<\/p>\n
Warner Bros. Studios in Burbank, California.<\/p>\n
(Bloomberg) — The three bidders for Warner Brothers Discovery Inc. present a host of regulatory concerns that could delay a merger approval for a year or more, according to people familiar with the process.<\/p>\n
Most Read from Bloomberg<\/p>\n
Paramount Skydance Corp., Netflix Inc. and Comcast Corp. have all made offers for all or part of the New York-based entertainment giant. While similar regulatory concerns hang over all three bids, each also faces unique issues. The companies involved will likely come ready with explanations for why their proposals should get approved.<\/p>\n
Which partner Warner Bros. picks will impact the regulatory process. The issues vary for each player because of their holdings. Any deal will likely get reviewed by multiple regulatory agencies, including the US Justice Department, state attorneys general and foreign authorities.<\/p>\n
Streaming<\/p>\n
One major concern will be concentration in the streaming business. Netflix, which ended last year with more than 300 million subscribers globally, is the largest player. That compares with 128 million online customers at Warner Bros., 79 million for Paramount and 41 million for Comcast\u2019s Peacock.<\/p>\n
\u201cStreaming is going to be front and center,\u201d said Harold Feld, senior vice president at Public Knowledge, an advocacy group that presses for universal access to affordable and open networks.<\/p>\n
The Justice Department\u2019s antitrust division, which is almost certain to review any proposed combination, has historically relied on a formula known as the Herfindahl-Hirschman Index, which calculates each firm\u2019s market share and measures it in a single score.<\/p>\n
New Street Research estimates that even combined, Paramount and Warner\u2019s streaming businesses would only reach a \u201cmoderately concentrated\u201d score when measured by number of paid subscribers.<\/p>\n
A Superman billboard at Warner Bros. Studio in Burbank on Sept. 12.Photographer: Mario Tama\/Getty Images <\/p>\n
Congressman Darrell Issa, a Republican from California, sent a letter to the Justice Department on Nov. 17 arguing that a Netflix-Warner combination would push their streaming market share to \u201ca threshold traditionally viewed as presumptively problematic under antitrust law.\u201d<\/p>\n
The Warner Bros. auction comes against the backdrop of a shifting media marketplace in which short-form video and streaming services are stealing eyeballs from more traditional media like broadcast, cable-TV and movie theaters.<\/p>\n
The narrative that traditional content providers and distributors must merge to achieve greater scale and compete against online behemoths like YouTube and Netflix is one that Comcast or Paramount could pursue. The industry is still wrestling with how to measure viewership.<\/p>\n
Depending on the bidder and how regulators choose to analyze the market, the data could favor a combination, said Kristian Stout, a policy director with the pro-business International Center for Law & Economics. Even together, Warner and Paramount\u2019s streaming services would amount to less than 3.5% of TV consumption, according to Nielsen data. That\u2019s far below YouTube, which commands about 13% of viewing, and Netflix, at 8%.<\/p>\n
Cable-TV<\/p>\n
Neither Netflix nor Comcast is interested in acquiring Warner Bros.\u2019 cable channels. Comcast is already in the process of spinning off its cable networks into a new business, Versant, and both suitors will want Warner Bros. to continue its plans to do so as well.<\/p>\n
Concentration in cable TV could be an issue for a Paramount-Warner Bros. combo. Massachusetts Senator Elizabeth Warren, a Democrat, has criticized that scenario, which would unite the companies behind MTV, Nickelodeon, TNT and CNN.<\/p>\n
A combination of Paramount and Warner Bros. could \u201craise your prices by a lot,\u201d Warren said in an October social media post.<\/p>\n
The Federal Communications Commission, which regulates the transfer of broadcast-TV licenses, isn\u2019t expected to play a role in any of the deals. That\u2019s because neither Comcast\u2019s NBC station licenses nor those of Paramount\u2019s CBS will be transferred to a new controlling party.<\/p>\n
Movies<\/p>\n
The movie businesses of the combined companies could also be an issue. Bloomberg News was first to report that Netflix told Warner Bros. management it is willing to give up its long-standing opposition to releasing films in theaters if it acquired the company. It is doing so to honor contractual obligations Warner Bros. has with film producers and talent.<\/p>\n
During Donald Trump\u2019s first term, regulators \u201cappeared unconcerned\u201d about Walt Disney Co.\u2019s acquisition of Fox Corp.\u2019s entertainment assets, according to New Street\u2019s Blair Levin. That merger took the industry from six major studios to five. The combined film output of Disney and Fox has shrunk since that deal closed in 2019.<\/p>\n
The Writers Guild of America, which represents screenwriters, has said it would oppose a Paramount-Warner Bros. merger due to the likely loss of jobs.<\/p>\n
Paramount Chief Executive Officer David Ellison, a former film producer, is expected to argue he\u2019ll boost the movie output of the combined companies.<\/p>\n
\u201cIf this had been proposed 20 years ago, I think it would\u2019ve been clear that Justice would not approve a merger involving both studios,\u201d Lawrence White, a professor of economics at New York University\u2019s Stern School of Business, said in an interview. \u201cToday, I\u2019m less certain that that\u2019s going to be a concern because we\u2019ve had entry by Apple producing feature-length films that are showing up in movie theaters as well as on streaming services. And the indie segment, companies like A24, seems to be more involved.\u201d<\/p>\n
The Trump Factor<\/p>\n
The president\u2019s grudges against some media outlets, and his desire for control, could play a role in who wins.<\/p>\n
During Trump\u2019s first term, the Justice Department sued to block AT&T Inc.\u2019s takeover of Warner Bros.\u2019 predecessor, Time Warner, arguing at the time that the deal would jack up pay-TV bills. The suit was defeated in federal court on appeal and the deal went through.<\/p>\n
Federal regulators\u2019 one area of concern with the Disney-Fox deal was in sports. Disney was ordered to divest Fox\u2019s regional sports networks.<\/p>\n
Trump has been critical of media companies, including Comcast\u2019s NBC, where he has called on the company to fire late-night host Seth Meyers.<\/p>\n
David Ellison at Bloomberg Screentime in Los Angeles on Oct. 9.Photographer: Kyle Grillot\/Bloomberg <\/p>\n
Paramount\u2019s Ellison said at the Bloomberg Screentime conference in October that he has a good relationship with the administration. His father, technology billionaire Larry Ellison, is one of Trump\u2019s biggest campaign donors. Trump has praised the pair on several occasions.<\/p>\n
\u201cLarry Ellison is great, and his son, David, is great,\u201d Trump told reporters on Oct. 12. \u201cThey\u2019re big supporters of mine. And they\u2019ll do the right thing,\u201d he said, referring to changes David Ellison has been making at Paramount\u2019s CBS News division.<\/p>\n
If a bidder brings significant foreign investment, such as from Middle East sovereign wealth funds, that could trigger a review by Washington\u2019s Committee on Foreign Investment in the United States. Concerns over foreign ownership of American media, including the news media, could also be raised.<\/p>\n
Warner Bros. has significant businesses overseas, and regulators in other countries will also need to approve a deal. The merger between Paramount and Ellison\u2019s Skydance Media required sign-off from authorities in dozens of countries.<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
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