It's September 2000. Two men, Reed

Hastings and Mark Randolph, fly to

Dallas to meet Blogbuster, the king of

the movie world at the time. They offer

Blockbuster to buy their struggling

startup called Netflix.

At first, the CEO stays silent and then

calls Netflix a niche business that

would never last. Fast forward to today.

That so-called niche business is just

about to swallow Warner Brothers, the

beast behind Harry Potter, DC, and HBO.

Not only did the underdog survive, it

took Hollywood and the entire movie

industry by storm. So much so that

Netflix and Hollywood are synonymous

these days. Happy New Year, ladies and

gentlemen. We're starting 2026 with the

biggest deal in the history of media. I

will cover the math that makes Netflix

untouchable, the culture clash between

data and artistry, and what the Netflix

Warner Brothers acquisition means for

the movie industry and entertainment as

a whole. Let's dive in.

A quick timeline, October 2025, Warner

Brothers Discovery is putting the

company up for sale. The reason,

catastrophic debts, around $43 billion.

On December 5, Netflix announces that it

would buy Warner Brothers Discovery for

$82 billion, marking the largest media

transaction in history. Now, when we say

acquisition, what exactly is being

acquired? Warner Brothers is a

conglomerate, as you know, and they have

two branches so to say, of business. One

is entertainment, and the other one is

information services. Entertainment

includes Warner Brothers Discovery, HBO

Max, DC franchises like Batman or

Superman, and of course, Harry Potter.

And then there are cable networks, their

gaming division, and sports channels.

The Netflix deal only covers

entertainment services, which means that

if it really happens, Netflix will get

access to all of HBO's content, DC,

Harry Potter, and Warner Brothers

content library. But this acquisition is

yet to be approved by antirust

regulators and there's absolutely no

guarantee that this will happen. But if

it does, when are we going to see the

result? The deal is in the review phase.

It hasn't closed and it is with both the

Department of Justice Antirust Division

and potentially the Federal Trade

Commission. Put a pin in this. I will

come back to it. The closing is expected

to take place in the second half of 2026

at the earliest, potentially extending

into next year. It is worth mentioning

that Netflix wasn't the only buyer that

expressed interest. Paramount also

fought for it for months, but Warner

Brothers ended up turning down the $108

billion deal offered by Paramount, which

let me emphasize is a larger offer than

what they got offered by Netflix. The

reason for that is because they said

that they specifically wanted Netflix.

The offer from Paramount stood until

January 8th, which is a couple of days

ago, but as of today, Warner Brothers

has officially rejected Paramount's

higher bid. So, why does Netflix need

Warner Brothers?

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Streaming services is a very mature

industry. If I ask you to name top three

streaming services, you would probably

say YouTube, Netflix, and Amazon video.

And there's something very specific that

happens to companies when they're past

the phase of scaling. When you are a

mature, well-known player in a mature

field, much like David Beckham in

football, revenue and profits matter

more than subscriber count. After years

of working in tech industry, there have

been numerous times when I was asked a

very typical question during a job

interview. And the question goes like

come up with a new product for YouTube

or come up with a new product or a new

service for Netflix. And if you go

through any interview prep for these

types of questions, the first thing that

you're going to see is that you have to

consider market maturity. And Netflix is

a textbook case. Netflix is a beast. It

is very mature, very established, and

every incremental improvement takes

disproportionate amount of money and

time. They're simply too big.

Acquisition of Warner Brothers gives

them 128 million subscribers technically

overnight, plus expansion into

international markets. And most

importantly, it saves them years of

incremental gains. So for Netflix, it

makes sense. But what's in it for Warner

Brothers? To explain the reason Warner

Brothers got such a massive debt and

ended up in a position where they sought

a buyer, we have to take a step back and

recall the company that has seemingly

nothing to do with the movie industry.

AT&T. In 2018, AT&T acquired Time

Warner, which owned Warner Brothers,

HBO, and CNN at the time. The only

problem, AT&T is not an entertainment

production business and the corporate

cultures of a regulated nationwide

telecommunications monopoly and a

creative entertainment company collided.

Within just 3 years, it all went

downhill and they ended up with lots of

debt. For people inside Warner, editors,

screenwriters, camera crews, it meant

layoffs, hiring freezes, and cancel

projects. As one analyst summarized,

AT&T managed to turn a $150 billion

company into a company they sold for $50

billion in debt a mere three years

later. So for Warner Brothers, the

reason is very simple. Unsustainable

debts. But even if the math makes sense

for the business, there is one group of

people who can kill this deal with a

single penstroke. Let's come back to our

pin. Department of Justice Antirust

Division.

What do you think is the most

consequential decision that the

Department of Justice is going to make?

The market. The decision which market

they're analyzing. This is the single

most important thing that the court has

to decide before any other analysis

occurs. The definition of the market.

And how do you define a market that

Netflix is in? They can go broadly and

consider entertainment as a whole. If

it's entertainment as a whole, what is

meant by entertainment? Are we talking

cable, TV, YouTube, media, social media,

streaming? If yes, the acquisition does

not raise a risk of monopoly because

there is a ton of players on the market.

