Netflix-WBD Deal: Four Aspects that More People Should Be Discussing

Plus one bonus conspiracy theory

Image credit: AdWeek

The biggest media consolidation deal since Disney bought 21st Century Fox is here — on Thursday, news broke that Warner Bros Discovery (WBD) has entered an exclusive negotiation window with Netflix. If this deal gets through all the regulatory checks and approvals — and that’s a big IF — it’d remake the competitive landscape in Hollywood forever, as Netflix would own all the assets of Warner Bros. Studio and WBD’s streaming business.

Plenty of ink has been spilled over the impact of this deal since the news broke. The implications will be far reaching and some short-term ones are clear as day: Netflix would become both a syndicator and an IP powerhouse, and its long-standing incentive to diminish the theatrical window could be devastating to the theatrical model.

Many have also pointed out that, in order to fund the deal and get its money’s worth, Netflix is likely to significantly raise its prices again once it absorbs all the catalogue content that WBD owns. By then, a Netflix subscription might just be approaching the starting price of a cable TV bundle. Netflix could mitigate that by adding HBO as a premium tier at first to avoid increasing the price on its lower — priced tiers, but its long-term goal of raising pricing power would point to total integration. This will likely force a lot of other remaining Hollywood players to merge and scale up to remain competitive.

Still, there are many angles to a big, industry-shaking story like this. Here are some of the less-talked-about aspects of this mega-deal that warrant considerations.

1. A Major Boost to Netflix Gaming

Buried under this 82 billion deal is that Warner Bros. Games is also included in the consolidation, even though it has been largely absent from the announcements and SEC filings issued by both companies. This means gaming studios like NetherRealm Studios (Mortal Kombat), Rocksteady (Batman: Arkham), Monolith Productions (Middle-earth: Shadow of Mordor), Avalanche Software (Hogwarts Legacy), and TT Games (LEGO) could soon all be under Netflix’s control.

While Netflix still pale in comparison to the other major AAA video game publishers, this windfall of popular IP-based games could mark a shift in its gaming strategy, which has been moving away from AAA titles other than a few key licenses. For the most part, Netflix Games has been a cute experiment for franchise building; a repository for IP tie-in games and mobile titles, functioning as a value-add designed to reduce churn, not a console-selling powerhouse. Now, supercharged with all the well-known IP-driven console games that Warner Bros. Games owns, gaming will become a powerful engagement lever that Netflix can pull to further monopolize attention.

In addition, this could also accelerate the development of cloud-based gaming. I wrote back in 2021 that, due to the advances in cloud gaming, the video game industry had been trying out a subscription-based business model similar to what Netflix did for TV, even though the market reality of console games is still strongly tethered to the per-purchase model.

Therefore, a crucial question remains: will Netflix embrace being a real gaming publisher, or will it try to bend AAA studios into a subscription model that fundamentally doesn’t fit? Theoretically, Netflix could choose to make the next Batman or Harry Potter game exclusive to Netflix Gaming and drive subscriptions from gamers. The upside of expanding the offerings included in the Netflix bundle is self-evident, but it could also leave billions of dollars on the table by ignoring console sales — similar to how Netflix is leaving a lot of box office profits on the table by keeping its tentpole movies out of theaters.

Yet, considering that Microsoft has spent billions of dollars buying Activision Blizzard and trying to integrate their AAA games into its cloud-gaming service, it is also likely that Netflix sees the struggle in trying to force a subscription model on to console games, and chooses to release Mortal Kombat 2 on PS5 and Xbox for $70 a piece. But this will mark a strategic shift for Netflix, which has retreated from the high-end console market entirely, shutting down its internal AAA studio in 2024

Regardless of which business model Netflix chooses to go with, it now has a real shot of becoming the “Netflix of video games” before any other stakeholders in the gaming business can. If the deal closes, Netflix is no longer just an app on the Xbox and PlayStation consoles, but a major competitor that just bought some of the most lucrative content on these gaming platforms.

2. An Opportunity for Offline Expansion

Besides gaming, this deal supercharges Netflix’s most underrated initiative: location-based entertainment. What was once seen as a marketing side hustle of pop-up shops and temporary activations could become a new strategic pillar in Netflix’s business flywheel thanks to this deal.

