Netflix (NFLX) is already the apex predator of the streaming world. But the company co-led by Ted Sarandos does surprisingly little hunting. Netflix’s merger ambitions have so far been distinctly modest. With a possible breakup of rival Warner Bros Discovery, Sarandos might find his claws.

WBD

 boss David Zaslav is considering strategic options for the $21 billion media company, whose hit shows include “House of the Dragon.” His options include selling assets or spinning off divisions, the Financial Times reported on Thursday, citing people familiar with the matter. It’s not a surprise he’d be trying new tricks: Discovery’s merger with Warner Media in 2022 hasn’t lived up to hopes. Shares of the resulting WBD, which owns news network CNN, the movie studio behind “Barbie,” and HBO, have fallen 66% since its creation.

One option is to hive off WBD’s streaming service Max – which also houses HBO – and its TV and movie studio, Warner Bros. Together, they’re expected to make around $3.4 billion of EBITDA in 2025, according to analyst estimates polled by LSEG. Max isn’t as profitable as Netflix, which has a chunky 25% EBITDA margin. But value streaming and studios on a multiple of 17 times – about a quarter less than Netflix – and they could be worth roughly $60 billion. The studios might even get a premium, as one of the most successful production houses in the industry.

Even for the mighty Netflix, with a market capitalization of $280 billion, that’s a big bite. The company, which is expected to report second-quarter earnings on Thursday, has $7 billion of cash, so nowhere near enough to cover a deal like that. But Netflix could issue shares, which would equate to one-fifth of its market value.

Given Sarandos’ M&A reticence, it would take something extraordinary to prompt such a change of strategy. But WBD’s assets, once split from its stodgier linear TV networks through a breakup, might pass the bar. It would give Sarandos valuable marquee intellectual property including “Game of Thrones” to keep viewers and gain more. A crackdown on password sharing helped Netflix reap an additional 8 million subscribers for a total of 278 million in the quarter ending June 30. And Netflix has sniffed around other properties including Paramount Pictures. Netflix, like all streamers, craves exciting content. A merger with HBO could give it a blockbuster.

Context News

Warner Bros Discovery Chief Executive David Zaslav is considering several strategic options for the $21 billion media company including asset sales and spinoffs, according to the Financial Times on July 18, citing people familiar with the matter. Since WBD closed its purchase of Warner Media from telecoms operator AT&T in April 2022, the shares have declined 66%. Netflix reported on July 18 that it added 8 million subscribers during the quarter ending June 30, giving it 278 million global subscribers in total.

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