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 needs approval from regulators in the United States and Europe, including the Justice Department’s antitrust division. In an event where 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. Discovery 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.
Although in some ways a traditional corporate cage match, the fight for Warner Bros. also drew political scrutiny — particularly around the closeness of Larry and David Ellison to President Trump, who broke precedent by declaring he would “be involved” in the outcome.
Larry and David Ellison have both spent time with Mr. Trump in recent months, and David Ellison attended Tuesday’s State of the Union address. Mr. Sarandos of Netflix quietly met with Mr. Trump in the Oval Office in November. On Thursday, Mr. Sarandos was in Washington to discuss the transaction with top administration and Justice Department officials, including Pam Bondi, the attorney general, and Omeed Assefi, the acting head of the Justice Department’s antitrust division, according to people familiar with his schedule.
During those meetings, which were said to be cordial, Justice Department officials said they would conduct a fair but thorough review of the transaction, according to a person with knowledge of private conversations.
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.
David Ellison’s studio, Skydance, acquired Paramount last year, in a deal that also created intrigue. The Trump administration approved the sale after Paramount agreed to pay $16 million to settle a lawsuit brought by the president against “60 Minutes,” the flagship news program of Paramount’s broadcaster, CBS.
Mr. Ellison has since installed the opinion journalist Bari Weiss as editor in chief of CBS News, pledging that the news division would appeal to a more centrist viewership. The prospect that CNN may now come under Mr. Ellison’s control has raised questions in the journalism industry about what kind of changes Paramount might bring to the cable channel.
Netflix has the cash to raise its offer for Warner Bros. Discovery, but its shareholders have questioned the company’s move to buy a legacy movie business. The company had lost more than $60 billion in market value since announcing the deal with Warner Bros. Shares rose nearly 10 percent on Thursday in after-hours trading after Netflix announced that it would not raise its bid.
In its quest to win the bidding war, Paramount, which is one-thirtieth the size of Netflix, has marketed its deal as a safer regulatory bet. It has aggressively pursued Warner Bros. since its roughly $108 billion proposal was rejected in December, taking its offer to the company’s shareholders in what is known as a hostile bid.
Paramount has already begun to seek regulatory clearance for its deal. In its latest offer, Paramount pledged to pay $7 billion to Warner Bros. if its deal was blocked by regulators, an effort to underscore the studio’s confidence.
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.”
Nicole Sperling and David McCabe contributed reporting.
Lauren Hirsch is a Times reporter who covers deals and dealmakers in Wall Street and Washington.
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