merger

Let the legal battle begin.

On Monday, a Las Vegas-based HBO Max subscriber sued Netflix over concerns that the streamer’s plans to buy some of Warner Bros. Discovery’s assets would create an anti-competitive environment in the entertainment industry and raise subscription prices.

Netflix said last week it agreed to buy Warner Bros. Discovery’s film and TV business, its Burbank lot, HBO and the HBO Max streaming service for $27.75 a share or $72 billion. It also agreed to take on more than $10 billion of Warner Bros.’ debt, creating a deal value of $82.7 billion.

Michelle Fendelander alleges in her lawsuit that if Netflix’s deal were to go through, it would decrease competition in the subscription streaming market. She is asking the court to issue an injunction to prevent the merger from happening or issue a remedy for the anti-competitive effects.

“American consumers — including SVOD purchasers like Plaintiff, an HBO Max subscriber — will bear the brunt of this decreased competition, paying increased prices and receiving degraded and diminished services for their money,” according to Fendelander’s lawsuit, which is seeking class-action status. The lawsuit was filed in a U.S. District Court in San Jose.

Netflix on Tuesday called the lawsuit “meritless” and “merely an attempt by the plaintiffs bar to leverage all the attention on the deal.”

The Los Gatos, Calif.,-based streamer is long seen as the winner of the subscription streaming wars, boosted by having successfully entered the streaming content space earlier than rivals and for its superior recommendation technology. By buying Warner Bros. Discovery’s assets, Netflix would gain access to more franchises and characters, including Batman, “Game of Thrones” and Harry Potter. Netflix said it plans to keep Warner Bros.’ commitments to bringing its movies to theaters.

But Fendelander and some industry observers are concerned that Netflix owning one of its streaming rivals will hurt the entertainment industry because it means less competition.

“The elimination of this rivalry is likely to reduce overall content output, diminish the diversity and quality of available content, and narrow the spectrum of creative voices appearing on major streaming platforms,” according to the lawsuit by Fendelander, who has never been a Netflix subscriber.

Streamers over the years have steadily raised their prices, and some analysts said they would not be surprised if subscription prices continued to go up.

Netflix executives said they believe their deal to acquire WBD’s assets will benefit key stakeholders.

“It’s going to mean more options for consumers,” said Netflix Co-CEO Greg Peters on a call with investors last Friday. “It’s going to be more opportunities for creators, more value for our shareholders. Together, we’ve got the chance to bring great stories, cutting edge innovation and more choice to audiences everywhere.”

Peters also pointed out at a UBS conference on Monday that Netflix combined with the assets it is acquiring from Warner Bros. Discovery would still amount to a smaller share of U.S. TV viewing than YouTube.

Whether the deal will get over the finish line remains to be seen, although Netflix executives say they believe it will. On Monday, Paramount said it would directly appeal to shareholders to offer an alternative bid.

It was just last Friday that Netflix announced a blockbuster $72-billion deal to acquire Warner Bros. film and television studios, HBO and HBO Max — a tie-up that could fundamentally change Hollywood.

Yet on Monday, the stakes got even higher, as Paramount swooped in with a $78-billion hostile takeover bid it plans to take directly to Warner Bros. Discovery’s shareholders.

Paramount Chief Executive David Ellison called the Netflix deal an “inferior proposal,” saying in a statement that it “exposes shareholders to a mix of cash and stock, an uncertain future trading value of the Global Networks linear cable business and a challenging regulatory approval process.”

It all sets the stage for a long and potentially bruising fight. And the Netflix deal would have to overcome some significant regulatory hurdles, experts told me.

“This is a deal that never should have left the boardroom,” said David Balto, an antitrust attorney and a former policy director at the Federal Trade Commission during the Clinton administration. “The competitive concerns are profound. This is going to face a lot of opposition at the Justice Department.”

For one, antitrust regulators are expected to scrutinize the market share that would be controlled by a combined Netflix and HBO Max.

