In its investigation of Netflix Inc.’s proposed $72 billion acquisition of Warner Bros. Discovery Inc., the Justice Department is looking into the streaming behemoth’s actions and if it has anticompetitive power over content producers when negotiating acquisition deals.
According to a copy of a civil investigative demand examined by Bloomberg News, which was sent Friday, the department is attempting to ascertain whether the transaction “may substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Act or Section 2 of the Sherman Act.” According to sources with knowledge of the situation, it moved to an independent film studio.
The demand’s language, an administrative subpoena that has not been made public, is the most obvious indication to date that the Trump administration is looking into the merger in a more thorough manner than is customary. It also contradicts Netflix’s recent claim that the government is only following the normal procedure.
The review’s wide scope also strongly suggests that it will take several more months for the government to decide whether to file a legal challenge to the Netflix-Warner Bros. transaction; this delay could be advantageous to rival bidder Paramount Skydance Corp.
“Netflix competes fiercely in its industry. According to a statement from Netflix Chief Legal Officer David Hyman, “any allegation that it is a monopolist or seeks to monopolize is baseless.” “As we always do, we will gladly assist with regulators on any issues they may have, and we neither have monopoly power nor participate in discriminatory action.”
There is precedent for applying both statutes, and no federal action may come from the investigation. However, US antitrust enforcers usually only use the Clayton Act, which is reserved for merger probes, when conducting deal reviews. Targeting unlawful monopolization by a single corporation, like Google, Live Nation Entertainment, and Visa, is the usual purpose of the Sherman Act.
According to the people, the DOJ is questioning Netflix’s capacity to use its market dominance in talks with independent content producers like film studios and filmmakers. In addition to running the biggest paid video streaming service globally, Netflix is also one of the biggest purchasers of TV shows and movies worldwide.
Original programs and licensed reruns make up the majority of Netflix’s $20 billion programming budget this year. Third-party studios produce several of its most well-liked original shows, such as Nobody Wants This and Wednesday. Netflix would acquire one of the biggest studios and a significant streaming rival by purchasing HBO and Warner Bros.
According to the Wall Street Journal, the DOJ is looking into Netflix’s business operations and if the deal will give the streaming behemoth monopoly power in the future.
Steve Sunshine, head of the global antitrust/competition group at Skadden, Arps, Slate, Meagher & Flom LLP, which represents Netflix, said in a statement, “We have not received any notice or observed any other indication that the DOJ is carrying out a monopolization inquiry.”
When asked for comment outside of regular business hours, the Justice Department did not immediately reply. Warner Bros. chose not to respond.
More than 50% market concentration is necessary in monopoly cases, which is higher than Netflix’s share, whether or not Warner Bros. is involved. Netflix has a larger share of the streaming market and accounts for roughly 9% of US TV viewing, and its programming expenditures are comparable to those of its competitors, including Disney and Comcast.
Earlier this week, Warner Bros. promised to reopen negotiations with Paramount after a corporate representative expressed a desire to increase the offer price by $1 per share to $31. Warner Bros. has set February 23 as the deadline for Paramount to make its “best and last” bid.
Netflix’s offer will never pass regulatory scrutiny in the US or Europe, according to paramount, which made a hostile bid for Warner Bros. last year. After passing the DOJ’s second-request review procedure, Paramount asserted on Friday that there is “no legislative barrier” to concluding its $77.9 billion tender offer.
However, an ongoing EU review could still hold down the transaction, and US enforcers have previously sued to halt agreements they had first waved through. Additionally, Paramount might have to deal with a slew of US state attorneys general.
