This morning’s announced merger between Netflix and Warner Bros. Discovery (WBD) would create a global media company of unprecedented scale. The transaction will also almost certainly attract scrutiny from antitrust regulators—most likely the U.S. Justice Department (DOJ) Antitrust Division, rather than the Federal Trade Commission (FTC).
The deal would offer a direct test of the agencies’ 2023 Merger Guidelines—a framework that, as my colleagues and I at the International Center for Law & Economics (ICLE) have argued, represents a return to the structuralist enforcement approach that dominated antitrust in the 1960s.
Streaming
The government’s case would begin with a horizontal theory. The agencies would assert that the merger eliminates direct competition in a narrowly defined “Subscription Video on Demand” (SVOD) market. To establish market shares, the agencies would likely rely on “total share of streaming viewing time,” as measured by Nielsen Media Research’s monthly The Gauge report.
Recent data would assign Netflix approximately 18% of total streaming viewing time and WBD (primarily through its Max streaming service) approximately 12%. (Note: all the numbers discussed here are “back of the envelope” and should be treated as approximations for discussion purposes only.)
The agencies would then calculate the Herfindahl-Hirschman Index (HHI), a concentration measure that sums the squared market shares of all firms in a market. The merger’s effect on concentration—the “Delta HHI”—would be 432 points (calculated as 2 × 18 × 12).
Under Guideline 1 of the 2023 Merger Guidelines, any merger in a market with an HHI exceeding 1,800 that increases the HHI by more than 100 points creates a structural presumption that the transaction is anticompetitive. A Delta HHI of 432 exceeds this threshold by more than four times, and would place the market in the “highly concentrated” range of 1,800 and higher. The HHI figures, combined with the merged firm’s 30% market share, would trigger the guidelines’ “presumption” of anticompetitive effects.
The merging parties would likely counter that “streaming viewing time” is unrealistically restrictive and “total TV viewing time” would be a more appropriate measure. This would include broadcast and cable viewing in the relevant market. Information from The Gauge indicates Netflix would account for an 8.3% share and WBD accounts for 5.4%. The market would be under the 1,000 HHI “moderately concentrated” threshold and the merger would result in a 47-point increase, well below the 2023 Merger Guidelines 100-point threshold.
This structural case depends on three premises that courts applying economic reasoning should question:
- That the 2023 Merger Guidelines control judicial analysis;
- That “viewing time” accurately measures market power; and
- That “SVOD” constitutes the relevant market.
The 2023 Merger Guidelines are agency policy statements that do not have the force of law. Courts are widely recognized as the ultimate arbiters of antitrust law. Since the mid-1970s, federal courts have anchored merger analysis in the consumer-welfare standard, an approach focused on whether a transaction will raise prices, reduce output, or diminish product quality or innovation.
The 2023 iteration of the guidelines appeared to abandon this framework. As ICLE argued, the guidelines instead resurrect the structural presumptions of the 1960s, an era in which courts blocked mergers with combined market shares as low as 5%. U.S. Supreme Court Justice Potter Stewart, dissenting in United States v. Von’s Grocery Co., described this approach as creating a rule where “the Government always wins.”
Recent judicial decisions suggest courts remain committed to the consumer-welfare framework. In the remedies phase of United States v. Google LLC, U.S. District Court Judge Amit Mehta emphasized demonstrable economic effects and consumer harm, rather than structural theories alone.
The agencies’ market-share calculations will ultimately depend entirely on their choice of metric. “Viewing time” measures the percentage of total television screen time that consumers spend watching content from each service. The agencies would justify this metric by arguing that streaming platforms compete for consumer attention in an “attention economy.”
Viewing time, however, conflates the temporary popularity of individual programs with the durable market power required to sustain anticompetitive conduct. A single hit series can dramatically shift viewing time shares without changing the underlying competitive dynamics of the market.
Viewing time also ignores price sensitivity and consumer-switching behavior. Industry analysts have reported that subscription “churn rates” (the percentage of subscribers who cancel each month) average 5% for major streaming services, although Netflix’s churn is approximately 2%. This rapid customer turnover indicates that consumers view these services as substitutable and will switch in response to price increases or changes in content quality. Viewing time gives no weight to this competitive constraint.
Other metrics present similar problems. Subscriber counts are now considered unreliable due to widespread bundling (such as Disney+ inclusion with Verizon wireless plans and Peacock bundled with Xfinity), password sharing, and varying revenue models. Some services generate $15 per subscriber monthly, while others generate $6. The opacity of platform data—most streaming services do not publicly report detailed viewership or revenue figures—makes any single market-share calculation suspect.
If the government’s HHI calculation defines SVOD as the relevant market, it would ignore the commercial realities of the modern media sector. Netflix and WBD compete for consumer leisure time with a far broader set of alternatives. The Gauge reports that YouTube, which operates primarily on a user-generated and advertising-supported model, accounts for more than 12% of total television viewing time. Social-media video platforms, particularly TikTok, command substantial attention among younger demographics. Video gaming consumes leisure time that might otherwise go to streaming video. Defining SVOD to be the relevant market would exclude these direct competitors for attention.
The merging parties would likely argue for an “overall entertainment market” in which subscription video, ad-supported video, social media, and gaming compete dynamically for consumer time and spending. In this broader market, the combined Netflix-WBD share would be far smaller, possibly less than 5% of total consumer entertainment time. The structural presumption would fail.
Geoffrey Manne and Kristian Stout have argued that claims of industry consolidation creating “gatekeeper” power misrepresent what’s actually happening. The fast-changing nature of streaming—along with consumers’ sensitivity to price, frequent switching among services, and the huge growth in available content—makes it unlikely that a merger between Netflix and WBD would give them unchecked power over consumers or creators.
