Netflix defends Warner Bros bid as shares drop on tepid results

By Zaheer Kachwala

Jan 21 (Reuters) - "YouTube is not just user-generated content and cat videos anymore," Netflix CEO Ted Sarandos said on Tuesday.

Making a compelling case for why the streaming giant wanted Warner Bros Discovery's studio and streaming assets, Sarandos noted how tech giants such ​as Alphabet's YouTube had changed what television viewing meant and forced Netflix to change tack to keep up.

"TV is not what we grew ‌up on ... Oscars and the NFL are on YouTube. Networks are simulcasting the Super Bowl on linear TV and streaming. Amazon owns MGM. Apple is competing for Emmys and Oscars, and ‌Instagram is coming next," he said.

"They are TV. So we all compete with them in every dimension, for talent, for ad dollars, for subscription dollars, and for all forms of content."

Sarandos and his co-CEO Greg Peters spent a large portion of the post-earnings call talking effusively about how strong and complementary Warner Bros' services were, a sharp change from the long-held company credo: build, don't buy.

Having offered $82.7 billion in cash to buy Warner Bros' film and television studios, its extensive content library and ⁠major entertainment franchises - including "Game of Thrones" and "Harry Potter" - Netflix ‌is embroiled in a bidding war with Paramount Skydance.

Netflix's co-CEOs had not thought they would make an offer for the assets when they first started the due diligence process on Warner Bros, they said. "When we got into the hood, there ‍were several things we saw that were just really exciting," Peters said.

"We have often in our Netflix history debated building a theatrical business, but we were busy investing in other areas, and it never became our priority. But now with Warner Bros, they bring a mature, well-run theatrical business with amazing films, and we're super excited about that ​addition," he said, in a reversal of Netflix's former position that theaters were an outdated model with audiences preferring stay-at-home streaming.

"And then you get to ‌the streaming side of things, HBO. It is an amazing brand. It says prestige TV is better than almost anything. Customers know it. They love it. They know what it means," Peters said, adding that Warner's television studio was also a healthy business and complemented Netflix's own, expanding its production capability.

INVESTORS ARE NOT CONVINCED

With the expensive deal hanging over its head, Netflix delivered a tepid revenue beat for what is usually one of its strongest quarters, and forecast equally dull prospects for the new year. The company's stock fell nearly 6% premarket on Wednesday.