How the Studios Lost Netflix — and Other Failed Media Deals

Mega mergers that never happened, including Hollywood's whiff on Netflix

The failed talks between Tina Brown, Barry Diller and Newsweek owner Sidney Harman over merging the magazine and the Daily Beast are not the first time that a high-profile media merger fell apart on its way to the altar.

In fact, "It's a surprise deals ever get done," said Reed Phillips, partner at media investment firm Desilva + Phillips. "There are so many moving parts, so many financial intricacies, plus the personalities have to mesh."

After the talks broke down on Monday, TheWrap dug around for some of the biggest that never materialized.

We found some undiscovered ones including:

Netflix and All the Hollywood Studios

Hard to believe now, but there was a time when the studios could've had Netflix under their collective thumb.

In the late 1990s, Warner Brothers made a deal with Netflix founder Reed Hastings to share revenues on DVD rentals in exchange for a significant number of warrants in the fledgling DVD-by-mail company. 

At the time, Warners was looking for leverage against the Blockbuster behemoth's demands — and as with other DVD pacts, studios followed suit, each taking pre-IPO took stock in Netflix, according to two individuals with knowledge of the deal.

Funny thing happened: following Netflix's 2002 IPO, the studios sold their stock. Within a year, none of the studios maintained a stake (Dreamworks was a late holdout).

“Netflix could have been owned by the industry,” said one of the dealmakers.

Now Netflix is growing at a record clip and Blockbuster, the company the studios were so worried about, is in Chapter 11. Listed as creditors in the filing were many of the same companies that could have owned a piece of Netflix.

Of course, the innovation that has fueled Netflix's success and move into digital distribution might not have happened had so many sprawling publicly traded companies owned a piece of it.

That said, they definitely sold low: During the time of its IPO, common shares of the company sold for $15. Today, it trades at nearly $150 a share.

MSNBC-Huffington Post / Yahoo-Huffington Post

A recent New York magazine profile of MSNBC (“Chasing Fox”),  included this anecdote as part of president Phil Griffin’s newfound “ratings religion”: “Recently, MSNBC tried to buy the Huffington Post.”

Such a move would certainly qualify as “Leaning Forward” — MSNBC’s new slogan – and rank among the more shocking old-new media partnerships in memory. But HuffPo co-founder Ken Lerer rejected the offer.

Then again, there are lots of media companies that kick HuffPo’s tires. This past spring, the company was in talks to be acquired by Yahoo! – where HuffPo CEO Eric Hippeau is on the board of directors — in the spring, but those talks broke off after the two sides could not agree on a valuation.

A knowledgeable insider told TheWrap recently that there are no current sale talks ongoing at Yahoo!, which is experiencing its own internal turmoil with executives leaving in droves.

AOL-Yahoo! / News Corp.-Yahoo!

Last week, the Wall Street Journal reported that AOL had talked with several private equity firms to explore a possible bid for Yahoo!, with AOL apparently smelling blood in the water, following a string of high-profile executives leaving Yahoo! and Wall Street’s lingering doubts about chief Carol Bartz’s ability to lead the company. 

But the report was met with more than a bit of skepticism. For one thing, there are those who believe Yahoo — valued at $21 billion to AOL’s $2.65 billion – should be buying AOL.

“Yahoo buying AOL, rather than the other way around, would make even more sense and be a lot cleaner,” TechCrunch’s Erik Schonfeld wrote. “Tim Armstrong can still become CEO, and Bartz can become chairman.”

Meanwhile, reports that News Corp. was interested in buying Yahoo also seemed more like a trial balloon than a real possibility.

CNN-CBS

CBS and CNN have had a long history of flirtation. As recently as 2008, the pair was in talks about a deal that would have seen CBS outsource some of its newsgathering efforts to the cable news network in order to cut costs.

Anderson Cooper — after Larry King, CNN’s most marketable star — has been contributing to “60 Minutes” regularly since 2006. And recently there have been rumors that CNN wanted Katie Couric for King’s primetime slot before settling on Piers Morgan — and may still try to lure the CBS Evening News to cable once her $15 million-a-year contract is up.

Warner Music-EMI

EMI and Warner Music have spent the better part of the last decade in media merger foreplay. In 2000, it almost happened.

A proposed $1.3 billion deal between Time Warner and EMI was on the table, which would have created a $20 billion company and online music juggernaut. But the mega merger was complicated by another one Time Warner eventually did go through — the now infamous, troubled marriage with AOL.

