Last week, Warner Bros. Discovery (WBD) announced plans to sell Warner Bros. Pictures, DC Studios and streaming service HBO Max to Netflix, following a bidding war that also ended with a hostile takeover bid by Paramount. The planned sale would create a mammoth streaming and production giant with intellectual property rights to beloved franchises including Batman and Harry Potter. It’s also sure to draw scrutiny from antitrust enforcers at the Department of Justice (DOJ).
Is this a step toward more viewer-friendly competition, or toward entertainment monopolization? What about Paramount’s bid? Even President Trump is concerned about the situation. But the answers aren’t obvious.
The merging parties argue that Netflix subscribers could benefit from an expanded content library and bundled services with HBO Max at lower prices. They also expect “at least $2-3 billion of cost savings per year by the third year” and combined resources that could foster more content and allow for bigger creative risks.
Importantly, the deal could create a stronger competitor against other diversified media giants including Amazon and AppleTV, which are subsidized by their respective e-commerce and mobile/computing platforms. Recent antitrust verdicts recognize the importance of such scale for competitiveness in digital markets. A 2023 U.S. District Court decision approved Microsoft’s merger with gaming studio Activision Blizzard, as it allowed games to reach a wider audience while creating a stronger competitor against market leader Sony.
Disney+ recently announced a foray into AI tools allowing users to generate and share their own content using proprietary characters and worlds. Combining Netflix’s user-targeting algorithms with WBD’s intellectual properties could create a comparable alternative. The new company may develop AI models and tools without risking the types of copyright infringement claims that have already ended in expensive settlements and licensing deals.
Yet there are potential concerns. Netflix is known for exclusive content and disfavoring theatrical releases outside of narrow, award-show-timed windows. WBD is America’s third-largest theatrical content supplier and shares content with other streaming services. Netflix could presumably restrict content for both rival streaming services and theaters and possibly raise prices without losing customers.
All of this is speculatory. The merger violates antitrust law if it’s likely to lead to less quality and innovation or higher prices, and if these harms to consumers won’t be offset by benefits — subject, of course, to the interpretation of enforcers and judges.
The DOJ would find it easier to block the merger if it can persuade a court that Netflix-WBD would corner 30% of its market, making the deal presumptively anticompetitive and forcing the companies to rebut this claim.
Expect enforcers to define a market of “video-on-demand” subscription streaming services, including Amazon, Hulu, HBO Max, Netflix, Paramount+, Disney+, Apple TV, Peacock and others. Based on recent decisions, market share will likely be measured by viewing hours. This puts Netflix (20%) and HBO Max (15%) at an estimated 35%.
Netflix and WBD may suggest a broader entertainment market where subscription streaming, ad-supported video (like YouTube), social media and video games compete for user dollars and eyeballs, netting a much lower market share.
Based on the recent FTC v. Meta decision, the court could opt for something in between. Meta successfully argued that consumers readily switch and substitute between apps like Facebook, Instagram, Youtube and Tiktok for video content. But some services are more likely than others to be seen as substitutes for Netflix and HBO Max content.
Regardless, courts must still consider the merger’s effect on competition. Netflix-WBD could try settling with the DOJ by making contractual assurances, such as committing to theatrically release future WBD content. These agreements can be costly to monitor and can lead to future disputes over firms keeping their commitments, as the 2010 Ticketmaster-Live Nation merger demonstrates. But they can also preserve competitive benefits, mitigate potential harms and save the DOJ the trouble and costs of uncertain litigation.
Alternatively, WBD’s shareholders may yet consider Paramount’s offer for their entire business at a higher share price. Backed by the president’s son-in-law, Qatar and Saudi Arabia, it would raise some political controversy. But this combined entity’s lower market share (26%) and Paramount’s historical support for theatrical releases may smooth some antitrust hurdles.
In the end, consumers will win if courts and enforcers act based on evidence. If consumer behavior and other economic and real-world data show that a merger will limit vigorous competition and result in higher prices and less quality or innovation, the government is entitled to act. If not, enforcers should acknowledge that in rapidly evolving digital media markets, scale means being able to stay competitive and make bold investments that herald the next generation of entertainment innovation.
In more ways than one, we’ll be watching.
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