Analysts unpack Netflix’s ‘huge statement of intent’

Netflix’s move to acquire the streaming and studio assets of Warner Bros Discovery is a “huge statement of intent” from the Ted Sarandos and Greg Peters-led firm, according to leading industry analysts.

The goal is clear: to put further distance between it and rivals on the global streaming stage by providing a stockpile of A-grade entertainment assets for deployment.

It will also deliver Netflix more than 100 million subscribers to HBO Max and it is here that the deal could find itself mired in regulatory red tape.

“This is a huge statement of intent and underlines Netflix aspirations to be a global leader in the new world order of streaming,” Paolo Pescatore, founder of PP Foresight, tells Broadcast International.

“Is there a distinct streaming market or do streamers compete with providers like Youtube and TikTok? An expanded market definition is the likely narrative the companies will pitch to regulators”

Reuben Miller, Dealreporter

“But in light of the current regulatory environment this will raise eyebrows and concerns. The combined dominant streaming player will be heavily scrutinised. We should expect this to wrangle on given Paramount Skydance’s pursuit for WBD.”

That deal took more than a year to make its way through the various regulatory processes in the US - but Skydance was a relative minnow, while Paramount’s scale was also sub-WBD.

Who are Netflix’s competitors?

The Netflix-Warner Bros acquisition is of a different order and regulators will likely have to enter new territory when exploring its impact on competition.

“It’s likely this will have been a key consideration of the offer,” says Matt Trickett, head of media at Ampere Analysis.

“A key area will be scale within streaming within the US domestic market where a combined entity will have over 130 million streaming subs (although there is significant overlap between the two subscriber bases).

“This puts a combined Netflix and HBO Max streaming service at around double the size of the next biggest domestic standalone player and it will also concentrate production activity.

“Even then, it represents ~25% share of the market domestically within streaming subscriptions; a high bar but possibly not insurmountable.”

Sarandos told an investor call on Friday that his team are already drawing up their arguments for regulators and central to this will be one of the most-talked about topics in TV over recent years: what actually constitutes the streaming market?

“Given the leading position of Netflix and the strong spot that HBO Max holds, the critical antitrust question around this transaction is one of market definition,” says Reuben Miller, head of antitrust at M&A specialists Dealreporter.

Miller, who has analysed regulatory and political decision making in Washington for more than two decades, tells Broadcast International that arguments over what constitutes the streaming industry will dominate conversation.

“Is there a distinct streaming market, or do the streamers compete with other, more shortform video providers like Youtube and TikTok? This expanded market definition is the likely narrative the companies will pitch to regulators,” Miller says.

“However, could the proper product market definition be even narrower than pure streaming providers? The government could assert there is a ‘premium streaming platform’ market, or a market definition based around platforms that produce their own content.

“If the investigation is conducted in good faith, questions around the relevant product market would be the core issue the [Departmen of Justice] DOJ will be assessing in its review.”

There are multiple factors at play, however, including US president Donald Trump, who has already weighed in with his thoughts.

Miller adds that the reality is that Netflix and WBD have agreed a deal that the Trump administration - which has been closely aligned with Paramount boss David Ellison - did not want.

That suggests, Miller continues, that the DOJ “is likely going to scrutinise this with an eye towards bringing a lawsuit.”

Given the magnitude of the deal, however, no one knows how the regulatory process will develop. The relationship between Sarandos and Trump is also not as clear as some had thought: the two have shared dinners and are, according to numerous reports over the weekend, in regular touch with each other.

Nevertheless, if it becomes clear that “knives are out” for the deal, “it may behoove Netflix to expedite the investigation phase, force a lawsuit, and hope for a favorable judicial process,” Miller says.

If the deal doesn’t progress, Netflix faces a hefty $5bn fee payable to WBD but even then, the streamer could benefit because the process will have stymied competitors’ ability to grow.

Ellison’s Paramount showed its hand - and its eagerness - to expand at pace when bidding three times for WBD in September, and Netflix knows it.

The “worst case scenario” for Netflix, Miller adds, is that “they keep Warner Bros. out of the hands of competitors during a critical phase in the industry, lose in court and pay the break fee.” In the meantime, the streamer can continue to grow and ensure it “maintains its dominant position”.

What will emerge if the deal goes through?

