The Last Hollywood Gold Mine: Why the Fight for Warner Bros. Is a Bidding War

When K-Pop Demon Hunters broke out as the surprise animated hit of the summer, executives at Netflix scrambled.

The company was already well underway building its experiential Netflix House locations in Pennsylvania and Texas, and Marian Lee, the company’s CMO and one of the executives tasked with overseeing the launch, was dealing with a question from her colleagues: “How are we getting K-Pop Demon Hunters in?”

So she and her team acted quickly, adding in food items to the restaurant, art to the mural outside, and a giant Derpy Tiger statue in the mall entrance. Lee described the effort as proof of Netflix’s speed and agility in an otherwise slow-moving business.

“We’ve given ourselves enough flexibility to have things that we think are anchor IP that will continue to drive people to come back, but also to have the flexibility and agility to swap in things that we see are starting to work,” she said, speaking to The Hollywood Reporter in Netflix’s 250-seat movie theater in the King of Prussia mall location in November.

But K-Pop Demon Hunters was also evidence of an uncomfortable truth: Netflix may be the king of streaming entertainment, but it has a long way to go when it comes to building out its intellectual property. In a world where traditional studios have decades’ worth of IP, Netflix is still a start-up, one built largely on licensed content. Even some of its biggest hits like Wednesday and One Piece are not owned by the company, with other IP owners benefitting from their success.

The battle to control Warner Bros is, beyond just a battle for streaming domination and the future of movie theaters, a battle about IP, and both Paramount and Netflix believe that the Warners library and its long list of franchises can propel them for long into the future.

In a business defined by IP, Warners is the “second best studio” after Disney when it comes to its vast library of characters, franchises and worlds, notes Kevin Mayer, the Candle Media CEO who previously served as a top Disney executive.

And as Paramount and Netflix jostle for control of that library, the future of those franchises, which include Harry Potter, Friends, Game of Thrones, the DC Comics universe and many, many more, is hanging in the balance.

Netflix is an entertainment behemoth that has little in the way of IP. It’s why Stranger Things, Bridgerton and Squid Game seem so ubiquitous, as the company has sought to leverage the few franchises it wholly owns to maximum effect. It is a company that built its scale by licensing content from others, be it The Office and Friends or Wednesday and Avatar: The Last Airbender.

It was also why Netflix cut more than $500 million for control of Roald Dahl’s collection of works, giving it the ability to adapt work like Matilda and Charlie and the Chocolate Factory.

“For Netflix, this transaction marks a strategic shift from building its own content to acquiring large-scale IP and studio assets. While Netflix remains the clear leader in global streaming subscribers, the company has not had the luxury of deep, legacy content libraries and has historically been forced to license content from traditional media companies,” wrote Bank of America analyst Jessica Reif Ehrlich in a Dec. 7 research note, adding that if Netflix succeeds it would challenge Disney directly in the IP wars: “The DC franchise, supercharged by Netflix’s global distribution, could challenge Marvel’s market-leading position. More broadly, if Netflix consolidates premium IP, competition for consumer time and attention would increase, potentially pressuring engagement trends on DIS’ platforms.”

“Netflix is doing, obviously, super well with having a virtual studio and doing a lot of licensing, God it has worked,” Mayer says. “But you want to really nail down these franchises and have them at your disposal for the long term … It gives you access on a permanent basis and an advantaged basis to content that otherwise would be competitive and more difficult and uncertain to have access to.”

Or as Netflix co-CEOs Greg Peters and Ted Sarandos told employees last week in an internal note: “We made this deal because their deep portfolio of iconic franchises, expansive library, and strong studio capabilities will complement — not duplicate — our existing business.”

It is a library of content that would instantly make Netflix into a true global franchise power player, in line with the vast reach of its streaming business. But “Paramount Skydance, on the other hand, sits much closer to an existential crossroads,” MoffettNathanson analyst Robert Fishman wrote Dec. 8.

Paramount, to be sure, has more IP than Netflix. It is the home of Mission: Impossible, Top Gun, Spongebob Squarepants and Star Trek, after all. But in recent years, its IP and world-building have been more often defined by a man: Taylor Sheridan, than by a legacy franchise.

Sheridan, of course, will soon be on the way out, moving to greener pastures at NBCUniversal, but with Paramount+ leaning heavily into his many shows in recent years for growth, it will need to find new IP and franchises to step in and fill that gap.

“For [Paramount], the rationale was to scale into a global media powerhouse, from its current limited asset portfolio,” Reif Ehrlich wrote, adding that the company, like NBCUniversal, now needs to turn to “Plan B.” In Paramount’s case, that means trying to seize Warners away from Netflix’s grasp.

Or as Fishman notes, Paramount needs Warners’ vast IP to achieve its “North Star” goals it outlined last month in  David Ellison’s first quarterly earnings call with shareholders.

“Acquiring WBD would immediately give Paramount Skydance access to a deep catalogue of premium I.P., the ability to leverage HBO assets to drive engagement and the opportunity to tap franchises such as DC superheroes to bolster theatrical output,” Fishman writes. “Even the companies’ combined linear TV portfolios would be formidable, together accounting for roughly one-third of total linear viewing time in full-year 2024. Ultimately, if Paramount Skydance fails to snatch WBD from Netflix, it is unclear how the company plans to achieve the DTC scale required to become a major competitor in the evolving media ecosystem — and, by extension, how it intends to deliver on all three of its North Star priorities.”

To be certain, the value of IP and franchises to the entertainment business is far from theoretical. Casey Bloys, the executive who oversees HBO Max, told reporters last month that his streaming platform has grown over the past year in part by supplementing its HBO originals and Warners movies with IP-driven content meant to replace theatrical films that it previously licensed from other studios.

“The DC Universe, Stephen King’s It, Game of Thrones and Harry Potter are all franchises with huge global fan bases.,” Bloys said. “That affinity and immediate awareness paired with HBO’s singular approach to storytelling has proven very valuable to filling that theatrical void.”

For an entertainment company, the business is a flywheel, as envisioned by Walt Disney himself: The distribution platforms, be it linear TV or streaming, the theatrical films, the real-world experiences, but all of them are powered by the characters and worlds that those studios own.

You can create and build out your own worlds, just as Sheridan has done, and as Netflix has tried to do over the last few years, but Warners has a hundred years of worlds and characters and franchises ready for the taking, and there are signals that whoever wins this battle will have a seat at the head of the table when it comes to the future of the business.

Or as Mayer says, the future of, say, how many theatrical films are widely distributed is “a marginal, tactical issue. I don’t think they care that much about that.”

“They’re happy to give that up to get the deal done,” he adds. “They really want access to those brands and franchises and that deep, deep library and production capability on a go forward basis.”

This story appeared in the Dec. 17 issue of The Hollywood Reporter magazine. Click here to subscribe.