The regulatory path ahead for a Netflix and Warner Bros. deal could get dicey

Netflix currently claims 46% of mobile app monthly active users in global streaming, according to data from market intelligence firm Sensor Tower. Combined with HBO Max, that share would rise to 56%, it found.

"This deal cements Netflix's position as the premier streaming service for original content," according to a research note from analysts at William Blair on Friday.

The size of the deal makes it ripe for scrutiny, from both industry insiders and U.S. lawmakers.

The Trump administration is viewing the merger with "heavy skepticism," CNBC reported Friday, and Sen. Elizabeth Warren has already called for an antitrust review.

"This deal looks like an anti-monopoly nightmare. A Netflix-Warner Bros. would create one massive media giant with control of close to half of the streaming market — threatening to force Americans into higher subscription prices and fewer choices over what and how they watch, while putting American workers at risk," Warren, a Democrat from Massachusetts, said in a statement.

The merger would also give Netflix control over the famed Warner Bros. film studio, further consolidating the cinematic space and raising concerns that the number or typical windowing of popular releases could shrink.

It's typical in the days and weeks following a deal announcement of this scale for interest groups, politicians and corporate competitors to call foul on antitrust grounds.

The Department of Justice is most likely to review the deal, as it has other media mergers in the past, and it could take some time. DOJ reviews can take anywhere from months to more than a year.

Netflix said Friday it expects the transaction to close in 12 to 18 months, after Warner Bros. Discovery spins out its portfolio of cable networks into Discovery Global.

Netflix executives on Friday said they were "highly confident" the deal would win regulatory approval.

"You know, this deal is pro-consumer, pro-innovation, pro-worker, it's pro-creator, it's pro-growth," Netflix co-CEO Ted Sarandos said during an investor call following the acquisition announcement.

"Our plans here are to work really closely with all the appropriate governments and regulators, but [we're] really confident that we're going to get all the necessary approvals that we need," Sarandos added.

As part of the deal, Netflix has agreed to pay a $5.8 billion breakup fee to Warner Bros. Discovery if the deal were to get blocked by the government.

Netflix's bid won out over competing offers from Paramount Skydance and Comcast.

Analysts at Deutsche Bank and William Blair were at least minimally convinced Friday of the potential for the deal to go through.

"A merger of Warner Bros. Discovery and any of the three bidders would probably succeed, even if the DOJ were to sue to block a proposed combination," Deutsche Bank analysts wrote in a note on Friday, citing insights from a Department of Justice veteran who the analysts said "does not see any significant antitrust problems with any of the three scenarios."

"However ... we don't know all of the detailed facts that will be collected and analyzed by the DOJ, nor do we know who the judge hearing the case will be, and both of these factors can have an impact on the outcome," the Deutsche Bank analysts noted.

Paramount, for its part, has been fanning the flames.

Paramount's lawyers sent a letter to Warner Bros. Discovery this week, first reported by CNBC, in which it argued the sale process had been rigged in Netflix's direction. The Wall Street Journal reported that in a separate letter, Paramount said a Netflix transaction would likely "never close" because of regulatory headwinds.

Paramount was the only bidder looking to buy WBD's massive portfolio of pay-TV networks — and it's unlikely to walk away from the process quietly.

Wall Street expected President Donald Trump's second term to usher in a windfall of dealmaking. However, economic uncertainty has slowed the process for some companies, and regulatory holdups have played a bigger role than anticipated.

"Under Donald Trump, the antitrust review process has also become a cesspool of political favoritism and corruption," Warren said in Friday's statement. "The Justice Department must enforce our nation's anti-monopoly laws fairly and transparently — not use the Warner Bros. deal review to invite influence-peddling and bribery."

Paramount's merger with Skydance was left in limbo for more than a year before it finally won federal approval in July.

The Federal Communications Commission (which is unlikely to review the Netflix-WBD tie-up since it doesn't involve a broadcaster) signed off on the $8 billion merger shortly after Paramount agreed to pay $16 million to Trump to settle a lawsuit over the editing of a "60 Minutes" interview with former Vice President Kamala Harris. Paramount had also ended its diversity, equity and inclusion policies earlier in the year after the FCC said it would investigate the company over its DEI programs.

In September, the newly combined Paramount Skydance, run by David Ellison, set its sights on Warner Bros. Discovery. The company is now considering whether to take a hostile bid straight to WBD shareholders and try to unseat Netflix as the would-be buyer, CNBC reported Friday.

Ellison's billionaire father, Oracle co-founder Larry Ellison, is known to be close with Trump.

The argument for whether to clear Netflix's proposed takeover of Warner Bros. would likely come down to questions around streaming — first, on pricing for consumers, and second, on how to define Netflix's audience.

The pricing of streaming subscriptions has risen across the board in recent years. In 2022 Netflix instituted a cheaper, ad-supported model after years of resistance in an effort to beckon more customers. The following year, Disney followed with its own more-affordable plan.

Netflix is used to upending the legacy media industry. The company ended its DVD rentals business in 2023 and went all in on streaming. It's since found massive scale and has taken over the zeitgeist with original series like "Squid Game," "Wednesday," "Stranger Things," and "Bridgerton."

Its maverick approach to media and its broadening foothold in the industry may be its saving grace in the eyes of regulators.

"My expectation on the regulatory side is Netflix is going to advocate and argue with their advisors for a very expansive definition of what their market is ... so that would include broadcast, cable, subscription and ad-supported streaming," said said Jeff Goldstein, a partner and managing director at AlixPartners, and co-lead of the U.S. Media group.

"And really, really, really importantly, that would include YouTube," he said.

YouTube has come to dominate the industry when it comes to viewership. Nielsen once again reported in October than YouTube had the largest share of TV usage, with Netflix in sixth place and Warner Bros. Discovery in seventh place. Traditional media companies with linear networks — Disney, NBCUniversal, Fox and Paramount — filled the spots in between.

Critics of the deal will define Netflix's reach more narrowly to try to demonstrate outsized dominance, said Goldstein.

"I believe that streaming is not a category. Television viewership is a category ... you know, eyeballs might be a category," media industry titan John Malone told CNBC in November when asked about antitrust questions surrounding the WBD sale process.

"But if you're going to broaden the category to that, you got to take in YouTube and Facebook and the social networks, TikTok," he said. "I mean, that's really the question, is streaming a category? ... Are studios a category ... and is that going to get looked at hard? These regulatory things are a little bit difficult to predict."

— CNBC's Julia Boorstin contributed to this report.

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC. Versant would become the new parent company of CNBC upon Comcast's planned spinoff of Versant.