JUANA SUMMERS, HOST:
The battle between Netflix and Paramount over Warner Bros. Discovery continues. Today, Paramount said that Larry Ellison, father of the company's CEO David Ellison, would provide a $40 billion personal guarantee as part of Paramount's takeover bid. Yet Warner Bros. Discovery is still advising its shareholders to reject Paramount's hostile bid in favor of an already announced deal with Netflix. This is the latest chapter in a long history of messy corporate marriages and divorces for Warner Bros. NPR's Greg Rosalsky dug into that history for the Planet Money Newsletter. Hi, Greg.
GREG ROSALSKY, BYLINE: Hey, Juana.
SUMMERS: So you call this company's troubled merger and acquisition history the Warner Bros. Curse, and the most glaring example of it was back in 2000, which is when AOL buys what was then called Time Warner. And this deal famously goes down absolutely terribly for a whole bunch of reasons. Can you help run down the main things for us?
ROSALSKY: Yeah, well, when AOL and Time Warner got hitched back in 2000, it was one of the biggest corporate mergers in history. AOL, at the time, it was, like, the king of dial-up internet. Its stock price was rocketing to the moon. And Time Warner was this illustrious legacy media company. People thought this marriage between old and new media was pretty brilliant. But almost immediately, there were huge problems. The CEO of Time Warner had kept most of his executives in the dark about the merger. They felt the deal was rushed and sloppy. And really important, this deal was struck near the peak of the dot-com bubble. Then that bubble popped and the economy went into a recession. And AOL Time Warner, it depended heavily on advertising revenue, and that dried up. And the company that is known as Warner Bros. Discovery today still actually has some of the debt from that disastrous merger.
SUMMERS: I mean, this is the kind of merger that was so bad that business schools actually still teach...
ROSALSKY: Yeah.
SUMMERS: ...Students about it as a kind of cautionary tale. What lessons do you think it tells?
ROSALSKY: I think it shows that mergers and acquisitions are actually pretty hard to do successfully. There's all these studies that show that somewhere between, like, 50- and 90% of mergers and acquisitions fails to actually create shareholder value. And one big reason for that is that company executives often overvalue the company they're buying or merging to create. The AOL Time Warner deal is, like, this extreme example of that. AOL was, like, riding high in the dot-com bubble. But ultimately, it wasn't really worth what the stock market said it was worth at the peak of the bubble. More generally, I think this story shows that the process of making two companies into one can be just really messy.
SUMMERS: OK, so over the next few years, Warner Bros. changes hands and names a few times, but they've been under the leadership of CEO David Zaslav as Warner Bros. Discovery since 2022. Talk us through some of the more questionable moves the company has made since then.
ROSALSKY: Yeah, there have been quite a few kind of bizarre decisions made during this era. For example, they rebranded their streaming service, HBO, as HBO Max, and then Max, and then back to HBO Max. They shelved the movie "Batgirl" after spending, like, $90 million to make it. More recently, they bought the rights to stream the show "Mad Men," and as part of that, they remastered it into a widescreen format, and that had a bunch of embarrassing errors.
SUMMERS: And now, after all of this, Warner Bros. finds itself in the position of being fought over by Netflix and Paramount. I'm curious, why do you think they won't fall victim to the Warner Bros. Curse?
ROSALSKY: You know, it's interesting. Earlier this month, Netflix executives explicitly talked about this disastrous merger and acquisition history, and they said, basically, you know, don't worry. Those failures were because the companies that bought them in the past, like, didn't understand the entertainment business. And they said, basically, you know, we won't repeat the same mistakes. And I'm like, sure, this sequel could turn out to be like "The Dark Knight," a huge commercial success, but there's a big risk it looks like the last "Joker" movie, another Warner Bros. flop.
SUMMERS: Greg Rosalsky, thank you so much.
ROSALSKY: Thank you, Juana.
SUMMERS: If you want more of Greg's reporting, you can get it in your inboxes weekly from the Planet Money Newsletter. Transcript provided by NPR, Copyright NPR.
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