Theatrical
The agencies may also advance a vertical-foreclosure theory targeting theatrical film distribution. This theory would define “Theatrical Distribution of First-Run Films” as a separate relevant market. Warner Bros. Discovery accounted for approximately 12% of domestic box-office revenue in 2024, according to Box Office Mojo, making it the third-largest supplier of U.S. theatrical content. Netflix, by contrast, largely avoids traditional wide theatrical releases, favoring limited releases that qualify films for awards consideration, while defaulting to streaming distribution.
The vertical theory posits input foreclosure. The agencies would claim that the merged firm has both the ability (control of about one-eighth of theatrical content) and the incentive (Netflix’s established preference for streaming-first distribution) to withhold Warner Bros. content from theatrical exhibition. This foreclosure would harm movie theaters and reduce consumer choice.
The legal basis for treating theatrical and streaming as separate markets derives from Brown Shoe v. United States, which established that submarkets can exist within broader markets based on “practical indicia,” including distinct prices, uses, customers, and industry recognition of the submarket as separate. Theatrical releases and streaming premieres do involve different prices (theater tickets versus monthly subscription fees), consumption patterns (out-of-home versus in-home viewing), and industry practices.
The Brown Shoe framework, however, predates modern economic market-definition principles and ignores supply-side substitution. Market definition conventionally focuses on demand-side substitution—whether consumers view products as interchangeable. But when suppliers can easily and rapidly redirect their output between channels in response to price changes, supply-side substitution indicates a single market.
In the recent FTC v. Meta decision, the court rejected Brown Shoe’s notion of “submarkets”:
[T]he Court will avoid some confusing language that these factors have invited. Courts typically explain that the Brown Shoe factors pick out distinct “submarkets,” which implies that a product market can be further split into cognizable niches. That impression would be misleading. The only relevant concept is the product market, indivisible as an atom. … By definition, the product market is already the smallest grouping of products on which a hypothetical monopolist could profitably impose a SSNIP. If a subcomponent of that market meets that test, then it is not a “submarket” but a product market in its own right. If a subcomponent flunks that test, then it is legally irrelevant, and dignifying it with the name “submarket” adds only confusion. [citations omitted]
Prevailing trends in theatrical-distribution windows demonstrate ongoing convergence between theatrical and streaming. The traditional 90-day theatrical exclusivity period—during which films appeared only in theaters before becoming available for home viewing—has collapsed. In 2021, when theater attendance remained constrained by the effects of the COVID-19 pandemic, Warner Bros. released several major films simultaneously in theaters and on HBO Max. By 2024, standard theatrical windows had compressed to 45 days or less for many releases, and some films receive day-and-date releases across all platforms.
Studios now routinely adjust their distribution strategies based on anticipated returns from each channel. This ability to substitute between theatrical and streaming distribution indicates they are components of a single, integrated distribution market, rather than separate markets.
The vertical-foreclosure theory also falters on practical grounds. To realize the value of Warner Bros.’ film library and production capabilities, Netflix would need to adopt a theatrical-distribution strategy. The agencies could attempt to mandate this through a behavioral remedy—a consent decree requiring the merged firm to release a specified number of films theatrically with minimum window periods.
But antitrust agencies and courts have long been skeptical of behavioral remedies in merger cases. They tend to view behavioral remedies as cumbersome and time-consuming for the agency to monitor, and effectively convert enforcers into ongoing industry regulators—a role for which they lack the resources, expertise, and possibly interest.
One solution for Netflix would be to demonstrate a shift in policy toward theatrical releases by releasing more of its original content to theaters. This would serve as both a “proof of concept” for the firm as well as a demonstration to antitrust enforcers that Netflix’s “no theatrical” policy has been amended.
Efficiencies
The 2023 Merger Guidelines take a hostile stance toward efficiency defenses. They state that efficiencies in one market will not be credited if they harm competition in a separate market.
This position conflicts with sound economic analysis. Vertical integration between content production and distribution eliminates double marginalization—the inefficiency that occurs when two separate firms in a vertical chain each mark up prices above marginal cost. This elimination typically lowers prices to consumers.
A merged Netflix-WBD would also create a stronger competitor against other vertically integrated media companies. Disney combines film and television production with theatrical distribution (through its ownership of theater-chain agreements), streaming (Disney+), and linear television (ABC, ESPN). Amazon pairs Prime Video with its e-commerce platform and AWS revenue, allowing it to subsidize content investments. Apple can leverage its device ecosystem and services revenue to support Apple TV. A combined Netflix-WBD would compete more effectively against these integrated rivals.
Courts have recognized such competitive-necessity arguments in other vertical-merger cases. In United States v. AT&T Inc., the U.S. Circuit Court for the D.C. Circuit upheld AT&T’s acquisition of Time Warner, partly based on evidence that vertical integration had become an industry norm and that foreclosure theories relied on speculative harm.
A challenge to a Netflix-WBD merger would force courts to choose between the agencies’ structural presumptions and an analysis grounded in the consumer-welfare standard. The government’s case would rest on a contestable metric (viewing time), a narrow market definition that excludes direct competitors (SVOD rather than overall entertainment), and a vertical foreclosure theory that ignores supply-side substitution between distribution channels. A court focused on demonstrable economic effects would likely conclude the government failed to prove the merger substantially lessens competition.
The transaction would admittedly reduce the number of major subscription streaming services. But the number of competitors alone does not determine market performance. The relevant question is whether the merged firm could profitably raise prices, reduce content quality, or otherwise harm consumers.
Given the demonstrated price sensitivity of streaming subscribers, the continued competition from ad-supported services and other entertainment options, and the potential for efficiency gains, the economic case for blocking this merger appears weak.
