Warner Bros. Discovery (WBD) has announced that it is selling its major assets to Netflix, including Warner Bros. Pictures (home of Harry Potter), DC Studios, and HBO Max. Netflix was chosen among a group of bidders that also included Paramount and Comcast. This post explores some of the antitrust issues and hurdles that a combined Netflix and WBD might face.
The acquisition would combine Netflix’s market-leading streaming business with HBO Max. The central antitrust debate will likely be over (a) the boundaries of the “relevant market” to assess the competition between Netflix and HBO Max and (b) how to measure market shares within that relevant market. The most “natural” boundary is a U.S. streaming service market that would include Netflix, Amazon Prime Video, Hulu, Disney+, Paramount+, Peacock, HBO Max, and Apple TV+. Even if this market is adopted, however, there is the question of measuring market share, where the goal of the market-share calculation is to proxy for a product’s market influence and power.
Finding market-share data on the streaming market is a bit tricky. First, there is the question of geographic scope. Various sources tend to report global subscriber counts, which may not map well to the U.S. market. For example, according to one source, the top four streaming services by global subscribers are Netflix (302 million subscribers), Amazon Prime Video (200 million), Disney+ (131 million), and HBO Max (128 million).
But using the same source, if we filter the data to just the United States, the subscriber counts are as follows: Netflix (82 million), Amazon (75 million), Hulu (65 million), Paramount+ (59 million), HBO Max (58 million), Disney+ (55 million), Peacock (41 million), and Apple TV (18 million). (Note: These values should be taken with a grain of salt, as the accuracy is unknown.) If we take the above eight services as the “universe” of streaming services in the United States, the corresponding market shares are as follows: Netflix (18%), Amazon (17%), Hulu (14%), Paramount+ (13%), HBO Max (13%), Disney+ (12%), Peacock (9%), and Apple TV (4%).
These shares are generally consistent with a Pew Research survey that found 72% of U.S. adults say they have watched programming on Netflix, with Amazon a close second, at 67%. The rest of the survey results are also broadly consistent with the above market shares: Hulu (52% of adults), Disney+ (48%), Paramount+ (44%), Peacock (41%), HBO Max (41%), and Apple TV+ (25%).
Even if the above percentages are accurate, is an aggregate count of subscribers a good proxy for market power? One reason to question the proxy is that there is clearly a difference between “users” and “use,” i.e., the time spent on a service. For example, a streaming service that has 100 users who watch, on average, 10 hours a week likely has more influence on the market than a competing service that also has 100 users who watch, on average, one hour a week. This observation is based on the presumption that the intensity of use likely correlates with demand inelasticity—that is, all else equal, users are less price sensitive for services they use a lot of relative to services they rarely use.
There are, however, exceptions to this presumption. For instance, suppose that HBO Max is not “used” as much as Netflix or Amazon, but households maintain the subscription because the value of each “use” is high (e.g., HBO Max offers more blockbuster movies that subscribers watch only once or twice but place a high value on).
Further, things are complicated by the fact most Americans subscribe, on average, to approximately three streaming services. Thus, there is pervasive “multi-homing” in the streaming market. Yet, it is not clear what this means for competition. On one hand, it suggests that consumers have options. On the other hand, it may be the case that multi-homing is not suggestive of substitution options but rather complementarities—or, relatedly, a desire to supplement the primary streaming service(s) with additional programming.
For example, the previously referenced Pew survey found that 21% of surveyed adults have watched ESPN+ (the subscription-based version of ESPN). It is unlikely that most of those adults would perceive ESPN+ as a substitute for Netflix or Hulu. The same logic could be applied to other streaming services that are highly differentiated—e.g., Disney+ has more programming aimed at a younger audience, including children. According to one survey, Disney+ users are the most price sensitive and would be “the first to go” for 44% of the respondents, which is consistent with the view that Disney+ is perhaps more a complement, or a supplement, than a substitute for other leading streaming services.
So, how should the government measure who is “winning” the streaming market? Ultimately, while imperfect, the best measure is likely the share of total hours watched. This was the approach taken by the district court in FTC v. Meta, where the court rejected the FTC’s proposed “personal social networking” market (comprised principally of Facebook, Instagram, and Snapchat) and defined the market more broadly as social media (which includes YouTube and TikTok). Importantly, within this market, the court explained that “the best single measure of market share is total time spent.”
Of course, no measure is going to be perfect, so market shares should only be used as a rough proxy for market power. The real work will come in understanding the competitive effects among the various streaming providers based on documents, testimony, and data.
