Netflix to Buy Warner Bros. Discovery

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With us again and ring us back to back.

Stephen Flynn here in a moment on the credit side of this historic transaction, a trooper Getha ragenoffen with us in the last hour and joins again. Githa, somebody emails in from Delaware loose beach or something.

It never goes under freezing on the Delaware beach. Githa, what happens to CNN?

So what happens to CNN? So the Netflix transaction actually is only for the streaming and the studio business. So CNN, TBSTNT, which are all part of the Turner Networks, they are going to be spun out into a separate company by the end of the third quarter of next year. And you know, hopefully, I think along the way, Warner Brothers is going to look for some m and a combination for that asset as well.

With mister Roberts. I don't mean that's exactly right. Wait a minute, let's get this straight. Geitha expert, Sweeney expert, Keen the dummy.

I'll shut up, Paul, Please, Hey, Keith, I was just gonna ask David Zaslov, the CEO of Warner Brothers Discovery, a self proclaimed media mogul, here, what happens to him in this transaction?

Yeah, that's what's kind of been the real head scratcher here, Paul, because you know, as we were chatting a little bit earlier this week, I mean, we thought that they would really favor the Comcast transaction because NBC was going to be spun out and they had reportedly offered David Zaslav the position of CEO for the combined NBC and Warner Brothers streaming and studio. So it's it's really a little bit puzzling at this point. But I think what David's

Yes he did, he absolutely delivered for shareholders here. What is the you know, Jason Bezen end at City had a nice comment earlier this week. I was listening to one of his podcasts. This is kind of a long term. This is going to be really good for Netflix because they need, believe it or not, even more content. They spend seventeen eighteen billion dollars a year own content, but they really need a library. Do you think this is a deal that Netflix really had to do, Githa.

I think I think so, Paul. I mean, we were we were talking about whether this was really existential for Netflix. You know, many on the street had argued that this would be a major distraction. But I think it's not so much the cost of doing the deal. It's the cost of not doing the deal. And yeah, and really it's like as they kind of play the long game here. You know, Netflix is not competing against Disney Plus or

Okay, but Thel, you just mentioned the elephant in the room, which is Google Now they're distracted with AI, AI eio, Google, Gemini home run this That what Google does for us every day here at Bloomberg Surveillance.

Subscribe to Bloomberg Podcast. Keitha.

Raganathan, what is the response of Google to this transaction question?

I mean they're already responding, Tom. I mean, you have AI here. Netflix is really kind of looking at this as AI kind of comes in and changes the whole content cost structure, changes the whole content industry. You can basically make a movie. You have all these video or text to video functionality on these lllms right now, and that can completely change the game. And that's really what

So Keetha.

We're going to talk to Jenery Bloomberg Intelligence antitrust analyst in the next hour here. But what's the what are the companies saying about the regulatory risks to this transaction? Because I know there's a really big breakup fees here in the billions of dollars.

Yeah, yeah, it's a five point eight billion dollars break off, one of the highest I think ever in a media transaction. You know, we're almost six percent of the end more than six percent of the enterprise value here, so they're definitely a huge number. Yeah, anti trust is going to be a problem. Obviously, genre has much more perspective than I do. But you're basically combining the number one streaming service with the number three streaming service, So that's not

Gaza, you know, this is the question of the day. I'm sorry all this other stuff. Yeah, Sarah, coming out of a Thursday night, you know, what are what do you used to call Thursday nights in college? Oh?

Just that's my Friday, you know, like rip it on Thursdays, rip it on Thursday.

This is a Temple University in Philly, Sarah, thanks for emailing in what happens to my Netflix Bill?

I mean, geith, is the price of all this is going to go up?

It has to, Tom, you know, it has to.

Can you round it up? Are we going to stay under twenty dollars a month for Netflix?

