Netflix–WBD deal risky for Netflix, riskier for Warner: Former Assistant Attorney General Kanter

Key Concepts

• Antitrust Division (DOJ): The part of the U.S. Department of Justice responsible for enforcing antitrust laws, which aim to prevent anti-competitive business practices.
• Regulatory Risk: The potential for a business transaction or strategy to be blocked or significantly altered by government regulations.
• Certainty of Closing: A crucial factor for sellers in a deal, referring to the likelihood that the transaction will be successfully completed.
• Breakup Fee: A penalty paid by one party to another if a deal falls through, intended to compensate for losses.
• Shareholder Obligations: The legal and ethical duties of a company's board of directors to act in the best interests of its shareholders.
• Content Ownership and Distribution: The control a company has over its intellectual property (films, shows) and how it is made available to consumers.
• Streaming Market: The competitive landscape of online video content delivery services.

Netflix's Acquisition of Warner Bros. Assets: A Risky Regulatory Gamble

This summary analyzes the potential regulatory challenges and risks associated with Netflix's proposed acquisition of film and streaming assets from Warner Bros., drawing parallels to past failed mergers and highlighting concerns from various industry stakeholders.

Regulatory Hurdles and Past Precedents

Jonathan Kantor, former Assistant Attorney General for the Antitrust Division at the DOJ and CNBC contributor, expresses skepticism regarding Netflix CEO Ted Sarandos's confidence in securing regulatory approval for the deal. Kantor draws a direct comparison to the JetBlue-Spirit Airlines merger, which he describes as a "movie we've seen before." In that case, Spirit opted for a premium sale to a "more risky buyer" (JetBlue) over a less risky option. The JetBlue deal's assets remained in limbo for over a year, ultimately faced regulatory challenges, and never went through. This historical precedent suggests a significant regulatory risk for both Netflix and Warner Bros. in the current transaction.

The Paramount Perspective and Potential Legal Recourse

When asked what advice he would offer to Paramount, a potential competitor, Kantor suggests that Paramount could argue the Warner Bros. board "didn't fulfill its obligations to its shareholders" by pursuing this deal. He also notes the potential for other parties to sue if the deal fails due to regulatory issues.

Broad Stakeholder Opposition and Concerns

Kantor anticipates a wave of opposition from various factions once the deal is publicly announced. This includes:

• Theaters: Concerns about the consolidation of content ownership and distribution impacting their business models.
• States: Potential antitrust concerns from state-level regulators.
• Creators: Worries about the impact on creative freedom and compensation.
• Competitors: Concerns about Netflix's increased market power.

This widespread opposition is expected to create significant "incoming" (challenges and scrutiny) for both Netflix and Warner Bros. during the regulatory review process.

The Case for the Deal vs. Historical Failures

The rationale often presented for such mergers, as Kantor notes from his experience at the DOJ's Antitrust Division, is that increased efficiency, greater investment in content, and improved overall operations will result. However, Kantor counters this by pointing to a history of similar justifications that "just hasn't panned out" in past mega-mergers like AOL-Time Warner, AT&T-Time Warner, and Warner Discovery. He emphasizes that the assets involved in the Netflix-Warner Bros. deal are "very difficult to control" and have had a "singular impact on the industry," particularly in the streaming market.

Conclusion: A High-Stakes, Risky Proposition

The proposed Netflix acquisition of Warner Bros. film and streaming assets is characterized by significant regulatory risk, drawing parallels to past failed mergers. While Netflix may express confidence, historical precedents and anticipated opposition from a broad range of industry stakeholders, including theaters, states, creators, and competitors, suggest a challenging path to regulatory approval. The core argument against such consolidation, as highlighted by Kantor, is that the promised efficiencies and benefits have historically failed to materialize, and the unique nature of these media assets makes them particularly susceptible to anti-competitive outcomes. The deal represents a "very risky bet" for Netflix and an even "riskier bet for Warner."