A broad definition of the “relevant market” that encompasses multiple players including Amazon Prime Video, Disney+, and YouTube would likely favor approval of Netflix’s deal, showing there are many streaming substitutions available to consumers. A narrower definition poses more risk to the deal going through.
The relevant market will help Justice Department officials screen an $82.7 billion deal that critics fear will consolidate the streaming industry, weaken competition, and eliminate entertainment jobs.
Expect the DOJ to conduct a thorough investigation, especially given the agency’s involvement in media and entertainment cases, said Matthew Tabas, a partner at Arnold & Porter Kaye Scholer LLP whose clients include entertainment companies.
“Market definition remains a key piece of the analysis that they would undertake,” Tabas said. “They’ve wanted to do their due diligence in part because of how high-profile the transactions are.”
The deal would combine Netflix’s video-on-demand streaming service with Warner’s film and television studios, HBO Max, and HBO, as well as a content library of films including the “Dune” and “Godzilla vs. Kong” series.
Paramount Skydance Corp., run by David Ellison, has made a competing bid that was rejected by Warner Bros. Paramount said its deal would provide consumers with a stronger bundle across TV, film, news, and sports, as well as faster regulatory approval.
Netflix said Tuesday that the company amended its agreement for the acquisition of Warner Bros. to an all-cash transaction.
Netflix didn’t respond to requests for comment for this story. The Department of Justice also didn’t respond.
It’s hard to say whether the agency will challenge the transaction, but it’s in an industry sector that the “DOJ has really kicked the tires on and wants to investigate,” Tabas said, citing other challenged media deals, including the one between
The DOJ’s scrutiny comes as company executives such as Netflix co-CEO Ted Sarandos met with Trump directly to discuss the deal.
Merger Review Test
Agency officials will draw the narrowest definition possible to ensure they are capturing anticompetitive effects, said Christine Bartholomew, law professor at the University at Buffalo who researches antitrust issues.
“The larger the market becomes, market share drops because the more products you include, the more competitors you get,” she said.
Courts will have a chance to weigh in on the relevant market only if the DOJ files a complaint to block the deal, said John M. Yun, professor and economist at George Mason University’s Antonin Scalia Law School who specializes in antitrust.
“Obviously if they bring it to court and challenge, that’s where the relevant market really becomes important because they have to defend their market,” Yun said.
If the deal isn’t challenged, it’s safe to presume the DOJ found the market was quite broad and included “social media platforms, cable, and linear TV and YouTube TV,” Yun said.
A broad definition would potentially ripen conditions for more consolidation in the streaming industry, said Abiel Garcia, an antitrust partner with Kesselman Brantly Stockinger LLP.
Netflix is pushing the idea that the relevant market is really an “attention market"—the idea that any video-based entity that calls your attention is included, he said.
“All of a sudden, everyone becomes a competitor against each other in the digital space,” Garcia said. “It just removes a potential hurdle.”
Small but Significant
As part of their evaluation, federal enforcers will ask whether it will be profitable for a hypothetical monopolist in the market to raise prices by a small but significant amount, or whether it will lose too many customers to turn a profit. That test helps define the relevant market and evaluate market power—the ability to raise prices above competitive levels.
The general question asked as part of this test is whether the company could hike prices by 5% to 10% in a period of one or two years, for example, without losing some customers, Garcia said.
If the answer is yes, “usually that market definition is valid,” he said. “It’s not too broad, it’s not too small.”
If the answer is no, the market would need to be changed, possibly by broadening it with potential substitutes, such as Apple TV, Peacock, and YouTube, Garcia said.
Economists conduct these tests, taking tons of data from the industry and running statistical models to get the answers, he said.
Ultimately, the burden is on the DOJ to prove its market, while Netflix and Warner Bros. will challenge the definition.
“It will be their job to poke holes in that,” Garcia said.
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