Good morning. Andrew here. Breaking: Netflix is acquiring Warner Bros. Discovery. The deal is hardly done, with a lengthy regulatory battle likely. The transaction is largely going to hinge on how regulators in the U.S. and elsewhere define the company’s market. If it’s narrowly defined as subscription streaming, the deal could be blocked. But if it’s defined in larger terms — like eyeballs on video, which would include YouTube and others — the combined company doesn’t look like such a Goliath. And then there is the Trump factor. More below. Also, at the DealBook Summit this week, we assembled four groups of thought leaders we call Task Forces for deep, insightful conversations led by Times journalists. The first two are ready to watch on YouTube: Michael Barbaro, co-host of “The Daily,” moderated a spirited debate about the future of journalism. And Nicholas Kristof, a Times Opinion columnist, steered a timely conversation about the new global order. (Was this newsletter forwarded to you? Sign up here.)
Netflix + Warner Bros.?Warner Bros., the century-old studio that is home to Harry Potter, Batman and many other lucrative franchises, has chosen a prospective new owner after being traded around for decades. The streaming giant’s victory in one of Hollywood’s fiercest bidding wars in years could reshape the media industry — and it raises questions about whether Netflix’s rivals, particularly Paramount, can find a way to stop the deal. The latest: Netflix agreed to buy Warner Bros. Discovery’s movie and television business and the HBO Max streaming service, the companies announced today. The transaction — consisting of $23.25 in cash and $4.50 worth of Netflix stock per Warner Bros. Discovery share — values Warner Bros. Discovery as a whole at $72 billion, well above the company’s $60 billion market capitalization at the end of trading yesterday. The sale is expected to close after Warner Bros. Discovery completes a spinoff of its cable channels, including CNN and Food Network, into a separate company, Discovery Global. Netflix, along with Paramount and Comcast, had submitted takeover bids for some or all of Warner Bros. Netflix just struck a Hollywood coup. It’s already the world’s biggest paid streaming service, with more than 300 million subscribers. A deal for the Warner Bros. Discovery assets would give it an enormous trove of new content — and greater leverage over movie theater chains, entertainment labor unions and other parties. “Together, we can give audiences more of what they love and help define the next century of storytelling,” Ted Sarandos, Netflix’s co-C.E.O., said in a statement. Its chances of victory had been considered unlikely. Netflix executives proclaimed they tended to be builders, not buyers — it has never done an acquisition of this size — and the company’s preference for streaming made many believe it might not put Warner movies in theaters. But Netflix submitted the highest bid. It has also offered a $5.8 billion breakup fee if the deal falls apart and pledged to continue releasing Warner Bros. movies in theaters. Expect resistance to a Netflix deal. Paramount, whose repeated acquisition entreaties essentially forced Warner Bros. Discovery to solicit takeover bids, has accused Warner Bros. of unfairly favoring Netflix. In a letter to Warner Bros. Discovery, lawyers for Paramount argued that a Netflix deal would “entrench and extend Netflix’s global dominance in a matter not allowed by domestic or foreign competition laws.” That raises the prospect of Paramount seeking to persuade the Trump administration to block a Netflix deal on antitrust grounds, a plausible threat considering its close ties to the White House. (One thing that could help Netflix: CNN, an object of President Trump’s scorn, would be part of Discovery Global.) Several prominent Hollywood figures have also spoken out against Netflix, with the director James Cameron warning that a deal would be a “disaster.”
Meta reportedly plans big cuts to its metaverse spending. Executives at the social media giant are considering slashing the budget for its metaverse unit by as much as 30 percent, according to Bloomberg. Meta’s shares jumped on the news, as investors had questioned the focus on a business that failed to gain mass traction. The company is expected to invest the savings in its augmented reality glasses, The Times reports. U.S. officials are said to argue against an E.U. plan to use Russian funds to aid Ukraine. The Trump administration has lobbied several European countries in an effort to block a proposal to use frozen Russian central bank assets to back a loan for Ukraine, arguing such a move risks prolonging the war, according to Bloomberg. The E.U. has proposed using the Russian assets to back a $105 billion loan that would fund Ukraine’s economic and military needs for two years. Senators unveil a bill to block the sale of advanced chips to China. The bipartisan legislation would order the Commerce Department to halt for 30 months the export licenses for sales of powerful chips to adversaries. That could stop Nvidia from selling the H200 and Blackwell, its most advanced semiconductors, to countries including China and Russia. At the DealBook summit this week, Dario Amodei, the C.E.O. of Anthropic, warned that allowing the sale of advanced chips to China was akin to a national security risk. Who gets to oversee crypto?Bitcoin has stabilized in recent days, but traders are still reeling from this fall’s $1 trillion market wipeout. The wild price swings — coinciding with an investor stampede out of Bitcoin-focused exchange-traded funds — have reinvigorated a debate around so-called market structure legislation that proponents say would bring stability to this often volatile financial asset, Grady McGregor reports. The industry wants Congress to move fast. At the DealBook Summit on Wednesday, Brian Armstrong, Coinbase’s C.E.O., called on lawmakers to pass legislation to protect investors and potentially