Netflix Walked Away from the Biggest Media Deal in History. Here’s Why That Might Be the Smartest Move.

After months of back-and-forth, Netflix formally declined to raise its bid for Warner Bros. Discovery (“WBD”) on Thursday, handing the $111 billion deal to Paramount Skydance. The WBD board viewed Paramount’s revised $31/share all-cash offer superior to Netflix’s existing $82.7 billion agreement, and Netflix chose not to match.

What happened

Paramount Skydance, led by David Ellison (the son of Larry Ellison), had been escalating its bid for WBD for months. Its latest offer valued the entire company at roughly $111 billion, including all of WBD’s assets: Warner Bros. studios, HBO, CNN, and its linear TV networks. Netflix’s deal, by contrast, was only for the streaming and studios division at $27.75 per share. When the WBD board triggered the “superior proposal” provision, Netflix had four business days to counter. Instead, it walked away.

Why walking away might be the win

Netflix stock surged over 8% in after-hours trading on the news. That reaction tells you everything: the market thinks Netflix is better off without this deal. Matching Paramount’s price would have required Netflix to spend significantly more than the $83 billion it had already committed, stretching its balance sheet for assets (like CNN and cable networks) it didn’t want in the first place. By walking away, Netflix collects a $2.8 billion breakup fee from WBD, keeps its financial flexibility, and avoids a potential regulatory nightmare.

The bigger picture

Paramount will presumably now own Warner Bros., HBO, DC Studios, CNN, and its own existing empire of CBS, Paramount Pictures, and MTV. But the deal still needs WBD shareholder approval (vote scheduled for March 20) and regulatory clearance, both of which could hit snags. For Netflix, it doesn’t need to own legacy Hollywood to win the streaming wars. Sometimes the best deal is the one you don’t make.

Sources: CNBC, Bloomberg, NPR, Fortune