Business leaders are fond of saying that if there’s one thing they want from the law, it is certainty — clear rules to plan around. That being the case, they should be happy to hear that Netflix’s plan to buy Warner Bros. Discovery is illegal under U.S. law, as is Paramount’s competing takeover bid.
The Clayton Act of 1914, the second of the United States’ major antitrust statutes, bans acquisitions and mergers when the effect “may be substantially to lessen competition, or to tend to create a monopoly.” According to the guidelines of the Federal Trade Commission and the Justice Department, both mergers appear to “raise a presumption of illegality.”
There are some who say that the Netflix deal deserves support anyhow because Paramount would be an even worse buyer. The argument is that David Ellison, the chief executive of Paramount, wants to build an evil media empire using his father’s money and to gut CNN, which Warner Bros. Discovery owns. Mr. Ellison’s father, Larry, is one of the world’s richest men and a major Republican donor close to Donald Trump. If President Trump opposes the Netflix-Warner Bros. Discovery merger — which he has said “could be a problem” — Netflix, the thinking goes, must be a better buyer than Paramount.
But you can’t run a rule-based system that way. Either merger would be bad for the country, and both should be challenged by antitrust authorities. The message to Warner Bros. Discovery should be: If you must sell, maybe try finding a buyer who is not a direct competitor.
Start with Netflix. Its proposed merger with Warner Bros. Discovery would be damaging, not just in economic terms but also in terms of cultural creativity. In the long run, buying Warner Bros. is likely to be as harmful for Netflix as it is for Warner Bros. The combination of close rivals usually works out that way.
Since its founding in 1923, Warner Brothers has made bold business and creative bets. In the late 1920s, it was the first major studio to do sound films. It was one of the few to bet heavily on television in the 1950s. In the 1970s the larger Warner company pioneered superhero films, and starting in the late 1990s its HBO division essentially invented premium television with shows like “The Sopranos” and “The Wire.” Many of its gambles have been contrarian, such as developing Looney Tunes as a goofier, more anarchic alternative to Disney’s animation. That is what competition is supposed to do: force companies to carve out a niche for themselves.
Netflix, for its part, is the greatest media innovator of the past decade. Transcending its modest origins as a DVD-by-mail service, it managed to succeed where earlier efforts to mix the internet and entertainment industries failed (such as Microsoft’s). Netflix proved that streaming could be a viable business model. It also, for better or worse, pioneered the binge-release model (with “House of Cards”) and so-called global originals (like “Squid Game”).
If Netflix and Warner Bros. Discovery were combined, it might be a cash cow, but the whole would be less than the sum of the parts. Netflix has suggested that it might keep HBO separate, but what parent company lets itself be outbid by its own unit? The more likely outcome is a bland mush, the loss of a distinct sensibility within either operation.
More technically, antitrust enforcers will point out that the two companies are direct competitors in premium streaming services, where Netflix is No. 1 and HBO-Discovery is No. 3 or 4, depending on which ranking system you use. Merging them would eliminate a head-to-head rival. That hurts consumers by making price increases easier, and it hurts sellers of films and TV by combining bidders. When the next equivalent of “The White Lotus” is being pitched, you expect Netflix and HBO to compete for it. Eliminating one of the two is pretty much the textbook antitrust definition of lost competition.
You can expect Netflix to argue that its competitors are actually YouTube and TikTok, which Warner Bros. Discovery does not own. The reasoning is driven by a false equivalence: that because watching “The Wire” and watching a TikTok video both involve a moving image, they are rivals for your attention. This is a little like insisting that Maxim’s and Pizza Hut are competitors because they both serve food in exchange for money. The law can’t be that stupid.
A Paramount acquisition of Warner Bros. Discovery would not be better. In addition to having a significant overlap in streaming services, Paramount and Warner Bros. are direct competitors as major film studios with theatrical releases. The federal government, if following the rules, should challenge a merger between them. If the federal government bows out — perhaps, as some fear, because of an affinity between Mr. Trump and the Ellisons — California may well bring the challenge itself to protect workers in the film industry.
Why is Warner Bros. Discovery even selling? It is spinning off its cable channels, so the answer has little to do with its core business — the streaming divisions are profitable — and more to do with the burdensome costs of its previous inadvisable mergers. The disastrous acquisition in 2018 of Warner Bros. by AT&T (and the foolish failure of a judge to stop it) began the process. AT&T then spun off Warner Bros. and combined it with Discovery in 2022, saddling the merged company with billions of dollars in debt from merger financing. Ego-driven, hype-influenced decision-making — the curse of the mogul — has created this mess, not business fundamentals.
Warner Bros. Discovery still makes money with entertainment that millions of Americans want to watch. It retains, in its bones, the pioneering spirit of its founding siblings, and will be stronger without its money-losing cable divisions. After it finds a noncompeting buyer or collects the $5.8 billion fee that the offer requires Netflix to pay if regulators scuttle the deal, it should be in a good position to rise again — assuming the law does what it should.
Source photographs by Tetra Images, Mike Hill and J Studios/Getty Images Tim Wu (@superwuster) is a law professor at Columbia and a contributing Opinion writer. He served on the National Economic Council as a special assistant to the president for competition and tech policy from 2021 to 2023. He is the author of “The Age of Extraction: How Tech Platforms Conquered the Economy and Threaten Our Future Prosperity.”
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