Netflix: From Streaming Giant to M&A Battleground

"Most entrepreneurial ideas will sound crazy, stupid and uneconomic, and then they'll turn out to be right"

– Reed Hastings, Founder of Netflix

M&A.

Or Mergers & Acquisitions.

That’s where the big players step onto the field.

M&A is where conviction is tested — where companies open their wallets to prove they believe an acquisition will create long-term value.

But M&A is thin ice.

History is unforgiving: 60–80% of mergers and acquisitions destroy value rather than create it. Why is the failure rate so high? Even the most exhaustive due diligence never uncovers every critical issue. Timing is often off. Corporate cultures collide. Processes differ. And more often than not, acquirers overpay, especially early in the deal cycle when value creation is still theoretical and based on hoped-for synergies.

Then there is the human factor.

Ego plays a far bigger role than most management teams would like to admit. Deals become about ambition, legacy, and “winning” — not about shareholder returns. Once pride enters the room, discipline often leaves it.

Value creation is typically expected to come from two sources:

• Synergies, which frequently disappoint or arrive far later than planned
• New strategic growth markets, which often turn into costly distractions from the core business rather than engines of growth

But there is one trigger that can derail even a well-reasoned deal instantly.

A bidding war.

When two companies chase the same asset, prices rise, assumptions stretch, and shareholder value is usually the first casualty. What starts as a strategic acquisition quickly turns into a contest of will.

And that’s exactly where we are today.

There is a big prize on the table — one that two businesses are actively eyeing — and the setup for a bidding war is in place. The asset? Warner Bros.

The contenders stepping into the ring?

Paramount and…

Netflix.

Chart 1: Paid subscribers — Netflix, Disney+, Warner Bros. Max & Paramount (2024)

Inside Netflix: Innovation, Originals, and Cultural Phenomena

Let’s start with the “Good Story” — and Netflix has one of the best in corporate history.

It’s a product almost everyone reading this has used at least once.

Founded in 1997 by Reed Hastings and Marc Randolph in California, Netflix is a textbook example of successful business model transformation. In less than two decades, it evolved from a DVD-by-mail service into one of the most powerful global entertainment companies.

The founding idea was simple but radical at the time.

Inspired by the growing reach of the internet, Hastings (a software engineer) and Randolph (a marketer) envisioned renting DVDs online and delivering them by mail — bypassing physical stores and eliminating late fees altogether. The name “Netflix” itself captured that ambition: net for the internet, flix for movies (flicks).

Yes — Netflix once mailed physical DVDs.

Friday night meant choosing one movie.

Gen Z readers may struggle to imagine that moment — and for the rest of us, well… you know what that realization means 😉.

Netflix initially operated on a pay-per-rental model but quickly pivoted to a subscription-based system, offering unlimited rentals for a flat monthly fee — a breakthrough at the time (chart 2).

The real inflection point came later.

In 2007, Netflix entered streaming.

In 2013, it changed the industry.

With the launch of House of Cards, Netflix made a bold move into original content, fundamentally redefining its business model and brand. This was not just about expanding the content library — it was about control.

Why originals mattered:

• Control over content: Reducing dependence on increasingly expensive licensing agreements
• Global scalability: Producing content tailored to different regions and languages
• Brand elevation: Award-winning originals attracted top directors, actors, and creators
• Industry disruption: Netflix became a direct competitor to Hollywood studios and TV networks

The results speak for themselves.

Stranger Things, The Crown, Narcos, and Squid Game became global cultural phenomena, driving subscriber growth and cementing Netflix’s status as a creative powerhouse.

But success attracts competition.

Today (chart 1), Netflix faces intense pressure from Amazon Prime Video, Disney+, Paramount, and Max (Warner Bros.). The battle for viewers, talent, and premium content has become increasingly capital-intensive.

And that brings us to the present moment.

In a crowded streaming landscape, standing still is not an option.

Deploying large sums of capital — whether through content, partnerships, or acquisitions — is becoming inevitable.

