What the collapse of the Netflix–WBD deal and Paramount’s $111bn gamble actually mean
On February 26, Netflix walked away from its deal to buy Warner Bros. The company had spent roughly three months as the presumptive acquirer of Hollywood’s most storied studio library — HBO, DC, Harry Potter, the lot — and chose not to match a competing bid. In doing so, it collected a $2.8bn termination fee it hadn’t expected and resumed buying back its own shares.
David Ellison got the trophy. The question worth asking is what it cost him.
The deal Netflix almost closed was, in retrospect, the cleaner transaction. Netflix had offered $27.75 per share for WBD’s streaming and studio assets only — not the cable networks, not CNN, not Discovery’s declining linear channels. The structure was surgical. Paramount Skydance’s winning bid, at $31 per share, took everything.
The combined company will carry $79 billion in debt. S&P Global projects a leverage ratio of 7.6 times adjusted EBITDA for 2026, and does not expect it to fall below 5 times until 2029. The ratings agency has already moved the new entity to junk status. To put that in context: WBD itself spent four years being punished by investors for leverage that ran at roughly five times earnings. The new Paramount–WBD combination starts well above that.
Ellison’s pitch to investors was that this is reinvention, not consolidation. The math makes reinvention difficult. As Netflix’s own Ted Sarandos put it, rather pointedly, after walking away: “If they are six or seven times levered, they need to make money, and we’re buyers.” He was not being generous to a defeated rival. He was describing an opportunity.
Paramount has floated $6 billion in projected cost savings — the standard language in leveraged deals of this scale. That figure is roughly equivalent to firing 10,000 workers, and in most leveraged buyouts, acquirers do not reach even half of the projected synergy numbers. The creative community has noticed. More than 4,000 actors, directors, producers and crew members — including Jane Fonda, Ben Stiller and J.J. Abrams — signed an open letter urging regulators to block the deal. California’s congressional delegation wrote to the state attorney general asking for scrutiny. Gavin Newsom put $14 million in his budget revision to bolster antitrust enforcement capacity, citing the federal government’s retreat from the field.
The regulatory path is not closed, but it is complicated. The Hart-Scott-Rodino waiting period in the US has expired, meaning there is no statutory impediment to closing under federal law. But the UK’s Competition and Markets Authority has opened an early-stage consultation, and Paramount would owe a $7 billion breakup fee if regulators ultimately block the deal. European clearance and California’s state-level investigation remain open variables.
The content question is more immediate. WBD’s predecessor spent years writing off completed films for tax purposes, gutting Turner Classic Movies before backing down, and generally antagonising the creative community in ways that are still being discussed with some bitterness in Hollywood. The incoming Paramount–WBD entity arrives carrying all of that institutional baggage, plus a debt stack that will constrain every greenlight decision for years. Projects that do not align with the quarterly cash flow picture will migrate elsewhere. The people who develop those projects tend to follow.
Netflix, for its part, is in an odd position — it lost a deal it initiated, but the outcome may suit it. Co-CEO Ted Sarandos said it was unlikely Netflix would pursue another studio acquisition, describing the company as “builders, not buyers.” The company plans to spend around $20 billion on content in 2026; the $2.8bn termination fee will offset part of that. Netflix now expects free cash flow of approximately $12.5 billion for the year, up from a prior projection of $11 billion, partly reflecting the termination fee.
The IP gap that motivated the deal attempt — no Marvel, no DC, no franchise library to rival Disney — remains. As of January 2026, Netflix ranked third in total US TV usage, behind YouTube and Disney, with 8.8% of viewing according to Nielsen. That number is not a crisis, but it is a reminder that the streaming war is not as settled as Netflix’s subscriber count suggests. The company is instead betting on advertising: it expects to generate $3 billion in ad revenue in 2026, doubling 2025’s figure.
Whether advertising scale substitutes for owned IP over a five-year horizon is genuinely uncertain. What is clear is that Netflix avoided taking on $80-odd billion in debt in a business where the returns on that kind of leverage are anything but guaranteed.
The broader story here is less about streaming competition than about what happens when two legacy media companies merge under financial duress. The AT&T–Time Warner deal, which cost $85 billion in 2018, was dissolved four years later. The Discovery–WBD combination that followed generated years of value destruction and an eventual sale. Each of those transactions was framed, at the time, as a strategic necessity.
Paramount–WBD is framed the same way. David Ellison may be right that the only viable path for a mid-tier studio in the current environment is to get bigger or get acquired. The question is whether getting bigger at this price, financed this way, in this rate environment, actually solves the underlying problem — or defers it.
The debt will not wait for an answer.
Sources
- Netflix SEC Form 8-K, December 5, 2025 — original merger agreement announcement: sec.gov
- Warner Bros. Discovery press release, December 5, 2025: ir.corporate.discovery.com
- Paramount Skydance SEC filings, February 2026 — competing bid details: sec.gov
- Britannica Money, “Netflix, Paramount Skydance Battle for Warner Bros.,” May 2026: britannica.com
- Variety, “Netflix Declines to Raise Bid for Warner Bros. Discovery,” February 27, 2026: variety.com
- Deadline, “Newsom Grows Antitrust War Chest as California Mulls Paramount-WBD Merger,” May 2026: deadline.com
- Hollywood Reporter, “Paramount’s Warner Bros. Deal Endangers Hollywood Ecosystem,” May 2026: hollywoodreporter.com
- ProMarket, “The Warner Bros. Discovery Bidding War Shows Antitrust Enforcement Still Works,” March 26, 2026: promarket.org
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