Netflix-Warner Bros. deal : regulatory questions emerge

THE Netflix And Discovery of Warner Bros. the deal closed quickly – but its path to regulatory approval may not be as quick.

Netflix stunned the media industry Friday by announcing its proposed $72 billion deal to acquire iconic Warner Bros. film studio. and the streaming service HBO Max. The combination brings together two of the most popular streaming platforms in the industry. Netflix reported 300 million subscribers worldwide by the end of 2024, the last time it released that figure. HBO Max had 128 million customers as of September 30.

Netflix currently claims 46% of monthly active mobile app users in global streaming, according to data from market intelligence firm Sensor Tower. Combined with HBO Max, this share would reach 56%, we note.

“This deal solidifies Netflix’s position as the premier streaming service for original content,” according to a William Blair analyst research note released Friday.

The scale of the deal makes it ripe for scrutiny, both by industry players and U.S. lawmakers.

The Trump administration views the merger with “great skepticism,” CNBC reported Friday, and Sen. Elizabeth Warren has already called for an antitrust review.

“This deal looks like an anti-monopoly nightmare. A Netflix-Warner Bros. would create a media giant controlling nearly half the streaming market — threatening to force Americans into higher subscription prices and fewer choices about what and how they watch, while putting American workers at risk,” Warren, a Massachusetts Democrat, said in a statement.

The merger would also give Netflix control of the popular Warner Bros. movie studio, further consolidating the movie space and raising concerns that the number or typical window for popular releases would shrink.

It is common in the days and weeks following the announcement of a deal of this magnitude for interest groups, politicians and competing companies to denounce violations on antitrust grounds.

It’s highly likely that the Justice Department will review the deal, as it has with other mergers in the past, and that could take some time. DOJ reviews can take anywhere from several months to more than a year.

Netflix said Friday that it expects the transaction to be completed in 12 to 18 months, after Warner Bros. Discovery will have transferred its cable network portfolio to Discovery Global.

Netflix executives said Friday they were “highly confident” the deal would gain regulatory approval.

“You know, this deal is good for consumers, good for innovation, good for workers, good for creators and good for growth,” Netflix co-CEO Ted Sarandos said on a call with investors after the acquisition was announced.

“Our plans here are to work very closely with all relevant governments and regulators, but [we’re] I’m really confident that we’re going to get all the necessary approvals that we need,” Sarandos added.

As part of the deal, Netflix agreed to pay a $5.8 billion breakup fee to Warner Bros. Discovery if the deal was blocked by the government.

Netflix’s offer won out over competing offers from Paramount Skydance And Comcast.

Analysts at Deutsche Bank and William Blair were at least partially convinced Friday of the deal’s potential to go through.

“A merger of Warner Bros. Discovery and any of the three bidders would likely succeed, even if the DOJ sues to block a proposed combination,” Deutsche Bank analysts wrote in a note Friday, citing comments from a Justice Department veteran who analysts say “sees no significant antitrust issues with any of the three scenarios.”

“However… we do not know all of the detailed facts that will be collected and analyzed by the DOJ, nor who the judge in the case will be, and both of these factors may impact the outcome,” Deutsche Bank analysts noted.

Paramount, for its part, is fanning the flames.

Paramount’s lawyers sent a letter to Warner Bros. this week. Discovery, first reported by CNBC, in which they claimed the sales process was rigged in Netflix’s direction. The Wall Street Journal reported that in a separate letter, Paramount said a deal with Netflix would likely “never close” due to regulatory headwinds.

Paramount was the only bidder looking to buy WBD’s massive portfolio of pay-TV networks — and it’s unlikely to walk away quietly from the process.

Wall Street expected President Donald Trump’s second term to be a deal-making boon. However, economic uncertainty has slowed the process for some companies, and regulatory hold-ups have played a larger role than expected.

“Under Donald Trump, the antitrust review process has also become a cesspool of political favoritism and corruption,” Warren said in a statement released Friday. “The Justice Department must enforce our nation’s anti-monopoly laws fairly and transparently – and not use scrutiny of the Warner Bros. deal to incite influence peddling and corruption.”

Paramount’s merger with Skydance remained in limbo for more than a year before finally gaining federal approval in July.

The Federal Communications Commission (which is unlikely to review the Netflix-WBD tie-up since it doesn’t involve any broadcasters) approved the $8 billion merger shortly after Paramount agreed to pay Trump $16 million to settle a lawsuit over the editing of a “60 Minutes” interview with former Vice President Kamala Harris. Paramount had also ended its diversity, equity and inclusion policies earlier in the year after the FCC announced it would investigate the company over its DEI programs.

In September, the new Paramount Skydance, led by David Ellison, set its sights on Warner Bros. Discovery. The company is now considering launching a hostile bid directly to WBD shareholders and attempting to unseat Netflix as a potential buyer, CNBC reported Friday.

Ellison’s billionaire father, Oracle co-founder Larry Ellison, is known to be close to Trump.

The argument over whether or not to allow Netflix’s proposed takeover of Warner Bros. would likely boil down to questions around streaming – first, about pricing for consumers, and second, about how to define Netflix’s audience.

The price of streaming subscriptions has increased across the board in recent years. In 2022, Netflix instituted a cheaper, ad-supported model, after years of resistance, in an effort to attract more customers. The following year, Disney followed by its own more affordable plan.

Netflix is ​​no stranger to disrupting the traditional media industry. The company ended its DVD rental business in 2023 and moved into streaming. Since then, it has grown greatly and conquered the zeitgeist with original series like “Squid Game”, “Wednesday”, “Stranger Things” and “Bridgerton”.

Its maverick approach to the media and growing presence in the industry could be its saving grace in the eyes of regulators.

“I would expect on the regulatory side that Netflix would advocate and discuss with their advisors for a very broad definition of what their market is…that would include broadcast, cable, subscription and ad-supported streaming,” said Jeff Goldstein, partner and managing director of AlixPartners and co-head of the U.S. Media Group.

“And really, really, really important, that would include YouTube,” he said.

YouTube has become dominant in the industry in terms of viewership. Nielsen once again reported in October that YouTube had the largest share of TV usage, with Netflix in sixth place and Warner Bros. Discovery in seventh place. Traditional media companies with linear networks – Disney, NBCUniversal, Fox and Paramount – filled the middle spots.

Critics of the deal will define Netflix’s scope more narrowly to try to demonstrate outsized dominance, Goldstein said.

“I believe streaming is not a category. TV audience is a category…you know, eyeballs might be a category,” media industry titan John Malone told CNBC in November when asked about the antitrust issues surrounding WBD’s sales process.

“But if you want to expand the category to that, you have to include YouTube, Facebook and the social networks TikTok,” he said. “I mean, that’s really the question: Is streaming a category?…Are studios a category…and is that going to be scrutinized? These regulatory things are a little hard to predict.”

—Julia Boorstin of CNBC contributed to this report.

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC. Versant would become the new parent company of CNBC in Comcast’s planned spinoff of Versant.