Netflix’s stock is surging as investors applauded its decision to exit the race for Warner Bros Discovery, a months-long bidding war with Paramount Skydance for some of Hollywood’s most prized assets.

The stock jumped more than 10 percent on Friday. That came on the heels of Netflix’s decision on Thursday evening that it would not match Paramount’s latest $31 per share bid or raise its offer of $27.75 a share for Warner Bros’s studio and streaming assets, stating that the deal was “no longer financially attractive”.

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Warner had given Netflix four business days to come up with a counteroffer for Paramount’s latest bid — but Netflix, instead, responded less than two hours later, declining to raise its proposal. It said the new price it would have to pay made the deal “no longer financially attractive”.

“We believe we would have been strong stewards of Warner Bros′ iconic brands,” Netflix’s co-CEOs Ted Sarandos and Greg Peters said in a joint statement. “But this transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price.”

The decision was welcomed by investors. Shares of the streaming giant had shed more than 18 percent since Netflix announced its deal with Warner Bros on December 5.

The latest move is a “tick in the box” for discipline, said Ben Barringer, head of technology research at Quilter Cheviot.

“What you want from a management team is an ability to look at acquisitions, value them, pay what they think is a fair price, but to not overpay.”

Analysts and investors had questioned whether Netflix’s bid was a defensive attempt to block a future competitor or an offensive shift away from its historically disciplined build-versus-buy approach.

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“A positive turn of events in our view, as we believe NFLX’s withdrawal from the race will leave it free to refocus on its business, while its closest competitors grapple with long and distracting regulatory approval and merger integration processes, and with PSKY saddled with sizable deal debts,” HSBC analysts said.

‘Hollywood and ego’

Shares of the David Ellison-led Paramount, meanwhile, were up 17 percent.

Paramount’s deal, valued at $110bn, including debt, represents nearly 13 times Warner Bros’ EBITDA – earnings before interest, tax, depreciation and amortisation or core profits – this year, according to estimates from LSEG. That is well above what Paramount is worth on the same basis, which is 7 times its estimated earnings.

A tie-up with Warner Bros would allow Paramount’s storied Hollywood studio to tap into Warner’s deep trove of intellectual property – including franchises such as Fantastic Beasts and The Matrix – across film, television and streaming.

“WBD’s largest asset is declining, and the company is still under debt from its last failed merger. But this deal is more about Ellison taking over Hollywood and ego than it is about good business sense,” said Ross Benes, senior analyst at Emarketer.

For Paramount’s streaming unit, a combination with HBO Max and Discovery+ would reshape its position in a streaming era long dominated by Netflix.

“Paramount was the streaming market laggard, and it needs Warner Bros’ content and capabilities to play catch-up. It will need more than Harry Potter for the deal to work its magic and enable Paramount to fight off Netflix, Disney and Amazon in the streaming wars,” said Dan Coatsworth, head of markets at AJ Bell.

In the fight for Warner Bros, the Paramount consortium – backed by Larry Ellison, billionaire and ally of United States President Donald Trump, and led by his son, Paramount CEO David Ellison – also boosted its termination fee to $7bn and expanded its financing commitments, including $45.7bn in equity.

“There is a right price and wrong price for any acquisition, and the pressure is now on Paramount to prove the big financial outlay is worth it,” said Coatsworth.

Concerns of editorial shifts

The proposed combination, which will still need the green light from both Warner shareholders and regulators, poses both antitrust concerns and questions of political influence.

A merger between the two companies would put CNN under the same roof as CBS, which has already seen significant editorial shifts under new Skydance ownership. Paramount took steps to appeal to more conservative viewers in its news operations, notably with the installation of Free Press founder Bari Weiss as editor-in-chief of CBS News. And if the company’s takeover bid of Warner is successful, critics warn similar shifts could happen to CNN, a network that has long attracted ire from Trump.

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“Politics are playing an outsized role in this deal, and they’ve been on Paramount’s side from the get‑go,” said Mike Proulx, vice president and research director at Forrester, a market research company.

Top Democratic lawmakers have also sounded the alarm about the Republican president’s ties to companies, such as Paramount, and potential consequences of growing corporate power.

“A handful of Trump-aligned billionaires are trying to seize control of what you watch and charge you whatever price they want,” Democratic Senator Elizabeth Warren, a longtime antitrust hawk, said in a statement on Thursday night. She also called a potential Paramount-Warner combo an “antitrust disaster”.

How regulators will respond to a Warner-Paramount deal remains to be seen. The US Department of Justice has already initiated reviews, and other countries are expected to do so, too.

Warner shareholders will have to be convinced, too. But Paramount is taking on billions of dollars in debt to finance its offer — something critics have warned could only increase the likelihood of potential job losses and other restructuring down the road. Foreign sovereign wealth funds have also provided equity for the offer, drawing added scrutiny.