More quarter century moves happening:) Ben gives such an insightful thoughtful analysis on this whole merger. Netflix is its own beast. It’s doing close to $40B a year in streaming revenue (over $40B on a trailing basis), with operating income just above $10B and annual net profit in the high single digit to low ten billion range.
This deal is more interesting. First, it is in part a vertical merger, wherein a distributor is acquiring a supplier, which is generally approved. However, it seems likely that Netflix will, over time, make Warner Bros. content, particularly its vast libraries, exclusive to Netflix, instead of selling it to other distributors. This will be economically destructive in the short term, but it very well may be outweighed by the aforementioned increase in value that Netflix can drive to established IP, giving Netflix more pricing power over time (which will increase regulatory scrutiny). Second, it is also in part a horizontal merger, because Netflix is acquiring a rival streaming service, and presumably taking it off the market. Horizontal mergers get much more scrutiny, because the explicit outcome is to reduce competition. The frustrating point for Netflix is that the company probably doesn’t weigh this point that heavily: it’s difficult to see HBO Max providing incremental customers to Netflix, as most HBO Max customers are also Netflix customers. Indeed, Netflix may argue that they will, at least in the short to medium term, be providing consumers benefit by giving them the same content for a price that is actually lower, since you’re only paying for one service (although again, the long-term goal would be to increase pricing power).
We are not there yet, but in the very near future we’ll start seeing apps redefine what streaming is. The next media platform is likely being created right now and may not look like anything we have seen before. The real disruption will be an app or layer that sits above content, not just more content. At the end of the day, time is the ultimate resource, and the platform that prioritizes it best will take a meaningful slice of this pie. Difficult to imagine the current model: infinite shows, infinite scrolling, tons of “choice,” still existing.