curb “high risk” trading activity in cryptocurrencies. Not everyone agrees the bills would be a panacea. For starters, the drafts of legislation winding through both chambers “would do nothing to address” leverage concerns that have roiled the markets lately, Hilary Allen, a law professor at American University, told DealBook. (More on that below.) To recap: Market structure legislation aims to clarify which regulator — the S.E.C. or the C.F.T.C. — would oversee crypto assets to guard against fraud and market manipulation. In July, the House passed its version, the Clarity Act. The Senate Banking Committee, which oversees the S.E.C., and the Agriculture Committee, which oversees the C.F.T.C., have each released their own drafts. There are more crypto-friendly lawmakers than ever on Capitol Hill. But Republicans and Democrats alike are wondering if there’s enough momentum to advance the bill in the next few months, DealBook hears. This week, Senator Tim Scott, the South Carolina Republican who is chair of the Banking Committee chair, told Punchbowl that negotiations are “finally” getting serious. But he’s also fielding calls for caution within his own caucus, and core disagreements with Democrats remain. One powerful critic is Senator Elizabeth Warren. The Massachusetts Democrat, who sits on the Banking Committee, says that the bill is “riddled with exemptions and loopholes.” She warns that it would allow for risky crypto assets to proliferate in the wider financial system, potentially leading to “financial meltdown.” The path to ratification is uncertain. Coinbase’s Armstrong, whose company has become a major lobbyist for industry-supportive policies and donates to crypto-friendly politicians, told Andrew that “hopefully within a few months” the Senate would vote on market structure rules. But the chamber faces a packed calendar — to recoup lost time from the shutdown — ahead of the start of midterm election season. The S.E.C. is still willing to play top copWhen the Trump administration’s S.E.C. puts a stop sign in front of a new financial product, it’s worth paying attention. That’s exactly what happened this week when the agency sent a letter to nine fund managers, including Direxion, ProShares and GraniteShares, warning them to halt new highly leveraged E.T.F. stock, crypto and commodity offerings. Leveraged E.T.F.s use tools like swaps, futures and other derivatives to amplify bets on an asset. But the aggressive use of leverage by the funds named in the letter has raised red flags, Niko Gallogly writes. Crossing a clear red line: S.E.C. rules cap E.T.F.s from offering more than two times leverage. The nine fund managers who received a letter from the S.E.C. sought to introduce products that offered three and, in some cases, five times leverage. That’s “legally way beyond the pale,” William Birdthistle, a law professor at the University of Chicago and a former director of the Division of Investment Management at the S.E.C., told DealBook. A spokesperson for the agency said the S.E.C. did not comment on active registrations. Leveraged products have skyrocketed in recent years. So far this year, 237 leveraged E.T.F.s have started, up from five in 2019. That growth has been fueled by a rule change at the S.E.C., which permitted leveraged E.T.F.s to open without undergoing an exemptive order, along with growing risk appetite from retail investors after several years of a bull market run.
But leveraged funds can lead to “dangerous” outcomes for retail investors, Todd Sohn, a senior E.T.F. strategist at Strategas, told DealBook. While E.T.F.s are often considered to be safe, long-term investments, leveraged E.T.F.s are designed to be used for short-term trades — a long-term hold compounds the risk exposure. “No one ever reads the fine print, whether it’s an E.T.F. or the label on your beer,” Sohn said. The U.S. leveraged-fund market has $159 billion in assets under management, according to data from Strategas E.T.F. That’s a fraction of the $13 trillion U.S. E.T.F. market. But the fact that so many leveraged fund managers thought a “regulator might accept a 500 percent gamble” is a troubling sign, Birdthistle said. “These kinds of instruments really are a massive departure from prudent investing and much more about just gambling.”
Talking A.I. with the C.E.O. of KPMGEvery week, we’re asking a chief executive how he or she uses artificial intelligence. This week, Tim Walsh, who leads the consulting firm KPMG, told DealBook that it’s too soon to know how A.I. will change the shape of the work force. His answers have been condensed and edited. How do you personally use A. I.? The tool I use knows my persona. And so if I’ve got, let’s say, a government meeting, it’ll summarize: Tim, as C.E.O., these are the most important things you should consider related to KPMG’s policies. Have you given any directives to your team about what you want them to do with A.I.? Have A.I. tools changed who you hire? This is a yes and no. Years ago, you would not have seen a firm like KPMG hiring data scientists and advanced developers, but that is absolutely a capability that we now hire frequently. That being said, we are still hiring off campuses, graduates who are C.P.A.s, people trained in tax law. Those professionals are coming to us in a much different way than they were before. Their skills are in tech and in their specific capability. A lot of focus has been on the entry level of the business: Are we going to need entry-level professionals? And I keep reminding everybody that these tools are disrupting every single layer in the labor stack. So you need to look at all the layers, and you need to be watching the trends and capabilities and what it does to your business on a real-time basis. Because we don’t know. Anyone who says they know what the shape of the work force will be is not telling the truth. We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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