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By Matthew Jordan, Penn State 

News of Netflix’s bid to buy Warner Bros. last week sent shock waves through the media ecosystem.

The pending US$83 billion 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 David Zaslav, CEO of Warner Bros. Discovery, 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?

The rise of the Hollywood oligopolies

As Hollywood rose to prominence in the 1920s, theater 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 theaters 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 theater owners during the nickelodeon era, the period from roughly 1890 to 1915, when movie exhibition shifted from traveling shows to permanent, storefront theaters called nickelodeons.

They used the financial backing of investment bank Goldman Sachs to follow Zucker’s Hollywood model. They merged their theaters with several independent production companies: the Vitagraph film distribution company, the Skouras Brothers theater chain and, eventually, First National.

But the biggest of the Hollywood conglomerates was Metro-Goldwyn-Mayer, created when the Loews theater 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 vertically integrated 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 theaters they owned. And though the studios’ holdings came and went, the rules of the industry remained stable until after World War II.

Old Hollywood loses its cartel power

In 1938, the Department of Justice and the Federal Trade Commission sued the “Big Five” studios, arguing that their vertically integrated model was anti-competitive.

After the Supreme Court decided in favor of the U.S. government in 1948 – in what became known as the Paramount Decision – the studios were forced to sell off their theater chains, which checked their ability to squeeze theaters and squeeze out independent producers.

With the studios’ cartel power weakened, independent filmmakers like Elia Kazan and John Cassavetes flourished in the 1950s, making pictures like “On the Waterfront” that the studios had rejected. Foreign films found their ways to American screens no longer constrained by block booking, a practice that forced exhibitors to pay for a lot of mediocre films if they wanted the good ones, too.

By the 1960s, a new generation of filmmakers like Mike Nichols and Stanley Kubrick scored big with audiences hungry for something different than the escapist spectacles Hollywood was green-lighting. They took risks by hiring respected writers and unknown actors to tell stories that were truer to life. In doing so, they flipped Hollywood’s generic formulas upside down.

A decade ago, I wrote about how Netflix’s streaming model pointed to a renaissance of innovative storytelling, similar to the period after the Paramount Decision.

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 catalogs to subscribers.

Warner Bros. bought and sold

In 2018, AT&T acquired Time Warner, the biggest media conglomerate of the time, and DirectTV. It hoped to merge its 125 million-plus telecommunication customers with Time Warner’s content and create a streaming giant to compete with Netflix.

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 $43 billion. Armed with the HBO and Warner Bros. libraries – along with the advertising potential of CNN, TNT and Turner Sports – CEO 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.

In 2023, Zaslav rolled out a bundled streaming platform called Max that combined the libraries of HBO Max and Discovery+, which ended up confusing consumers and the market. So it reverted back to HBO Max because consumers recognized the brand.

Zaslav then decided it was more cost effective to cancel innovative projects or write off completed films as losses. 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 canceled 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.

Meet the new boss – same as the old boss

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.

Like other companies that have moved from being a growth stock to a mature stock, Netflix is under pressure to be profitable. Indeed, it has been squeezing its subscribers with higher fees and more restrictive login protocols. It’s a sign of what tech blogger Cory Doctorow describes as the logic of “enshittification,” whereby platforms that have locked in audiences and producers start to squeeze both. 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. Whichever platform acquires Warner Bros. will have enormous power over the kind of stories that get sold and told.

In either case, Warner Bros. would be bought by a direct competitor. The Department of Justice, under the first Trump administration, already pushed to sunset the Paramount Decision, claiming that the distribution model had changed to such an extent that it was unlikely that Hollywood could ever reinstate its cartel. It’s hard to imagine that Trump 2.0 will forbid more media concentration, especially if the new parent company is friendly to the administration.

No matter which bidder becomes the belle of Trump’s ballroom, this merger illustrates how show business works: When dominant platforms also own the studios and their assets, they control the fate of the movie business – of actors, writers, producers and theaters.

Importantly, the concentration is taking place as artificial intelligence threatens to displace many aspects of film production. These corporate behemoths will determine if the film libraries spanning a century of Hollywood production will be used to train the machines that could replace artists and creatives. And with each prospective buyer taking on over $50 billion in bank debt to pay for the deal, the new parent of Warner Bros. will be looking everywhere for profits and opportunities to cut costs.

If history is any guide, there will be struggles ahead for consumers and competing creatives. In a media system that has veered back to following Hollywood’s yellow brick rules of the road, the new oligopolies are an awful lot like the old ones.

About the Author:

Matthew Jordan, Professor of Media Studies, Penn State

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Ishani Banerji, Clemson University 

Even before this year’s Spotify Wrapped dropped, I had a hunch what mine would reveal.

