off the sense that he may be humming the Game of Thrones theme tune, followed by the famous Netflix “Tudum” in his mind.
In a memo, Zaslav added: “This decision reflects the realities of an industry undergoing generational change – in how stories are financed, produced, distributed, and discovered.”
Sarandos paid back the love during a Friday conference call, thanking Zaslav & Co. “for trusting us” with the Hollywood legacy the streamer is looking to take over.
How did Netflix get here?
An April 16, 1998 news item in The Hollywood Reporter.
Well, it started in the late 1990s as a DVD-by-mail rental service before going public in May 2002. This writer recalls conducting an interview with Hastings, in which he expressed optimism that the company could get to a point where its Bay Area penetration would steadily reach 7 percent-plus and then look to replicate that success in the rest of the U.S.
Hollywood initially embraced Netflix as a new DVD rental outlet without foreseeing that the company would eventually chip away at profitable DVD sales, which the entertainment industry back then counted on for revenue.
Then, Netflix started emerging as a threat to do the same thing to cable television, Hollywood’s big profit engine of old. Asked by this Hollywood Reporter writer years before its push into streaming if the company could move beyond the postal delivery of DVDs, Hastings expressed excitement for a potential future of new distribution forms that could take movies and series directly to consumers’ screens.
An October 2004 news brief in The Hollywood Reporter.
He was right. Netflix launched its “Watch Now” streaming feature in January 2007 and kept growing its user base. But could this new opportunity ever overtake the DVD-by-post business, people wondered. Well, it did, and it did so quickly. By late 2010, Netflix said streaming had become its primary business and revenue source.
It had, by then, again drawn the attention of Hollywood studios and networks, which were again looking to benefit from its success, this time by licensing their content to Netflix in an effort to create a new revenue stream.
But dollar signs soon turned to concern amid a growing realization that the streamer could start to bite the hands that were feeding it because Hollywood had underestimated the appeal of streaming and the prices it could charge for hit content appearing on Netflix. Industry insiders ended up crediting much of Netflix’s early streaming growth spurt to a content deal with the Chris Albrecht-run Starz that gave the firm rights to stream Starz’s Sony and Disney movies, while cannibalizing the pay TV player’s business. Netflix reportedly paid $25 million a year under the agreement. Media analyst Michael Nathanson famously called it “probably one of the dumbest deals ever,” emphasizing: “Starz gave up valuable content for tens of millions of dollars.”
Bewkes also fumed, pointing out that the deal undermined cable networks’ lucrative subscription fees. “Why should anyone subscribe to Starz when they can basically get the whole thing for about nothing?” he said. “That doesn’t make much sense.”
What followed was a content retrenchment as Hollywood players pulled their programming from Netflix, endangering the streamer’s future appeal. It was time for a big pivot. And it took the form of Netflix’s entrance into original content production.
The Hollywood Reporter’s May 2013 cover unveiling Netflix’s “Phase 2.”
Remember those pioneering days in 2013 when what is typically remembered as its first original series, House of Cards, premiered on Netflix? Some thought it may just be a phase of Hollywood creators working with the streamer. Others had doubts its hit rate of original fare could live up to its needs. But pretty soon, Netflix originals were seen as here to stay as the company expanded into more and more markets worldwide.
Most had long forgotten about that “Albanian army” comment when the service’s final major launches, in 130 new territories, came in January 2016, making Netflix truly global. But even then, not everybody was convinced that the streamer could draw audiences everywhere. Some even derided its approach of hunting for original content from outside Hollywood, because how many people would be ready to watch content with subtitles? Those were those days, and they were coming to an end fast.
Netflix had actually experimented with such content before House of Cards, when it premiered its original series Lilyhammer, set in Norway, in 2012, featuring a New York mobster, played by Steven Van Zandt, in witness protection. Well, 10 years later, at the latest, the tables had turned. By then, Hollywood giants were the ones struggling to convince Wall Street that they could build sustainably profitable streaming businesses.
Netflix, meanwhile, had crossed the 300 million subscriber mark by the end of 2024 and had added a growing advertising tier business.
Few believed, though that it would ever make a big M&A splash by striking a deal to buy a major Hollywood studio. Well, Netflix has done that, too, now.
And it has done so on Friday at a time when war rhetoric has made way for a look at the world through Barbie pink-tinted glasses full of love and respect. However, don’t expect smooth sailing. Competitors, led by Paramount Skydance, have started crying foul and look ready to find deal killers worthy of The Sopranos.
And regulatory scrutiny is likely to be intense. “As the largest streaming company in the world, we believe Netflix would likely face regulatory hurdles,” Morgan Stanley analyst Benjamin Swinburne wrote in a recent report. “While we do not believe any FCC approvals would be required, the Department of Justice could look at this combination in the context of antitrust law. Concerns from theater operators, labor unions, and streaming competitors” are also “likely” to play into the regulatory debate, he warned.
Source: HollywoodReporter | Read the Full Story…
