Netflix, Warner Bros Discovery combo seen lowering costs for consumers — sources

NEW YORK- Netflix's NFLX.O proposed acquisition of Warner Bros Discovery's WBD.O studios and streaming unit is expected to reduce streaming costs for consumers by bundling Netflix and HBO Max, according to two people familiar with the proposal.

In recent talks with Warner Bros Discovery, Netflix said the potential combination of its streaming service with HBO Max would benefit consumers by lowering the cost of a bundled offering, the sources familiar with the discussions told Reuters. They requested anonymity to discuss confidential negotiations.

Netflix’s argument seeks to address potential regulatory concerns that combining one of the nation’s leading subscription video streaming services with a top rival would reduce consumer choice and raise prices, the sources said. The services are not currently offered as a bundle by either company.

Warner Bros Discovery has been exploring a sale of all or part of its business, which includes film and television studios, cable networks such as HBO and CNN, and the HBO Max streaming service.

Reuters reported in October that Netflix was actively exploring a bid for Warner Bros Discovery's studio and streaming business, a tie-up that was seen as potentially reshaping the streaming landscape. Now, by framing the acquisition as pro-consumer, Netflix aims to build a case that the deal should withstand a potential regulatory challenge, according to the sources.

Reuters previously reported that Netflix had submitted a mostly cash offer for the studio and streaming unit.

Other bidders for Warner Bros Discovery - Paramount Skydance PSKY.O and Comcast CMCSA.O - also would use HBO Max, together with the Warner Bros film and television library, to bolster their streaming services.

Netflix did not immediately respond to a request for comment, while Warner Bros Discovery declined to comment.

If Netflix's bid is successful, the deal is expected to expand Netflix's movie and television library.

But the sources familiar with the matter said the potential combination of the two services is unlikely to radically expand its market share because the vast majority of HBO Max customers also subscribe to Netflix.

The combination of HBO Max and Paramount Skydance's Paramount+ would create a top-tier streaming service in the U.S., capable of challenging Netflix and Walt Disney's DIS.N Disney+ in terms of volume and breadth of content, wrote Bank of America media analyst Jessica Reif Ehrlich in a recent report.

HBO Max would similarly lift NBCUniversal’s Peacock service, which has yet to turn a profit. NBCUniversal is owned by Comcast.

“Comcast risks being left behind as PSKY or NFLX scale (their streaming services), limiting Peacock's reach and weakening NBC's ability to compete in the global media market over time,” Ehrlich wrote.

A successful acquisition would give Netflix control over Warner Bros’ vast library of content, including the entire HBO catalog, the Warner Bros film archive, and DC Comics properties.

“Netflix is the clear streaming leader in subscribers,” Ehrlich wrote, adding: “It still lags other media companies on deep IP libraries that could offer potential use cases for theme parks, experiences, Broadway shows, gaming and merchandising.”

To be sure, Netflix faces its own political headwinds, from criticism by the Pentagon over its content to Republican lawmakers warning that a takeover of Warner Bros Discovery could give it too much control and reduce consumer choice. Alphabet's GOOGL.O YouTube remains the country’s largest streaming platform by viewership.

Milana Vinn and Dawn Chmielewski/Reuters