Paramount Raises Valid Points in Anti-Netflix Arguments: Competition Experts
Paramount Skydance's arguments that its bid for Warner Bros. Discovery faces a less fraught regulatory approval process is generally sound, but that doesn't mean a Paramount/WBD deal would be smooth sailing before DOJ and the FTC, competition lawyers and experts told us. In a letter to WBD shareholders last week, Paramount said its bid for WBD would have a shorter and more certain regulatory approval path than Netflix's rival offer (see 2512100001).
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President Donald Trump has said he anticipates being "involved in the [WBD acquisition] decision" (see 2512080007).
It's fair to say a Paramount/WBD deal would face relatively fewer regulatory headwinds than a Netflix deal, George Mason University associate law professor John Yun, formerly an antitrust official at the FTC, told us in an interview.
Yun and others said a key will be how antitrust regulators DOJ and FTC define the relevant market. That definition is likely to include other big subscription VOD (SVOD) providers, Yun said, and in that framework, Paramount has a smaller share, while Netflix faces higher legal hurdles.
The U.S. Supreme Court's 1963 Philadelphia National Bank decision set a presumption that acquisitions involving competitors and resulting in a combined share of 30% of the relevant market were unlawful, Yun said. Paramount said a Netflix/HBO combination would have a 43% market share but didn't specify what a Paramount/WBD share would be.
Yun said that with a Paramount/WBD combination that falls below the 30% presumption, the government faces a more legally uncertain challenge to prove anticompetitive effects. Meanwhile, a Netflix/WBD deal isn't necessarily doomed, as Netflix could show that it would create significant efficiencies, he said. But, he added, there haven't been many wins when the government challenged combining parties that reached that 30% presumption.
Netflix, Paramount and WBD also make their content and could face antitrust burdens and theories of competitive harm based on that, Yun said.
Netflix's aggressive bidding for WBD shows that it's moving away from its long-espoused belief that it would build rather than buy its way to streaming dominance, MoffettNathanson wrote investors Monday. It said Paramount's goal is "fairly straightforward," as it looks to scale up its direct-to-consumer platform and better compete with the likes of Netflix and Disney. Netflix seems to want to expand its leading position "and wants to shape the competitive landscape on its own terms."
In addition, MoffettNathanson said U.S. regulatory review will likely revolve around market share in the larger TV landscape, while also examining the new entity's content production power in Hollywood. Netflix will probably argue that it faces a huge competitor in YouTube, MoffettNathanson said, but that might not find traction with regulators, as the two platforms have vastly different types of content.
McCarter & English antitrust lawyer Robin Crauthers said Netflix/WBD could use a number of mechanisms to try to counter the 30% anticompetitive assumption trigger, such as arguing that the 43% share isn't in the relevant market. Defining the relevant market will be based on data such as consumer activity and how customers use the products, said Crauthers, who was formerly a lawyer with the media, entertainment and professional services section of DOJ's Antitrust Division. She said issues could also be raised about reduced competition for purchasing content.
If Netflix ends up being the successful bidder, and there's federal litigation to block that deal, a consent decree with settlements and conditions is a likely outcome, Crauthers said. That could include terms for licensing HBO content to other streamers, she said. Republicans have been concerned about media concentration that results in conservative voices being deplatformed, and Netflix/WBD could see conditions that the combined company provide platforms for those voices, such as conservative documentaries or talk shows, Crauthers said.
Netflix and Paramount will likely offer concessions to DOJ and FTC to gain regulatory approval, Yun said, noting that combining parties often come to regulators with an offer in hand at the outset. He said a settlement that lets the SVOD deal go through would likely revolve around content issues, possibly in the form of guarantees that the post-acquisition SVOD provider make its content available to streaming competitors for licensing at reasonable prices.
While the Paramount letter to shareholders focused heavily on market share, DOJ and FTC consideration won't be based entirely on that, antitrust lawyer Dan Mogin told us, although it will be an important factor.
Sen. Elizabeth Warren, D-Mass., wrote Friday on social media that while Netflix/WBD "is an anti-monopoly nightmare," Paramount/WBD is "a five-alarm anti-trust fire." She added, "These deals are both illegal -- and could mean fewer jobs and higher prices."
Groundwork Collaborative Chief of Policy and Advocacy Alex Jacquez wrote that neither suitor should own WBD. "We've handled consolidation in Hollywood and broadcast before. It's past time to break up Big Streaming and separate content production from platforms."