By Jon Leibowitz

Jon Leibowitz is a former Chairman of the Federal Trade Commission and an antitrust advisor to Paramount.

One of the most common problems across politics, business and media is creating a false equivalency to justify a position or validate an argument. This can be dangerous – especially when benefits to American consumers as well as billions of dollars in shareholder capital hang in the balance.

Consider the case of Warner Bros. Discovery, which has agreed to be acquired by Netflix, but which is also being pursued by Paramount. Although Warner has opened a brief window for negotiations, it has largely been reluctant to engage with Paramount and asserts that there is “no material difference in regulatory risk” between the two proposed mergers. Just this past week, Netflix co-CEO Ted Sarandos went on television and argued this very point. As the Chair of the Federal Trade Commission during President Obama’s first term and a corporate deal lawyer in private practice, I saw plenty of competing offers that presented roughly equivalent antitrust profiles. This is not such a situation.

A Netflix / Warner combination has little chance of winning regulatory approval, both domestically and in Europe. Paramount, under existing approaches to antitrust enforcement, would not face any such hurdles. One early sign of this is the expiration [yesterday] of the U.S. Department of Justice’s second-request review process under the Hart-Scott-Rodino Act, which indicates the DOJ sees no antitrust issues with the transaction.

Shareholders should be wary of a proposed Netflix deal that sets them up for years of regulatory limbo, at best. In the meantime, consumers should not be misled into believing they face a lose-lose proposition. They don’t. If the Netflix deal were to eventually win regulatory approval, consumers would be at risk of paying ever-higher streaming fees. By contrast, a merger with Paramount would increase competition among streaming services, benefiting consumers rather than forcing them to pay more for content.

The facts tell an unequivocal story. Netflix is the number one streaming platform worldwide, with more than 300 million subscribers. It already controls a 37% market share in streaming, a significant share of the market. If Netflix is permitted to acquire HBO Max, a major competitor for high-end content owned by Warner, it would command well over 40% of the market for streaming. That crosses a bright red line in enforcement land because it increases the likelihood of price hikes, less choice and reduced innovation. U.S. Department of Justice and Federal Trade Commission guidelines published in 2023 specify that any horizontal merger above a 30% market share triggers a presumption of illegality. The Trump Justice Department and the FTC continue to apply these standards, and for good reason. And this is not just a domestic issue – European regulators have also been especially skeptical of the Netflix proposal as well.

Netflix’s motivations are both obvious and perilous. HBO Max, a crown jewel of Warner, is a prestigious brand with a long history of producing successful premium content. Acquiring it would let Netflix eliminate a significant competitor and would create a competitive gulf so wide that no other streamer will be able to effectively compete.

When a company gains a dominant share through an illegal acquisition, consumers suffer. The pricing power of a combined Warner / Netflix would be immense, leaving consumers with no option but to pay whatever price Netflix demands for access to the company’s panoply of exclusive films, including everything from Casablanca to the Wizard of Oz to Harry Potter to Lord of the Rings.

Netflix argues that it competes not only with other streaming services but also with user-generated free content providers like YouTube. But that is like claiming every item in your refrigerator – milk, meat, ice cream – competes with every other item. If Netflix actually competed with free platforms, it would not have been able to increase consumer prices so rapidly over the past decade. Yet that is precisely what it has done, hiking prices by 39% even after taking inflation into account.

Such concentrated control of content creation and distribution poses a danger to moviegoers, content creators and other workers across the film industry. Writers and directors already enjoy limited options for where to sell their work. A combined Netflix / Warner behemoth would be able to use its dominant position to drive down prices paid to artists. That would let the company impose the types of restrictive contract terms that could easily result in fewer films being produced.

In stark contrast, Netflix’s claim that a Warner / Paramount deal poses antitrust issues is at best a red herring. Over the past five years, Paramount and Warner combined have made up ~21-23% of the film box office, a relatively modest amount. They would continue to face competition from other studios, including Disney, Universal, Sony, Lionsgate, A24, and Amazon / MGM. If anything, a combined Warner / Paramount would likely enhance competition by creating a fourth major competitor in streaming.

All of these considerations raise a bigger false equivalency question: is the Netflix deal truly “superior” to a Paramount acquisition if shareholders never get their money?