Blocking WarnerMedia-Discovery Deal Won’t Fix Streaming
(Bloomberg Opinion) -- Greater choice is supposed to be better for consumers. So why is it that the abundance of streaming TV apps — Amazon Prime Video, Apple TV+, Discovery+, Disney+, HBO Max, Netflix, Paramount+, Peacock and on and on — is costing subscribers so much?
Streaming has somehow thrown economic gospel on its head in time for an expected wave of industry mergers, presenting President Joe Biden’s energized team of competition enforcers with a quandary. One megadeal already hangs in the balance: AT&T Inc.’s pending $43 billion sale of WarnerMedia to Discovery Inc., a transaction that would unite HBO Max and Discovery+. When people talk about competition in Hollywood now, what they’re really talking about are these streaming apps, as cable TV and movie theaters are becoming ever less relevant.
On Monday, Senator Elizabeth Warren and other antitrust-crusading Democrats asked U.S. Attorney General Merrick Garland to “closely scrutinize” the WarnerMedia deal because they fear it will “substantially lessen competition.” But their argument assumes that some benefit can be preserved by keeping the companies separate, when in fact having more competing products hasn’t led to greater consumer choice.
The leading streaming apps generally aren’t alternative options for one another, and certainly not the two at the center of this merger. HBO Max, at $15 a month, is known for premium scripted series such as “Succession” and films such as “Godzilla vs. Kong,” while the $5-a-month Discovery+ is built around low-budget reality-TV programs including “90 Day Fiancé” and “My 600-lb Life.” They aren’t competitors. Viewers interested in both types of programming need to subscribe to both services.
This is different from the way the traditional cable TV market operates. The packages offered by Charter Communications Inc. and Comcast Corp. are similar in price and makeup, each offering some degree of programming variety. The streaming company that’s come closest to replicating this variety is Netflix Inc., and its rivals have responded by making large acquisitions to expand their catalogs of franchises and genres. For example, in 2019, Walt Disney Co. acquired 21st Century Fox to gain assets such as “X-Men” and Hulu, whose adult-friendly fare complements the kid-safe Disney+. (The next step may be for Hulu and Disney+ to unite as a single product to look more like Netflix.)
All this deal-making has caused popular content to be put behind exclusive paywalls, forcing viewers to take up more and more subscriptions and embrace products that are at times glitchier than Netflix. Some streaming services also have advertisement interruptions and more complex fee structures. Then there’s the added frustration of not knowing which series is on which service and toggling among apps that have different functionality. In this context, the case can be made that putting HBO Max and Discovery+ together might help consumers by simplifying things a bit.
But this is not to advocate for more consolidation. Warren and cosigners of Monday’s letter made a valid point that workers may be harmed if regulators allow such megamergers; power would tip back toward industry employers just as the labor market is making progress on wages, flexibility and work conditions. Streaming is also beginning to resemble the reviled cable market, where customers complained of having few options and facing rising fees from a limited number of providers. At one point, Comcast and Time Warner Cable were rated two of the most-hated companies in America.
The illusion of choice shows that the streaming industry is fundamentally broken, and stopping one merger between a pair of also-rans won’t fix it. The irony is that Netflix managed to create what is still the best product without ever having done a single anticompetitive megamerger. So while regulators figure out what to do, it behooves the bosses at Disney, Discovery and other scale-seeking rivals to study Netflix’s approach and try to avoid becoming the next Comcast or Time Warner Cable.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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