Netflix’s WBD bid is an antitrust drama without a villain
Expect lawyers to home in on the definition of ‘relevant market’ that best suits their argument
Supermarkets, bank branches, best-selling books, barrels of oil — these are just a few of the markets that have vexed competition lawyers and judges over the decades. The battle for US media empire Warner Bros Discovery will pose a whole new set of questions — with no easy answers — about the way households parcel out their TV spending and their brain space.
Netflix’s bid for WBD was trumped on Monday by a rival cash offer from Paramount Skydance. The interloper contends, in support of its offer, that a Netflix merger would trigger a lengthy and possibly unsuccessful antitrust review. The logic is persuasive. George Mason University law professor John Yun cites data showing Netflix and WBD have 31 per cent of streaming subscriptions and account for 35 per cent of hours watched.
But there are other ways to slice the cake. In antitrust probes, identifying the “relevant market” is critical, and contentious. Include Google’s YouTube as a streaming rival, and Netflix and WBD fall to just 20 per cent of viewing time, according to Nielsen. Include all TV, and they’re just 9.3 per cent. Expect lawyers to home in on the definition that best suits their case.
In a rational world, what matters is whether consumers risk being worse off. Could Netflix use its boosted market clout to dramatically crank up the prices of its enlarged streaming subscriptions? Or charge nosebleed fees to broadcast rivals for WBD content such as Harry Potter and Friends, leading them to jack up their own prices?
Maybe, but not because of simple market share. This isn’t bank branches or supermarkets, where a local monopoly can leave consumers with a Hobson’s choice. Those who balk at Netflix and HBO Max can defect to Amazon, Disney+ or Paramount+, among others. Netflix is big, but Roku or Peacock are as easy to sign up for. Share of eyeballs makes little odds.
What does make a difference is the films and shows themselves — specifically, how good they are. That’s why YouTube isn’t really a substitute for Netflix at all. Sure, it has no end of stuff for a viewer to point their pupils at. But if the relevant market is “stuff you watch for the plot”, Netflix and WBD might indeed have a very large share of the market.
The catch is that such subjective things are much harder to gauge. One option is to look at how much companies splurge on content, as a proxy for the quality of their output. Netflix and WBD may spend $38bn next year, analysts reckon. But Paramount and WBD weigh in at a hefty $32bn. In overall content spend, Comcast beats them all, according to KPMG data, and Walt Disney is close behind.
Years from now, all of this may be moot. Artificial intelligence already hints at a world where movies no longer require a studio, or human actors. YouTube — used by 84 per cent of Americans, according to Pew Research Center — could take on traditional studios one day, armed with its $3.8tn parent’s game-changing AI models. The same might apply to Facebook owner Meta Platforms or OpenAI.
That’s a tomorrow problem, of course. Antitrust judges tend to focus instead on the market as it is, so Netflix will need to sharpen its pencils. But there are two conclusions. If simple viewing time doesn’t equate to market power, then the streaming colossus’ bid for WBD might not be as problematic as it sounds. And however this drama shakes out, the next wave of media innovation could produce a very different set of anti-heroes.