Netflix Backs Out of Bid for Warner Bros., Paving Way for Paramount Takeover

Netflix said on Thursday that it had backed away from its deal to acquire Warner Bros. Discovery, a stunning development that paves the way for the storied Hollywood media giant to end up under the control of a rival bidder, the technology heir David Ellison.

Netflix said that it would not raise its offer to counter a higher bid made earlier this week by Mr. Ellison’s company, Paramount Skydance, adding in a statement that “the deal is no longer financially attractive.”

“This transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price,” the Netflix co-chief executives, Ted Sarandos and Greg Peters, said in a statement.

Netflix reached an $83 billion deal in December to acquire a large portion of Warner Bros. Discovery’s business, including HBO and the Warner Bros. movie studio. The acquisition was poised to cement Netflix, once a striving outsider to the film and entertainment business, as the pre-eminent juggernaut of Hollywood.

But Mr. Ellison, himself a relative newcomer to the industry whose bid is backed financially by his father Larry Ellison, the billionaire founder of Oracle, pledged to fight on. Paramount eventually submitted a revised offer of $111 billion, which Warner on Thursday had decreed a “superior deal,” giving Netflix four business days to decide if it would counter.

As it turned out, Netflix decided not to.

Any purchase of Warner Bros. Discovery will be scrutinized by regulators in the United States and Europe, including the Justice Department’s antitrust division. If Paramount is unable to secure the proper regulatory approvals, Netflix could potentially revive its interest as a buyer.

For now, though, the war for Warner Bros. appears to have been all but decided in favor of Mr. Ellison, a 43-year-old budding mogul who came to Hollywood two decades ago as an aspiring actor and, somewhat improbably, could now control two of the town’s most famed movie studios, along with the prestige television channel HBO and the 24-hour news network CNN.

President Trump broke precedent last year by inserting himself directly into the sale process, saying he would “be involved” in the outcome and offering public commentary about Netflix and Paramount.

On Thursday, Mr. Sarandos spent much of the day in Washington at the White House, where he discussed the transaction with aides to Mr. Trump and officials at the Justice Department.

Mr. Sarandos’s visit was scheduled more than two weeks ago. But it occurred two days after Mr. Trump publicly encouraged Netflix to fire a board member, Susan Rice, who served as former President Barack Obama’s ambassador to the United Nations and national security adviser.

Netflix has the cash to raise its offer, but its shareholders have questioned the company’s move to buy a legacy movie business. The company has lost more than $60 billion in market value since announcing the deal with Warner Bros. Discovery. Shares rose nearly 10 percent on Thursday in after-hours trading after Netflix announced that it would not raise its bid.

Mr. Sarandos, who gave a spree of interviews last week highlighting what he described as the strategic benefits of the deal to the entertainment industry, had also expressed caution about how much Netflix was willing to pay.

“We’re super-disciplined buyers,” Mr. Sarandos said earlier this month. “I’m willing to walk away and let someone else overpay for things.”

Paramount, while one-thirtieth the size of Netflix, was the more determined of the two bidders. It has aggressively pursued Warner Bros. Discovery since its roughly $108 billion offer was rejected in December, taking its offer to the company’s shareholders in what is known as a hostile bid. After several revisions to its offer, Warner Bros. Discovery reopened talks with Paramount last week.