Netflix’s stock jumped nearly 14 percent on Friday, a day after it stunned Hollywood by backing out of its $83 billion deal for Warner Bros. Discovery .
A Lucrative Exit
Netflix’s bank account grew by $2.8 billion on Friday, too, when Paramount paid a breakup fee for sideswiping the Warner deal. The windfall added to the company’s already substantial cash reserves, rewarding the streamer for simply participating in the bidding process .
Did Netflix Just Win by Losing?
Netflix certainly lost Warner Bros. Discovery to Paramount. Its top executives made clear that they would have loved to own the Warner Bros. studio and HBO. But in the end, the company said, it wasn’t willing to pay the price necessary to outdo Paramount .
And it is entirely possible, analysts say, that Netflix will be better for it. Two of Netflix’s top competitors—Paramount and Warner Bros.—now have the daunting task of forming one successful company out of their two struggling businesses, all while managing a huge pile of debt. Sounds like a huge distraction .
“There are certainly investors that believe that Netflix’s content engagement flywheel is broken” and that it needed the deal, said media analyst Richard Greenfield. “But the truth is, Netflix is still producing more hits than everyone else combined” .
Netflix’s Position
Since its founding close to 30 years ago, Netflix has built itself organically into a $400 billion streaming behemoth, hiring away the best talent in technology and entertainment to create a global force that upended the entertainment industry .
That is why it surprised so many in the industry in December when the company successfully bid to buy much of Warner Bros. Discovery and take on a lot of debt. The deal also meant that Netflix would be entering a business it had long stayed away from: the shrinking theatrical movie business .
By walking away, Netflix avoided taking on significant debt and the challenges of integrating a traditional studio, while collecting a massive breakup fee and watching its rivals enter a complicated merger .
What’s Next
With its stock surging and billions in hand, Netflix now watches from the sidelines as Paramount and Warner Bros. attempt to merge their struggling operations. Whether the streamer will regret not owning HBO and the Warner Bros. library remains to be seen, but for now, Wall Street appears to approve of the decision to walk away .
