Netflix's $72B Warner deal faces scrutiny over YouTube rivalry claims
What's the story
Netflix's $72 billion acquisition of Warner Bros. Discovery's studios and HBO Max is likely to face regulatory hurdles from US and global authorities. The deal would create a media giant with a combined subscriber base of 428 million. Netflix claims this merger is essential to compete with Alphabet's YouTube, the most popular TV distributor in America according to Nielsen ratings.
Doubts raised
Legal experts question Netflix's competition argument
However, legal experts are skeptical that the Department of Justice (DOJ) will consider Netflix and YouTube as direct competitors. This is due to their different content offerings, target audiences, and business models. "Netflix is trying to say it competes with YouTube because people only watch a certain amount of content a day," said Abiel Garcia, an antitrust partner at Kesselman Brantly Stockinger. "That argument ultimately fails."
Business comparison
Netflix's content strategy and revenue model
Netflix invests heavily in original scripted movies and series, like "Stranger Things" and "KPop Demon Hunters." The platform often leads Nielsen's list of most-streamed original series, with eight out of the top 10 originals in a recent ranking. Subscribers pay between $7.99-$24.99 monthly, while ads contribute to a small but growing revenue stream for the company.
Platform contrast
YouTube's content model and user engagement
In contrast to Netflix, YouTube thrives on user-generated content and advertising from music videos, tutorials, and influencer content. The platform has more viewing time than Netflix or traditional TV, thanks to creators like MrBeast, who has over 450 million subscribers, as well as top recording artists and children's favorites like Cocomelon driving traffic to the site.
Market share
Streaming viewership share: YouTube v/s Netflix
In October, YouTube accounted for 12.9% of streaming viewership while Netflix was projected to take a 9% share after the merger with HBO Max. Experts believe that the DOJ will not consider YouTube videos as substitutes for Netflix shows and movies. "Netflix is going to have a difficult time making arguments that YouTube is substitutable for the kind of content that's on HBO Max and Netflix," said Robin Crauthers, a former DOJ antitrust attorney.
Scrutiny strategy
Antitrust enforcers' approach to merger scrutiny
Antitrust enforcers are adept at identifying how mergers can stifle competition in specific sub-markets. For instance, the Federal Trade Commission (FTC) successfully argued against Whole Foods Market's acquisition of rival Wild Oats Markets on grounds of reduced competition among "premium natural and organic supermarkets." Similarly, the FTC challenged US handbag maker Tapestry's merger with rival Capri for lessening competition in the "accessible luxury" market.
Analysis requirement
Netflix's internal competition analyzes and DOJ skepticism
Due to recent changes in the merger clearance process, Netflix will have to submit more of its internal competition analyzes earlier. If these documents don't mention YouTube as a major competitor or focus on categories that exclude YouTube, like paid subscriptions, it could weaken the company's case. Netflix has also argued that the deal would lower prices for most HBO Max subscribers who are already Netflix customers by allowing bundling of both services.