Netflix (NFLX +0.13%) and Paramount Skydance have been battling it out over Warner Bros. Discovery (WBD 0.77%) for several weeks. Netflix wants to acquire Warner Bros., while Paramount has engaged in a hostile takeover attempt.
Although Warner Bros. Discovery shareholders have been voting in favor of the Netflix deal and continue to reject Paramount Skydance, there's still plenty of uncertainty about how all of this will play out. The bigger obstacle for Netflix may not even prove to be Paramount. It's likely to be regulators.
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Antitrust issues could derail any deal
When two large companies try to join forces, there are always concerns that regulators will stop the deal due to antitrust issues. If an acquisition poses a problem for competition in the market, the deal may not obtain the necessary approval it needs. U.S. Sen. Mike Lee, R-Utah, is the chairman of an antitrust subcommittee and is raising flags about the deal, saying that it "appears likely to raise serious antitrust issues, including the risk of substantially lessening competition in streaming markets."
The big issue is that Netflix is already the leading streaming service in the world, with around 325 million subscribers. If it acquires Warner Bros., it will also have HBO Max as part of the deal, which currently has around 128 million subscribers, and it is the fourth most popular streaming service. Netflix could further extend its dominance in the industry by adding HBO content to its platform and also make it easier to justify raising prices far higher in the process. That's why there's a strong argument that it could significantly harm competition in the streaming market.
NASDAQ: NFLX
Key Data Points
Could the deal falling through be a blessing in disguise for Netflix shareholders?
Netflix's stock has been falling in recent months as investors haven't been thrilled with the idea of the company acquiring Warner Bros. Not only is it costly at $83 billion, but it may also weigh on the company's bottom line. With Netflix already dominating the industry, whether such an acquisition will pay off is highly debatable.
Currently, the stock is trading near its 52-week low, and if the deal ends up falling through, that may actually help shares of Netflix rebound as the pessimistic investors would regain confidence. There's some risk and uncertainty ahead for Netflix, given how all this plays out, but if you're willing to buy and hold for years, now may be an opportune time to add the streaming stock to your portfolio, as it's down close to 40% from its high.
