The Netflix and Warner Bros. deal is far from a sure thing
Netflix announced on Friday that Warner Bros. announced that it has agreed to purchase the studios and HBO Max. The transaction is subject to regulatory approval. Multiple media reports, including The Wall Street Journal, indicate that the Justice Department will investigate the deal.
“Recent media reports about DOJ and Congress’ concerns suggest the risks are real,” Wolfe Research analyst Peter Supino said.
Barron’s has reached out to the White House for comment on the agreement.
During Trump’s first term, the Justice Department filed an antitrust lawsuit to block the merger between AT&T and Time Warner. The DOJ ultimately lost this case.
But this year, the Federal Communications Commission approved the merger of Paramount and Skydance. The timing of the approval caught the attention of critics, who said it came shortly after Paramount and Trump settled a lawsuit in early July and Paramount agreed to pay the president $16 million.
David Ellison took over as CEO of Paramount Skydance shortly after the deal. His father, Larry Ellison, has a close relationship with Trump. Paramount was one of Warner Bros.’ top candidates. According to a report in the Journal, Paramount accused Warner Bros. of favoring Netflix during the bidding process. People familiar with the matter confirmed the accuracy of the report to Barron.
Netflix co-CEO Ted Sarandos described the deal as pro-consumer, pro-innovation, pro-employee, pro-creator and pro-growth during a conference call Friday morning. “We are really confident that we will get all the necessary approvals that we need,” he said.
But politicians on both sides of the aisle have concerns about the merger. Sen. Roger Marshall (R.-Kan.) sent a letter to Deputy Attorney General Abigail Slater and FTC Chairman Andrew Ferguson on Nov. 17 expressing “serious concerns” about the potential acquisition of Netflix. He wrote that the transaction would “create a major vertical and horizontal consolidation in an industry already dominated by limited competition.”
Sen. Elizabeth Warren (D.-Mass.) wrote in X on Friday that the deal “looks like an anti-monopoly nightmare.”
The proposed deal has also raised red flags abroad. Baroness Luciana Berger, a member of the UK House of Lords, called for an assessment of the acquisition’s impact on competition and consumer prices in the country’s streaming market, investment in film and TV productions and the sustainability of the cinema industry.
UNIC, the European trade body representing cinema exhibitors and their national associations in 39 territories, said it strongly opposed the planned acquisition.
“Netflix is already the largest streaming distributor in the world,” Usha Haley, professor of management at Wichita State University’s Barton School of Business, told Barron’s. With this acquisition, “the company will also control a strong global legacy studio, which will impact its global market power.”
Some market experts believe the deal could clear regulatory hurdles, and Wall Street is already looking at Netflix and Warner Bros. They have ideas about what the combination could look like for consumers.
Gimme Credit Senior Bond Analyst Dave Novosel said Netflix “faces huge competition not only from other streamers, but also from other content sources like TikTok, X, Instagram, etc.”
It’s easy to understand why Netflix, the world’s largest streaming company, wants to acquire Warner.
“This deal solidifies Netflix’s position as the premier streaming service for original content by adding major titles like Game of Thrones, DC Comics and Harry Potter, as well as a streaming subscriber base of 100 million in 100 markets,” wrote William Blair analyst Ralph Schackart, who rates Netflix as an Outperform.
Alex Holtz, research director for Worldwide Media and Entertainment Digital Strategies at IDC, told Barron’s that he expects there will eventually be content migration and bundle pricing options.
“Bundles may offer perceived value, but overall ARPU [average revenue per user] Holtz said there will likely be increases and the consumer may decide this is the right price to pay for simplification and subscription management.
Gabelli Funds portfolio manager and research analyst Hanna Howard wrote that Netflix has multiple options to choose from if the deal closes.
“[Netflix] “It could run HBO Max as a standalone service or choose to bundle it with its own streaming app,” he said. “We could follow the Disney model of running both Disney+ and Hulu together, but both streaming apps are available separately and Disney offers the subscription as a bundle.”
Whatever the outcome, it will be a great show.
Write to Angela Palumbo at angela.palumbo@dowjones.com