Lo and behold, one of my most-listened-to songs was an obscure 2004 track titled “Rusty Chevrolet” by the Irish band Shanneyganock. I heard it first thanks to my son, whose friend had been singing it on the swings at school. My son found it utterly hilarious, and it’s been playing in our house nonstop ever since.

Like parents all over the world, I rue how my son’s musical tastes have hijacked my listening history. But I’m also tickled to learn that our household is probably one of the few even listening to it.

Spotify Wrapped is an annual campaign by the popular streaming music platform. Since 2015, the streaming service has been repackaging user data – specifically, the listening history of Spotify’s users over the past year – into attractive, personalized slideshows featuring, among other data points, your top five songs, your total listening time and even your “listening personality.” (Are you a “Replayer,” a “Maverick” or a “Vampire”?)

As a consumer behavior researcher, I’ve thought about why these lists get so much attention each year. I suspect that the success of Spotify Wrapped may have a lot to do with how the flashy, shareable graphics are connected to a couple of fundamental – and somewhat contradictory – human needs.

Individuality and belonging

In 1991, social psychologist Marilynn Brewer introduced what she coined “optimal distinctiveness theory.”

She argued that most people are torn between two human needs. On the one hand, there’s the need for “validation and similarity to others.” On the other hand, people want to express their “uniqueness and individuation.” Thus, most of us are constantly striving for a balance between feeling connected to others while also maintaining a sense of our own distinct individuality.

At Thanksgiving, for example, your need for connection is likely more than satisfied. In that moment, you’re surrounded by family and friends who share a lot in common with you. In fact, it can feel so fulfilled that you may start craving the opposite: a way to assert your individuality. Maybe you choose to wear something that really reflects your personality, or you tell stories about interesting experiences you’ve had in the past year.

In contrast, you may feel relatively isolated when you move to a new town and feel a stronger need for connection. You may wear the styles and brands you see your neighbors and co-workers wearing, pop into popular cafes and restaurants, or invite people over to your home in an effort to make new friends.

Have it your way

When people buy things, they often make choices as a way to satisfy their needs for connection and individuality.

Brands recognize this and usually try to entice consumers with at least one of these two elements. It’s partly why Coca-Cola started releasing bottles featuring popular names on the labels as part of its “Share a Coke” campaign. The soft drink remains the same, but grabbing a Coke with your name on it can cultivate a sense of connection with everyone else who has it. And it’s why Apple offers custom, personalized engravings for products such as its AirPods and iPads.

Spotify Wrapped works because it nails the balance between competing needs: the desire to belong and the desire to stand out. Seeing the overlap between your lists and those of your friends fosters a sense of connection, and seeing the differences is a signal of your (or your kids’!) unique musical taste. It gives me a way to say, “Sure, I’ve been listening to ‘Soda Pop’ nonstop like everyone else. But I’m probably the only one playing ‘Rusty Chevrolet’ on repeat.”

The Wrapped campaign is also smart marketing. Spotify turns listeners’ unique, personal listening data into striking visuals that are tailor-made for posting to social media accounts. It’s no wonder, then, that the Wrapped feature has led to impressive engagement: On TikTok, the hashtag #SpotifyWrapped garnered 73.7 billion views in 2023. The annual campaign has earned numerous honors, including a Cannes Lion and several Webby Awards, otherwise known as the “Oscars of the Internet.”

It’s been so successful that it’s inspired a wave of copycats: Apple Music, Reddit, Uber and Duolingo now release similarly personalized “year-in-reviews.”

None, however, has managed to achieve the same level of cultural impact as Spotify Wrapped. So what’s on your list? And will you brag, hide or laugh at what it says about you?

About the Author:

Ishani Banerji, Clinical Assistant Professor of Marketing, Clemson University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By David R. King, Florida State University 

When it comes to major U.S. industries, three tends to be the magic number.

Historically, auto manufacturing was long dominated by Chrysler, Ford and General Motors – the so-called “Big Three,” which at one point controlled over 60% of the U.S. auto market. A dominant trio shows up elsewhere, too, in everything from the U.S. defense market – think Lockheed Martin, Boeing and Northrup Grumman – to cellphone service providers (AT&T, T-Mobile and Verizon). The same goes for the U.S. airline industry in which American, Delta and United fly higher than the rest.

The rule of three also applies to what Americans watch; the glory days of television was dominated by three giants: ABC, CBS and NBC.

Now, in the digital age, we are rapidly moving to a “Big Three” dominating streaming services: Netflix, Amazon and Disney.

The latest step in that process is Netflix’s plan to acquire Warner Bros. for US$72 billion. If approved, the move would solidify Netflix as the dominant streaming platform.

When streams converge

Starting life as a mail DVD subscription service, Netflix moved into streaming movies and TV shows in 2007, becoming a first-mover into the sphere.

