Netflix and Warner Bros. deal: regulatory questions emerge

of Netflix and warner bros discovery Although the deal closed quickly, the path to regulatory approval may not be as quick.

Netflix surprised the media industry on Friday by announcing a proposed $72 billion deal to acquire the iconic Warner Bros. movie studio and streaming service HBO Max. This combination brings together two of the industry’s most popular streaming platforms. The last time Netflix reported on this metric, it reported 300 million global subscribers as of late 2024. HBO Max had 128 million customers as of September 30th.

According to data from market intelligence firm Sensor Tower, Netflix currently claims that 46% of its mobile app’s monthly active users participate in streaming worldwide. Combined with HBO Max, that share rose to 56%.

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

Because of the size of the contract, it comes at a time when it requires scrutiny from both industry players and U.S. lawmakers.

The Trump administration views mergers with “deep skepticism,” CNBC reported Friday, and Sen. Elizabeth Warren has already called for an overhaul of antitrust laws.

“This deal is an anti-monopoly nightmare,” Warren, D-Mass., said in a statement. “A merger between Netflix and Warner Bros. would create a media giant that controls nearly half of the streaming market. It threatens to force Americans to pay higher subscription prices and have fewer choices about what they watch and how they watch it, all while putting American workers at risk.”

The merger would also give Netflix control over the famed Warner Bros. movie studio, raising concerns that the film industry will become more consolidated and that the number of popular films and their typical release windows will shrink.

In the days and weeks following the announcement of a deal of this size, it is common for interest groups, politicians, and competitors to allege antitrust violations.

The Justice Department will most likely review this partnership, which could take time, as it has done other media mergers in the past. The Justice Department’s review can take anywhere from several months to a year or more.

Netflix said Friday it expects the deal to close within 12 to 18 months after Warner Bros. Discovery spins out its portfolio of cable networks to Discovery Global.

Netflix executives said Friday they are “very confident” the partnership will receive regulatory approval.

“As you know, this deal is about consumers, innovation, workers, creators and growth,” Netflix co-CEO Ted Sarandos said on a conference call with investors after the deal was announced.

“Our plan here is to work closely with all appropriate government and regulatory authorities, and we are very confident that we will receive all necessary approvals,” Sarandos added.

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

Netflix’s bid beat out competing offers from other companies. paramount skydance and Comcast.

Deutsche Bank analyst William Blair on Friday had at least minimal confidence that the deal could go through.

“A merger between Warner Bros. Discovery and any of the three bidders will likely be successful even if the Justice Department files a lawsuit seeking to block the proposed merger,” Deutsche Bank analysts wrote in a Friday note, citing insight from a Justice Department veteran who said the analysts “see no significant antitrust concerns in any of the three scenarios.”

“However…we do not know all of the detailed facts that the Justice Department will collect and analyze, nor do we know who the judge will hear the case, and both of these factors could influence the outcome,” Deutsche Bank analysts noted.

Paramount is also fanning the flames.

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

Paramount is the only bidder considering acquiring WBD’s large portfolio of pay-TV networks, and is unlikely to walk away from the process quietly.

Wall Street had hoped that President Donald Trump’s second term would bring a consensus windfall. But economic uncertainty has slowed the process for some companies, with regulatory interference playing a bigger role than expected.

“Under Donald Trump, the antitrust review process has also become a breeding ground for political favoritism and corruption,” Warren said in a statement Friday. “The Department of Justice must fairly and transparently enforce our nation’s antitrust laws. Warner Bros.’ contract review must not be used to invite influence or bribery.”

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

Shortly after Paramount agreed to pay Mr. Trump $16 million to settle a lawsuit over the editing of former Vice President Kamala Harris’ interview on “60 Minutes,” the Federal Communications Commission (the Netflix-WBD partnership is unlikely to be reviewed because the broadcaster is not involved) approved the $8 billion merger. Paramount also ended its diversity, equity and inclusion policies earlier this year after the FCC announced it would investigate the company over its DEI program.

In September, the newly combined Paramount Skydance, run by David Ellison, set its sights on Warner Bros. Discovery. The company is currently considering whether to make a direct hostile bid to WBD shareholders, displacing Netflix as a potential buyer, CNBC reported on Friday.

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

The debate over whether to approve Netflix’s proposed acquisition of Warner Bros. will likely come down to streaming issues: first, consumer pricing, and second, how to define Netflix’s audience.

Streaming subscription prices have increased across the board in recent years. After years of resistance, Netflix introduced a cheaper ad-supported model in 2022 to attract more customers. following year, disney Its own more affordable plans followed.

Netflix is ​​no stranger to upending the traditional media industry. The company ended its DVD rental business in 2023 and turned full-scale efforts into the streaming business. Since then, the film has gained enormous scale and taken over the zeitgeist with original series like “The Squid Game,” “Wednesday,” “Stranger Things” and “Bridgerton.”

The company’s unorthodox approach to media and growing footprint in the industry may be a relief in the eyes of regulators.

“My expectation on the regulatory side is that Netflix will put forward and discuss with its advisors a very broad definition of what their market is…so that would include broadcast, cable, subscription, and ad-supported streaming,” said Jeff Goldstein, partner and managing director at AlixPartners and co-lead of the US Media Group.

“And the really, really, really important thing is that that includes YouTube,” he said.

YouTube has come to dominate the industry when it comes to viewership. Nielsen again reported in October that YouTube had the largest share of TV usage, followed by Netflix in 6th place and Warner Bros. Discovery in 7th place. Traditional media companies with linear networks, Disney, NBCUniversal, Fox, and Paramount filled the spots in between.

Goldstein said critics of the partnership will define Netflix’s scope more narrowly in an effort to demonstrate an outsized advantage.

“I believe streaming is not a category. TV viewership is a category…you know, eyeballs might be a category,” media titan John Malone told CNBC in November when asked about antitrust questions surrounding the WBD sale process.

“But if you’re going to expand the category that far, you need to embrace YouTube, Facebook and the social network TikTok,” he says. “So, that’s really the question: Is streaming a category? … Is studios a category too? … And will it be subject to scrutiny? These regulatory matters are a little harder to predict.”

— CNBC’s Julia Boorstin contributed to this report.

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