WBD/NFLX/PSKY

WBD/NFLX/PSKY: Inside Netflix strategy, antitrust approach

The primary strategic driver of Netflix’s bid for Warner Bros Discovery is its desire to own a major Hollywood studio and secure long-term access to the target’s storied film and eclectic television library — a structural shift from its historical role as a distributor rather than a studio owner — according to a source familiar with the matter.

Netflix’s proposed merger with Warner Bros is a vertical combination centered on content ownership rather than market consolidation, the source said. From an antitrust standpoint, the source explained, this differs fundamentally from a merger between two legacy studios — as would be the case if Paramount Skydance’s rival bid prevails.

Netflix currently does not own a large-scale Hollywood studio, and the acquisition is intended to integrate production and distribution rather than eliminate a direct competitor. This structure makes the deal less problematic than consolidation among traditional media companies, the source noted.

Market definition, consumed choice

A central element of Netflix’s antitrust strategy is a broad market definition that reflects how consumers actually access video content, the source said. 

Rather than treating subscription video-on-demand as a standalone market, Netflix’s analysis considers the full range of alternatives available to consumers, including ad-supported streaming, subscription services like YouTube, cable on-demand offerings, and transactional rentals and purchases through platforms like Amazon Prime and cable providers.

Netflix evaluates competition based on viewership and consumer attention rather than subscriber counts. 

This approach aligns with how pricing, marketing, and content investment decisions are made and reflects the convergence of distribution channels across the video ecosystem.

Streaming overlap, portfolio behavior

Even under a narrower, US-only market definition for streaming, Netflix does not believe its bid raises concentration concerns, according to the source. 

Industry data shows the average US consumer maintains approximately 3.6 streaming subscriptions, indicating that services are typically consumed as part of a portfolio rather than as substitutes.

Netflix and HBO Max are viewed as complementary offerings. 

Data cited by the source indicates that roughly 80% of HBO Max subscribers already subscribe to Netflix. As a result, combining the two services would add limited incremental subscribers rather than consolidating distinct user bases. 

Simple aggregation of subscriber market shares therefore overstates the competitive impact.

The source added that subscriber-based market share calculations are inherently flawed in a multi-subscription environment, where adding together shares double counts consumers. 

About 6.8mn Warner Bros Discovery subscribers tied to linear cable and legacy businesses would also be excluded from the transaction and should not be included in streaming market calculations, the source said.

Economic analysis, limits of concentration metrics

Economists advising Netflix have argued that traditional concentration metrics such as the Herfindahl-Hirschman Index are ill-suited to portfolio markets, the source said. 

These tools were developed for single-choice markets where consumers select one product over another. 

In streaming, consumers routinely subscribe to multiple services simultaneously, making diversion analysis unreliable and concentration metrics prone to overstating competitive harm.

As a result, the source said, high-level market share statistics do not accurately reflect competitive dynamics or consumer behavior in the video market.

Pricing, bundling and consumer impact

Netflix expects the transaction to produce lower effective prices for a large segment of consumers, according to the source. The company plans to introduce a mid-tier subscription offering that would include the full Netflix and HBO content libraries.

While priced above Netflix’s current standard tier, the combined offering would be significantly cheaper than purchasing premium Netflix and HBO Max subscriptions separately.

The strategy is designed to strengthen Netflix’s position as an anchor service competing with Disney, Amazon Prime and YouTube. 

The expanded catalog and lower effective pricing will pressure competitors to respond with broader offerings or more aggressive pricing, increasing competition across the market, according to the source. 

Regulatory reviews

The antitrust framework applied to the deal is expected to be largely consistent across jurisdictions, though market facts differ by country, the source said. 

In many international markets, HBO Max has not launched or holds a limited market share, reducing competitive overlap.

In Europe and the UK, dominant legacy players such as Sky control a substantial share of viewership, further diminishing concentration concerns. 

The source said these factors make regulatory reviews outside the US either straightforward or easier than in the domestic market.

Paramount parallels, labor concerns

Netflix’s regulatory risk associated with its bid is comparable to competing offers, including Paramount’s, a view echoed by the target board in recent public disclosures, according to the source.

Yet the source said Paramount’s proposal could attract additional scrutiny because it would combine two major studios and relies heavily on projected synergies driven by job reductions. 

Those labor impacts could draw attention from state attorneys general, particularly in California and New York, which have increasingly focused on labor-market effects and monopsony power in merger reviews.

Remedies, political context

Netflix does not expect to pursue divestitures in the US, the source said, arguing that the antitrust case for the transaction is strong and that divestitures would undermine the deal’s core objective of securing content. 

Any remedy that limits access to Warner Bros Discovery’s content is viewed as incompatible with the transaction’s strategic rationale.

While acknowledging the political sensitivity surrounding large media transactions, Netflix believes regulators will ultimately focus on market structure and consumer outcomes rather than subscriber-based narratives or political rhetoric. 

The company rejects claims of monopoly power, pointing to the breadth of consumer choice across platforms and devices.

Ultimately, Netflix’s case rests on the argument that the deal reflects — rather than reshapes — how consumers already engage with an increasingly fragmented and multi-platform market for video, according to the source.