As Netflix swoops in to buy Warner Bros, we revisit the studio’s long, twisted journey

The 1950s heralded the end of the studio system in Hollywood’s Golden Age. Studios began to face competition from television and lost their theater chains to antitrust action by the U.S. Department of Justice. In desperate need of cash, Warner Bros. made one of the worst media deals of all time in 1956, selling off its entire library of pre-1948 films just as TV stations were about to need those old movies and cartoons to fill their schedules.

Like many studios, Warner was left adrift for years. As US culture changed in the 1960s, Warner and other studios struggled to keep up, and this was the final straw.

In 1967, an aging Jack Warner still owned a majority stake in the studio and sold it to a film distribution company called Seven Arts to form Warner Bros.-Seven Arts. But Seven Arts had bitten off more than it could chew. After a series of failures in 1968 and 1969, the company was sold to Steve Ross’s Kinney National, which owned morgues, parking lots and other non-entertainment-related businesses. The studio was renamed, this time as Warner Communications.

Thus began the best years for Warner since the 1930s, both financially and creatively. There was production and distribution for film, television and music burgeoning in the 1970s. In 1990, Time Inc. He also added publishing with. He also introduced a cable television system, which combined with Warner’s system to create one of the largest systems in the United States, just as cable television was about to explode. The name of the new company was Time Warner.

The addition of Turner Broadcasting in 1996 brought cable channels, the pre-1986 MGM movie library, numerous cartoons, and the return of the pre-1948 Warner library, bringing Casablanca and Bugs Bunny back home.

The 1990s were Warner’s peak, although there were reportedly frictions between publishers at Time and the cozy Hollywood scene. The movie studio was releasing hits and finding new distribution channels internationally and on home video. Overflowing with advertising pages, it was a high point for magazine publishing. The TV studio has produced many of the top shows on US television, including Seinfeld, Friends and ER, all of which are still raking in cash today. WB broadcast network launched. Cable subscriptions were expanding. CNN set the standard for television news, and Turner networks added sports. Warner/Elektra/Atlantic was the largest music distributor during the industry’s best decade.

But like Warner’s first golden age, it ended with a new medium: the internet. Legacy media companies were rightly concerned that this would disrupt their businesses, and in hindsight we know they were right to be afraid. Time Warner CEO Gerald Levin thought the answer was another merger; this time with America Online, a premium internet service at a time when dial-up connections were still king. Although a smaller company, AOL was valued more highly than Time Warner in the 2001 stock deal that created AOL-Time Warner.

This was a disastrous combination of old and new media. The promised “synergies” never materialized. The World Wide Web has left AOL’s walled garden model of the internet behind. Most importantly, the timing couldn’t have been worse, as the deal was announced two months before the dot-com crash. In the end, $99 billion of the $165 billion merger was written off. AOL was sold for $1.4 billion in October.

The merger strategy, so successful for 30 years, failed, and Warner has faced another long period of struggle ever since.

AT&T, which left many parts of Warner such as AOL and Time Warner Cable in 2018, bought the studio and changed its name to WarnerMedia. But just three years later, he found himself making a strategic mistake by funneling $44 billion in debt (including assumed debt) to buy up Warner’s flagging properties. By 2022, AT&T merged it with Discovery’s cable channels and created a copy of the legacy media, Warner Bros. It was named Discovery and continues to exist today.

Every media merger is different, but among these divisions, the Netflix-Warner tie-up is most similar to the Seven Arts deal. Like Netflix, Seven Arts has begun distributing a new medium, in this case TV. Seven Arts bought the TV rights from the studios and pooled them to sell to TV stations. Like Netflix, Seven Arts started producing its own content after the studios did not produce enough. And like Netflix, it has turned to buying a troubled legacy media company to add more content and production.

This doesn’t mean the Netflix-Warner deal is doomed to fail, but it does highlight integration challenges as Netflix acquires a growing group of legacy media companies.

Write to Adam Levine at adam.levine@barrons.com