Supersized media M&A haunts Netflix’s next act

Versant Media

14/07/2026 19:51

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Jennifer  Saba
    NEW YORK, July 15 (Reuters Breakingviews) - Jumping the
shark is a TV term for shows past their prime that try gimmicky
storylines to keep viewers. The reference, derived from a 1977
episode of "Happy Days" when Fonzie water-skis in his signature
leather jacket, applies equally to the media conglomerates
responsible for such productions. Supersized deals are often a
telltale sign of CEOs stretching to retain appeal with
investors. Netflix  NFLX.O  is on the verge of a desperate such
measure, but there's time yet for it to write a new growth story
using the same creative spark for which it is known instead of
following a tired script.
The $300 billion streaming giant betrayed its own M&A hubris in
December by agreeing to buy Warner Bros Discovery’s  WBD.O 
movie studio and HBO service for $72 billion. The decision
stunned Netflix stakeholders because it was its first
acquisition anywhere near that large. The company has been a
builder for its nearly three decades of operation, only
sprinkling in smaller transactions to add intellectual property,
such as the 2017 purchase of comic book publisher Millarworld.
Twice it upended ubiquitous business models, first by sending
DVD rentals through the mail, bringing the curtain down on the
video-store era, and then by establishing the first major
video-streaming provider, which kicked off cable cord-cutting.
    By walking away from WBD after Paramount  PSKY.O  owner
David Ellison stepped in with a higher $83 billion offer for all
of WBD, cable networks included, Netflix bosses Ted Sarandos and
Greg Peters at least exhibited a modicum of financial
discipline. The worry is that they will find another way to join
a long list of peers haplessly chasing a merger dream.
    The industry is littered with failed empire-building. AOL's
union with Time Warner in 2000 is only the Hall of Shame
headliner, with a then-record $165 billion deal. By the time
Discovery CEO David Zaslav came along two decades later, the
company was owned by AT&T  T.N  and its value had more than
halved. The Redstone family reunified its $30 billion
entertainment kingdom in 2019, but sold Paramount five years
later to David Ellison's Skydance Media at an $8 billion
valuation. Walt Disney  DIS.N  is worth about the same as it was
seven years ago, before it shelled out $71 billion for a
collection of assets held by Rupert Murdoch’s Fox  FOXA.O .
Further structural changes create new potential takeover
targets. Cable operator Comcast  CMCSA.O  unveiled plans last
month to unwind its 15-year foray into media ownership. Chairman
Brian Roberts wants to cleave the company, after having spun off
networks including CNBC into Versant Media  VSNT.O  earlier this
year. Now he plans to separate NBC Universal, which includes the
movie studio behind "The Odyssey" and the "Wizarding World of
Harry Potter" theme park that he bought from General Electric
for $30 billion.
NBC’s Peacock streaming service, home to National Football
League games, may seduce Sarandos and Peters. They already have
been toying with more live sporting events, such as Major League
Baseball's annual "Home Run Derby" this week. The big U.S. TV
audiences that Fox wooed for World Cup soccer this summer could
prompt Netflix to make a pricey bid for the next round of
broadcast rights. With the Wall Street Journal also reporting
that Netflix is interested in adding live TV, it isn't a big
jump to buying NBC Universal.
    Bold deals are risky for even the savviest of operators, but
they are also not part of the Netflix DNA. It has grown by
finding new markets, developing fresh series, licensing
international programs, revising price strategies, adding games,
rolling out a cheaper advertising-based option and other moves.
Such decisions have boosted the company's revenue by a
GDP-stomping 18% annually on average since 2016, to about $45
billion last year, with its operating profit margin expanding to
nearly 30% from 5% over the same span.
    Even so, Netflix shares have tumbled 40% during the past
year, partly as a result of the Warner Bros deal attempt. Viewer
retention has been suffering and YouTube snatched the biggest
share of TV watching. New sources of revenue are also fledgling.
Ads, for example, are on track to generate $3 billion this year,
or roughly 6% of the top line, according to forecasts gathered
by Visible Alpha.
    A big acquisition might bring more earnings, including from
cost savings, but the price tag for one is usually too high.
Rather, Netflix would be better served by going back to its
inventive roots. Instead of paying exorbitantly for soccer
rights, it could develop adjacent programming, as it did with
the hit Formula 1 series, "Drive to Survive." Investing in
valuable characters, as Disney did with Marvel and Star Wars, is
also an option.
    Another way to attract and retain audiences while staying
true to its mission would be by embracing episodic one- to
two-minute videos. Viewers watch an ad, buy a token or subscribe
to see more of a soapy series. Known as micro-dramas, they are
already popular in China, where they have generated $9 billion
of revenue, surpassing the country's $7 billion in box office
ticket sales, according to tech research firm Omdia.
    It's a wide open field, after Hollywood tycoon Jeffrey
Katzenberg and former tech boss Meg Whitman arrived on the scene
too early with their ill-fated short-video service Quibi in
2020. A handful of apps such as DramaBox and ReelShort are
gaining popularity now, but no one company controls the market.
Younger consumers are flocking to it. Of the estimated 28
million micro-drama watchers, more than half are aged 18 to 34,
Activate Consulting reckons.
    Done well, it would be a promising area of growth. By 2030,
micro-drama revenue will exceed $20 billion, with a third coming
from outside China, per Omdia. If Netflix captured, say, $3
billion of the pot, its forecast 42% EBITDA margin would
translate into $1.3 billion of extra profit. On the company's
two-year average valuation multiple of 30 times, it would reap
some $40 billion, or a 13% uplift for the enterprise. Taking
creative risks in micro-doses would be a wiser use of capital
than jumping the shark with a silly mega-deal.
Follow Jennifer Saba on Bluesky and LinkedIn.
     
    CONTEXT NEWS
    Netflix, which declined to raise its $72 billion offer to
buy parts of Warner Bros Discovery in February, is due to report
quarterly earnings on July 16.

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(Editing by Jeffrey Goldfarb; Production by Pranav Kiran)
((For previous columns by the author, Reuters customers can
click on  SABA/ jennifer.saba@thomsonreuters.com))