The Netflix and Warner Bros. Deal Is Far From a Sure Thing

Netflix’s Warner Bros. acquisition is subject to regulatory approvals. (PATRICK T. FALLON/AFP via Getty Images)

Key Points

• Netflix announced an agreement to acquire Warner Bros. studios and HBO Max, pending regulatory approval and the spinoff of global cable network operations.
• The proposed acquisition faces significant opposition from politicians, international bodies, and antitrust concerns, with the Department of Justice expected to investigate.
• Analysts suggest the deal would solidify Netflix’s position as a premier streaming service by adding major titles and a subscriber base of 100 million.

Netflix and Warner Bros. Discovery have reached a deal —but getting it approved won’t be so easy.

Netflix on Friday announced that it has agreed to buy Warner Bros. studios and HBO Max once the company completes the previously planned spinoff of its global cable network operations. The transaction is subject to regulatory approval. Multiple media reports, including one from The Wall Street Journal, indicate the Department of Justice will investigate the deal.

“Recent media reports about DOJ and Congressional concern suggest that the risks are real,” Wolfe Research analyst Peter Supino said.

Barron’s has reached out to the White House for comment on the deal.

During Trump’s first term, the Justice Department filed an antitrust lawsuit to block a merger between AT&T and Time Warner. The DOJ ultimately lost that case.

However, this year, the Federal Communications Commission approved a merger between Paramount and Skydance. The approval’s timing caught the attention of critics who say it came not long after Paramount and Trump settled a lawsuit in early July, with Paramount agreeing to pay the president $16 million.

David Ellison took over as CEO of Paramount Skydance shortly after the settlement. His father, Larry Ellison, has a close relationship with Trump. Paramount was a top contender for Warner Bros. According to a report from the Journal, Paramount accused Warner Bros. of favoring Netflix during the bidding process. People familiar with the matter confirmed the report’s accuracy to Barron’s.

Netflix co-CEO Ted Sarandos, on a conference call Friday morning, called the deal pro-consumer, pro-innovation, pro-worker, pro-creator, and pro-growth. “We’re really confident that we’re going to get all the necessary approvals that we need,” he said.

But politicians on both sides of the aisle have concerns about the merger. Senator Roger Marshall (R.-Kan) sent a letter to Assistant Attorney General Abigail Slater and FTC Chairman Andrew Ferguson on Nov. 17 expressing “serious concern” about the potential acquisition by Netflix. He wrote that this transaction would “constitute a major vertical and horizontal consolidation in a sector that is already marked by limited competition.”

Senator Elizabeth Warren (D.-Mass.) posted on X on Friday that the deal “looks like an anti-monopoly nightmare.”

The proposed deal has also raised red flags abroad. U.K. House of Lords member Baroness Luciana Berger called for an assessment of the acquisition’s impact on competition and consumer prices in the country’s streaming market, investment in film and TV productions, and on the viability of the cinema sector.

UNIC, the European trade body that represents cinema exhibitors and their national associations across 39 territories, said it strongly opposes the planned acquisition.

“Netflix is already the world’s largest streaming distributor,” Usha Haley, professor of management at the Barton School of Business at Wichita State University, told Barron’s. With this acquisition, “the company would also control a powerful global legacy studio, affecting global market power.”

Some market experts believe the deal can clear the regulatory hurdles—and Wall Street already has ideas on what the combination of Netflix and Warner Bros. might look like for consumers.

Gimme Credit Senior Bond Analyst Dave Novosel said Netflix faces “ample competition not only from other streamers but other sources of content such as TikTok, X, Instagram, etc.”

It’s easy to see why Netflix, the largest streaming company in the world, would want to buy Warner.

“This deal cements Netflix’s position as the premier streaming service for original content by adding marquee titles such as Game of Thrones, DC Comics, and Harry Potter, as well as a streaming subscriber base of 100 million across 100 markets,” William Blair analyst Ralph Schackart, who rates Netflix as Outperform, wrote.

Alex Holtz, research director for Worldwide Media & Entertainment Digital Strategies at IDC, told Barron’s that he expects there to eventually be content migration and bundled pricing options.

“Bundles may offer perceived value, but overall ARPU [average revenue per user] likely rises and the consumer may decide it’s the right price to pay for simplification and subscription management,” Holtz said.

Hanna Howard, portfolio manager and research analyst at Gabelli Funds, wrote that there are multiple options that Netflix can choose from if the deal closes.

“[Netflix] could run HBO Max as a standalone service or choose to merge it with its own streaming app,” she said. “Could follow Disney’s model, which runs both Disney+ & Hulu combined, but the two streaming apps are also available separately, with Disney offering the subscription as a bundle.”

No matter the outcome, it’s going to be quite the show.

Write to Angela Palumbo at angela.palumbo@dowjones.com