An immediate major consequence of this merger could be the end of the stagnant Six Flags era for DC Comics. The latest rumors suggest that Warner Bros. Discovery is already in early talks to move the DC theme park license to Universal Studios, a shift that would send shockwaves through the theme park industry.

For decades, Batman and Superman have been stuck in the regional amusement park circuit — roller coasters with logos slapped on them, but zero immersion. If the merged Netflix-WBD entity breaks the Six Flags contract, they could instantly upgrade their IP from “regional thrill rides” to “world-class immersive lands.”

Then there are the “Netflix House,” the new experiential venues opening in malls like King of Prussia and Galleria Dallas this month. While currently positioned as “retailtainment,” aka glorified gift shops with Squid Game escape rooms, with WBD’s deep IP library, Netflix House might be soon expanded to offer experiences like “The Friends Experience” or “The Harry Potter Store” to draw in younger generations clamoring for live experiences and eager to immerse themselves in the world of their favorite shows.

If Netflix were to take its offline business seriously and build out these venues to expand them to more cities across the world, they could effectively serve as local marketing hubs that drive subscriptions while generating high-margin retail revenue, all without the upfront investment and risk of building full-blown theme parks.

Ultimately, this would complete the “flywheel” that Netflix has been missing. Historically, one of Disney’s superpowers has been that, even when a movie flops at the box office, they can still monetize it through merchandise in the parks and licensed t-shirts in the mall. By combining the high-end, global licensing of DC and Harry Potter at Universal Studios with the local, accessible footprint of Netflix House, the new giant creates a physical touchpoint for its digital subscribers. It turns a monthly subscription into a lifestyle brand, effectively closing the loop on Disney’s last remaining competitive moat.

3. The Destruction of Prestige Branding

In some ways, this consolidation can also be seen as value-destructive in regards to the prestige associated with Warner Bros, especially HBO. WBD’s recent decision to rename “Max” as “HBO Max” is evident of the enduring prestige and brand recognition that the name HBO carries. Netflix content, on the other hand, has long carried the reputation of bad lighting and more damagingly, quantity over quality, so much so that the streamer had to publicly state they are pivoting to lesser movies.

Distribution and the resulting user interface will impact consumer perception as well. Prestige brands derive their value from differentiation, and bundling everything under Netflix’s algorithm-driven interface erases the very signals that create and reinforce that prestige. Brands like HBO operate with a clear, elevated identity that tells audiences and creators, “this is special, curated, and worth your time.” Netflix, by contrast, is built as an undifferentiated, everything-everywhere content supermarket where algorithms flatten all hierarchy.

Granted, this is already a problem since Warner Bros. merged with Discovery and lumped prestige TV with trashy reality TV together in HBO Max. But at least the service still puts the HBO identity front and center, whereas Netflix might try to absorb the prestige into its own brand. That, of course, would be rather counterintuitive to its goal of becoming a universal content platform with something for everyone. It’d be a fool’s errand to be in the business of differentiation and universality at the same time.

Beyond consumer perception and brand positioning, the stakes are also high for the creative talents, who will likely protest the HBO brand being dissolved into the middling banality of a “Netflix Original.” For creators, the HBO label is often seen as a major career accelerator. An “HBO showrunner” or “HBO director” can command higher budgets, better deals, and more long-term leverage across the industry in a way that a generic “Netflix Original” credit simply doesn’t. For this reason alone, one could argue that Netflix would be better off maintaining HBO as a separate designator on its platform and gatekeep it behind a premium tier.

Spooked by consolidation of content demand, nearly all the major Hollywood unions have put out statements expressing their concerns, if not outright dismay, at this mega-merger. The loss of prestige could further push ambitious creators to take their projects elsewhere, which, in turn, would further undermine the quality perception of the Netflix content.

In response, the other remaining Hollywood players would be smart to proactively fill this prestige void left by a diminishing HBO by pushing for their own prestige label and partnering with indie labels with growing culture cachet. One could almost see a future where Apple TV becomes the “new HBO” thanks to Apple’s deep pockets and its “quality over quantity” approach. But every player that is not Netflix has a shot now to capture the cultural influence and top-tier creative talent.