But if the market is defined narrowly,

for example, subscription streaming

only, the acquisition can be deemed

illegal. Why? because the combined

market of Warner Brothers and Netflix

reaches 45% and it becomes a monopoly

risk and in that case it is a threat to

the market. You may ask isn't Netflix

already a monopoly? Yes, in theory but

in practice Netflix does not have

monopoly level power. Netflix still

loses customers when it raises prices.

Every price increase triggers measurable

churn, which means that users have

alternatives and can walk away. When

they rose prices in the past, thousands

of subscribers cancelled in a short

period of time, which proves that

Netflix cannot set prices without any

consequences. Their prices are

localized. Plans in India are 70%

cheaper than those in the US because

consumers in India will not pay American

rates. And lastly, Netflix launched a

lowerc cost plan with ads to keep or win

back price sensitive consumers instead

of simply pushing everybody into the

high price plan. But legal

technicalities aside, there is a reason

Netflix is the one buying and not the

one being sold. To understand why, we

have to look at the economics of how

they actually make and spend their

money. But as we're about to see, that

level of efficiency comes with a very

specific and very controversial

trade-off. Let's look at the math. The

economics of Netflix.

Long gone are the days when Netflix was

just a content aggregator. They became

an industrydefining content producer.

The Crown, Squid Game, The Queen's

Gambit, Beef, and so many more. 10 years

ago, they were pioneers. They were bold.

They created revolutionary shows like

Black Mirror and subsequently Bander

Snatch. For those of you who might have

missed Banner Snatch, it is a show where

you have the power to make a decision to

change the plot. Every time a character

has to make an important decision,

you're the one who chooses what they do.

Narcos, Adolescence, Stranger Things,

The End of the World, my absolute

favorite. But as time goes on, we're

seeing fewer of these. Yes, all of these

are Netflix originals, and these shows

gave us lots of reasons to get together

with friends and family, drop everything

you had to do, and binge watch a show on

the weekend or holiday season. But

again, unfortunately, scale comes at a

cost. The bulk of Netflix's original

content has been consistently mediocre,

and the data proves it. There is a

general sense of deteriorating quality,

and Reddit has numerous threads on this,

but the business, the business is

flourishing. Listen closely, the math is

wild. Netflix's content budget for 2025

was projected at $18 billion. And even

though it's been rising for years, their

CFO stated that they're nowhere near a

ceiling when it comes to content

spending. You may ask, is $18 billion a

lot? In the grand scheme of things, not

really. To put this in perspective,

here's how much Netflix's competitors

spend. Disney $30 billion across all

divisions. Warner Brothers Discovery

19.5 billion. Paramount 15 billion. The

peak year for Netflix in the context of

quality was 2019 with further decline.

Their average rating on Netflix original

movies is between five and six across

all years regardless of whether they

release three or 300 films per year.

Nevertheless, audience growth 350%

since 2015, 300 million paid users, low

churn, high comeback ratio after churn,

and subscription price went up 65% since

2018. What this means is that Netflix's

unit economics are highly efficient,

which is one of the things that makes

them highly attractive for an

acquisition or a merger. So, say what

you will about the quality, but the

reality is they're so mature now that

they can afford to be mediocre and still

dominate the market. Netflix is the Zara

of streaming services, and I mean it as

a praise. Zara is a phenomenal brand.

They made unachievable for many runway

fashion available to a midlevel pocket

budget. And we like Zara for what it is.

Would you go there to buy a suit for a

gala? Probably not. But would you go

there for a pair of jeans for everyday?

Absolutely. So Netflix, just like Zara,

brings all sorts of content for all

kinds of viewers with all kinds of

tastes and viewing habits at an

accessible price. And yes, sometimes

it's Squid Game and sometimes it's a $10

shirt that falls apart after three

washes. Nevertheless, a very strong

business. What does this acquisition

mean for the streaming industry? There

are three possible outcomes we might

witness. Outcome one, deal blocked by

regulators. If the Department of Justice

defines the market narrowly as

subscription streaming only, the deal

dies. Outcome two, deal approved. HBO

culture is preserved. This is the best

case scenario where we get Netflix's

scale and HBO's artistry. Outcome three,

deal approved, HBO absorbed, including

culture shift. Netflix applies its

completion rate metrics to HBO content

decisions. A few words on why this is

important and why the absorbance of HBO

culture is the biggest concern around

this acquisition. Product culture is the

pulse of a tech company. Typically, the

way one describes a service or a product

is the litmus test of the product

culture within that business. Netflix

aims for each viewer to complete the

series they started. They don't

necessarily care about the absolute

numbers of people who watch the show.

They care that you finish the show that

you started. What matters to them is

that if you start, you have to finish.

Netflix has a strict rule. If fewer than

50% of viewers who started the show

finish the season, the show gets

cancelled. This is the very foundation

of Netflix's renewal decisions for any

show. First Kill, 97 million hours

watched in the first month, cancelled.

Completion rate, 44%.

