And so, this is how it ends for entertainment giant Warner Bros. Discovery (WBD), now a Netflix (NFLX) property, assuming it gets past all the requisite hurdles, and this is not even completely assured as yet. But one thing is clear: theater owners are terrified about the future of a major supplier under the control of a brand that declared their entire industry obsolete. But Warner investors were happy, in a big way: shares jumped nearly 6% in the closing minutes of Friday’s trading.
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We have heard about this once before. Theaters have already expressed substantial concern about the possibility that Netflix could acquire Warner, and even went so far as to call it the “worst-case scenario.” But the theoretical is now the real, and the possibility that Warner films will suddenly be unavailable to them is every bit as real. And, perhaps, more terrifying.
Netflix has made no secret of its disdain for the traditional theatrical distribution model, and some worried that Netflix taking over Warner would mean that Warner films would go straight to Netflix. And why not? Being the only place to find an entire studio’s body of work is a significant feather in the cap, as far as marketing goes. A report from Cinema United suggests that Netflix cutting off Warner films would “…risk removing 25% of the annual domestic box office.”
Regulators Pretty Concerned
But this process has to go through a regulatory review, and reports note that the regulators are already very much concerned about this development. Granted, Netflix has made soothing noises on several occasions. Current contracts would be honored, though no mention was made about future contracts being made. Netflix has “category ambiguity” involved which keeps the idea of cornering the market at a minimum. There are even some potential cost savings as customers will no longer need to pay for Netflix and Max at the same time.
But with bipartisan support against the deal, this may be tougher to pull off than earlier indications expected. Senator Elizabeth Warren already called the deal “…an anti-monopoly nightmare,” and there were previous signs suggesting that the Trump administration was backing Paramount Skydance (PSKY) instead.
Is WBD Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on WBD stock based on eight Buys and 10 Holds assigned in the past three months, as indicated by the graphic below. After a 130.21% rally in its share price over the past year, the average WBD price target of $22.08 per share implies 15.08% downside risk.
