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I love stocks and I love movies. I’m so excited about the Warner deal that I can’t help but write like a child.

Last week, the 102-year-old company accepted a cash and stock offer from Netflix to acquire its studio and streaming assets. The streaming war is over. Hollywood waved the proverbial white flag.

The trend from movies to the couch had been in motion for years. Covid didn’t cause the transition, but it sure did accelerate it. Before 2020, Netflix's North American revenue was about to close the gap with the domestic box office. And then the world shut down, leaving theaters behind. Ultimately, convenience and cost won.

Here’s a longer-term view of the theater industry. Sales peaked in 2002 and have been declining ever since. Fewer tickets were sold in 24 than in 23, and 25 isn’t looking so great either, even allowing for the fact that Avatar, which comes out in a few weeks, will be the biggest movie event of the year.

Warner Bros. is one of the oldest and most renowned names in show business. It is Hollywood. The studio made Casablanca in 1942, The Exorcist in 1973, and Goodfellas in 1990. Its fingerprints are all over modern media. They own HBO, Harry Potter, The Lord of the Rings, and Superman, to name just some of their properties. Most years, they’re in the top three at the box office.

This year, they accounted for only 2% of all releases but captured 24% of the box office.

It’s not hard to see why Warner Bros. is a coveted asset. But why does Netflix, a company that famously preferred to build instead of buy, want to get into theaters, an industry it brought to its knees? Polymarket didn’t even have them as a suitor until just a few weeks ago!

The market hates it. The stock is down 28% from its high, the deepest drawdown since it reported a decline in subscribers in 2022.

Warner’s studio and streaming service, HBO Max or whatever it's called these days, did $5.279 billion in revenue in the most recent quarter. About a billion flowed to the bottom line. Netflix recently generated more than twice as much revenue and achieved 10% better margins.

The financial aspect of this deal doesn’t make sense to me. Spencer Neumann, Netflix’s CFO, said on the call with analysts last week that they expect Warner Bros. to generate roughly $3 billion in EBITDA in 2026 and another $2.5 billion in “run rate cost savings,” aka firing people. So ~14x EBITDA. Okay, I guess.

An analyst on the call asked: “So starting with some of the obvious concerns people have had with the deal and the dissynergies. I mean, HBO and Netflix presumably overlap significantly when it comes to subscribers.”

Here’s the response from Greg Peters:

“And then on the first part of the question, we do -- like we think the 2 services are very complementary. And to your point, there is a high overlap of existing HBO Max subscribers who are also Netflix subscribers. That number is quite large.”

Okay. So why are they doing this? Honestly, I don’t know.

People keep saying they’re not buying the studio because they’re worried about competing with theaters. They’re competing with YouTube. That is the 800-pound gorilla in the room. Right, but how does buying Warner Bros help? I’m not sure that one plus one equals more than two here.

In any event, I think there’s a very good chance Netflix ends up losing the deal to Paramount, which needs the studio way more than Netflix does. In fact, I bought NFLX today, betting Paramount’s hostile takeover is successful. Whatever the ultimate outcome, I’ll probably sell either way before the deal is finalized, which won’t be until sometime in 2027.

I don’t like that this is happening. It feels like a lose/lose situation. If Netflix wins, it’s bad for thaters. I know Sarandos said he’s going to keep bringing Warner’s movies to the big screen as planned, but he also said he wants to shorten the time it takes for movies to go from theaters to TV. That would be the nail in the coffin for everybody but iMax, basically.

And if Paramount wins the deal, the “run rate cost savings” will be even worse for Hollywood. They already run a major studio. They don’t need two of everything.

I love movies and I love Netflix, but I don’t love this. The streaming wars are over. Casualties abound.