I think eventually it's going to go higher than that. But yeah, as much as we complain about you know, Netflix of price being high for the cost of the streaming service, if you're actually looking at the value you're getting a per dollar, you know, in terms of time spent per dollar, it's actually really a pretty compelling value proposition. And I think as they keep adding more content, as they keep adding you know, more to the library of

Keithie, your trooper, I'm sure you got a twenty four hour day ahead of you. Getha Raganath and driving our expertise on Netflix given this historic just transaction.

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One of our most popular guests a huge value added through the year is Katherine Kaminski. She's with Alpha Simplex, hugely associated with the Massachusetts Institute of Technology. Katie Kominski here on trend, Katie, when we had some angst here recently, I guess we have a trend and we have stopped loss. Were your stops violated within all the angst or were you okay to stay on trend?

I would say that there was a little bit of a pullback in equities, but you really haven't seen anything substantial enough, and as you've seen the last two weeks, equities back in motion again, so that that's kind of surprising.

There there are some jitters, though, I'd say.

What's the technical characteristic of the new strength in this equity market.

I say it's re emerging.

So you've seen definite strength in the equity markets, but you've seen that sort of consolidate and then re emerge in the sense that you know a trend that started to consolidate.

Still kind of is holding on.

One of the heroes for Catherine Coavinsky and meet paul Is Louise Eumada.

Yeah, I kind of absolutely iconic, and she.

Would say, Luis Jumada would say, we're seeing distribution and then boom, yeah you.

Go where down you go? Yep, distribution is what we enjoyed this year.

So Katie talked us about the dollar here. It seems to have kind of stabilized here. I'm not sure from your perspective is that a trend because we had an eight percent nine percent soft, but it's kind of stabilized here.

Yeah, the dollar is stabilized from the week dollar trend, but we've seen very different positioning in the dollar across different em and developed currencies. I think I'm the most interested to see what happens with the VOJ because you know, you have US cutting rates and then you have VOJ potentially hiking rates, which is going to kind of cause currencies to dislocate and move around, I would guess.

So I'd say the currency trade is.

One that is up for grabs going on in the next two three weeks.

So how do we think about just going into twenty twenty six. Are there any themes you're you guys are looking at from a kind of momentum type perspective.

Yeah, this is a good question, because you know, I think the really interesting thing that we're seeing right now is just the very dispergent or disparate trends that you're seeing across the globe. Fixed income in particular is very interesting just this idea.

I mean, let's take Japan and Australia.

They're in a completely different trajectory than the US, So I think it could be a very exciting year next year where you'd have sort of cycles of boom and deflation. And that's always exciting for us who are looking for different themes and trends over time.

Katie Kminsky with us A very strong thirty five to forty minutes for you. Katie Kiminski with us the Uri and Shimmer. Good morning to Boston as we look at different sides of the Charles River. In ninety two nine FM UP in Boston features Up thirteen, Town features up forty three. Right now again for you, in a historic moment for American capitalism, Paul am I right, the only equivalent I can think of as Time Warner AOL a few years ago.

I mean, it's that kind of romance and emotion, isn't it. Yeah?

Absolutely, And this this is a very interesting deal because you have two really really high quality companies coming together.

The headline Netflix to buy Warner Brothers in seventy two billion dollar cash in stock deal. We continue with Katie Kaminski. Katie the idea that we are resilient. That's a word I've seen fourteen times in the last forty eight hours. I would say we are resilient. Are we resilient because we allow capitalism, because we have a shepherdarian ability to allow failure?

I mean, I think that's a very good existential question. I'd say that, you know, the US markets still have been leaning on relatively strong growth and the numbers are still in our favor. What is a cautionary tale, though, is looking at places like Australia that had out all of their rate cuts for next year. So I think it's still a very you know, you know, the tides can turn and you can see a hot inflation print or things that might kind of change direction. But for

I mean, I look, Katie, at where we are, and there's going to be winners and losers. What flavor I mean within CTAs and hedge funds, what flavors the winner this year? Off trend analysis? What flavor is the loser?

Oh, that's a good one. Equities have definitely been a winner. Besides what happened in April. Gold is also a clear winner.

