Netflix–Warner Bros. Discovery deal will ‘ultimately destroy Hollywood,’ says Matt Stoller

Key Concepts

• Consolidation: The process of combining multiple companies or entities into one larger entity.
• Price Signaling Function: The mechanism by which consumer demand and preferences are communicated to producers, influencing what is created and how much.
• Vertical Integration: A strategy where a company owns or controls its suppliers, distributors, or retail locations to manage its supply chain.
• Financial Syndication Rules & Paramount Decrees: Historical regulations in the U.S. aimed at preventing monopolies in the film industry by separating production, distribution, and exhibition.

Netflix's Potential Acquisition of Warner Bros. Assets and its Implications

This discussion centers on the potential acquisition of Warner Bros. film and streaming assets by Netflix, with Matt Stoller, Research Director for the American Economic Liberties Project, expressing strong opposition to the deal. Stoller argues that such a merger would be detrimental to America and Hollywood, labeling it an "illegal deal."

Concerns Regarding Consolidation and Market Structure

Stoller's primary concern is the ongoing trend of consolidation within the entertainment industry. He asserts that the ideal scenario for Hollywood and America is to have more movie studios and open markets, not fewer. This consolidation, he believes, has been a long-standing problem that is now being exacerbated by this potential deal.

Negative Impacts on Hollywood and Content Creation

The core argument against the merger is its potential to destroy Hollywood. Stoller outlines several negative consequences:

• Decreased Movie Production: The number of movies being produced is declining.
• Increased Foreign Content: There is a rise in foreign content, potentially at the expense of domestic productions.
• Reduced Leverage for Creatives: Talent and content creators face less upside and leverage, leading to a situation where they are not adequately compensated for their work. Stoller warns that if creatives are not paid, they will eventually stop creating.

Breakdown of Price Signaling Function

A fundamental problem identified is the broken price signaling function in the current streaming landscape. Historically, when consumers liked something, they would pay for it, and studios would respond by producing more of that content. However, with the rise of vertically integrated streaming giants, this mechanism has collapsed.

• Bundle Purchasing: Consumers are now buying bundles of content rather than paying for specific movies or shows. This means they are not explicitly signaling their preferences for individual pieces of content.
• Uncertainty in Production: As a result, studios are unsure what consumers will actually like, leading to a less efficient and potentially less creative production process. Stoller likens Netflix's historical approach to a "buckshot nature of content creation," where they produce a bit of everything to see what sticks.

Historical Context and Regulatory Frameworks

Stoller references historical regulations that were designed to maintain open markets and functional price signals:

• Financial Syndication Rules: These rules aimed to prevent networks from owning the syndication rights to shows they aired.
• Paramount Decrees: These landmark antitrust rulings from 1948 mandated the separation of movie studios' production and distribution arms from their exhibition (movie theater) businesses. The goal was to foster competition and prevent vertical monopolies.

Stoller argues that the dismantling of these regulations and the subsequent consolidation have eroded the "wonderful jewel of creative expression called Hollywood" that was also "very profitable."

Proposed Solution and Desired Outcome

Stoller advocates for a trial that would expose the decision-making processes behind these consolidation efforts. He believes that Hollywood is a "great national security asset" and a "great thing for America," and that understanding the details of the thinking behind these mergers is crucial for reorganizing the industry to function better. The ideal scenario, in his view, is to reorganize and make it work better by fostering more competition and open markets.

Conclusion

Matt Stoller argues that Netflix's potential acquisition of Warner Bros. film and streaming assets represents a dangerous continuation of industry consolidation. This trend, he contends, is destroying Hollywood by breaking the price signaling function, reducing opportunities for creatives, and ultimately harming the quality and diversity of content. He calls for a return to principles that promote open markets and competition, drawing parallels to historical regulations like the Paramount Decrees, to ensure the long-term health and profitability of the American film industry.