This week the Senate Judiciary subcommittee answerable for antitrust points held a listening to on the proposed merger between Netflix and Warner Brothers Discovery. The Monopoly Man in attendance embodied the priority that was high of thoughts for each committee member: Netflix is already the dominant participant in subscription video-on-demand, and its acquisition of Warner Bros. might cement its unequalled monopoly.
As Chairman Mike Lee put it, Netflix might turn into “the one platform to rule them all” if the merger is allowed to occur. This consequence would hurt each customers of streaming companies in addition to the expertise that generates such compelling content material.
Not surprisingly, Netflix CEO Ted Sarandos tried to deflate considerations by casting a sprawling definition of the related market by which Netflix competes. His ready remarks point out YouTube, Netflix’s purported rival, 25 instances. “Including YouTube and the like, Netflix accounts for less than 10% of TV viewing,” Mr. Sarandos insisted.
Bruce Campbell, Chief Income and Technique Officer for Warner Bros., added that Netflix competes towards quick kind user-generated content material, like TikTok and Instagram.
It shouldn’t require an antitrust economist to know why their comparisons to ad-supported, amateur-produced content material are deceptive. However right here goes one anyway.
Simply because two companies compete for viewers’ consideration doesn’t indicate that they’re in the identical antitrust market. If policymakers included all issues that vie for viewers’ consideration, they must embrace beautiful sunsets alongside Netflix, YouTube and TikTok in a single large consideration market.
To outline the contours of a market, the courts depend on a hypothetical monopolist check. This check considers whether or not a single vendor of an outlined set of merchandise might profitably elevate costs of these merchandise by a small however important quantity (referred to as a “SSNIP”) above aggressive ranges. When carried out in merger assessment, the check is utilized initially over the smallest set of merchandise supplied by the merging events.
Utilized right here, one may ask, might a subscription video-on-demand (SVOD) supplier elevate its costs past aggressive ranges with out shedding too many viewers. If sure, then a related antitrust market exists, as that supplier enjoys pricing energy. If not, the market could be expanded to incorporate close by substitutes, with the check repeated till a worthwhile value hike is achieved.
Proof suggests Netflix already enjoys substantial pricing energy. It has been in a position to improve the price of its normal and premium packages by 29% and 39%, respectively, since 2020, whereas nonetheless persevering with to amass extra viewers. Netflix additionally expenses a value premium relative to its friends, which additional signifies energy. If it had been constrained by user-generated platforms, because the merger proponents would have you ever consider, then subscribers would cancel their subscriptions in favor of YouTube or TikTok. But they haven’t.
Mr. Sarandos’s and Mr. Campbell’s tales about competing with user-generated platforms don’t move a sniff check both. Content material on YouTube, for instance, is overwhelmingly produced by newbie creators—which is a significant factor in why such movies are typically free or ad-supported. Against this, Netflix invests considerably in high-quality content material. It plans to spend as a lot as $20 billion this yr.
Consider it this fashion: When a household sits right down to film evening, they don’t seem to be flipping to YouTube. Conversely, when they need a DIY tutorial or a clip of a cat enjoying piano, they don’t seem to be opening Netflix.
Below an inexpensive definition of the SVOD market, Netflix’s market dominance is inconceivable to disregard. It at present has a couple of third of all streaming subscribers worldwide. The addition of Warner Bros.’ HBO Max, which controls one other 13%, would create a streaming big with practically half of all SVOD subscribers.
Combine in Warner’s huge content material catalogue, and customers would basically must preserve their subscription to entry mainstream motion pictures and movies. Smaller streamers would possible must consolidate simply to maintain up, kicking off a snowball impact out there.
A number of lawmakers raised the purpose that such management would give Netflix immense energy to push an ideological agenda. Whereas the talk over Netflix’s “wokeism” on the listening to may be ancillary to conventional antitrust considerations, it warrants consideration whether or not anyone firm ought to have that sort of unilateral management over what content material viewers obtain. As Mr. Sarandos and Mr. Campbell each identified, leisure shapes tradition.
Netflix is the primary SVOD supplier, with 325 million subscribers globally. Warner Bros., with 125 million subscribers, is the fourth largest. Placing these two big streaming companies below one roof is the epitome of a horizontal merger that may damage customers. It could confer important energy to lift costs and stifle competitors. No quantity of CEO spin can change these fundamental details.
The query now turns as to whether Trump’s antitrust enforcers will purchase what Netflix is promoting, and if not, how the Warner Bros. board will reply?
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