Silver.

But when you look at things that have been hard to trade, I'd say it's fixed income because fixed income has been very back and forth, and there's been a lot of speculation about sort of the general move the FED. There's been descents in the FED. So I think fixed income has been hard to trade this year.

But Katie, how about it on the commodity side, Boy, that dollar? I mean the gold's ripping, silver even more so. I mean, I haven't seen movements in these precious metals in a long time.

Here.

How do you think about it going forward?

So I think to think about the gold trade, especially in a situation when the dollar is weaker as this potential hedge, and you're really seeing something that people are holding on to while they hold on to something that they know they should hold, so equity, So it's kind of this risk mitigator in a sense. And I think that's why gold is so valuable. People are thinking we got to hold onto something real and that way, if things do get challenging, we have that.

I got opinion down O. Katie De Paul's good question.

In commodities, I brought up the Bloomberg Commodity Index iconic at UBS. It's a really important blended index at what's going on. I took it back, Katie to Richard Nixon in Gold nineteen seventy. I've got a multi decade rushier Sharma commodity boom.

It ends O nine to ten.

I got a bear market in commodities, but you know what, I'm sort of teen swings kind of breaking out. Do you have an up trend on a blended commodity index.

So we're definitely seeing generally up trends in commodities. The best ones have been the base and precious metals aags have been more mixed, and energies have actually frankly been a little difficult to trade because they've been somewhat range bound.

Katie, We're going to hear from the feeder Reserve next Wednesday. How do you guys, as you know, kind of momentum type traders, trend traders, how do you guys factor in kind of FED policy? And maybe we'll get it and get a change in FED leadership.

Actually, so i'd say that, you know what's interesting, that's a very good question because right now I am scratching my head a little bit about fixed income because you do see yields going up in anticipation of what is seen as a foregone conclusion, and the way that we trade fixed income trends is really about where the prices move.

Katie, thank you so much for joining us all through the year. Kathy Kominsky with Elpha Simplex huge. You get a huge response from our work on trend analysis and all this of course off the work of Andrew Low and Mit just absolutely legendary up in Boston.

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We start with the heart and soul of our coverage.

He has built our entertainment franchise truly worldwide. Felix Gillette, who's done serious reporting on this. You're right now at Michaels and you're having a Felix Gillette Power launch at Michael's. Zazz Love's with you. Maybe kind of let it with all of their history here. What's David Zevlav thinking about this morning?

I mean, I think that it's hilarious that you know, we're just talking. Three years ago, we heard the argument that combining the Warner brother assets with the Discovery assets was going to unleash all of this synergy that was going to better position this company to take on Netflix. And here we are three years later, after Zaslov made that argument to all of us, and he's saying, you know what, like you know, it would be really great, is combining these assets with Netflix?

Exactly right? What do you think the Netflix strategies?

Because one could argue Netflix was doing great, Yeah, stock.

Was doing great. Shareholders loved in the bond market, it loved them.

There was a nice clean story. Now they're going to go do this huge acquisition and deal with all these crazy people in Hollywood. What do you think they're they're strategies here?

Well, I think if you listened to what they were saying today, they think that those all the you know, TV series, all the movies, one hundred years of library that you're getting from Warner Brothers, that those assets are really have not been utilized to great extent, both in the US, but also they mentioned a lot internationally that you know, they see a lot of room for growth in getting more money out of the HBO brand, in

Hey, you're the expert.

I mean, it always looks great on paper.

What do you do with Castle blank? Make a Saturday Morning cartoon?

Yeah, I think a video game or two, you know, for your mobile phone on your Netflix app? Yeah, I think it's again, these things always sound great when you look at them on paper, and then of course you get into the messy business of trying to act actually combine these different groups of people, and that's where it gets a little messy.

I mean, Paul and I just talk about it. Yeah, lived it.

The last time you were at the Sunset Tarro Hotel. You almost fell into the pool. You did one too many beverages with an umbrella in it. What happens on the Warner Brothers lot, What happens in those little cabanas that you've been in that Paul and I have never been in.