Nonetheless, market shares are critical for the legality of a merger between competitors (under the Clayton Act Section 7) due to the Supreme Court’s precedent established in Philadelphia National Bank (PNB). That 1963 case involved the merger of two Philadelphia-based banks, PNB and Girard Trust Corn Exchange Bank. At the time of the proposed merger, PNB and Girard represented the second- and third-largest banks in Philadelphia, respectively, and the combined entity would become the largest bank, surpassing the First Pennsylvania Bank and Trust Co. The Court notably found that a merger with a combined share above 30% is presumptively sufficient for plaintiffs to “prove” anticompetitive harm from the merger. This “structural presumption” remains in place today, and would be applied to the combination of Netflix and HBO Max. Whether the merger meets that threshold will depend, again, on the boundaries of the relevant market and how market shares are calculated.
To that end, one source does report data on streaming-service market shares based on viewing hours (although, again, the accuracy of the information is uncertain). Specifically, the market shares based on hours watched are as follows: Amazon (21%), Netflix (20%), HBO Max (15%), Disney+ (13%), Hulu (11%), Paramount+ (7%), Apple TV (6%), Peacock (2%), and others (5%). Based on these values, a combined Netflix and HBO Max would represent approximately 35% of all streaming hours, which would make it the largest single player in the market and, crucially, place it above the PNB threshold.
Perhaps in anticipation of this antitrust hurdle, reports indicate that Netflix has recently retained antitrust attorney Steven Sunshine of Skadden, Arps, Slate, Meagher & Flom to guide its purchase of WBD.
Given the specter of the PNB precedent, Netflix will likely advance an argument that it competes in a market that is broader than streaming services. Candidates for this broader market include traditional cable and satellite TV services, as well as live TV streaming services such as YouTube TV and Hulu+ Live TV. Could TikTok and YouTube (the regular version) also be included in this broader relevant market? It will depend on the available evidence, including potential economic analyses indicating that consumer attention is fungible between online videos and streaming services. Establishing this broader market will be critical, because it may keep Netflix and HBO Max below the market-share threshold established in PNB.
While streaming market share (Netflix + HBO Max) will likely be the main issue, regulators will also scrutinize the combination of Netflix’s internal production of programming and Warner Bros. Studios. This part of the review will deal with content production. Currently, Netflix creates shows and movies primarily for its own platform. Warner Bros., however, creates content for everyone: theaters, cable channels, and rival streamers. Will the merged company lock up all Warner Bros. content and stop selling popular films and shows to competitors? Conversely, post-merger, would Netflix start selling its previously exclusive content to outside buyers? This seems unlikely, since Netflix already could do that now if it chose to.
Finally, there is the question of efficiencies. Would Netflix keep HBO Max a separate service and create a subscription bundle, or would they merge the two services? Will the combination of IP properties create added content and innovations? Does combining user data across platforms create more accurate recommendations and curated content? Additionally, for the studio business, are there synergies from combining production facilities?
The other two major contenders for WBD were Paramount Skydance and Comcast. The main difference with a Paramount purchase is that the combination would likely face less antitrust scrutiny. Paramount owns Paramount+ and Paramount Studios. Like the Netflix scenario, the market overlaps are in streaming and content creation. Based on the prior data source (measuring viewing hours), combining Paramount+ (7%) and HBO Max (15%) would result in a 22% market share. This figure is lower than the PNB threshold, so the agencies would have a greater burden to develop convincing evidence that the combination creates anticompetitive harm to consumers. Furthermore, combining Paramount+ and HBO Max could, arguably, be viewed as good for competition, under the theory that uniting these two services creates a legitimate challenger capable of taking on the market leaders, Netflix and Amazon.
What about Comcast? Comcast owns Peacock and Universal Pictures. Given Peacock’s lower shares in a streaming market, this horizonal overlap would likely raise minimal concern. But Comcast’s ownership of Xfinity in cable TV is a complication that likely means that Comcast would have argued for a narrower market comprised only of streaming services.
Overall, it could be argued that the modern digital ecosystem—where the lines between content creation, distribution, and consumer data are blurred—requires regulators to adopt entirely new antitrust theories. This perspective suggests that traditional economic and legal frameworks are inadequate to measure the competitive effects of integrated tech and media companies. But despite the digital era’s complexity, the ultimate judgment in the WBD sale to Netflix will likely hinge on conventional antitrust doctrines. In the end, the fate of the merger will come down to standard arguments concerning market definition and horizontal overlaps—including relying on rulings such as PNB.
