Netflix dodges a bullet: Why passing on Warner Bros. might be Sarandos' smartest move

Paramount Global secured the acquisition of Warner Bros, making it the winner of the bidding race.

The diverging market responses are significant. Paramount Global stock dropped 1.8 per cent due to the fear of integration expenses and a heavy debt load following the merger news.

Netflix, which apparently lost the bidding war, came out as the Wall Street surprise winner. Analysts indicate that the disciplined stance of Netflix co-CEO Ted Sarandos was the determining factor.

In contrast to other bids made by Paramount and a consortium of firms, including Oracle and Disney, Netflix did not overburden itself with the deal. In Barron, Andrew Bary wrote Friday, "Sarandos hoisted shareholders above ego.

When other media company CEOs sought to build an empire, Netflix estimated that it would not be worth the prize to take on Warner Bros.’ $45 billion in debt.

This has seen the streaming pioneer's stock increase by 18% year to date, compared to the broader market.

The firm has already reached 9 million subscribers in the last quarter and anticipates strong growth due to its ad-supported model and the crackdown on password sharing.

Today, Paramount has the daunting task of incorporating the diverse assets of Warner Bros. Discovery, such as CNN, HBO and Warner Bros. studio. 

The new entity will have almost 30 per cent of American television audiences, yet have close to 70 billion in debt.

Netflix, on its part, does not have to carry the legacy media infrastructure baggage as it keeps investing in original content and its global expansion. The market valuation of the company has greatly increased to $320 billion as compared to the recently merged Paramount-Warner.