Netflix has agreed to acquire Warner Bros, and the announcement comes loaded with multiple implications for U.S. streaming and the broader global entertainment industry, creating a few elite companies headquartered in America.
For close to 20 years, Netflix has grown its streaming service and now has a strong cash pile and other financing facilities capable of carrying out large-scale acquisitions such as this one.
1. Netflix will be able to tighten its control over the streaming industry
A large-scale acquisition such as this means Netflix will gain a larger market share of the streaming industry and control over some of the biggest brands in entertainment.
Warner Bros has over 100 years of experience in the entertainment industry. With Netflix already holding the top position in streaming numbers, the company stands to become a behemoth in entertainment.
2. Monopoly concerns are already underway
A deal of such a large size has already raised concerns of a monopoly, with the FTC ready to step in if it is. Deals that are too large in size are either prevented or companies are required to divest certain assets for the transaction to go through.
For instance, the group raised competitive concerns when it came to Aya Healthcare’s acquisition of Cross Country Healthcare, saying the deal would have eliminated significant competition in the healthcare services sector.
Similar to the Federal Reserve, the Federal Trade Commission operates independently of the U.S. government and can intervene without interference from other public entities. The FTC also handles antitrust complaints.
U.S. President Donald Trump has already said he will be involved in deciding if the deal should go through.
3. Other competitors will have a smaller choice of exclusives to offer on their platforms
More exclusive movies and TV shows under Netflix’s belt mean that other competitors, such as Hulu, Hotstar, Disney+, Paramount+ could get squeezed out of the market by having limited access to TV shows and movies that are exclusives of Warner Bros, HBO, and HBO Max.
4. Netflix may not add all content to its own platform and allow brands to function independently
Even though the deal means Netflix gets a huge collection of content, not all movies and TV shows may go to the streaming platform’s catalogue. Instead, Netflix may opt to let the brands function independently and take the revenues from subscriptions.
This allows established names in the market to continue operating with their respective customer bases. Also, subscription fees could change depending on how Netflix chooses to approach the integration of new TV shows and movies.
5. Netflix’s value proposition improves, but so could its costs
While Netflix has the opportunity to massively scale its revenues and improve its service offerings, so could its costs.
The streaming industry is extremely competitive and tech-driven, with frequent updates to user experience being an important factor that decides if a customer stays on as a subscriber or leaves, as per the company’s 2024 10-K filing.
Netflix will have to carefully monitor its investments, capital expenditures, and annual costs in the long term to stay relevant in the market. That being said, the announcement on Friday stated that Netflix expects cost savings of $2 billion to $3 billion per year by the third year. But outcomes on cost savings could go either way depending on how the acquisition progresses.