Yeah, you know, those people have a job. I think that a lot of those people are sweating pretty hard right now. I mean they're talking about two or three billion dollars of savings a year.

You know, today they're saying, well, we.

You know, that's going to come out of the tech stack. That's not about you know, we're going to continue to spend money where We're going to continue everything just as it is. We embraced We're going to embrace the theaters, even though you know, we've basically been saying for years that we don't care about movie theater distribution. And so yeah, I think it's it's a little worrisome for all those people.

We're commercial free for you.

The day of this historic transit for Hollywood and for Los Angeles, New York and America, Felix Jillette with his Jason Bezinett and Jenery coming up as well into the ten o'clock our Paul, you know I did all the work myself.

I know you did with the help of Google Gemini.

Three years ago, the Reverse Morris Trust was a forty three billion dollar transaction.

So now they're going to squeeze out of age of eighty two billion. Yep, that's a first daf of seging those numbers. I know. Yeah, was this a.

Win win or a win lose or a lose loose transaction?

Well, ultimately it's going to be good for shareholders.

I think I have to go back and look at the historical returns, but I mean it's certainly way more than when the stock was trading just a few months ago. Felix, the management team of Netflix very well thought of. They've done an extraordinary job reinventing the entire entertainment business. One thing they haven't done is they haven't done a big acquisition. How are people feeling about that? Do they feel like this managing team can execute here?

Yeah, I mean I think they're feeling like it's a big challenge and they haven't done it before. They also, you know, not too long ago, were saying we'll never do advertising, and then what do they do. They lounge an advertising service that now is starting to get traction. You know, Oh, we're you know, we're not interested in all these things. And they've they've you know, continued to evolve and continue to make these big moves. I think it's fascinating to watch. You know, Ted Sarandos has been

What's the role these days? I know he's chairman of the board Read Hastings. Yeah, the founder here really for most people, the visionary for this whole thing, which his role these days? And what do you think his role was in this transaction?

I mean, I think he's you know, obviously the architect of this whole business from its start, the culture, the history, I think, but you know, Surrando's and Greg Peters ye have pushed it and they've been you know the last couple of years of these big moves. You know you're talking about the at first things like password crackdown, which didn't seem that glamorous, like oh that's gonna do, but.

That was pretty effect was like they got a lot out of that.

Then you know, again impacted my household.

Yeah, have there been some missteps under the current leaders, you know, since Hastings kind of moved into this more you know step back role. You know, look at the video games. You know, they've been talking about video games for years as a thing. Netflix was going to get a lot of tracks and with nothing right, that's been the big.

That's where I wanted to go here to finish it up. Felis Jill out with us. We're going to go to regulation in a moment. The reality folks is Bloomberg and Lucas Shaw gets all the romance and love.

He does screen time and he's you know, he does he wear anything but black.

I don't think, you know, Phoenix Jelllet's do the actual work here at Bloomberg.

And you've got Ashley.

Carmen and Kelsey Griffithson, this great team we've got and they're all writing about stuff. Paul and I don't know, like Twitch, is there a rabbit out of the hat here in this transaction that justifies it rapidly for Netflix.

I think it's not some magic, you know, rabbit out of the have moment. I really think it's you know, they said, well, you know today, Greg Peters, why would this be different than all these other media mergers that have failed that we've seen have been so tumultuous. Going back to AOL Time Warner, we've heard about Senator for so long, and he's saying, look, we know this world,

On instance of Jason bezen At in a bit to the.

Front, hold the synergies, stretch it out for five, six, seven years.

I think they're going to get the tech center synergies very quickly. I mean getting rid of all the you know, the HBO streaming stack. They don't need that stuff, they have that in place. Yeah, I think the centergy will come quick and heavy back to work.

Felix Jillette with us just driving all of our entertainment coverage here and you're really really appreciated decades of credit as well.

Stay with us.

