News of Netflix’s bid to buy Warner Bros sent shockwaves through the media ecosystem.
The pending $US83 billion ($NZ143.06b) deal is being described as an upending of the existing entertainment order, a sign that it’s now dominated by the tech platforms rather than the traditional Hollywood power brokers.
As Warner Bros Discovery chief executive David Zaslav put it: "The deal with Netflix acknowledges a generational shift: The rules of Hollywood are no longer the same."
Maybe so. But what are those rules? And are they being rewritten, or will moviegoers and TV audiences simply find themselves back in the early 20th century, when a few powerful players directed the fate of the entertainment industry?
As Hollywood rose to prominence in the 1920s, theatre chain owner Adolf Zuker spearheaded a new business model.
He used Wall Street financing to acquire and merge his film distribution company, Famous Players-Lasky, the film production company Paramount and the Balaban and Katz chain of theatres under the Paramount name. Together, they created a vertically integrated studio that would emulate the assembly line production of the auto industry: films would be produced, distributed and shown under the same corporate umbrella.
Meanwhile, Harry, Albert, Sam and Jack Warner — the Warner brothers — had been pioneer theatre owners during the nickelodeon era, the period from roughly 1890 to 1915, when movie exhibition shifted from travelling shows to permanent, storefront theatres called nickelodeons.
They used the financial backing of investment bank Goldman Sachs to follow Zucker’s Hollywood model. They merged their theatres with several independent production companies.
But the biggest of the Hollywood conglomerates was Metro-Goldwyn-Mayer, created when the Loews theatre chain merged Metro Pictures, Goldwyn Pictures and Mayer Pictures.
At its high point, MGM had the biggest stars of the day under noncompete contracts and accounted for roughly three-quarters of the entire industry’s gross revenues.
By the mid-1930s, a handful of studios dominated Hollywood — MGM, Paramount, Warner Brothers, RKO and 20th Century Fox — functioning like a state-sanctioned oligopoly. They controlled who worked, what films were made and what made it into the theatres they owned.
In 1938, the Department of Justice and the Federal Trade Commission sued the "Big Five" studios, arguing that their model was anti-competitive.
After the Supreme Court decided in favour of the US government in 1948 — in what became known as the Paramount Decision — the studios were forced to sell off their theatre chains, which checked their ability to squeeze out independent producers.
By streaming their indie film Beast of No Nation directly to subscribers at home, Netflix posed a direct threat to Hollywood’s blockbuster model, in which studios invested heavily in a small number of big-budget films designed to earn enormous box office returns. At the time, Netflix’s 65 million global subscribers gave it the capital to produce exclusive content for its expanding markets.
Hollywood quickly closed the streaming gap, developing its own platforms and restricting access of its vast catalogues to subscribers.
Then came the Covid-19 pandemic, and the theatrical model for film distribution collapsed.
The pressure on AT&T’s stock led the company to sell off HBO and WarnerMedia to Discovery in 2022 for $US43b. Armed with the HBO and Warner Bros libraries — along with the advertising potential of CNN, TNT and Turner Sports — chief executive David Zaslav was bullish about the company’s potential for growth.
Warner Bros Discovery became the third-largest streaming platform in terms of subscribers behind Netflix and Disney+, which had gobbled up 20th Century Fox.
But the results have been bad for audiences.
Zaslav often claims his deals are "good for consumers," in that they get more content in one place. But conglomerates who defend their anti-competitive practices as signs of an efficient market that benefit "consumer welfare" frequently say that, even when they are making the product worse and limiting choices.
His deals have been especially bad for the television side, yielding gutted newsrooms and cancelled scripted shows.
Effectively, in only three years, the Warner Bros Discovery merger has validated nearly all the concerns that critics of "market first" policymaking have warned about for years. Once it had a dominant market share, the company started providing less and charging more.
If it does go through, the Netflix-Warner Bros merger will likely please Wall Street, but it will further decrease the power of creators and consumers.
Netflix is under pressure to be profitable. Indeed, it has been squeezing its subscribers with higher fees and more restrictive login protocols. Buying the competition — HBO Max — will mean Netflix can charge even more.
After the Netflix deal was announced, Paramount joined forces with President Donald Trump’s son-in-law Jared Kushner, the Saudi Sovereign Wealth fund and others to announce a hostile counteroffer.
Now, all bets are off. In either case, Warner Bros would be bought by a direct competitor.
And whichever platform acquires Warner Bros will have enormous power over the kind of stories that get sold and told.
— Matthew Jordan is a professor of media studies, Penn State.