Netflix outlasted its rivals in the so-called streaming wars to become the dominant platform in a crowded space. That position has led to concern that gobbling up HBO Max would give Netflix outsized power in the streaming space — potentially more than 30% — which would cross a threshold under antitrust law, according to a recent letter from Rep. Darrell Issa (R-Vista) to Atty. Gen. Pam Bondi and Federal Trade Commission Chairman Andrew N. Ferguson.

Netflix executives have argued that analysis of its market share should include YouTube.

In a UBS investor conference Monday, Netflix Co-Chief Executive Greg Peters pointed to Nielsen data, which show Netflix’s shares of U.S. TV viewing is still behind YouTube‘s. Netflix represents just 8% of U.S. TV viewing in October, behind YouTube’s 12.9%.

If Netflix were to combine with Warner Bros. Discovery’s 1.3% share of U.S. TV viewing, its 9.2% would still be less than that of YouTube. (Other Nielsen data show that Warner Bros. Discovery channels have greater viewership, but Netflix is only interested in one channel, HBO).

“We think there’s a strong fundamental case here for why regulators should approve this deal,” Peters said. (The deal’s overall value is $82.7 billion due to the absorption of debt)

But who would regulators consider a competitor to Netflix? Is it YouTube, with its emphasis on shorter-form content? Or would the main competitors be other streaming services with films and series, like Disney+, Paramount+ and Peacock?

“The analytical issue there is, how do you define the market?” said George Hay, a professor of law at Cornell University and former director of economics in the Justice Department’s antitrust division. “What is their combined market share, what do they compete in and what are the alternatives available to consumers?”

The consumer angle would also invite involvement from the Federal Trade Commission. With a shrinking marketplace, the agency would likely investigate whether this could increase streaming prices for customers.

“What keeps Netflix honest is knowing there’s an HBO Max that’s right over its shoulder,” Balto said. “But once they get rid of that, they can lead the easy life, and the need to cut prices or provide better services or bid aggressively for film content — all of that will be diminished.”

Meanwhile, Hollywood unions and the Cinema United trade group have also raised concerns that a Netflix ownership of Warner Bros. would lead to fewer films being released in theaters, due to the company’s longstanding resistance to traditional movie releases. Netflix has said it would honor Warner Bros.’ theatrical release commitments and that future films without those existing deals will also go to theaters.

Beyond the U.S. concerns, Netflix would also need the blessing of regulators across the globe, and could be challenged by even state attorneys general who might have a significant number of entertainment workers in their areas who would question the effect on industry jobs.

Then, there’s the politics of it all.

President Trump himself has said he “would be involved” in his administration’s decision to bless any deal and that the combined market share of Netflix and Warner Bros. “could be a problem.”

As my colleagues Meg James and Stacy Perman have reported, Trump has openly favored Paramount’s bid for Warner Bros. Discovery, though word of Paramount backer Larry Ellison’s close ties with Trump dampened enthusiasm for the bid in Hollywood. Trump’s son-in-law, Jared Kushner, is now also one of the investors participating in the renewed Paramount bid.

Despite this involvement, the Trump administration may not have the final say on the deal, just as in the case of the AT&T deal for Time Warner.

For his part, Netflix Co-Chief Executive Ted Sarandos has also been trying to make his own case to Trump and ventured to the White House last month, Bloomberg reported.

“It’s a case in which the political issues are going to play a role,” Hay said. “They’re so front and center, and Trump has shown an inclination to get involved.”

About the only thing that’s clear is that it’s not going to be a quick process.

“This entire matter is not going to get resolved in a hurry,” said Corey Martin, managing partner at Granderson Des Rochers. “The resolution of this matter is very likely to take place over months and potentially years, and not days and weeks.”

Stuff We Wrote

Film shoots

Number of the week

Universal Pictures and Blumhouse-Atomic Monster’s horror sequel “Five Nights at Freddy’s 2” ruled the domestic box office this weekend with a $63 million haul in the U.S. and Canada. While it doesn’t surpass the first movie’s $80 million opening weekend in 2023, it’s a massive boost for theaters, which have seen a string of slower months.

