Richard Wolfram explores the regulatory concerns of Netflix and Paramount’s competing merger proposals for Warner Bros. Discovery. Based on current antitrust doctrine and guidelines, Paramount appears to face fewer barriers to the transaction, but the analysis is hardly black-and-white.
The Department of Justice Antitrust Division has now commenced a comprehensive review of Netflix’s proposed acquisition of Warner Bros. Discovery (WBD). Meanwhile, Paramount’s bid—rejected to date by the WBD board of directors—waits in the wings. Section 7 of the Clayton Act applies to both transactions, though with different degrees of perceived competitive risk. President Trump has weighed in, expressing skepticism toward a Netflix acquisition while treating a Paramount transaction more favorably. These statements have underscored the extent to which the attempted acquisitions and the antitrust concerns surrounding them have gained political importance and entered the public square.
Netflix is the largest provider of subscription video on demand (SVOD) by subscriptions. On its platform it hosts originally produced films and series as well as content from other, competing studios. WBD, the fourth-largest SVOD provider through HBO Max, likewise produces original work and distributes film and television content produced by its own studios as well as competitors. Among major studios, WBD controls a deep content library and holds roughly 15 percent of the market for film distribution, which encompasses the commercial exploitation of films through three main channels: movie theaters, streaming, and home entertainment (e.g., physical media, such as DVDs). This excludes television series distribution. A Netflix acquisition would thus combine two major horizontal competitors in SVOD while integrating a significant upstream supplier of film and television rights.
Paramount—now controlled by Skydance—is a legacy Hollywood studio and distributor, with a roughly 10 percent share of film distribution, extensive broadcast holdings such as CBS and MTV, and the fifth-largest SVOD service through its streaming platform, Paramount Plus. Whereas Netflix’s bid excludes WBD’s cable assets, such as CNN, which would be sold separately, Paramount’s offer is for the entire company.
A Netflix acquisition faces a steep climb, raising a host of horizontal, vertical, and labor-market concerns. A Paramount bid would appear to face a somewhat smaller hill. Understanding why requires a close look at how today’s antitrust framework evaluates scale, overlap, and output in concentrated media markets. In either case, review must take into account a complex web of commercial relationships and distribution that defies simple characterization. This article focuses on the foundational antitrust analytical model, with limited reference to industry-specific complications.
Clayton Act / 2023 Merger Guidelines concerns
Section 7 of the Clayton Act prohibits acquisitions whose effect “may be substantially to lessen competition, or to tend to create a monopoly.” The standard is deliberately probabilistic, focusing on incipient rather than certain harms.
The Department of Justice and Federal Trade Commission traditionally evaluate mergers under Section 7 by assessing whether they may lead to higher prices, reduced output or quality, diminished innovation, or reduced consumer choice. These risks are examined across three dimensions: horizontal competition, vertical integration, and labor-market effects. The antitrust agencies apply their 2023 Merger Guidelines for their analyses in tandem with case law.
Horizontal concentration under Netflix-WBD
Horizontal merger analysis begins by defining the relevant market in which competition might be lessened or a monopoly created. To do this, it applies the “hypothetical monopolist test,” which identifies the smallest set of products or services in which a hypothetical monopolist could profitably impose a small but significant non-transitory increase in price (SSNIP)—typically five percent. Once the market is defined, concentration is measured using the Herfindahl-Hirschman Index (HHI), comparing pre- and post-merger concentration levels and the resulting change, or “delta.” These numbers provide a quantitative measurement of the potential increase in concentration in the relevant market. Courts and agencies also consider qualitative factors identified in the Supreme Court’s Brown Shoe decision, including industry or public recognition of submarkets and differences among buyer groups.
Input and output market complexities peculiar to the industry then build on this analytical framework, and the plot typically thickens. Applied here, the hypothetical monopolist test suggests a relevant market limited to SVOD. A combined Netflix-WBD entity would hold an estimated 33 percent share of the United States market, which would create a highly concentrated market according to the Merger Guidelines (the threshold is 30% for such a designation). HHI analysis also reflects a highly concentrated pre-merger SVOD market: 2,055 pre-merger, where a premerger HHI of 1,800 defines the threshold for “highly concentrated.” The merger also produces a substantial delta of 829, where a delta over 100 in a highly concentrated market likewise creates a rebuttable structural presumption of illegality under the Merger Guidelines. Possible anticompetitive effects include higher prices, reduced output, reduced consumer choice, fewer production greenlights, and diminished innovation. Absorbing WBD’s library could also reduce Netflix’s incentives to sustain output, particularly given the additional debt the transaction would impose upon Netflix.
Vertical and labor-market effects
A Netflix-WBD merger would also raise familiar vertical concerns. Netflix could withhold WBD content from rival platforms, while elimination of HBO Max—a widely viewed “must-have” service—could reduce options for independent producers. Existing exclusivity arrangements might mitigate these effects, depending on scope and duration.
The merger would also intensify concerns about shortened theatrical windows. WBD shows many of its high-budget films in theaters before releasing them on HBO. Netflix releases most of its content directly to its streaming platform but recently has begun to show select films exclusively in theaters for a short period of time. Netflix executives have hinted at some flexibility regarding the duration of the exclusive theater window, but Netflix will likely be pressed on this point and regulators would not credit such assurances absent binding commitments. Labor effects compound these issues. The acquisition would remove a major employer in Hollywood, strengthening Netflix’s bargaining power in a labor market already weakened by consolidation and production cutbacks. Antitrust enforcers have increasingly emphasized such monopsony risks. That said, ample precedent exists for behavioral commitments to address foreclosure concerns, particularly under current enforcement approaches.
Paramount: a smaller hill to climb?
Paramount’s hostile tender offer, revised and again rejected by the WBD board in early January, may ultimately be put to a shareholder vote later this year.
Paramount’s SVOD share is appreciably smaller than Netflix’s, making horizontal concentration concerns less acute. The combined Paramount-WBD market share is estimated at 20 percent, with a premerger HHI of roughly 1,600 and a delta below 100—insufficient to trigger a structural presumption of illegality under the Merger Guidelines. Regulators would nevertheless examine studio consolidation, combining Paramount and WBD’s leading studios, labor concentration, and downstream distribution effects.
Paramount argues that increased scale could enable greater film output, though regulators would demand merger-specific, verifiable evidence. Similar claims in prior media mergers have often proven difficult to substantiate. Paramount depends on healthy exhibitors and longer theatrical runs, suggesting limits on its ability to extract supra-competitive terms, but regulators would likely test those assumptions against post-merger incentives rather than accept them at face value. Potential procompetitive efficiencies, including an arguable strengthening of competition among major buyers of premium content, could be credited only if they are specific, verifiable, and likely to benefit consumers.
Conclusion
In sum, on the available facts, Netflix would need to overcome significant structural presumptions, potentially relying on the very complexity of the transaction to rebut them. And among the antitrust ‘commentariat’, there is skepticism that the market shares tell the whole story. A Paramount acquisition appears to face a smaller structural hill, though many factors would come into sharper focus in formal review.
The two contending consolidation scenarios have drawn significant attention. Congressional oversight is in the offing, with bipartisan skepticism focused for now on the Netflix transaction. Prominent antitrust commentators, among many others, have raised concerns about the injection of partisan “non-antitrust” considerations into recent enforcement. The CEOs of both Netflix and Paramount have reportedly spoken with Trump, who has said he will be “involved” in any assessment. A key question for the antitrust mission is whether the review will, in practice, stick to the script.
Author Disclosure: The author reports no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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