After a brutal 12 months marked by financial underperformance, studio closures, and reorganisation, a fresh shadow has fallen over Warner Bros. Games: the prospect of a new corporate owner. The division is included – as an afterthought – in the sale of Warner Bros. Discovery to Netflix, which was subsequently challenged by a hostile bid from Paramount Skydance. Both potential buyers are wooing shareholders, and whoever wins will require regulatory approval, so closure on the deal is months or years away. Whatever the outcome, there is widespread concern about the impact on Warner’s games teams.

The firm is the only major Hollywood mega-studio to have maintained a strong position in gaming. It owns a series of successful mobile games as well as the AAA studios Netherrealm, Avalanche, Rocksteady, and TT Games alongside support studios in the US and Canada. Warner’s hits have included TT’s Lego games, Rocksteady’s Batman Arkham series, and the runaway success of Avalanche’s Hogwarts Legacy, which has sold over 30 million units.

Netflix, meanwhile, has yet to make a significant impact in games, despite years of trying. After a splashy but ultimately fruitless investment in AAA, and deciding against bidding for EA (as reported by Bloomberg), the company has refocused on casual, second-screen games, supported by licensing titles like GTA. Games head Alain Tascan, an industry veteran with long stints at Epic and Ubisoft, has committed to titles that “use the phone as a controller,” with a focus on multiplayer, kids, narrative, and mass appeal, as well as an eye on the social layer that Roblox, Fortnite and Minecraft deliver.

The company has cancelled unannounced publishing deals with external studios, sources have told GamesIndustry.biz. In public, it shut down the developer of its successful Squid Game mobile title and sold internal team Spry Fox back to its founders. The company is also planning to borrow $59 billion to pay for Warner, one of the largest such loans yet granted, and will be looking at asset sales to bring that figure down post-completion.

On the face of it, the prospects for Warner’s game division under Paramount look brighter. Newly added subsidiary Skydance has published a series of VR titles under the leadership of David Ellison, who now leads Paramount Skydance, and the company has a long history of licensing its IP for games, from Nickelodeon through to South Park and Star Trek. And it says it wants to do more. “During the merger with Skydance, Paramount identified games as a potential area of development and growth for the company,” points out Piers Harding-Rolls of Ampere Analysis.

“David Ellison has greenlit, maintained and shipped Triple A scale multiple games at Skydance,” says Symbol Zero’s Rafael Brown. “Netflix hasn’t greenlit and maintained, and shipped, a game budget of more than $5 million for any project thus far. The closest would have been Team Blue’s Triple A game, which was cancelled. Netflix has zero history in funding and supporting Triple A games successfully.”

The best-case scenario

The optimistic view is that Netflix will reconsider this approach post-acquisition. Blue Moons’ Richard Browne, who served as VP of Universal’s game group before executive roles at THQ and Digital Extremes, is bullish. “I don’t think they cease publishing AAA games,” he says. “With Warner Bros. recently restructuring to support the core business, much as we did at Universal back in the early 2000s, it’s now better positioned to deliver transmedia in a more coherent way. Assuming the division delivers positive growth and profit, there would be very little reason for Netflix to integrate it into an incompatible service or shutter it. You have a AAA industry veteran running Netflix Games, Alain Tascan will be able to harness and direct it accordingly.”

“Assuming the division delivers positive growth and profit, there would be very little reason for Netflix to integrate it into an incompatible service or shutter it. You have a AAA industry veteran running Netflix Games.”

“WB Games is a collection of some of the top game studios in the world,” says Cassia Curran of the Curran Games Agency, “and they specialise in taking existing IP and translating them into fantastic, high quality games. Netflix could pump up the value of their premium subscription tier by allowing access to these games, and greatly deepen fan engagement and the value of the IP they own outright, such as KPop Demon Hunters, with top-tier AAA games made by the studios at WB Games.”

“This is a big opportunity for Netflix to recalibrate and double down on games,” agrees Hendrik Lesser, president of the European Games Developer Federation. “The mix of great studios, great IP and Netflix’s reach is one of a kind.”

Others go further. Far from being an afterthought, game studios should be a key plank in Netflix’s ongoing growth, argues Lirui Ding of the games venture capital firm Transcend Fund. “What they’re acquiring isn’t just IP, but a studio system that’s already proven it can translate world-class franchises into hit games,” he says. “That matters because in gaming and entertainment more broadly, content is where durable value accrues. We have definitely seen this in the Transcend portfolio. Technology, tools, and platforms evolve, but gaming hits extend IP lifecycles, deepen engagement, and compound value across media. If handled correctly, games can reinforce the entire franchise ecosystem.”

