Mexico. Last week, Netflix agreed to acquire strategic assets from Warner Bros. It is not an intention, but a negotiation that is now entering its most relevant phase, the regulatory review.
From this point on, the central issue ceases to be financial and becomes a matter of economic competition, market concentration and power within the global entertainment ecosystem.
Netflix is the platform with the largest scale, the largest international presence and a user base that gives it a dominant position in multiple markets. The fact that this same actor seeks to integrate studios, catalogs, franchises and full production capacity significantly changes the balance of the industry
If the operation is completed, Netflix would cease to be mostly a large distributor to consolidate itself as an integral player in entertainment. This implies production, intellectual property, rights, distribution and a direct relationship with millions of users in a single structure. It is precisely this level of integration that forces the authorities to observe the transaction very carefully.
A relevant point is that this acquisition does not necessarily imply the disappearance of the brands. For now, it has not been proposed that HBO should be immediately integrated into Netflix. Keeping both brands separate is a viable scenario from a commercial perspective. HBO retains a premium identity, with a type of audience willing to pay for a different proposal, while Netflix operates under a massive logic, with a wide range of genres, regions and formats.
If the brands remain separate, the group could capture revenue in two different ways. If they are integrated under a single platform, the almost obligatory step would be a price adjustment. And there appears an increasingly sensitive variable, the willingness of the user to continue absorbing increases in the cost of streaming. Today, consumers compare, cancel, return and adjust their expenses with much more caution than a few years ago.
Both HBO and Netflix also have a history of very high production spending. HBO bet for years on mega-productions to sustain its creative prestige. Netflix, for its part, decided to build a global content factory, financing productions in dozens of countries, in all formats and for all types of audiences. The result was accelerated expansion, but also constant pressure on profitability.
Beyond the operation itself, the case puts on the table a substantive discussion. To what extent is a single platform allowed to concentrate production, distribution, catalog, user data and pricing? That's not just a business question, it's a competition question.
The offer has already been made. The outcome will now depend on whether the authorities consider that the resulting level of concentration is compatible with an open and competitive market. The direction that streaming will take globally will depend on that decision.
Analysis by Gonzalo Rojon of The Competitive Intelligence Unit, The CIU.