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She is been on board this bull market since time. You can have bonus round.

She's the only one on the island of Manhattan who shop owned shares in both Netflix. Nice. It's amazing how you own both shares as well. How does it change? How does this transaction eighty billion dollars? How does it change the cast for Byside America?

But I think this is the big thing is that Corporate America feels comfortable that they can make this transaction and then it's going to be able to float through the system and create shareholder value.

And that's a big change. Remember, Corporate America has.

Really been on someone of its back foot and mergers and acquisitions have been relatively low, particularly of this size, because rates have been so high. So I think it's a CE change. I think it's you know, relatively good for the S and P five hundred, and I think it's going to be a great transaction for shareholders.

Barbara's but that's you know, M and A coming back a little bit as a positive indicator for the market.

Here me.

The next data point for this market is the FED next week on oh sure, Wednesday. What are you guys looking for you positioning one way or the other? Are you just kind of like everybody else saying we're going to get a cut and we'll go from there.

Yeah.

I mean, look, we've been risk on for this entire year, right, we thought that equities. We thought that equities we're going to be able to power through a lot of geopolitical risk. We added to equities back in April of this year, so you know, we've had the benefit of the wind at our back. I do think that the Fed's likely to cut. I think that you've got the labor market looks like it could probably use some relief.

I think consumers could use some relief as well.

And I think there's enough in the enough in the pipeline from the data that we have that says that the FED could cut. It may be a hawkish cut where they say we're going to cut and this may be it for a while, or it may be one more of a dubbish cut where they say we're going to cut and we're going to be data depending. I think that's what the market's going to, indeed going to

All the phrase data dependent was a drinking game for twenty twenty five.

What should the phrase be for next year?

It's going to be who the next FED chairman is. That's going to be the big flash point.

So how do you handicap that, because I guess there's some polar games out there about how who it's going to be. Mister Hassett, mister Bessett, I don't know, right, do you guys care about.

It that much?

Well, of course we care about it, right. The Federal Reserve is the central bank of the world. It's a big one for us. We don't necessarily position our portfolios on who the next FED chairman is going to be. We know that the FED chairman, whenever they come in, they're always tested by the markets. We've seen this time and time again over the past eight FED chairmen that have been in place since the nineteen forties. It's either because they say something that the market get the misinterprets.

We're ryin Haard with this with voya across this nation. Good morning, the way you listen to us, Good Morning, ninety two nine FM in Boston, good Morning, and Hartford, Connecticut as well at Trinity College. You know, I look at this, folks, and I want to give you a vignette because what Ms.

Reinhard just said is really important.

I'm in a room a couple days ago with Jacob Frankel the Bank of Israel, Mister Shirakawa, the Bank of Japan, Port Gay of Argentina. In the audience was Exel Weber of the bundest Bank, sitting next to John Lichski definitive at Salomon Brothers in the IMF, and Barbara Reinhard. When port Gay of Argentina talked about the seriousness of this FED shift, that you could hear a pin drop in the room and why are you to explain why this is underestimated by the media. They're treating it like a

Course, Look what the US Federal Reserved of does affects the rest of the world, and the transmission mechanism is really through the treasury market, which is the benchmark of all risk based assets throughout the entire world.

And importantly, it also will have an effect on the US dollar.

Right, a lot of weakness in the US dollar this year has helped propel international equity markets. It means that places like the Euro have had a lot of strength that tends to be somewhat difficult for their companies to be able to digest that increase in their currency makes the exporters under a lot more pressure. But the central Bank for the US is the central banker to the world and I think you can't underestimate that it's more than a polo game.

You have to watch it closely.

If I think it's one of several things that we're watching over the course of twenty sex.

Mentioned earnings, Barbara, We've had boy really good earnings in the third quarter, good earnings in the second quarter.

Yeah.

Is the earnings ollops enough to support this market because it's.

Not cheap this market, No, this market, unfortunately is not cheap. But even if you don't get any multiple expansion over the course of twenty twenty six, you're likely to have and this is if estimates get marked down.

