How the Netflix deal changes everything in Hollywood—again

A $40 late fee on a Blockbuster Video rental led to the creation of the company that has swallowed Hollywood.

- Joe Flint

Netflix disrupted a more-than-century-old industry. Now it's buying some of Hollywood's most iconic properties.

(AFP)

Software entrepreneur and movie buff Reed Hastings was hit with sticker shock one day in the 1990s, when he returned an overdue film. Seeing the success Amazon was having selling books, Hastings figured a similar approach could work with movies—without penalizing customers.

He and partner Marc Randolph launched Netflix with 925 movie titles and 30 employees to stick them in envelopes and drop them in the mail. Nearly three decades later, that scrappy DVD rental company not only dominates the global subscription streaming landscape, but is now eating Hollywood itself.

It just reached a deal to buy some of Hollywood’s most iconic properties: the Warner Bros. movie and television studios and HBO.

On Friday, Netflix agreed to acquire Warner Bros. for $72 billion after the entertainment company splits its studios and HBO Max streaming business from its cable networks, beating rival bidders Paramount and Comcast. The deal stunned Hollywood, where many assumed David Ellison’s Paramount was the most likely suitor.

After Paramount’s aggressive unsolicited approaches to buy all of Warner Discovery prompted the company to put itself up for sale, Netflix’s winning bid came together at a breakneck pace.

Warner Discovery Chief Executive David Zaslav and Netflix co-CEO Ted Sarandos are friends that have spent time together in the midst of the dealmaking process, including in September, when Zaslav and Sarandos watched the Canelo Alvarez-Terence Crawford boxing match together in Las Vegas.

Netflix was “aggressive about pursuing the value,” said former Warner Discovery board member John Malone, who now serves as an adviser to the company.

Disrupting an industry