By Thomas Hazlett
About the author: Thomas W. Hazlett formerly served as chief economist of the Federal Communications Commission. He is the Hugh H. Macaulay Endowed professor of economics at Clemson University.
Top executives from Netflix and Warner Bros. Discovery answered antitrust concerns before the Senate on Tuesday. The hearing's chair, Sen. Mike Lee (R., Utah), said Netflix's proposed $82.7 billion all-cash purchase of WBD posed a "classic risk" of market consolidation.
Not so fast. If the antitrust inspectors are objective, they should wave the deal home.
Never mind that President Donald Trump favors the other offerer, Paramount Skydance, with its MAGA-friendly owners of CBS, and is tempted to tip the scales their way. Netflix's purchase of WBD would result in a "big market share" he says with a glint in his eye. That "could be a problem."
Yet the idea that a Netflix-WBD merger would extinguish video competition is a chimera. The very goal long-clamored for by U.S. policymakers -- vanquishing the cable monopolies and opening video markets to bountiful customer choice -- has been Netflix's greatest triumph. That has brought the streamer many industry foes, because it slashed costs and squeezed Hollywood. Viewers, however, have been rewarded with an explosion in program choice. A Netflix-WBD deal would extend both of those trends.
Hollywood may trash Trump in award acceptance speeches, but they must love his open hostility to the Netflix bid. Writers, actors, directors, and studio execs harbor animosity for Netflix, which disrupted their business models and shook up the power structure of the industry incumbents. A real New York Times headline last month: "Everybody in Hollywood Secretly Hates Netflix ."
Netflix came out of nowhere in the mid-2000s to topple Blockbuster in the DVD rental market. The Federal Trade Commission scuttled a Blockbuster acquisition of Hollywood Video in 2005 as a merger to monopoly; Blockbuster, the supposed rental behemoth, declared bankruptcy a few years later. In the background, Netflix was creating a whole new product category: on-demand video streaming.
By 2013, Netflix had built a TV studio. It was producing feature films by 2015. Just a few years later, Netflix was the country's largest TV and movie producer. It was releasing, on average, a new original film or TV series a day -- far beyond what the U.S. studios as a whole used to produce in a year.
Netflix is attempting to acquire the movie and TV studios of Warner Bros., plus its streamer, HBO Max. WBD will spin off its linear cable programming networks, including CNN, into a new entity called Discovery Global, which its shareholders will own. Such an industry restructuring won't crush rivalry.
Today, Americans pay for about 430 million streaming subscriptions. Netflix accounts for 87 million of those, or 19%. Hulu with 52 million, Disney+ with 50 million, and Paramount+ with 37 million come next, followed by a slew of others. The merger sought by Netflix accounts for about 28% of streaming. The combination sought by Paramount would result in a company with roughly the same share of video services as Netflix-WBD, 26%. But Paramount-WBD would also become the largest cable TV network owner -- with a portfolio including CNN, Food, TNT, and TBS, which serve nearly 70 million households each.
During the Comcast and NBC-Universal merger in 2011, the Department of Justice's antitrust division defined the video marketplace to include traditional cable TV operators and "online video providers" like Netflix. The market is far more open today. Moreover, Netflix isn't the biggest player. YouTube is. YouTube garners 13% of video streaming, as measured by viewing hours. Netflix and WBD would have just 9%. Counting subscriptions and ad money, YouTube's parent company, Google, out-earns Netflix in video-related revenue by about 20%.
Some skepticism is circulating that Netflix and YouTube are comparable. One antitrust attorney recently told Reuters that the DOJ is "unlikely to see Netflix and YouTube as interchangeable rivals, given their different content, audiences, and business models."
But firms need not be interchangeable to be fierce competitors. Comcast, Tubi, and Netflix were distinct when the DOJ lumped them into the same market in 2011. Comcast sold a high-price bundle of about 200 program channels, Netflix was a low-price, burgeoning streamer, and Tubi was an ad-supported, free-to-user service. Still, the antitrust enforcers saw their products overlapping and competing. It should see the same in YouTube, which hosts over five billion videos, more than 4,000 of which are free feature films. On YouTube, tens of thousands of titles, including new releases from Hollywood studios, are sold or rented.
We should also include in this market TikTok, where over 16,000 new videos are uploaded each minute. Joseph Stalin once offered: "Quantity has a quality all of its own." Diabolical, yes, but he had a point.
Should Netflix win the fight over WBD and the DOJ elects to challenge it, a courtroom will hear much about video on demand by other suppliers. You don't need a prediction market to guess where the facts lead -- although Kalshi puts Netflix's chance of success at nearly three times Paramount's. Netflix's offer includes a $5.8 billion breakup fee, an insurance payout for WBD shareholders should the deal fall through. It is the largest breakup fee in history.
These bets indicate the disruptive innovation of Netflix will be recognized by regulators or, if necessary, federal judges. And the next restructuring of video markets will proceed -- Film at 11, and any other time you'd care to watch.
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February 04, 2026 15:14 ET (20:14 GMT)
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