Talks were apparently revived in 2008, but hit a snag over price, with Terra Firma chief Guy Hands and Warner Music principal Edgar Bronfman unable to pull the trigger. And earlier this year, Reuters reported that Warner Music Group executives had been talking with KKR/Bertelsmann, a private equity-backed music joint venture, about a potential joint bid for EMI.

To this point, nothing has materialized. In the meantime, the deal for a company that owns the catalog of the Beatles, Coldplay and Katy Perry remains a tricky one to pull off. But it appears EMI is still very much in play.

Avid Life-Perez Hilton

In May, Avid Life Media, the owner of HotorNot.com and Ashley Madison — the website that hooks up married men with women for extramarital affairs (tagline: "Affairs. Guaranteed!") — teamed up with gossip bloggers for an unsolicited, $20 million bid to acquire PerezHilton.com.

According to a letter of intent obtained by Gawker, Avid Life subsidiary Eight Days Inc., along with Zack Taylor and TheDirty.com’s Nik Richie, offered Hilton $20 million — the same amount Avid Life paid for HotorNot in 2008.

Problem was, Hilton’s wasn’t selling.

In his recent book, "True Bloggywood Stories," Perez said he'd only consider selling his site for $500 million — and even then he'd retain ownership: "I would sell half of my site for $500 million. I would maintain 51 percent ownership and do whatever I want with it."

Virgin-Playboy | Penthouse-Playboy

In 2009, rumors swirled that Virgin Atlantic CEO Richard Branson was interested in acquiring Playboy Enterprises, and that Playboy was quietly floating an asking price of $300 million. But after Playboy’s stock price on a brief thrill ride, Branson withdrew his rumored interest in the iconic but troubled men’s brand, which had said publicly it would be open to a sale. (It spawned this writer’s now-classic Folio headline: “Virgin Denies Playboy.”)

Earlier this year, Hugh Hefner’s bid to take the company private inspired Penthouse owner Marc Bell to make an unsolicited offer for the beleaguered bunny brand worth $210 million — or $25 million more than Hef's — setting off a war of words between the adult media moguls.

"We envision that following the completion of the proposed transaction, Mr. Hefner would retain editorial control of Playboy Magazine and would be entitled to reside in the Playboy Mansion,” Bell wrote in a letter to Playboy’s board.

"Penthouse is just looking for publicity," Hefner said. "Playboy isn't in play. I'm buying, not selling."

Harbinger Group-Carlos Slim-New York Times Company

Between 2007 and 2008, investment firm Harbinger Capital starting buying shares of the New York Times Company — more than $500 million worth — in an effort to wrangle board seats from the Sulzberger Family-owned publishing company. But its ownership stake peaked at 20 percent, and the company — led by Phillip Falcone — has spent the last year or so reducing its stake. Rumors that minority shareholder Carlos Slim was interested in buying the New York Times sent the company’s stock on a wild a ride in March, but the 70-year-old Mexican billionaire quickly denied them.

Google-Facebook

In 2007, rumors were swirling that Google would swoop up Facebook in a mult-billion dollar purchase. Instead, the Palo Alto, Calif., startup went a different route: Microsoft was allowed to buy 1.6 percent of the company for $240 million in October of that year, and Google was widely seen as a jilted suitor.

Google isn’t the only company that’s been unable to seal the deal for the social network. Facebook also rejected a $1 billion bid from Yahoo in 2006. Given a few more years and it might be Facebook looking to buy Google … earlier this year, Facebook overtook the search engine in a key metric — users in the United States now spend more time on the social networking site than they do on the search engine.

Jon Miller-Ross Levinsohn-Mark Colodny

In the summer of 2007, Former AOL chief Jon Miller and Fox Interactive Media head Ross Levinsohn lined up several hundred million dollars of backing for a media fund. The source of the money was Warburg Pincus Managing Director Mark M. Colodny.

The money ultimately fell through and Miller and Levinsohn moved on to head a scaled-down version of the media fund called Velocity Investment Group with backing from the venture capital firm General Atlantic.

In 2009, Miller moved on to do roughly what Levinsohn had been doing previously as chief digital officer of News Corp. Levinsohn is still managing director of the fund he co-founded with Miller, which has been renamed Fuse Capital.

Sharon Waxman and Dominic Patten contributed to this story.