Menacing animatronic figures weren’t the only thing that brought moviegoers to theaters this weekend. Disney’s animated “Zootopia 2” brought in about $43 million domestically in its second outing. Globally, the sequel has now brought in a total of $915 million.

The strong recent showings for films such as “Zootopia 2” and “Wicked: For Good” have helped push 2025’s year-to-date domestic box office total to a little over $8 billion, up just barely — 0.8%, in fact — compared with last year.

Finally …

My colleague, Jeanette Marantos, wrote about the 105th anniversary of Altadena’s Christmas Tree Lane lighting ceremony and festival this past weekend, a bittersweet memorial for the community after a year of heartbreak.

If Netflix can complete its $82.7-billion deal to acquire Warner Bros. Discovery, it will be a lot bigger but not necessarily a lot better for consumers — or for the streaming landscape the company developed.

Analysts predict that consumers, already chafing at rising subscription fees for streaming services, will be spending even more if the deal goes through.

“It’s one less competitor and it’s a detriment ultimately to consumers because they will have fewer choices, which leads to higher prices,” said Tim Hanlon, founder of the media consulting firm the Vertere Group. “I think it’s also a huge detriment for producers of content who want to shop their wares and will have one less place to do it.”

Emarketer senior analyst Ross Benes agreed, noting that Netflix has already aggressively raised prices, increased ad load and stopped people from sharing passwords. “Absorbing a competitor with strong content will only lead to its service becoming more expensive and give consumers less choice,” he said.

The deal will also put pressure on Netflix competitors to counter with another move.

Comcast and Paramount were bidding for Warner Bros. Discovery because they have been unable to achieve the necessary scale for their own respective streaming platforms, Peacock and Paramount+, to be successful.

If Netflix succeeds in its Warner Bros. acquisition, the two losers will have to consider a union of their own, according to a report from Robert Fishman, a media business analyst for MoffettNathanson.

Paramount and Comcast-owned NBCUniversal “would look to evaluate some streaming combination of Paramount+ and Peacock or even a broader deal,” Fishman wrote.

John Conca, an analyst at investment research firm Third Bridge, agreed that the pressure will be on Paramount and Comcast to come up with a plan B if Netflix succeeds with its offer.

“Netflix’s stranglehold on the streaming market will become even tighter, as there is now a lack of merger and acquisition options that will be able to challenge their leadership position,” Conca wrote. “With Comcast and Paramount missing out, it raises serious concerns about their ability to remain viable, given the scale disadvantages when it comes to acquiring must-have content.”

The Walt Disney Co., which has been watching the transaction unfold from the sidelines while aggressively expanding its own streaming properties including a direct-to-consumer offering of its sports media behemoth ESPN, hasn’t shown much concern over who the new owner of Warner Bros. might be. One Disney executive who was not authorized to comment publicly said the company is confident in the diverse assets it has to succeed in the altered landscape.

“I think Disney will be just fine,” Hanlon said. “It doesn’t really change much. It has plenty of intellectual property and multiple ways to do business.”

While analysts warn of price increases for consumers, Richard Swain, a partner at the brand strategy firm Further, said they are likely to adapt to the new streaming world order pretty quickly if the deal is completed.

“I’m sure there will be a big reaction to another big merger with memes and jokes,” Swain said in an interview. “But then quite quickly they will realize, ‘I may have fewer subscriptions to juggle.’ I’m sure Netflix will hike the price up. But at the end of the day, consumers value convenience.”

There may also be an upside for smaller, niche streamers vying to be a second or third purchase for consumers if HBO Max is absorbed into Netflix.

“I would say it’s likely to be a boon for smaller streamers,” said Evan Shapiro, a former streaming executive for NBCUniversal. “One less, big streamer to pay for every month frees up money from high-end subscribers to sign up for a more niche service, and one less major buyer of films gives smaller players increased leverage with artists, allowing the smaller films to fall to the smaller platforms.”

Hanlon agreed that niche players such as Curiosity Stream, which specializes in documentary programming, and art house film specialists Criterion Collection can continue to chug along as the bigger players battle it out.

“While the big get bigger, the smaller kind of get more innovative,” he said.