The contest between Netflix and Paramount for Warner Bros. has storylines and personalities that would make gossip mongers from Louella Parsons to Maria Menounos gape. 

Gulf State plutocrats providing financing without, we are told, board seats or any other governance rights; Jared Kushner championing Paramount’s efforts, then walking away; Larry Ellison pushed to personally guarantee $40 billion to backstop his nepo-financier David; and President Donald Trump insisting he will have a great deal to say about how the dice will come up. There’s plenty for the rumor mill to digest.

All that pales before the real story — what the two bids say about the future of American entertainment.

Paramount says it wants to save American movie-making. Netflix, it argues, would scale back production and gut the cultural ritual of theatrical release. That defies basic common sense. 

Netflix wants Warner because it brings new programming for its cutting-edge distribution network; would it really cut back on the most important thing it’s buying? And Netflix’s top execs readily acknowledge that theatrical release builds interest that boosts their performance on streaming, leaving viewers to count the days until a new “Knives Out!” reaches their tablets.

And with super-premium products like Warner’s DC franchise and cinematic mainstays such as James Bond, Harry Potter and Gandalf the Wizard in the mix, it’s no surprise the company has pledged to stick with Warner’s theaters-first approach.

Paramount’s bid guarantees production cuts. Acquiring Warner Bros. would saddle the company with two historic LA production lots to be combined, almost certainly by shuttering one to generate the $6 billion in savings Paramount promises from the deal. 

Production would also likely fall victim to Paramount’s massive post-deal debt, which it projects to be 6.8 times its annual earnings before interest, taxes, depreciation and amortization, a level usually associated with “junk” financing. Netflix’s debts, in contrast, would be less than a third of Paramount’s when compared to earnings by 2027.

Does Paramount have the creative chops to keep Warner Bros. a content powerhouse? Warner Bros. has had three billion-dollar releases since 2017 — “Aquaman,” “Joker” and “Barbie,” and a near-miss in “A Minecraft Movie,” an all-the-more impressive record as all four stem from different intellectual property streams. Paramount has had just one in this period — “Top Gun: Maverick,” the final fruit of an IP stream its creator will no longer sustain.

Since 2017, Warner has won 19 Oscars and Netflix has 26, while Paramount has one. What superior creative insights, therefore, would Paramount bring to Warner when compared to Netflix?

Beyond these measurements, the most important difference between the two bids is this: Paramount wants to acquire Warner Bros. so it can be today’s Netflix, but Netflix wants to acquire Warner Bros. so it can create something new beyond today’s Netflix. For movie fans, creative industry workers and policymakers, what’s a more intriguing deal — Paramount’s private equity quest for efficiencies and scale or Netflix’s entrepreneurial mission to find new ways to tell historic stories across multiple screens, platforms and markets?

Paramount’s effort to win through scale ignores the commanding presence of entertainment industry behemoths like YouTube, Disney and even its potential sibling, TikTok. YouTube dominates global “viewing share,” capturing almost 13 percent of audience attention, far outstripping Netflix at 8 percent. Netflix can take pride in its steady growth to 300 million subscriptions, but that’s a sneeze to YouTube, with nearly 3 billion active users.

And that’s just the tip of the iceberg of a fast-changing global entertainment industry. TikTok and Reels are leading indicators of this global revolution. Chinese creators are turning out programs with 90 episodes, each 2 minutes long.

According to a Motley Fool poll, consumers now think there are too many video choices, not too few. AI will turn content creation into a spiraling free-for-all, blending imagination and ingenuity (never mind the rampant piracy). 

Recently, Disney reached a deal with Open AI’s Sora app, letting users make social videos — that is, content (within certain limits) — out of Disney properties from Mickey to Star Wars to Frozen to Marvel to Pixar. Netflix, armed with Warner’s library, can not only turn Harry Potter or James Bond into new television series, but with its grounding in tech and innovation, seems poised to launch them into whatever new forms of user-driven entertainment emerge from the scrum. Warner gives Paramount a last-ditch stand to survive in today’s entertainment industry, but it would be the rocket fuel that helps propel Netflix into the globalized, atomistic industry of the future.

Netflix offers support for the film industry and its workers, a new future for Warner Bros., and a competitive champion in the streaming wars. That’s a path forward that consumers, workers, investors and regulators should be ready to support.

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ABOUT THE WRITER

Ev Ehrlich was undersecretary of commerce under President Bill Clinton. He wrote this for InsideSources.com.

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