Netflix has never been afraid to break its own rules.
Friday’s acquisition announcement of Warner Bros Discovery’s studio and streaming services is the latest example of Netflix reversing its own declarations about business strategy.
Previously, Netflix said it wasn’t interested in big mergers and acquisitions, with execs saying the company preferred to build things itself to ensure it got exactly what it wanted. Big media M&A has a poor track record, after all. Now, co-CEO Greg Peters has said the new deal will be different because the streamer understands the business it’s buying and isn’t doing it out of desperation.
If Netflix has a superpower, it’s the ability to abandon long-held certainties when the market shifts. Whether cracking down on password sharing or embracing ads after years of resistance, the streamer’s biggest leaps have come from rethinking nonnegotiables.
“After throwing cold water on large media mergers publicly, Netflix immediately sought to buy one of the world’s largest content spenders. This is similar to its reversal on advertising, live sports, and account sharing,” EMARKETER Senior Analyst Ross Benes said. (EMARKETER is a sister company of Business Insider.)
Now, Netflix is once again betting that reinvention beats rigidity.
“They’re always going to move with the wind,” Rahul Telang, a professor at Carnegie Mellon University who studies digital media, told Business Insider, referring to Netflix’s willingness to go a different direction when the market dictates it.
Netflix’s earlier pivots have generally paid off. But the WBD deal presents new challenges due to its size and nature.
Here’s a rundown of times Netflix has done a pivot, the rationale, and how they’ve paid off:
DVD to streaming: The company made its first big pivot when it moved beyond its original DVD-by-mail service and launched a video streaming service in 2007. That service was initially populated by others’ licensed content, then its own original content. It was a core change to Netflix’s product, and fundamentally changed its business.
Password sharing: For years, Netflix looked past the practice. It made sense when the company was growing at a furious pace. In 2023, Netflix announced it would start charging $8 for users outside the household as its subscriber growth slowed. (Other streamers like HBO Max and Disney+ followed its example.) The policy shift paid off. Netflix subscriptions soared after the crackdown, but it’s approaching the limits of that growth.
Ads: Netflix also reversed course when it came to selling ads. Former CEO Reed Hastings said in 2020 that getting into ads would be a costly undertaking, run regulatory risks, and exploit users.
Fast forward to 2022, when, with Hastings on the way out as CEO, Netflix rolled out a cheaper ad tier as subscription growth slowed. Netflix justified the move, saying the ad tier would let it offer subscribers more ways to access its content. The rollout hasn’t been without hiccups. Advertisers criticized its offering early on as being too high-priced and rudimentary, and Netflix has cycled through multiple ads leaders. Despite this, Netflix expects advertising to be a big growth lever in the coming years.
Sports and beyond: Over time, Netflix has evolved from its focus on movies and TV shows to being a broad-based entertainment platform. Notably, that’s meant getting into sports and live events.
Netflix said for years that it wouldn’t get into live sports programming, preferring content that had a long shelf life. But it’s hard for media companies to pass on sports, with their ability to convene big, attentive audiences and significant ad dollars.
Netflix has described its sports strategy as an extension of its live programming approach, rather than seeking full-season rights for major leagues.
It’s working: Events like its Jake Paul vs. Mike Tyson fight and NFL games have driven millions of new subscription signups.
What WBD’s prize assets give Netflix
Netflix’s acquisition of new content and WBD’s “must-watch intellectual property” could help the company boost its hours of consumption, which have seen negligible growth over the last two years despite an increase in subscribership, Matthew Ball, CEO of the VC firm Epyllion, told Business Insider.
“With this acquisition, Netflix got one of the most storied IP libraries and characters. It solved its franchise scarcity problem,” said Peter Csathy, a media consultant. WBD has franchises like DC Comics and Harry Potter.
The decision to acquire content rather than creating its own demonstrates that Netflix is willing to change in response to shifts in market forces, Ball said.
Netflix’s share of TV viewing and engagement per subscriber has stayed roughly even while YouTube has widened its lead, according to Nielsen and Parrot Analytics data.
Watching its hours of consumption grow minimally, Ball said, likely pushed the company’s perspective on how to grow.
Netflix has maintained that it’s acting from a position of strength, saying it notched a record share of TV time in the US and UK in the most recent quarter, and that it sees the acquisition as a chance to accelerate its progress.
Big challenges remain
Acquiring WBD’s key assets would take Netflix from being a distributor of its own content on its own platform to absorbing a traditional media company that distributes its content through multiple buyers.
Netflix would also take on thousands of people who haven’t been steeped in its particular corporate culture that prizes radical honesty, and which it believes is key to its success.
Csathy warned of the cultural risk.
“The consolidation and integration of culture is always the biggest risk when it comes to M&A,” he said. “You have a very different DNA when it comes to a Netflix studio and a Hollywood studio.”
Wall Street has received the news with skepticism, with Netflix shares closing down about 3% on Friday.
Netflix has always been thoughtful about when to pivot on strategies like ads and password sharing, media analyst Evan Shapiro said. But like some other analysts, he expressed concern about the price Netflix is paying.
The deal could also face political opposition and regulatory scrutiny.
Morgan Stanley wrote in a note last month that Netflix had “perhaps the toughest regulatory path” of WBD’s suitors. That could be especially true if President Donald Trump were to get involved. Paramount Skydance, another bidder for WBD, is owned by David Ellison and his father, Larry, a longtime Trump ally.
Despite the risks, Netflix clearly sees more potential for upside by making a move than standing still.
“They’ve been winning, largely through volume of content,” said Christopher Vollmer, a partner and managing director at UTA’s MediaLink. “I think they realize they can further expand their ability to shape attention through more culturally relevant IP, and they’re going to go from strength to strength. You’re never going to get another chance to own Batman.”
