The Justice Department’s investigation of Netflix Inc.’s proposed $72 billion takeover of Warner Bros. Discovery Inc. includes scrutiny of the streaming giant’s behavior and whether it wields anticompetitive leverage over creators in negotiations for acquiring programming.
The department is seeking to determine whether the deal “may substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Act or Section 2 of the Sherman Act,” according to a copy of a civil investigative demand reviewed by Bloomberg News that was sent Friday. It went to an independent movie studio, according to people familiar with the matter.
The language in the demand, an administrative subpoena that hasn’t been previously reported, is the clearest sign yet that the Trump administration is going beyond a standard deal review as it investigates the merger, refuting an argument by Netflix in recent weeks that the government is not engaged in anything beyond the typical process.
The broad scope of the review is also a strong indication that it will take many more months before the government decides whether to challenge the Netflix-Warner Bros. deal in court — a delay that may benefit rival bidder Paramount Skydance Corp.
“Netflix operates in an extremely competitive market. Any claim that it is a monopolist, or seeking to monopolize, is unfounded,” Netflix Chief Legal Officer David Hyman said in a statement. “We neither hold monopoly power nor engage in exclusionary conduct and we’ll gladly cooperate, as we always do, with regulators on any concerns they may have.”
The application of both laws has precedent, and the investigation may not result in any federal action. But deal reviews are typically conducted by US antitrust enforcers using just the Clayton Act, which is specifically for merger investigations. The Sherman Act is a statute more typically used to target illegal monopolization by a single company such as Alphabet Inc.’s Google, Live Nation Entertainment Inc. and Visa Inc.
The DOJ is asking questions about Netflix’s ability to leverage its market power in negotiations with independent content creators such movie studios and filmmakers, according to the people. Netflix operates the largest paid video streaming service in the world and is one of the largest buyers of film and TV programming in the world.
Netflix is spending about $20 billion on programming this year, which is split between original series and licensed reruns. Many of its most popular original programs, including Wednesday and Nobody Wants This, are produced by third-party studios. In buying HBO and Warner Bros., Netflix would acquire one of the largest studios as well as a major competitor in streaming.
The Wall Street Journal first reported that the DOJ’s review includes Netflix’s business practices and whether the deal would give the streaming giant monopoly power in the future.
“We have not been given any notice or seen any other sign that the DOJ is conducting a monopolization investigation,” Steve Sunshine, head of Skadden, Arps, Slate, Meagher & Flom LLP’s global antitrust/competition group representing Netflix, said in a statement.
The Justice Department didn’t immediately respond to request for comment outside of normal business hours. Warner Bros. declined to comment.
Monopoly cases can require market concentration of more than 50%, a number that exceeds Netflix’s share with or without Warner Bros. Netflix accounts for about 9% of TV viewing in the US and a larger share of the streaming market, and its spending on programming is comparable to peers such as Disney and Comcast.
Warner Bros. earlier this week committed to resume talks with Paramount after a representative of the company indicated a willingness to raise its offer price by $1 per share to $31. Warner Bros. has given Paramount a deadline of Feb. 23 to submit its “best and final” offer.
Paramount, which launched a hostile bid for Warner Bros. last year, has repeatedly claimed that Netflix’s offer will never pass regulatory scrutiny in the US or Europe. Paramount also claimed Friday its tender offer has “no statutory impediment” for closing its $77.9 billion tender offer after clearing the DOJ’s second-request review process.
However, the offer could still be slowed down by an ongoing review in the EU, and US enforcers in the past have sued to block deals that they had initially waved through. Paramount could also face a gauntlet of US state attorneys general.
