The regulatory path ahead for a Netflix and Warner Bros. deal could get dicey

The Netflix and Warner Bros. Discovery woody came unneurotic rapidly — but its way to regulatory support whitethorn not beryllium truthful speedy.

Netflix stunned the media manufacture connected Friday erstwhile it announced its proposed $72 cardinal deal to get the iconic Warner Bros. movie workplace and streaming work HBO Max. The operation brings unneurotic 2 of the astir fashionable streaming platforms successful the business. Netflix reported 300 cardinal planetary subscribers arsenic of precocious 2024, the past clip it reported the metric. HBO Max had 128 cardinal customers arsenic of Sept. 30.

Netflix presently claims 46% of mobile app monthly progressive users successful planetary streaming, according to information from marketplace quality steadfast Sensor Tower. Combined with HBO Max, that stock would emergence to 56%, it found.

"This woody cements Netflix's presumption arsenic the premier streaming work for archetypal content," according to a probe enactment from analysts astatine William Blair connected Friday.

The size of the woody makes it ripe for scrutiny, from some manufacture insiders and U.S. lawmakers.

The Trump medication is viewing the merger with "heavy skepticism," CNBC reported Friday, and Sen. Elizabeth Warren has already called for an antitrust review.

"This woody looks similar an anti-monopoly nightmare. A Netflix-Warner Bros. would make 1 monolithic media elephantine with power of adjacent to fractional of the streaming marketplace — threatening to unit Americans into higher subscription prices and less choices implicit what and however they watch, portion putting American workers astatine risk," Warren, a Democrat from Massachusetts, said successful a statement.

The merger would besides springiness Netflix power implicit the famed Warner Bros. movie studio, further consolidating the cinematic abstraction and raising concerns that the number oregon emblematic windowing of fashionable releases could shrink.

It's emblematic successful the days and weeks pursuing a woody announcement of this standard for involvement groups, politicians and firm competitors to telephone foul connected antitrust grounds.

The Department of Justice is astir apt to reappraisal the deal, arsenic it has different media mergers successful the past, and it could instrumentality immoderate time. DOJ reviews tin instrumentality anyplace from months to much than a year.

Netflix said Friday it expects the transaction to adjacent successful 12 to 18 months, aft Warner Bros. Discovery spins retired its portfolio of cablegram networks into Discovery Global.

Netflix executives connected Friday said they were "highly confident" the woody would triumph regulatory approval.

"You know, this woody is pro-consumer, pro-innovation, pro-worker, it's pro-creator, it's pro-growth," Netflix co-CEO Ted Sarandos said during an capitalist telephone pursuing the acquisition announcement.

"Our plans present are to enactment truly intimately with each the due governments and regulators, but [we're] truly assured that we're going to get each the indispensable approvals that we need," Sarandos added.

As portion of the deal, Netflix has agreed to wage a $5.8 cardinal breakup interest to Warner Bros. Discovery if the woody were to get blocked by the government.

Netflix's bid won retired implicit competing offers from Paramount Skydance and Comcast.

Analysts astatine Deutsche Bank and William Blair were astatine slightest minimally convinced Friday of the imaginable for the woody to spell through.

"A merger of Warner Bros. Discovery and immoderate of the 3 bidders would astir apt succeed, adjacent if the DOJ were to writer to artifact a projected combination," Deutsche Bank analysts wrote successful a enactment connected Friday, citing insights from a Department of Justice seasoned who the analysts said "does not spot immoderate important antitrust problems with immoderate of the 3 scenarios."

"However ... we don't cognize each of the elaborate facts that volition beryllium collected and analyzed by the DOJ, nor bash we cognize who the justice proceeding the lawsuit volition be, and some of these factors tin person an interaction connected the outcome," the Deutsche Bank analysts noted.

Paramount, for its part, has been fanning the flames.

Paramount's lawyers sent a missive to Warner Bros. Discovery this week, first reported by CNBC, successful which it argued the merchantability process had been rigged successful Netflix's direction. The Wall Street Journal reported that successful a abstracted letter, Paramount said a Netflix transaction would apt "never close" due to the fact that of regulatory headwinds.

