While the “robber barons” of the Gilded Age and the companies they led have faded into history, the mythology they inspired stubbornly persists. Antitrust bureaucrats and their cheerleaders maintain that corporate “bigness in and of itself is bad and leads to a host of other evils,” as put by Donald J. Boudreaux and Phil Gramm in The Triumph of Economic Freedom. This old and economically baseless notion has endured and continues to be applied long after the idea has been discredited.
Next week, Netflix co-CEO Ted Sarandos and Warner Bros.’ chief strategy officer Bruce Campbell will testify before a Senate committee, during which they will attempt to dispel mounting antitrust concerns over the streamer’s $82.7 billion all-cash offer to acquire Warner Bros. Discovery (WBD). The protracted saga of this merger’s regulatory approval demonstrates the endurance of bad ideas—including the purported “Curse of Bigness.” Lawmakers and regulators should temper their impulse to intervene in the Netflix–WBD deal based on economically baseless theories of mergers and market power.
Rep. Jerry Nadler (D-N.Y.) voiced the prevailing sentiment at a January 6 House hearing, saying he was “concerned with any deal that would significantly increase concentration in a market that is already highly concentrated.” He is, of course, joined by many lawmakers in hostility toward a prospective merger––a stance that plainly transcends partisanship. Sen. Elizabeth Warren (D-Mass.) sympathizes with Sen. Mike Lee’s (R-Utah) warning of “the end of the Golden Age of streaming for content creators and consumers.” Even President Donald Trump has weighed in, promising to become “involved” in the antitrust review and labeling a “very big market share” as problematic.
Critics of the deal have grounded their ardent calls for antitrust intervention on claims that the deal will cause layoffs and wage suppression, cultural homogenization in Hollywood, the eclipse of movie theaters, and the emergence of monopsony power over creative labor. Ultimately, these apprehensions share a single premise: that Netflix–WBD’s combined scale threatens the entertainment industry’s status quo. Whatever the merits of these arguments, the more salient question is whether the proposed merger is likely to benefit consumers.
On this question, size alone means nothing. If anything, consistent with prevailing economic theory, Netflix–WBD’s vertical integration is likely to generate economies of scale that improve efficiency and reduce costs, not least by eliminating double marginalization. Furthermore, by enabling Netflix’s distribution platform to complement WBD’s programming, the merger would likely expand consumer choice rather than constrain it.
By integrating horizontally, Netflix and WBD could both deliver direct savings and expand the assortment of content available through a Netflix–HBO bundle. Disney’s acquisition of Hulu in 2019 made it possible to package Disney+, Hulu, and ESPN+ for $13—down from nearly $18 if purchased separately. To remain competitive, Netflix would likely adopt the same consumer-friendly strategy. Besides, as consumers grow increasingly dissatisfied with the fragmentation of streaming services, bringing multiple services under a single platform would likely prove a long-desired benefit.
Even under a narrow market definition, the streaming-service market includes at least six major rivals. The Netflix–WBD deal would not presumptively render the industry uncompetitive. Antitrust enforcers should bear the burden of proving otherwise. Moreover, platforms such as YouTube also vie for consumers’ screen time, alongside cable and broadcast television, leaving a combined Netflix–WBD with roughly 10.4 percent of what might be called the all-screen viewing market. Bizarre claims that “Netflix has long been a monopoly under even the most generous market definition” completely ignore the fact that there are lots of things on television to watch and plenty of ways (e.g., cable, YouTube TV, DirecTV, Netflix, Disney+) to watch them. This is the case now and will continue to be the case if the deal goes through.
Likewise, critics worried about Netflix locking up WBD’s intellectual property overlook the fact that nine other major studios—including the industry leader, Universal Pictures—continue to produce original content, content for which competing streaming services actively bid. Competition is set to remain fierce.
Consumers voted with their dollars to make Netflix the world’s streaming powerhouse. Netflix reciprocated by saving them the time and cost of going to theaters. The platform’s data-driven algorithms reduced the risk associated with original content ownership, enabling it to bypass theatrical distribution. By introducing consumers to on-demand streaming and the binge-watching model, the company disrupted a more-than-century-old industry. The acquisition of WBD will only enable Netflix to continue along the innovative path it has followed since the start.