A true giant of global streaming will take shape should Netflix and Warner Bros Discovery get their deal past regulators.

Maria Rua Aguete, head of M&E at Omdia, says her company’s modelling suggests the combined platform could ultimately reach 350–400 million unique subscribers after integration and bundling.

“This would make it by far the largest direct-to-consumer video service in the world,” Rua Aguete continues, but don’t expect HBO Max to disappear overnight.

“In the short term, I don’t expect HBO Max to disappear,” Rua Aguete says. “Consumers will still see two apps during the transition, but integration will quickly move under the surface. Over time, Netflix will consolidate technology, data, billing and advertising systems, allowing Max and HBO content to be surfaced more prominently within Netflix.

“Longer-term, I expect a clearer brand hierarchy: Netflix as the global gateway, and HBO as a premium content brand within that ecosystem.”

Ampere’s Trickett agres that the acquisition would “fully cement” Netflix’s place as the major paid-for video streaming service worldwide, pointing to a combined service that would count over 330m subscribers internationally (excluding the US) according to his company’s models.

“But beyond this it means Netflix, if successful with regulatory approval, will have the engine room of Warners’ studio production and access to key IP.

“While Netflix has made inroads building its own returnable IP and library, this is an area that takes years to build, and Netflix has potentially found an effective shortcut.”

Indeed, Sarandos and team pointed to the huge value of the Warner Bros development slate last week following news of the proposed deal. 

Costanza Barrai, senior analyst for media at GlobalData, adds that the acquisition would deliver Netflix “both more theatrical and unscripted content, combining deep libraries that are varied and complementary for the most part.”

There are the iconic franchises, she says, such as Harry Potter, Batman, and HBO’s Game of Thrones, but the sheer breadth of the Warner Bros library would allow the streamer “to offer a more comprehensive and diverse content portfolio, further increasing its market share in the streaming industry.”

Omdia’s Rua Aguete says the deal is “fundamentally about three things: scale, IP, and monetisation” and on the latter point, the rationale is simple.

“Netflix believes it can extract more value from these assets than WBD could as a standalone player, especially through advertising, smarter windowing, and improved content efficiency.”

Synergy savings were pegged at a relatively modest $2.5bn by Netflix during Friday’s investor call, and perhaps there is some solace for Hollywood in particular that this deal will not be consolidating two of the major US studio businesses.

But while that may limit job losses to some extent, it is hard to see a world in which a consolidated Netflix and HBO Max order more content.

“Last year Netflix spent $17bn on content, positioning the streamer above Paramount and Warner Bros Discovery, who spent an estimated $13bn and $12bn respectively, and behind the likes of Comcast and Disney,” Barrai says.

“However looking at DTC alone, Netflix is most likely the biggest spender.”

For producers and rights holders in the US but also around the world, it is not immediately clear how this deal will benefit them, despite Sarandos’ assurances last week. Two global buyers will become one, with greater leverage than ever before.

Mismanaged media M&A also has a rich vein in recent years, and while Netflix knows content and streaming, it has no experience of $83bn integrations.

Barrai points to WBD’s own past and the Discovery-Warner Media merger three years ago. “Juggling studios, networks and DTC segments, Warner’s revenues have been struggling since the Discovery merger in 2022, seeing a consistent decline year-on-year,” she says.

Pescatore adds that the integration will “provide a headache” for Netflix.

“This is uncharted waters and previous big media acquisitions have been poorly executed. If and once approved Netflix will need to have a razor-sharp focus on integration and execution.

“Netflix is no longer the new kids on block and entering a new phase of the streaming video revolution,” he adds, while Trickett suggests rivals will also now be pushed into their own M&A activity.

“The challenge ahead for the rest of the market - in terms of OTT services - is one of scale both in terms of streaming subscribers, advertising, and programming expenditure.

“Netflix, subject to regulatory approval, will have both, and this could trigger more consolidation activity going forwards among other players looking to either compete with, or differentiate against Netflix.”

Pescatore says the deal, if it progresses, should be good news for consumers “as they’ll be able to get far more from one streamer rather than being forced to sign up with multiple providers.”

But for those involved in the creation of product for this increasingly consoldiated industry, the implications seem less rosy.

“There are too many streamers chasing too few dollars,” Pescatore warns.