Netflix appears poised to acquire Warner Brothers despite a hostile takeover bid from Paramount Pictures. However, the deal still must be approved by the government. Hopefully, Justice Department Antitrust head Gail Slater will not only approve the deal—but use the opportunity to reaffirm that the 1948 consent decree stemming from the case of U.S. v Paramount 334 U.S. 131 (1948) is invalid.
U.S. v. Paramount was a case brought against five major movie studios: Paramount, Fox, RKO, MGM, and Warner Brothers. The government alleged that the studios’ ownership of movie theaters allowed them to engage in anti-competitive practices. The studios entered into a consent decree which required, among other things, that they sell their theaters. This was supposed to lead to a boom in movie production as independent filmmakers and theaters could now compete on a level playing field—resulting in greater choices and lower prices.
Things did not work out that way, as ticket prices increased and fewer movies were produced after the consent decree and. In addition, since third-party theaters had to turn over most of their ticket sales revenue to studios, theater owners decided to seek profits elsewhere… which is why movie snacks are expensive.
Ironically, the movie studios had originally purchased movie theaters as part of a strategy to challenge the Motion Picture Parent Company’s (MPPC) attempt to monopolize the movie industry. This organization was composed of the holders of patents for film, cameras, and projectors. The MPCC's goal was to aggressively enforce patents against any would-be competitors. The patent holders insisted that movie theaters only show short-form movies made by MPPC members. The movie studios challenged the MPPC by offering longer, scripted movies and fighting (and defeating) the MPPC’s claims that all other movie producers were violating their members’ patents. Consumers decided they preferred the longer scripted films to “shorts.”
Another irony is that the Paramount decision was handed down as movie theaters were losing audiences to a new technology called television. Today most major movie studios operate their own streaming services—including Warner Brothers which owns HBO. Netflix also produces original movies and shows like Stranger Things and Wednesday.
Competition in streaming is encouraging mergers and acquisitions. Amazon bought MGM studios to both add MGM’s Liberty of classic films to its Amazon Prime offerings—and to use MGM’s intellectual property to produce original content, starting with reviving one of the most successful franchises in movie history: Bond, James, Bond. Disney, which already had a great film library, bought Fox Studios to add popular titles like Avatar and The Simpsons to its Disney Plus steaming service. Netflix’s purchase of Warner Brothers will enable them to expand their original content—as well as tie their streaming offerings to major theatrical releases. Netflix can also make itself more attractive to consumers by bundling a Netflix subscription with a subscription to Warner Brothers' popular streamer HBO Max. Disney has done a similar thing with Hulu and ESPN.
The purchase of Warner Brothers may help solidify Netflix’s position as the world’s leading streaming service, but only if the company uses the opportunities presented by the merger in a way that pleases consumers. In any event, the merger will not give Netflix a monopoly. With all the streaming options available today—and the fact that most consumers use multiple streaming services—it is impossible for one streaming company to exercise monopoly power.
Netflix and other streaming services also face competition from YouTube, TikTok, Facebook, and other social media sites. These sites allow users to post their own content. In some cases, social media personalities are more popular than the scripted movies on Netflix or other movie streamers. The spread of artificial intelligence is making it easier for social media users to produce their own content that resembles the latest Hollywood blockbuster.
A New York federal court ended the Paramount consent degree in 2020 because the court recognized it was not relevant to today’s fast-changing entertainment market. Now Deputy AG Slater can show that the Trump Administration understands that antitrust laws are a poor substitute for technological change by approving Netflix’s purchase of Warner Brothers.
