Netflix Is Buying Warner Bros Discovery’s Studios: What’s Actually Happening Here?
- Peak Frameworks Team
- 1 hour ago
- 3 min read
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Overview
Netflix just agreed to buy Warner Bros. Discovery’s studios and streaming business (after the linear networks are spun off) in a transaction that implies roughly $83bn of enterprise value.
It’s a messy but classic “spin-then-merge” structure that hands Netflix HBO, Warner Bros, and the Harry Potter / DC universes, while carving out the old-school cable networks into a separate company.
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What Is Netflix Actually Getting?
Today, Warner Bros. Discovery (WBD) is made up of:
Linear TV networks (CNN, Discovery, Turner, etc.)
Streaming & Studios (Warner Bros, HBO, Max)
The deal splits those in two:
WBD first spins off the Global Linear Networks business and certain other assets into a new company (“SpinCo”) and hands that stock to existing WBD holders.
What’s left, the Streaming & Studios business (the “Retained Business”), is then sold to Netflix.
So WBD shareholders effectively trade their studios/streaming exposure for cash + Netflix equity, but keep a separate stake in a cable-heavy networks company.
How Is the Deal Structured?
HoldCo shuffle – WBD drops itself under a new top company (a technical Delaware move) so they can run the spin and merger cleanly.
Spin-off – Linear networks and some related assets go into SpinCo, with SpinCo taking on a targeted level of debt. WBD distributes SpinCo shares to its existing investors.
Merger with Netflix – Netflix merges a sub into the remaining WBD entity (the “Retained Business”), which becomes a wholly owned Netflix subsidiary.
This lets Netflix buy only what it wants (studios + streaming) and sidestep owning CNN and the entire global cable bundle.
What will WBD Shareholders Get?
For each WBD share, holders receive:
$23.25 in cash
$4.50 worth of Netflix stock, delivered via an exchange ratio that floats inside a collar
The collar is designed so that:
Above a higher NFLX price, WBD holders get fewer shares (fixed low ratio).
Below a lower NFLX price, they get more shares (capped high ratio).
Between those bounds, the ratio flexes to keep the stock piece ~$4.50.
So the headline value before any Net Debt Adjustment is about $27.75 per WBD share, adjusted for:
Netflix’s share price at closing (within the collar), and
A “Net Debt Adjustment” tied to how much net debt ends up in SpinCo: if SpinCo is less levered than the target, the cash price to WBD holders gets cut dollar-for-dollar.
How Will This Be Financed?
To fund the cash portion, Netflix lined up a bridge commitment of up to $59bn from a bank group. The bridge is there to fund:
Cash consideration,
Fees and expenses, and
Optional refinancing of existing debt.
Closing is not conditional on financing, so Netflix can’t walk just by pleading “markets were tough.”
If WBD walks to a better deal or after a recommendation flip, it owes Netflix about $2.8bn.
If regulators ultimately block the deal or approvals fail, Netflix owes WBD about $5.8bn.
The deal has to close by March 4, 2027, with two possible three-month extensions if the only remaining issues are regulatory approvals.
Why Is Netflix Doing this?
Three big reasons:
Content and IP scale. Netflix gets a century of Warner Bros output plus HBO’s premium slate (Harry Potter, Batman/DC, Game of Thrones, etc.), along with the underlying production machine. That’s a huge injection of fresh and ongoing content into the Netflix flywheel.
Streaming economics. Streaming has been a loss-making arms race for almost everyone. Absorbing a major rival’s studios and platform gives Netflix more control over content spend, more negotiating leverage, and a clearer path to cost synergies. Management is talking about $2-3bn in annual savings by year three.
Strategic positioning. Netflix can now pitch itself as the default global entertainment bundle: original Netflix shows, HBO’s prestige series, and Warner Bros theatrical movies under one roof, while still arguing to regulators that it faces serious competition from YouTube, TikTok, gaming, and the rest of big tech.
What Does This Mean for the Industry?
For the rest of media, especially Paramount and Comcast, this shrinks the universe of “fix-your-scale-problem-with-one-big-deal” options. If you’re subscale in streaming now, the bar to survive independently just got higher.
For investors, the underwriting problem is straightforward but hard:
Pro forma leverage after funding and terming out the bridge,
Realistic synergy vs guidance, and
The odds and consequences of a broken deal (including that $5.8bn check).