Let’s unfold the M&A battleground.

Chart 2: Netflix's revenue growth since 2012 – and the death of its first business: DVD rental

Netflix vs Paramount: the Preferred Acquirer vs the Big, Wealthy Ego

So, what’s all the fuss about?

Let’s rewind.

In streaming, content is king. And there are only a few ways to secure it: build it, license it — or simply buy it. That’s where the usual M&A targets come into play. Not the giants doing the acquiring, but the mid-sized players sitting on valuable assets.

Enter Warner Bros. Discovery.

Warner owns one of the deepest content libraries on the planet:

• HBO (Game of Thrones, The Last of Us, Friends, Big Bang Theory)
• DC Comics (Batman, Superman, Wonder Woman)
• Harry Potter & Lord of the Rings
• Looney Tunes (Bugs Bunny and friends)
• Plus major film and TV production studios

Why is Warner Bros. so attractive to Netflix?

• Content is king: Instant access to decades of iconic franchises, reducing reliance on external licensing
• Market power: A deal would further cement Netflix’s dominance against Disney, Amazon, and Paramount
• Production muscle: Full control over blockbuster-scale film and TV production
• Consumer value: More premium content bundled into a single subscription
• Strategic shift: Netflix moves decisively from distributor to fully integrated studio giant

Netflix reportedly put a bid on the table valuing Warner Bros. Discovery at ~$82.7bn, roughly 15% of Netflix’s own market cap at the time. Strategically bold — but defensible.

Then things escalated. Paramount enters the ring.

Fresh off an embarrassing awards season — zero Oscar nominations (the only major studio with none, Netflix had 16 nominations, Warner 30 nominations) — Paramount suddenly had a problem.

That’s the worst-case scenario for a content studio.

Behind Paramount stands David Ellison, backed by his father Larry Ellison (Oracle founder, ~$200bn net worth).

Translation: deep pockets and ego in play.

The result?

Paramount–Skydance launched a rival, hostile, all-cash bid for all of Warner Bros. Discovery at $30 per share, valuing it at roughly $108bn — notably higher than Netflix’s offer and including cable assets Netflix didn’t even want.

While Paramount’s bid is financially superior, shareholders appear conflicted. Strategically, many see greater long-term value in a Netflix combination.

And from a consumer’s perspective — especially in Switzerland — it’s easy to see why: One subscription. All that content. No fragmentation.

But the investment reality is different.

Here’s the problem.

Netflix’s “Good Story” has now taken a back seat. The narrative is no longer about innovation, originals, or operating leverage — it’s about deal risk:

• Shareholder votes
• Antitrust scrutiny
• Political oversight
• Legal costs
• Long timelines
• Uncertain outcomes

That means one thing for markets: uncertainty. And to stay with Superman terms, uncertainty is kryptonite for “Good Charts.”

Let’s check.

Chart 3: Netflix & Warner Brother’s Content Library

The More the Damage, the Longer the Repair

Remember that $500+ bn market cap?

It has now sunk to around $350 bn amid the bidding war and mounting uncertainty — a 38% drop from its recent all-time highs (chart 4).

And Mr. Market isn’t slowing down. Netflix has been under pressure for almost 10 consecutive weeks, despite solid business fundamentals.

Valuation metrics tell the story:

• PE: 26.7 vs. 56 on average
• Free cash flow yield: 2.7% vs. 1.6%

With the stock relentlessly falling, we first see weakening trends — moving averages dropping and prices searching for a bottom.

At arvy, we don’t bottom fish or chase turnarounds. Instead, we keep the “Good Story” of Netflix close, waiting for clear signs of stabilization or trend reversal.

History and market behavior tell us: the more the damage, the longer the repair.

What could start the repair? A clear catalyst would be the completion or cancellation of the M&A saga.

Until then, it’s simple. Owners: sit and suffer.

Non-owners: wait in ambush.

Chart 4: Netflix stock over the last five years and since the Warner Bros. takeover bid