You have ten percent earnings growth.

Right, bull markets don't die when they when you have earnings growth this strong. They you know, earnings peak out generally about two years before a bear market starts and bear markets.

Get slaughtered by the Fed. I have the Fed still cutting interest rate.

So while I realized that valuations are at newsbleeds, I don't think you get much in terms of multiple expansion, maybe even get a little bit of contraction next year. But I would say that the earners are going to support the overall equity market.

You and Jeter Martin atoms are on the same page Geno Martin atoms. So it's at HB Wealth Management. In the heart of the matter is those earnings and even the revenue top comes from an ability to sustain margins. I don't hear anybody talking about margin erosion.

Yeah, I mean, is it even within the thinking.

Yeah.

Look, some of the lead indicators that you watch on margins, they did come under some pressure earlier this year, but it looks like they're starting to bottom out. So for us, you know, if you get past you know, don't forget. In the first quarter, even the first six months of twenty twenty six, you're lapsing a big tightening in financial conditions because of.

The tariff shock, and that will make.

Year over year comps at least for the first half of this year, and it's difficult to have a lot of visibility beyond that, yep, because of the midterm elections. That lapsing of year over year tightening up financial conditions with easier financial conditions in twenty twenty six means.

That it's likely to give a lot of support to equities.

Yeah, I think that's probably the case. How about just what screens well for you guys these days? Because It's easy for US to fall back on the AI trade because it's such a big trade and it's worked so well for many investors. But are there other things that are screening well factor wise or sector wise?

Yeah, I think Look, certainly, I think the emerging markets have had They've been on their back for the better part of the past decade. They've outperformed the US over the course of this year. So has Europe. I think maybe some taking some bets on some diversification isn't necessarily a bad thing at this point. You can diversify, you know, out in em I think you've got a lot of good strength in terms of an advanced manufacturing you know,

But then, as you did years ago, do you suggest the high quality route is the only way to go? I mean, can you buy the garbage here and get some beta?

Well, look, I think the quality has been beaten down, especially in Europe at this point, right so you know, you kind of say that, like, look as out of opportunity overseas. I think in the US you have to stick with your winners, right. I know values had a nice pop over the past couple of weeks, but I would say you probably stick with your US large cap growth winners.

What is your clients? Sorry another time, what do your clients say, who said I don't believe you Barbera three years ago participate in the joy? Do they speak to you anymore?

Of course they do. Look, we have long term clients at WOYA, and we're investing. We're investing for retirement, which is really important. So we have a forty year horizon and I think the meaningful piece for us is that we're helping people retire better and we're helping send children to college. Those are our two big things that we really feel a trendous amount of meaning to do. We our goal is to make sure to give them a

Can I do an audible short letter. You weren't hard for right, at Trinity College. Okay, love, all these colleges are dying.

It's you know, whatever the story is, folks, it's sad to see colleges that want to be like Trinity dying and yet Trinity, I'm going to suggestive Hartford is thriving.

Yeah, what's the pixie dust?

Well, I think there's a couple of things. I think a lot of colleges in the smaller colleges are under pressure because enrollment is is that isn't necessarily so strong, right. And I think a lot of kids want to go to school in the southeast, right seeing.

That huge everybody wants to go Duke that Tennessee, you name it.

They all want to be there because the weather is good. But I think that the thing that the liberal arts schools like Trinity give you is the opportunity to be able to analyze something and to be able to write.

Now.

I know some CEOs have been out saying that, you know, you don't want to go down that road. It has served me incredibly well in my career.

I agree, But what you need to do is switch it.

Instead of a year abroad at London School of Economics or Saint Andrews, you do a.

Year abroad at for US. Yeah yeah, Barbara, thank you so much.

Robert right at Trinity College, and of course outstanding at VOIA. One of the major major people three four years ago grab me by the bow tie and said time to shut up and get on board this market.

Of course I didn't listen to her.

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