1899, critically acclaimed German

sci-fi, cancelled after one season,

completion rate 32%. Shadow and Bone,

most watched cancelled show of the first

half of 2023. cancelled because it did

not reach Netflix's efficiency baseline,

but shows with 50% completion rate get

renewed regardless of total viewing

numbers. Heartstoppper, which I loved,

by the way, 53 million hours watched,

that is 50% watch time compared to the

first skill yet renewed for multiple

seasons. Completion rate 73%.

Arcane 60% completion rate renewed

despite niche audience, but shows with

50% completion rate get renewed

regardless of the total viewing numbers.

What this means is that the product

culture at Netflix revolves around

completion rates. Once again, Netflix

cares less about how many people watch

and more about whether those who start

finish. HBO's product culture, on the

other hand, can be expressed in one

sentence. It's not TV, it's HBO. HBO's

mission for years has been to give

artists resources and time and then get

out of their way. For example, The

Sopranos, a critically acclaimed

prestige show with psychological

complexity and plot efficiency. The

Wire, notoriously slow paced for a

season that would never survive

Netflix's completion rate, became the

most critically acclaimed show in

television history. HBO is known for its

signature style, which differs

dramatically from Netflix's. HBO built

its reputation on slow burns,

challenging and complex narratives, and

very specific artistic vision. But the

reason I'm against black and white

division between bad Netflix and good

HBO is because if you remove the bias

out of this equation and compare the

recognitions, you will see that they're

pretty much on par. Since 2016, HBO and

HBO Max produced 34 prestige TV shows

with Metacritic rating 74 plus. Netflix

produced 33 in the same time period. HBO

got 130 Emmy nominations, 19 wins as of

2022. Netflix

129 nominations with 44 wins. This is

why I'm saying that it's not that one is

better than the other. It's about

completely opposite product cultures. If

Netflix is Zara, HBO is a limited

edition Hermes. Both have their markets.

Both have their audiences. Is there an

overlap between those audiences? Yes, to

an extent, but would you get concerns if

Zara were to acquire Hermes? Yes, you

would. Understandingly so. The

acquisition is potentially the decisive

moment for streaming wars. For nine

years in a row, Netflix was basically

uncontested as a content aggregator. It

licensed content from studios who did

not view Netflix and streaming as a

whole as a threat. They built subscriber

base of a 100 million users without

meaningful competition. And studios were

happy to license content to them because

it was easy money. And all of it was

fine and dandy until 2019 when the TV

and movie industry were like, why don't

we all launch streaming services and

that's when the streaming wars began

when every major media company launched

their own streaming service. Disney

Plus, HBO Max, Paramount Plus, Amazon

Video, Disney, NBS, Warner Brothers, all

of them stopped licensing their content

to Netflix. Netflix was undercut on

pricing because the new services were

coming at $7 to $10 per month versus

Netflix's 16. And on top of it, every

platform began its in-house production

to spin out original content. By 2022,

the streaming bubble started deflating

and the hype began to wear off. It

became obvious that math ain't mathing.

In-house production was not paying off,

and many of the streaming services that

launched simply weren't profitable. And

this is where Netflix's math becomes

unbeatable. Content costs don't scale

linearly. Netflix spends $18 billion

serving 310 million subscribers. That is

$58 per subscriber annually. Warner

Brothers Discovery spent 19 and a half

billion serving 128 million subscribers.

That's 152 per subscriber. You simply

cannot spend your way to Netflix's

efficiency without Netflix's scale.

There is a threshold in streaming

economics where you need about 250

million subs minimum to achieve

profitability. Why? Because a prestige

TV series costs between $100 and $200

million per season. Examples, House of

Dragon, Stranger Things. If you have 50

million subscribers, that is $2 to4 per

subscriber per show. If you have 300

million subscribers, that is less than a

dollar per subscriber per show. At 50 to

100 million subs, you can afford about

10 to 20 prestige shows annually before

unit economics break. At 300 million

subscribers, you can afford 50 to 100

prestige shows while maintaining unit

economics. The reason why streaming wars

may end after this acquisition is

because once Netflix reaches more than

400 million subscribers with HBO's Max's

library, the economic gap between

Netflix and all competitors becomes

insurmountable. Netflix's nightmare

would be to let Paramount merge or

acquire Warner Brothers because together

they would have 228 million subs with

combined content libraries including

Harry Potter, Lord of the Rings, HBO's

masterpieces, and all of Paramount's

movies. combines spending power,

sufficient scale to compete on content

spending per subscriber, which is the

biggest blocker to date when it comes to

profitability for streaming services,

and potential contracts with Sports

League. The offer Netflix made to Warner

Brothers allows them to eliminate the

middle of the market collapse, which

brings them back to the position they

were in in mid 2010s, when you either

have Netflix scale or you die slowly.

Conclusion:

Netflix went from being the niche

startup to the empire that calls the

shots. But as Netflix swallows Warner

Brothers, we have to understand that it

comes at a cost. Netflix has proven that

efficiency beats prestige and can buy

the artistic vision. So, is the HBO era

of slowb burn masterpieces over? We'll

see. But the underdog is now the Empire.

Let's just hope that they remember why

we started watching in the first place.

We hope this was helpful. Thanks for

watching. Till next time. Bye.