In the near term, the prestige market will inevitably shrink, as Apple buys very little in comparison to HBO. But that contraction might actually create a massive opportunity for a “David” to rise against the “Goliath” of a Netflix/HBO bundle. If venture capital were to flow into a platform like Letterboxd, which just launched its experimental “Video Store” rental service, or a more vertically integrated A24, we could see the birth of a genuine “Prestige Content Aggregator.”

4. The European Regulators Could Cause Trouble

Analysts and commentators are quick to point out that this deal is far from over. The Trump administration reportedly has “heavy skepticism” about the deal, and Paramount has launched a hostile counter-offer straight to shareholders to acquire the asset, believing its deal has a better chance of gaining U.S. regulatory approval. Still, a Republican-led administration would likely take a more permissive stance toward a mega-merger of this scale than a Democrat-led one. In the current political environment, Netflix would have more pathways and leverages to try to get a deal like this cleared in the U.S.

Less discussed, however, is how the non-US regulators will react to a big consolidation like this. Everyone is understandably focusing on the US Department of Justice because it is the most visible hurdle, but the European Union (EU) and UK Competition and Markets Authority (CMA) are arguably the more dangerous opponents for this deal, due to different approaches to the anti-trust laws.

In the US, antitrust law is primarily anchored around the idea of consumer welfare and pricing power, scrutinizing whether consolidations will lead to increased costs for the public. In contrast, the European interpretation places a distinct emphasis on market structure and fairness, aiming to prevent dominant players from eroding the viability of smaller competitors.

As a result, U.S. regulators tended to block mergers between direct competitors (horizontal integrations) or suppliers and distributors (vertical), whereas the EU, however, focuses more energy on policing “Conglomerate Mergers” — where a company adds different but related products to its portfolio to create an unassailable “ecosystem.”

Now, Netflix is a global company and Warner Bros Studio, especially HBO, has extensive businesses in the European market as well. For the deal to fully go through, it’d require very different approaches to convince the respective regulators that the new Netflix won’t be harming consumer welfare and undermining market fairness.

Instead of whether Netflix will be raising its prices, the European antitrust standard will ask “does this deal make the combined company a ‘must-have’ that no other rival can exist?” Theoretically, when Netflix bundles WBD assets (eg. HBO, DC, and Harry Potter) and its own originals into one subscription, no local European rival, such Canal+ in France or Sky in the UK, can possibly assemble a library of that size and remain competitive.

One likely outcome from this is forced licensing deals, where the regulators might force the merged company to continue licensing HBO shows to Sky/Canal+ in the European markets, preventing them from making the content exclusive to Netflix.

Similarly, while U.S. regulators rarely dictate business strategy, the combined pressure from theater chains and Hollywood unions could force Netflix into a binding consent decree that guarantees wide theatrical releases for Warner Bros. films. Perhaps trying to get ahead of the incoming debate, Netflix CEO Ted Serandos has stated publicly that Netflix will be committed to theatrical release.

Bonus: What If the Deal Is Not Intended to Go Through?

Lastly, let’s entertain the idea that maybe this deal is simply a dirty tactic to freeze a major competitor and not intended to go through. Here’s a clip of Matt Stoller, the monopoly expert behind the ‘BIG’ newsletter, explaining the reasoning to The Ankler:

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And click here if you’d rather watch it on Instagram.

Essentially, Stoller believes the real strategic concern behind Netflix’s bid is freezing a top competitor for up to two years while regulators review the deal, weakening Warner Bros. in the marketplace and shifting power toward Netflix in the meantime.

Now, he neglected to mention that there’s a hefty $5.8 billion break-up fee that Netflix will have to pay to WBD, should the deal fall through. I do think Netflix genuinely wants to expand their content catalog, but if the worst case scenario is spending nearly $6 billion, aka only 1.33% of Netflix’s current market cap, to keep it away from Paramount for a couple of years, that wouldn’t be too bad for Netflix either. Given the length of regulatory hurdles this deal will have to clear, Netflix is likely factoring in these interim benefits as well.

Of course, it’s still early days, and it will be a long way to see the full implications of this deal play out. What’s clear is that this marks the start of a long, messy regulatory slog whose ripple effects will be felt regardless of the outcome. Ultimately, this mega-deal underscores just how destabilized and high-stakes the media landscape has become.

P.S: My sincere thanks to Adam Simon for reading a draft of this piece and offering many good points to help me improve it.