Before we wrap up the year with our traditional Christmas story, let us take a moment to celebrate other things which belong to Christmas just like mulled wine, cookies and the Christmas tree – classics like Home Alone, Die Hard and, of course, Harry Potter. While some of us eagerly await the new season of Emily in Paris (or Rome?), bigger questions loom: Will Netflix’s planned acquisition of Warner mean more content – or higher prices and fewer choices for consumers? Or will it be no dice after all?
Transactions in the media sector have been a recurring topic on our blog this year (see here and here on the German landscape and here with a bit of history.). For a blog with “politics” in its name, this seems an obvious choice given that potential competition concerns in this sphere often intertwine with issues like media pluralism and diversity of opinion.
But all of that was overshadowed last week when Netflix announced that it had agreed to purchase Warner Bros. Discovery, a legendary TV and movie studio, for USD 72 billion plus debt. The deal would combine one of the best-known streaming platforms with one of Hollywood’s most iconic studios, famous for the likes of you-know-who and others. What makes the deal even more complex, even at first glance, is the fact that Warner Bros. owns its own streaming platform, HBO Max (which will finally make it to Germany in early 2026).
Chapter 1: “This is bigger than you think.”
Unsurprisingly, politics entered the scene almost immediately after the announcement. US President Trump quickly commented that the deal “could be a problem”, referring to high market shares of the combined entity. He further said that he would consult economists and be involved in the approval decision. His scepticism was echoed by an unusual ally: Democratic Senator Warren laid out that “A Netflix-Warner Bros. would create one massive media giant with control of close to half of the streaming market – threatening to force Americans into higher subscription prices and fewer choices over what and how they watch, while putting American workers at risks”.
On the other side of the Atlantic, initial reactions were more reserved. While some members of the European Parliament raised concerns, the Commission Vice President Teresa Ribera remarked that the Commission “might be later called upon to assess the deal but for the time being, I think that is under another jurisdiction”.
Chapter 2: “I’ll see you in court.”
Even before the relevant regulators could weigh in, Netflix was hit with a consumer lawsuit seeking to block the deal. The proposed class action was filed by a subscriber to HBO Max.
While this civil dispute is still in its infancy, it is worth speculating what will matter most in merger control proceedings:
- Horizontal overlap and market definition: Reports about the deal vary with a view to the market shares of the two companies on a streaming-only market, but it appears to be likely that the combined entity will have a share of something between 35 and 50% – depending on the exact market definition (mobile only?) and the geographic scope. So, the parties will likely argue for a broader market definition than just “streaming”, including linear television and in particular free subscriptions services such as YouTube (and even TikTok?). It remains to be seen to what extent regulators will be convinced by that, but Tony Soprano and Stringer Bell might at least ensure consumers do not fear a decline in quality.
- Vertical integration or the end of Hollywood: If the deal goes through, Netflix will have access to Warner’s movie library, one of the oldest and richest in Hollywood. So, on the one hand one could argue that the deal combines a streaming business with a classic movie studio, leading to more and better options for consumers. The other end of the spectrum is concerned that the deal could lead to fewer films being released in theatres, which in turn could eliminate jobs and reduce content diversity across the entertainment industry.
In any case, the stakes are high – Netflix has agreed to pay a USD 5.8 billion breakup fee to Warner if the deal were to get blocked by the government. While steep, at less than 10% of the overall deal value, percentage-wise this breakup fee is below what the market has seen in other high-profile deals – yet still above average.
Chapter 3: “It’s not over. It’s never over.”
True to form, Hollywood delivers another shocking twist just before the credits roll: Earlier this week, Paramount Skydance revealed a hostile bid to buy Warner, pitching an all-cash offer valued at $109 billion as the better option for shareholders. With the bidding war still open, expect a remake sequel to this post in the months ahead.
Photo by Aditya Vyas on Unsplash
Antitrustpolitics.com 