Warner Bros. Discovery Chooses Netflix Over Paramount

Answer the following questions to check your understanding of the story.

1) What is the four-firm concentration ratio in the U.S. paid streaming market?

a) 60.5%

b) 10.7%

c) It cannot be calculated from the information given.

d) 100%

Wrong! - A 100% concentration ratio would imply only four firms in the market. 10.7% is HBO Max’s individual market share, not the four-firm ratio. Revenue shares are provided, which are sufficient to calculate the ratio.

Correct! - The four largest firms are Netflix, Hulu, HBO Max, and Prime Video. Their combined market share is 28.3 + 12.3 + 10.7 + 9.2 = 60.5%.

2) What type of market best describes the U.S. paid streaming industry?

a) Perfect competition

b) Monopoly

c) Monopolistic competition

d) Oligopoly

Wrong! - There cannot be more than one major firm in a monopoly. Perfect competition requires many small firms with identical products. Monopolistic competition involves many firms with small market shares.

Well Done! - A small number of large firms dominate the market, which is characteristic of an oligopoly.

3) Would antitrust authorities be more likely to approve a merger between Warner Bros. Discovery and Netflix rather than a merger between Warner Bros. Discovery and Paramount, assuming the relevant market is only paid streaming?

a) It depends on how regulators define the relevant market.

b) No. A Netflix–Warner Bros. merger is more likely to be challenged because it would increase the Herfindahl-Hirschman Index (HHI) of the paid streaming market more than a Paramount–Warner Bros. merger would.

c) Yes. A Netflix–Warner Bros. merger is less likely to be challenged because it would increase the HHI less than a Paramount–Warner Bros. merger would.

d) Yes. In the broader video market, a Paramount–Warner Bros. merger would raise more antitrust concerns than a Netflix–Warner Bros. merger..

Wrong! - Option B reverses the HHI logic; the Netflix merger increases concentration more. Option C may hold in a broader market, but regulators are more likely to focus on paid streaming. Although market definition matters in general, the question specifies the paid streaming market.

That's Right! - In the paid streaming market, combining Netflix (28.3%) with Warner Bros’ HBO Max (10.7%) increases the HHI by about 600 points, which is larger than the roughly 400-point increase from a Paramount (7.7%)–Warner Bros. merger. A larger HHI increase makes a merger more likely to be challenged.

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