Gathering gloom

The pessimistic view is that this heralds another round of industry downsizing from a company that has bought a business it doesn’t need. “I believe Netflix will initially leave studios alone for the first six to 12 months and then start making cuts,” says Brown, “and then gradually dismantle all of WB Games due to not wanting the financial outlay of AAA games that they did not purchase WB for.”

Many see Paramount as a less disruptive prospect. “Skydance is likely to value these game studios much more highly,” says Curran. “It’s had significant success with VR games like The Walking Dead: Saints and Sinners, and WB Games studios make similar games to their Amy Hennig-led Skydance New Media team, which is releasing Marvel 1943: Rise of Hydra next year, so they would fold in with each other easily. A Skydance acquisition would probably end up being business as usual for the WB Games studios.”

“I think the WB Games status quo is more likely to come from a Paramount acquisition rather than Netflix. I would expect Netflix to make more changes including potentially scaling down the number of studios.”

Harding-Rolls agrees. “I think the WB Games status quo is more likely to come from a Paramount acquisition rather than Netflix,” he says. “I would expect Netflix to make more changes including potentially scaling down the number of studios.”

Any such divestment would require willing buyers, which have been thin on the ground in recent years. “Sony, Microsoft, Amazon, Google, Embracer, Ubisoft, Electronic Arts, Tencent, Netease, Krafton, and Nexon are all not in the space for buying right now,” says Brown. “The game industry is retrenching and everyone is shedding studios and projects.”

Others are more optimistic. “I think there would be some buyers for select studios,” says Harding-Rolls, “but the deal appetite for AAA studios remains quite soft due to the investment needed and the risks involved. The obvious candidates would be Savvy Games, EA (via the Saudi Public Investment Fund), and the console companies.”

Investors see value, too. “I think you’d actually find a healthy buyer universe for WB’s marquee assets such as NetherRealm and Avalanche Software,” says Joe Yuan, Investment Director at Hiro Capital. “The Korean strategics including Krafton, Nexon, and Smilegate are quite active in today’s market, and private equity has emerged as a new buyer category and are looking for established, scaled assets that they can use as an anchor to pull in other acquisitions.”

Solo success?

Yuan can also see an outcome where the studios could go solo. “We are seeing more and more management buyouts emerge, so I think that may be a viable path for some of these teams to control their destiny a bit more and have more financial upside,” he says. Arc Games, Saber Interactive, and Toys for Bob have found the support to break away, and it’s possible WB studios could too, although investors would need deep pockets.

The prospects are brightest for Avalanche, with the record-breaking success of Hogwarts Legacy behind it, and Netherrealm, buoyed by the consistent performance of Mortal Kombat. Rocksteady, weighed down by the expensive underperformance of Suicide Squad, has a much gloomier outlook. Nevertheless, “studios with the proven ability to profitably ship AAA titles are valuable assets,” says Transcend’s Ding. “Strategic buyers, major publishers, platform holders, and private equity seeking revenue quality would all likely take a look in a strategic carve-out scenario.”

A notable new buyer in the event of Netflix prevailing might be… Paramount. Picking up WB’s gaming studios could soften the blow of missing out on the film studio assets – although integrating them would be a significant undertaking and would inevitably involve layoffs. “I expect there to be some streamlining whichever company ends up acquiring,” says Harding-Rolls.

“Netflix is a train wreck for games and interactivity. They have been consistently for a decade now. This is not by choice but because everything is geared towards video subscription retention.”

Brown’s outlook remains the bleakest. “Netflix is a train wreck for games and interactivity,” he says. “They have been consistently for a decade now. This is not by choice but because everything is geared towards video subscription retention.”

“Paramount is hungry to grow a games division, but they can do that without Warner Bros. Meanwhile, Netflix wants video content but not video games. The game and movie industries are both healthier if neither Paramount nor Netflix buys Warner Bros Digital.”

Lirui Ding and Shanti Bergel at Transcend Fund see a brighter future, in line with the rise of transmedia success stories, from Fortnite to the Sonic movie series, that bridge games and other forms of entertainment. “The biggest opportunity is to demonstrate that games are a first-class content pillar, not a side initiative. If Netflix leans into this third chapter and lets the studios operate with the autonomy required to succeed, it could meaningfully redefine cross-media franchise building. If not, others will capture that value by acquiring the talent and capabilities that emerge. Either way, the long-term winners will be those who understand that content – not tooling or distribution alone – commands the highest value.”