Netflix’s $72 billion Warner Bros deal faces skepticism over YouTube rivalry claim

Netflix says it must acquire Warner Bros. Discovery to compete with YouTube, but antitrust experts doubt regulators will buy that argument.

The streaming giant’s $72 billion acquisition of Warner Bros. Discovery’s studios and HBO Max will face scrutiny from U.S. and global regulators given its size and combined 428 million subscribers. Netflix insists the deal is needed to challenge Alphabet’s YouTube, which is considered America’s most-watched TV distributor by media analytics company Nielsen. But lawyers say the Justice Department is unlikely to view Netflix and YouTube as interchangeable rivals, given their different content, audiences and business models.

“Netflix is ​​trying to say it competes with YouTube because people only watch a certain amount of content per day,” said Abiel Garcia, antitrust partner at Kesselman Brantly Stockinger. “That argument ultimately fails.”

Netflix spends billions of dollars on original scripted films and series like “Stranger Things” and “KPop Demon Hunters.” It often dominates Nielsen’s rankings of most-streamed original series, accounting for eight of the top 10 originals in a recent ranking. Subscribers pay $7.99 – $24.99 monthly, while ads remain a small but growing revenue stream.

YouTube, on the other hand, thrives on user-generated content and advertising based on music videos, how-to guides and influencers. It offers more viewing time than Netflix or traditional TV, powered by creators like MrBeast, with more than 450 million subscribers, top artists and children’s hits like Cocomelon.

In October, YouTube had 12.9% of streaming viewers, compared to Netflix’s projected 9% share after its merger with HBO Max.

It’s not likely the DOJ will see these videos as a replacement for Netflix shows and movies, experts say.

“Netflix is ​​going to have a hard time making the argument that YouTube is substitutable for the kind of content that’s on HBO Max and Netflix,” said Robin Crauthers, a partner at McCarter & English and a former DOJ antitrust attorney.

While companies often try to defend their mergers by pointing to competition from a broad universe of established and emerging players, antitrust enforcers have experience finding ways in which mergers destroy competition in individual submarkets. For example, the U.S. Federal Trade Commission convinced a court that Whole Foods Market’s acquisition of rival Wild Oats Markets reduced competition among “premium natural and organic supermarkets,” despite Whole Foods’ argument that it competes with conventional supermarket chains.

The FTC also successfully challenged the merger between US handbag and accessories maker Tapestry and rival Capri, saying competition in the ‘accessible luxury’ market decreased. The judge who blocked the Tapestry deal relied on documents showing that the companies themselves considered accessible or affordable luxury to be a valid category, contradicting their argument at trial that affordable luxury was not a well-defined part of the industry.

Recent reforms to the merger approval process will require Netflix to hand over more internal competitive analysis sooner, says former FTC antitrust attorney Shaoul Sussman.

“That will certainly give the government a head start in the investigation,” says Sussman of the law firm Simonsen Sussman. If Netflix’s documents don’t name YouTube as a major competitor, or if they focus on categories that exclude YouTube, such as paid subscriptions, it will undermine the company’s argument, lawyers said. Netflix also pitched the deal to lower prices for the vast majority of HBO Max subscribers, who are already Netflix customers, by allowing the company to bundle the two products, Reuters reported last week.

But the DOJ is highly skeptical of claims that mergers will bring cost savings that will make their way to consumers, Crauthers said, and will also consider whether the deal would allow Netflix to raise prices for subscribers who don’t buy both services.