Paolo Pescatore, founder and TMT analyst at PP Foresight discusses the strategic rationale behind Netflix's acquisition of Warner Bros. Discovery, and the regulatory concerns around the deal.

An industry analyst has commented on the proposed partnership between Netflix and Warner Bros., describing it as a significant development in the streaming sector. The analyst notes that the deal could enhance Netflix's content offerings by leveraging Warner Bros.' extensive catalog, while also raising questions about market dominance and competition.

The announcement has prompted concerns from US politicians, industry leaders, and unions regarding antitrust issues and the potential impact on theatrical releases. The analyst highlights that while the deal could benefit consumers through content aggregation, regulatory approval is still required and the process is expected to be complex.

Netflix-Warner Bros. tie-up could reshape streaming, says analyst

Yeah, look, there is a big if, and we can talk about that very shortly, but I think for Netflix, this is very much kind of a statement of intent. No longer the new kids on the block, and there's this kind of love-hate relationship between Hollywood and Netflix. And let's be frank about it, you know, Netflix has really paved the way as we move towards this streaming revolution. Being able to connect with users and viewers, you know, in the way that people want to watch television. And also, the problem that we have, and it's a great example, is that Hollywood and a lot of the traditional media giants have really struggled to make that connection and make that jump towards this streaming revolution. So I think, you know, a real significant moment for Netflix, and it also goes to show the reliance that customers still have on premium back-end catalog that, you know, that people really value. And if you look at the younger generation today, they want to kind of revisit those shows that I particularly have been accustomed to growing up with, such as Friends, as a great example. Well, Paolo, when it comes to antitrust, there's been a lot of red flags raised in the last few days here, whether it be from politicians in the U.S. on both sides of the aisle or industry leaders, people in Hollywood, unions. There's a lot of concern here about what this combination likely means. Netflix, you can easily see arguing that when it comes to market share, you really need to be looking at a broader suite of players and comparing Netflix viewership to YouTube, to TikTok, not just the traditional streamers and competitors out there. How do you think it actually shakes out? Is there going to be a market share issue? I think you put it eloquently, to be honest with you, and it's amazing since the announcement, the swarm of interest that the actual deal has generated, which has led Netflix to actually publicly, you know, issue an email out to customers reassuring nothing will change. And, of course, there needs to be shareholder and regulatory approval. And you're right. I think, you know, there are different facets that underlines the complexity of the nature. When you look at just solely streaming, you know, Netflix is the undisputed leader globally. And, obviously, in some markets, they are still growing. And, of course, you know, when you look at just the US, you know, it's very mature, and there are a number of players in that context. When you look at HBO, which forms part of that asset, have been steadily rolling out the service outside of North America. And some of the key European countries, such as Germany, Italy, and the UK, HBO is currently not available due to an existing licensing arrangement with Sky. So I think, you know, when you add the vast catalogue that Warner has, the Warner Brothers has, and you combine that with Netflix's scale in terms of distribution, it's a great win for customers. But, as you say, there are other elements that you need to take into account when you look at the share, the viewership of shows, et cetera. And there are other players who are far more dominant than Netflix is in this regard, such as YouTube. Then you need to have a look at the other segments, you know, music, games, advertising, the implications on those markets. For Netflix, quite a nascent area, Warner Brothers excelling in that area. But I think, fundamentally, it comes down to the potential power the combined industry will have, given the vast catalogue that Warner Brothers have. And is that too much for one particular player to have? And also the impact that it would have on Hollywood and theatrical productions. And I think there's some concerns, you know, around the unions, and does that mean fewer theatrical releases? But when, you know, there is a precedent in this regard in that Amazon bought MGM. And if Paramount had got together with Skydance, arguably you would have seen significant cost-cutting, as we've already seen with Paramount coming together with Skydance. And, of course, you're reducing the number of theatre studios from two to one. It's not the case with Netflix and Warner Brothers. So I think it's going to be a very, very long-drawn, complex process. And I think the methodology of how you define some of these segments and who actually takes leadership in each of those is going to be significant. When you look at, just to wrap it up, when you look at the streaming landscape, there are too many services chasing too few dollars. And I think content aggregation is an interesting piece when you move forward. And when you look at the US, you know, you've got Disney that kind of has that all-in-one bundle of Disney+, Hulu, and ESPN. We need to see more of that, and that could be a great example of what we might get to see moving forward, which is great for customers.

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London

Ukraine Invasion

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Breakdown