Wall Street investment bank: It's not easy for Warner Bros. Discovery (WBD.US) to swallow Warner Bros., Netflix (NFLX.US) faces difficult anti-monopoly challenges.

The agreement in which Netflix (NFLX.US) acquired Warner Bros. Discovery (WBD.US) studio and streaming assets for $72 billion in equity value has sparked a debate on Wall Street about whether regulatory agencies will allow the world's largest streaming company to become even larger. This means that after winning a fierce bidding war for Warner Bros. Discovery, Netflix is now facing antitrust challenges, and the company must prove to global regulatory agencies that this deal will not give them unfair competitive advantages in the streaming market. This deal will integrate Warner Bros.'s film and television studio, HBO, and HBO Max into Netflix's global system, immediately reshaping the competitive landscape. This merger will reshape the online video content market by combining the top-ranked streaming platform with the fourth-ranked HBO Max service and its popular shows (such as "Game of Thrones," "Friends," and the DC Universe comic book series). Even experienced Wall Street analysts were caught off guard by this. Citigroup analyst Jason Bazinet admitted that this scenario was almost beyond his consideration. He said last Friday, "This was the least probable outcome in my mind; in fact, we only saw a 5% chance of this deal going through. We originally believed that the industry leaders would further expand by integrating the three sub-scale streaming apps - HBO Max, Paramount+ under Paramount Sky (PSKY.US), and Peacock under Comcast Corporation Class A (CMCSA.US) - rather than the industry leaders using their balance sheets to absorb major competitors." According to data from JustWatch (a platform that measures user engagement with US streaming services), after the merger of Netflix and Warner Bros., they will control about one-third of the streaming market in the US. This level of concentration has already sparked intense criticism. Massachusetts Democratic Senator Elizabeth Warren strongly criticized the deal, stating in a statement, "This deal looks like an antitrust nightmare... it could force Americans to pay higher subscription fees, reduce their choices in content and viewing options, and put American workers at risk." She urged the Department of Justice to conduct a fair review and not "engage in cronyism and bribery." The vast content library may raise concerns from global antitrust regulators as they fear Netflix may have too much control over the streaming market. Analysts say the company is facing a long Justice Department review and may face lawsuits in US courts if it does not take remedial measures to obtain approval to block the deal. Netflix is expected to argue that regulators should not define the market as narrowly as subscribing to streaming services, especially considering that Americans are now consuming entertainment in broader ways - from YouTube under Alphabet Inc. Class C (GOOGL.US) and ad-supported streaming to games and social videos. The company may strongly emphasize this point, claiming that acquiring Warner Bros. studio and HBO will not give them undue market power, but rather help them compete in a more diverse entertainment market. Bazinet also highlighted another part of Netflix's regulatory strategy: "They will operate these two direct-to-consumer (DTC) apps separately." He said this indicates that the company will try to package this deal as maintaining consumer choice - even possibly offering bundled discounts between Netflix and HBO Max. In this context, Wall Street remains cautiously optimistic, primarily because of the reasons Netflix initially made this move. As Bazinet explained, Netflix has long claimed that they are looking for intellectual property. He believes that the thread that runs through all their businesses is that Netflix is "trying to acquire content that can resonate globally." He added that Warner Bros. Discovery has "phenomenal intellectual property" that can cross borders and platforms, from "Harry Potter" and "Game of Thrones" to "The Sopranos," "The Lord of the Rings," "Friends," and "The Big Bang Theory." A William Blair analyst called this merger a "streaming giant" and believes it will solidify Netflix's position as a top global streaming service provider. Needham analyst Laura Martin pointed out that Warner Bros. Discovery is alone in this, and Netflix acquiring them will prevent any competitors from making a scale leap. However, investors still need to weigh strategic gains with short-term risks. William Blair emphasizes that Netflix plans to achieve cost savings of $2-3 billion annually in the third year and expects this deal to boost GAAP earnings per share in the second year. Oppenheimer analyst Jason Helfstein issues a more cautious warning, pointing out that execution challenges, political risks, and a lengthy approval process will pose significant obstacles to shareholders. He wrote, "We believe there are very real regulatory risks to this deal." Bazinet also warned that this deal exacerbates the fragmentation in the streaming sector, widening the gap between winners and secondary players, a dynamic that may attract more attention from regulators regarding Netflix's position. However, Martin believes that investors may be too narrow in their valuation. As she says, "If you look at it over a 1-3 year time frame, the acquisition price for Netflix may be too high, but these assets will redefine Netflix's fate over the next 20 years."