(Photo by Patrick T. Fallon / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)

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Netflix may have lost out in an expensive months-long fight to buy Warner Bros. Discovery, but there were some upsides for the streaming giant, its executives said in today’s first quarter earnings call.

“It mostly really built our M&A muscle,” said Co-CEO Ted Sarandos of Netflix’s initial winning bid for key parts of Warner Bros. Discovery, which eventually was trumped by Paramount Skydance’s subsequent (and ninth) bid of $110 billion, for all the century-old studio’s many divisions.

Sarandos emphasized Netflix’s routinely invoked line about the Warner acquisition, that it was a “nice to have, not a need to have,” and said the company answered a lot of internal questions in the six months or so the bidding process took to unfold.

“There was certainly questions about our ability to do a deal of this size,” Sarandos said. “Our teams were more than up to the task.”

Equally important was exercising some discipline, both in running the main business and in not spending too much as the deal’s price spiraled ever upward.

“We were willing to put emotion and ego aside and walk away,” Sarandos said, though he acknowledged disappointment that Netflix wouldn’t after all get to work with a number of excellent Warner employees whom they met on the way.

That newfound M&A muscle was useful in cinching another important, though far smaller, deal for InterPositive, the AI-fueled effects house focused on filmmakers and filmmaking that was founded by Ben Affleck and Matt Damon. The 16-member team will stay on at Netflix, and Affleck will become a senior advisor to Netflix.

In an investor letter released today, the company said the InterPositive deal would “provide our creators with a broader set of GenAI tools.” The company is also revamping its interface to accommodate its foray into vertical video later this month, and looking at how it can “leverage AI to improve the member experience.”

Though Netflix did not officially disclose the InterPositive deal’s value, Bloomberg reported it could generate up to $600 million with earnouts tied to hitting performance milestones, making it one of Netflix’s biggest-ever deals alongside the acquisition of the Roald Dahl literary estate.

CFO Spencer Neumann said Netflix spent $275 million on M&A-related expenses, but that included both the Warner deal and InterPositive. Netflix also is receiving a $2.8 billion breakup fee from, ultimately, Paramount Skydance after WBD changed its mind.

More generally, despite a strong first quarter that topped estimates on major metrics, Netflix shares dropped nearly 9% in after-hours trading after offering lower-than-expected guidance for the streaming giant’s second quarter results. Shares dipped below $99 after peaking earlier in the day at nearly $109 apiece.

“Higher-than-planned” subscription revenue helped the company grow Q1 revenues 16% compared to the same period in 2025, with operating margins up slightly to 32.3%. For Q2, the company guided to 13% revenue growth, and revenue between $50.7 billion and $51.7 billion, and left unchanged its full-year guidance.

The company said its price increases in the United States and Canada have “gone well, reflecting the strong value we provide members.” Ad revenue is still expected to top $3 billion by year end, double the 2025 total.

The company also touted a slate of new programming coming in the next few months, including Here Comes the Flood with Denzel Washington, Greta Gerwig’s Narnia, and David Fincher’s follow-up to Once Upon a Time In Hollywood.

The company also revealed that co-founder and chairman Reed Hastings told the company last week that he would not run again for a spot on the Netflix board. Sarandos, Co-CEO Greg Peters and other executives briefly extolled Hastings’ skills as a leader and teacher in creating a company that now has a market capitalization of $454 million.

“It’s very unusual for a founder to step away but Reed is no ordinary founder,” Sarandos said. “The first time I met Reed in 1999, he said he intended for Netflix to be around for a long, long time.”

Even then, Sarandos said, Hastings was talking about a succession plan, to ensure the company would continue strongly after his departure.