Disruption often starts as a joke.

In 2000, Blockbuster laughed Netflix out of the boardroom.

A decade later, Time Warner’s CEO compared Netflix to the Albanian army, a tiny force with no real ability to challenge a global power. It was the kind of line that feels clever in the moment and historic in hindsight.

But Netflix had two things incumbents rarely do.

It was willing to make uncomfortable bets. And it embraced a distribution model that the world was slowly growing into.

In 2007, it launched “Watch Now,” a streaming service built for a world in which only half of American households had broadband. It made a thousand movies available instantly, betting that consumer behavior would eventually catch up.

Meanwhile, HBO, the brand everyone measured themselves against, hesitated.

In 2005, it discussed launching its own streaming service but never pulled the trigger.

In 2006, executives pushed to buy Netflix but passed again.

The future was visible. It just was not urgent.

About fifteen years after the Albanian joke, everything completely flipped.

Netflix is on the cusp of buying the company that once dismissed it.

Disruption rarely looks powerful at first.

Sometimes it looks like DVDs in the mail.

Sometimes it looks like buffering video on a slow internet connection.

And sometimes it looks like the moment David defeats Goliath.

HBO thought Netflix was competing within television.

Netflix was competing to redefine what television is.

PS: If you want the full story of how HBO squandered its lead and how Netflix built a global juggernaut, you can download Chapter 7 of my book, Screen Wars, for free. Through the end of the year, the e-book is also discounted to $1.99.

Let’s break it down into 4 big questions:
1) Why is this a big deal?
2) How big would Netflix + Warner Bros. be?
3) How much time would they control?
4) What does this mean for advertisers?

Why is this a big deal?

What Netflix is buying: The studios and streaming business. Not the global cable networks. Those would spin off into a separate company

Why this matters: Netflix wants content and scale, not old TV pipes.

Netflix + HBO Max/WarnerBros. scale:
1) Total TV time - #3 (9%)
2) Streaming TV time - #2 (22%)
3) Streaming subscribers (U.S.) - #2 (120M)
4) Streaming subscribers (global) - #1 (430M)
5) Ad-supported streaming subscribers (U.S.) - #3 (28M)
6) Box office revenue - #3 ($3B)

FYI: A few weeks back, we did a similar breakdown for Paramount acquiring WarnerBros. Discovery.

Context:
1) Netflix + HBO Max would control 39% of premium streaming revenue.
2) Disney is next at 21%

Wow: A version of Time Warner has been sold 4 times since 2001!  

How big would Netflix + Warner Bros. be?

Streaming subscribers (U.S.) (Kagan):
1) Disney - 131.6M
2) Netflix + HBO Max - 119.7M
3) Paramount - 41.6M
4) Peacock - 41.0M

Streaming subscribers (Global) (Wall Street Journal):
1) Netflix + HBO Max - 430.0M
2) Disney - 207.3M
3) Paramount - 79.1M

Big opportunity: Netflix has 302M global subs. About 225M (64%) don’t have HBO.

Why this matters: Put Game of Thrones on Netflix, and millions would watch it for the first time.

How much time would they control?

Share of total TV viewing (Nielsen):
1) YouTube - 12.9%
2) Disney - 11.4%
3) Netflix + HBO Max - 9.1%
4) NBCUniversal - 8.6%
5) Fox - 8.4%
6) Paramount - 8.2%

Remember: 100% of TV will be streamed someday. Streaming time spent is the real endgame.

Share of streaming TV time:
1) YouTube - 29%
2) Netflix + HBO Max - 22%
3) Disney - 10%
4) Prime Video - 8%
5) Roku Channel - 6%
6) Fox - 5%
7) Paramount - 4%
8) NBCUniversal - 3%
9) Other 13%

Flashback: Red Pill or Blue Pill?

What does this mean for advertisers?

U.S. streaming TV advertising revenue (eMarketer):
1) Amazon - $6B (17%)
2) YouTube - $4B (11%)
3) Disney - $3B (9%)
4) Roku - $3B (9%)
5) Netflix + HBO Max - $2B (6%)
6) NBCUniversal - $1B (4%)
7) Paramount - $1B (4%)
8) Fox - $1B (3%)
9) Other - $13B (37%)

U.S. ad-supported subscribers (Activate):
1) Disney - 55M (30%)
2) Prime Video - 49M (27%)
3) Peacock - 34M (19%)
4) Netflix + HBO Max - 28M (15%)
5) Paramount+ - 15M (8%)

Streaming TV CPMs (eMarketer):
1) Netflix - $38.51
2) HBO Max - $35.17
3) Peacock - $31.44
4) Amazon Prime - $29.18
5) Disney+ - $27.51
6) Average - $26.92
7) Hulu - $19.23

Bottom line

Netflix did not beat HBO by making better shows.
It beat HBO by building on a new distribution layer (the internet).

HBO optimized for leverage inside the old system.
Netflix optimized for inevitability outside it.

The Albanian army did not attack the castle.

It waited for the map to change.