Justice Department Casts Wide Net on Netflix’s Business Practices in Merger Probe
As it probes bids for Warner, the department is asking if the streamer has engaged in conduct that could make it a monopoly
- The Justice Department is investigating Netflix for potential anticompetitive tactics as it probes the company’s proposed acquisition of Warner Discovery’s studios and HBO Max streaming service
- The Justice Department is also reviewing Paramount’s rival $77.9 billion hostile bid for Warner Discovery, including its cable-networks unit.
- The department, in its subpoena, asked whether either deal might hurt competition.
The Justice Department is investigating whether Netflix NFLX 1.64%increase; green up pointing triangle has engaged in anticompetitive tactics as it probes the streaming giant’s proposed acquisition of Warner Discovery’s studios and HBO Max streaming service, according to a civil subpoena viewed by The Wall Street Journal.
Questioning how Netflix competes with rivals suggests the department is looking at whether its planned Warner deal could entrench its market power, or lead to a monopoly in the future. U.S. law gives enforcers broad power to oppose mergers that could lead to a monopoly.
“Describe any other exclusionary conduct on the part of Netflix that would reasonably appear capable of entrenching market or monopoly power,” the agency asked in the subpoena, sent to another entertainment company.
Netflix agreed in December to pay $27.75 a share in cash in a deal totaling $72 billion. Paramount has made a rival $77.9 billion hostile bid for all of Warner Discovery including its cable-networks unit that houses CNN, TNT, Food Network and other channels.
The Justice Department is also reviewing Paramount’s proposed acquisition, which Warner has told its shareholders to reject. The department, in its subpoena, asked whether either deal might hurt competition. It asked how past mergers of studios or distributors had affected competition for creative talent and sought information on how talent contracts vary between studios.
Antitrust enforcers can sue to block any deal that substantially reduces competition. Scrutinizing whether Netflix has unfairly hobbled rivals could give the Justice Department another legal argument against the Warner acquisition. The line of questioning also could give the department a broader window into how Netflix does business.
Steven Sunshine, a lawyer for Netflix, said the company thinks the department is conducting a standard review of its proposal to buy Warner’s studio and streaming assets. “We have not been given any notice or seen any other sign that the DOJ is conducting a separate monopolization investigation,” Sunshine said.
“We are constructively engaging with the Department of Justice as part of the standard review of our proposed acquisition of Warner Bros,” a Netflix spokeswoman said. “We remain focused on the value Netflix and Warner Bros. can create together,” she said.
The Justice Department’s investigation is at an early stage. The department’s merger reviews can take as long as a year, although they sometimes advance more quickly. Enforcers conduct many antitrust investigations, and not all lead to formal legal action against a deal.
A Justice Department spokeswoman declined a comment. A Paramount spokeswoman said the company’s all-cash offer for all of Warner provides its investors with “greater value with a more certain, expedited path to completion.”
Both Netflix and Paramount are likely to face antitrust review in Europe and in the U.K.
Enforcers sometimes investigate whether to block a merger because the acquirer is already too powerful in a given market.
When the Justice Department conducted a merger investigation of Visa’s $5.3 billion proposed acquisition of financial-technology firm Plaid Inc., it looked at the payment company’s market power, and sued in 2020 to block the deal. Visa had a 70% market share in online debit transactions when it sought to buy Plaid, according to the department.
Visa ultimately abandoned the transaction, but the Justice Department sued the company four years later alleging it monopolized debit markets.
Makan Delrahim, Paramount’s chief legal officer, was the Justice Department’s antitrust chief during President Trump’s first term and made the decision to challenge the Visa-Plaid deal. Delrahim, as part of his pitch for Paramount’s offer, has suggested that the department could follow the Visa playbook during its investigation of Netflix’s acquisition.
Netflix and HBO Max together would control around 30% of the U.S. subscription streaming marketplace, not including bundles with wireless or cable providers, according to Antenna estimates. Netflix says the statistic isn’t meaningful because 80% of HBO Max subscribers also subscribe to Netflix. The company argues that it competes in a marketplace that also includes YouTube and other free video platforms on TV.
Mergers of direct competitors are presumed to be illegal when the combined company would have more than 30% market share, according to Justice Department guidelines. U.S. law says monopolies generally involve a much higher market share of 60% or greater.
Netflix has said that a combination with Warner’s HBO Max streaming service would account for only 10% of viewing time in U.S. TV households. The company has argued Netflix doesn’t directly compete with Warner Bros and that its deal should be regarded as a vertical merger, meaning Netflix is mainly a distributor for content and Warner is a supplier of movies and TV shows.
Warner and Netflix have said they expect regulatory approval for the deal.
Ted Sarandos, co-CEO of Netflix, told the Senate Judiciary Committee this week that consumers would pay less for a bundled Netflix and HBO Max.
In an interview with NBC News this week, Trump said he wouldn’t get involved in the deal and that it was up to the Justice Department. “I’ve decided I shouldn’t be involved,” Trump said when asked about the deal. “The Justice Department will handle it.”