Being an early adopter as viewing went from cable and legacy to online and streaming gave Netflix an advantages in also developing support technology and using subscriber data to create new content.

The subsequent impact was Netflix became a market leader, with quarterly profits now far exceeding its competitors, which often report losses.

Today, even without the Warner Bros. acquisition, Netflix has a dominant global base of over 300 million subscribers. Amazon Prime comes second with roughly 220 million subscribers, and Disney – which includes both Disney+ and Hulu – is third, with roughly 196 million subscribers. This means that between them, these three companies already control over 60% of the streaming market.

Netflix’s lead would only be reinforced by the proposed deal with Warner Bros., as it would add ownership of Warner subsidiary HBO Max, which is currently the fourth-biggest streamer in the U.S. with a combined 128 million subscribers. While some of them will overlap, Netflix is likely to still gain subscribers and better retain them with a broader selection of content.

Netflix’s move to acquire Warner Bros. also follows prior entertainment industry consolidation, driven by a desire to control content to retain streaming service subscribers.

In 2019, Disney acquired 21st Century Fox for $71.3 billion. Three years later, Amazon acquired Metro-Goldwyn-Mayer for $8.5 billion.

Should the Netflix deal go through, it would continue this trend of streaming consolidation. It would also leave a clear gap at the top between the emerging Big Three and other services, such as Paramount+ with 79 million subscribers and Apple TV+, which has around 45 million. Paramount+ was also a rival bidder for Warner Bros., and while it is protesting Netflix’s deal for Warner Bros., it likely will need to pursue other options to remain relevant in streaming.

Why industries come in threes

But why do industries converge to a handful of companies?

As an expert on mergers, I know the answer comes down to market forces relating to competition, which tends to drive consolidation of an industry into three to five firms.

From a customer perspective, there is a need for multiple options. Having more than one option avoids monopolistic practices that can see prices fixed at a higher rate. Competition between more than one big player is also a strong incentive for additional innovation to improve a product or service.

For these reasons, governments – in the U.S. and over 100 other countries – have antitrust laws and practices to avoid any industry displaying limited competition.

However, as industries become more stable, growth tends to slow and remaining businesses are forced to compete over a largely fixed market. This can separate companies into industry leaders and laggards. While leaders enjoy greater stability and predictable profits, laggards struggle to remain profitable.

Lagging companies often combine to increase their market share and reduce costs.

The result is that consolidating industries quite often land on three main players as a source of stability – one or two risks falling into the pitfalls of monopolies and duopolies, while many more than three to five can struggle to be profitable in mature industries.

What’s ahead for the laggards

The long-term viability of companies outside the “Big Three” streamers is in doubt, as the main players get bigger and smaller companies are unable to offer as much content.

A temporary solution for smaller streamers to gain subscribers is to offer teaser rates that later increase for people that forget to cancel until companies take more permanent steps. But lagging services will also face increased pressure to exit streaming by licensing content to the leading streaming services, cease operations or sell their services and content.

Additionally, companies outside the Big Three could be tempted to acquire smaller services in an attempt to maintain market share.

There are already rumors that Paramount, which was a competing bidder for Warner Bros., may seek to acquire Starz or create a joint venture with Universal, which owns Peacock.

Apple shows no immediate plan of discontinuing Apple TV+, but that may be due to the company’s high profitability and an overall cash flow that limits pressures to end its streaming service.

Still, if the Netflix-Warner Bros. deal completes, it will likely increase the valuation of other lagging streaming services due to increased scarcity of valuable content and subscribers. This is due to competitive limits that restrict the Big Three from getting bigger, making the combination of smaller streaming services more valuable.

This is reinforced by shareholders expecting similar or greater premiums from prior deals, driving the need to pay higher prices for the fewer remaining available assets.

The cost to consumers

So what does this all mean for consumers?

I believe that in general, consumers will largely not be impacted when it comes to the overall cost of entertainment, as inflationary pressures for food and housing limit available income for streaming services.

But where they access content will continue to shift away from cable television and movie theaters.

Greater stability in the streaming industry through consolidation into a Big Three model only confirms the decline in traditional cable.

Netflix’s rationale in acquiring Warner Bros. is likely to enable it to offer streaming at a lower price than the combined price of separate subscriptions, but more than Netflix alone.

This could be achieved through additional subscription tiers for Netflix subscribers wanting to add HBO Max content. Beyond competition with other members of the “Big Three,” another reason why Netflix is unlikely to raise prices significantly is that it will likely commit to not doing so in order to get the merger approved.

Netflix’s goal is to ensure it remains consumer’s first choice for streaming TV and films. So while streaming is fast becoming a Big Three industry, Netflix’s plan is to remain at the top of the triangle.

About the Author: 

David R. King, Higdon Professor of Management, Florida State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.