Paramount was the lone bidder looking to bargain WBD's monolithic portfolio of pay-TV networks — and it's unlikely to locomotion distant from the process quietly.

Wall Street expected President Donald Trump's 2nd word to usher successful a windfall of dealmaking. However, economical uncertainty has slowed the process for immoderate companies, and regulatory holdups person played a bigger relation than anticipated.

"Under Donald Trump, the antitrust reappraisal process has besides go a cesspool of governmental favoritism and corruption," Warren said successful Friday's statement. "The Justice Department indispensable enforce our nation's anti-monopoly laws reasonably and transparently — not usage the Warner Bros. woody reappraisal to invitation influence-peddling and bribery."

Paramount's merger with Skydance was near successful limbo for much than a year earlier it yet won national support successful July.

The Federal Communications Commission (which is improbable to reappraisal the Netflix-WBD tie-up since it doesn't impact a broadcaster) signed disconnected connected the $8 cardinal merger soon aft Paramount agreed to wage $16 cardinal to Trump to settee a suit implicit the editing of a "60 Minutes" interrogation with erstwhile Vice President Kamala Harris. Paramount had besides ended its diversity, equity and inclusion policies earlier successful the twelvemonth aft the FCC said it would analyse the institution implicit its DEI programs.

In September, the recently combined Paramount Skydance, tally by David Ellison, acceptable its sights connected Warner Bros. Discovery. The institution is present considering whether to instrumentality a hostile bid consecutive to WBD shareholders and effort to unseat Netflix arsenic the would-be buyer, CNBC reported Friday.

Ellison's billionaire father, Oracle co-founder Larry Ellison, is known to beryllium adjacent with Trump.

The statement for whether to wide Netflix's projected takeover of Warner Bros. would apt travel down to questions astir streaming — first, connected pricing for consumers, and second, connected however to specify Netflix's audience.

The pricing of streaming subscriptions has risen crossed the committee successful caller years. In 2022 Netflix instituted a cheaper, ad-supported model aft years of absorption successful an effort to beckon much customers. The pursuing year, Disney followed with its ain more-affordable plan.

Netflix is utilized to upending the bequest media industry. The institution ended its DVD rentals business successful 2023 and went each successful connected streaming. It's since recovered monolithic standard and has taken implicit the zeitgeist with archetypal bid similar "Squid Game," "Wednesday," "Stranger Things," and "Bridgerton."

Its maverick attack to media and its broadening foothold successful the manufacture whitethorn beryllium its redeeming grace successful the eyes of regulators.

"My anticipation connected the regulatory broadside is Netflix is going to advocator and reason with their advisors for a precise expansive explanation of what their marketplace is ... truthful that would see broadcast, cable, subscription and ad-supported streaming," said said Jeff Goldstein, a spouse and managing manager astatine AlixPartners, and co-lead of the U.S. Media group.

"And really, really, truly importantly, that would see YouTube," helium said.

YouTube has travel to dominate the manufacture erstwhile it comes to viewership. Nielsen erstwhile again reported successful October than YouTube had the largest stock of TV usage, with Netflix successful sixth spot and Warner Bros. Discovery successful seventh place. Traditional media companies with linear networks — Disney, NBCUniversal, Fox and Paramount — filled the spots successful between.

Critics of the woody volition specify Netflix's scope much narrowly to effort to show outsized dominance, said Goldstein.

"I judge that streaming is not a category. Television viewership is simply a class ... you know, eyeballs mightiness beryllium a category," media manufacture titan John Malone told CNBC successful November erstwhile asked astir antitrust questions surrounding the WBD merchantability process.

"But if you're going to broaden the class to that, you got to instrumentality successful YouTube and Facebook and the societal networks, TikTok," helium said. "I mean, that's truly the question, is streaming a category? ... Are studios a class ... and is that going to get looked astatine hard? These regulatory things are a small spot hard to predict."

— CNBC's Julia Boorstin contributed to this report.

Disclosure: Comcast is the genitor institution of NBCUniversal, which owns CNBC. Versant would go the caller genitor institution of CNBC upon Comcast's planned spinoff of Versant.