Is Netflix headed for the ‘Adobe effect’?
Netflix, now the world’s most valuable streaming company, insists it is still in expansion mode.
However, its $72bn bid for Warner Bros Discovery last Friday, and the rival, hostile counter-move from Paramount Skydance on Monday, have triggered an uncomfortable question in Hollywood and on Wall Street.
Is Netflix wandering into the same trap that humiliated Adobe?
Back in 2023, a megadeal for its biggest rival, Figma, looked like a done deal, much like the Netflix-WB tie-up. But the regulators got involved and killed the merger, something which could very much be on the horizon for the streaming trifecta.
Even Marc Randolph, Netflix’s own co-founder, admitted this week that the offer took him by surprise. Appearing in Abu Dhabi, CityAM reported that he saw the idea of Netflix spending $82bn on anything was “completely mind-blowing.”
Paramount gets involved
But it seems his surprise didn’t last long. Days after Netflix announced its intentions, Paramount Skydance barged in with its own hostile bid, offering Warner shareholders a higher per-share price and an additional $18bn in implied value.
Overnight, a straightforward acquisition became a Hollywood brawl, with Netflix angling to feast, Paramount angling to block, and Warner Bros Discovery caught in one of the industry’s most expensive tug-of-wars.
But the plot thickens, with US President Donald Trump having already stepped into the conversation. In addition, Paramount chief executive David Ellison is the son of Trump’s close friend Larry Ellison.
The US President warned publicly, following Friday’s announcement, that Netflix’s market power is “very big” and that it holds an unfair, anti-competitive market position.
This is the crux of the Adobe question. Adobe thought it was acquiring a rising rival, but regulators believed it was swallowing the future of innovation. Which is why the deal collapsed.
Netflix’s proposed marriage with Warner Bros Discovery is playing out the same dynamic, with a dominant player attempting to absorb a rival of meaningful scale.
And crucially, Netflix finds itself cast as the dominant force this time – a rather awkward position for a company that spent most of its life insisting it was the underdog.
Tug of war
Warner’s own John Malone said the two companies have “almost identical revenue and EBITDA,” but Netflix commands a market value that is 12 times larger.
It seems that Warner is the one with the studios and the pedigree, and Netflix is the one investors trust not to implode.
Whereas, compared to Paramount, the disparity becomes almost cartoonish. Netflix is worth thirty times more than its potential spoiler.
When regulators review a transaction like that, they are less interested in details about “synergies”, and more concerned with why the biggest fish in the pond now wants to buy the next biggest.
Industry warnings
Warnings have been trickling in thick and fast. Republican Senator Roger Marshall has called the deal a “textbook horizontal antitrust problem.”
Meanwhile, the Writers Guild said it feared wage suppression.
And none of it is helped by the fact that Netflix, unlike the old-school Hollywood machines, has never executed a takeover remotely this large.
Should Netflix win, its British viewers may feel the impact quickest. Warner Bros Discovery owns TNT Sports, with Premier League, UFC, and tennis rights, and remains an expensive, complicated operation.
At the same time, HBO Max is due to launch in the UK in 2026. Will Netflix absorb it wholesale? Will Sky suddenly lose its HBO pipeline? Or will the entire structure become even more fractured, with rising costs passed down to any viewer?
Analysts weigh in
Analysts have so far been divided, with some saying Netflix would gain the “engine room” of Warner’s content empire.
Meanwhile, Omdia suggested the combined streaming base could reach 400 million subscribers.
PP Foresight pointed out that the deal’s success hinges entirely on how regulators define the “relevant market” – a deceptively technical detail that could make or break $82bn of ambition.
The worst-case scenario doesn’t seem like a far cry away. Adobe spent two years fighting regulators over Figma, only to cancel the deal and pay a $1bn breakup fee.
Netflix’s fee, if this collapses, is almost six times that. A failed takeover would be more than embarrassing for the market leader; it would be financially costly to recover from.
Paramount’s hostile bid has also complicated things further, with its financing lineup including the likes of Saudi, UAE, Qatar, Larry Ellison, and even Jared Kushner. That alone guarantees a fair amount of scrutiny.
Netflix, for its part, seems to be attempting a more traditional Big Tech approach of buying the competition, claiming it’s good for innovation, and hoping the regulator nods politely. But, if history were to repeat itself, it would be wise to see that this strategy didn’t work for Adobe.