A previous post detailed how Netflix and Paramount Skydance were competing to acquire part or all of Warner Bros. Discovery (WBD). In December 2025, Netflix announced that it had agreed a deal to buy WBD’s studio and streaming service business. However, Paramount has still pursued a hostile takeover of WBD.
In mid-February 2026, it emerged that WBD had reopened talks with Paramount. Paramount was given a week to make its final offer. Then, under the agreed deal, Netflix would have the right to adjust its bid. Things have developed quickly since then.
Paramount raised its offer price by $1 per share making the deal worth a total of $111bn. WBD stated that this was superior to Netflix’s offer and Netflix declined to increase its bid. Netflix executives stated that:
This transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price.1
Paramount will also pay Netflix the $2.8bn fee WBD owes Netflix for terminating the deal.
Whilst it appears Paramount has won the race to acquire WBD, the deal still needs regulatory clearance from competition authorities in the USA and Europe. Paramount CEO, David Ellison, stated that the proposal offered WBD shareholders ‘superior value, certainty and speed to closing.’2
Should the deal go through, the merged company would be in a powerful position as one of the few remaining Hollywood film and television studios.
References
- Paramount set for $111bn Warner Bros takeover after Netflix drops bid
BBC News, Danielle Kaye and Nardine Saad (26/2/26)
- Ibid
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Questions
- What are the similarities and differences between Netflix’ and YouTube’s business models? How close substitutes do you think they are?
- Do you think cinemas are a closer or more distant substitute to Netflix than YouTube?
- Which of the possible deals, do you think, raised the most competition concerns? What might be a possible remedy that could alleviate these concerns?
- Was WBD’s decision to accept the Paramount takeover purely determined by the size of Paramount’s bid?
- What is the significance of legacy assets to the acquisition of WBD?
The television streaming market is currently attracting considerable attention from policy makers. This follows Warner Bros. accepting Netflix’s offer to buy part of the company for $72bn. To understand how this deal came about and why there is policy concern, we need to go back a few years.
The media and entertainment conglomerate Warner Bros. Discovery (WBD) was created in 2022 when AT&T sold Warner Bros to Discovery.1 However, in June 2025 the company announced that it would split the business into two parts. One would be (a) the studio for TV and movie production, where for example the Harry Potter franchises were made, and (b) the TV streaming business, home to for example the hit TV series Succession. The other, the more traditional and declining TV networks, including channels such as CNN, Discovery and TNT Sports, would form a new company called Discovery Global. David Zaslav, WBD President and Chief Executive stated that:
We are empowering these iconic brands with the sharper focus and strategic flexibility they need to compete most effectively in today’s evolving media landscape.2
Shortly afterwards, rival media and entertainment conglomerate, Paramount Skydance, made a series of bids to purchase the entire WBD business. But these were rejected by the WBD board. Despite this, in October 2025 WBD made public that it was open to a sale and had received unsolicited interest from several companies. It was believed that this included offers from Comcast and Netflix.
Recent developments
In December 2025, Netflix announced that it had agreed a deal with WBD to buy its studio and streaming service business, including its back catalogue of shows. The deal is planned to be put to WBD shareholders in the next few months.3 Netflix has over 300m subscribers across the globe and streams popular shows, such as Stranger Things and Squid Games.
Despite this accepted offer, Paramount has subsequently pursued a hostile takeover of WBD by going straight to its shareholders. In addition, Paramount launched a lawsuit to get further information on how Netflix was chosen as the buyer and to provide WBD shareholders with information on the value of the TV network business that WBD was selling. This, however, was quickly thrown out of the courts.
Over time, Netflix and Paramount have tinkered with their bids to make them more attractive to WBD. Whilst Paramount’s bid was all cash, originally Netflix was offering a mixture of cash and shares. However, in January, it switched this to an all-cash offer. In February, Paramount made clear that if WBD instead accepted its offer, it would pay the $2.8bn termination fee that would be owed to Netflix.4 Furthermore, from early 2027 Paramount would pay WBD shareholders payments of $650m per quarter, known as ticking fees, if combining WBD and Paramount faced regulatory delay.
In mid-February 2026, it emerged that, following a waiver from Netflix, WBD had reopened talks with Paramount. Paramount was given a week to make its offer. Then, under the agreed deal, Netflix would have the right to adjust its bid. This is an attempt by WBD to end the hostile bidding war Paramount is pursuing and to provide clarity for its shareholders. WBD has reiterated that it will:
continue to recommend and remain fully committed to our transaction with Netflix. [However], we welcome the opportunity to engage with you and expeditiously determine whether Paramount Skydance can deliver an actionable, binding proposal that provides superior value.5
The insertion of the ticking fees by Paramount is in response to the substantial attention competition authorities across the globe are paying to the acquisition of WBD. The deal is being investigated by the US Department of Justice and, in early February, Netflix was questioned by the US Senate Antitrust Sub-committee. During this hearing, one of the Senators expressed his anger with the country’s competition laws and raised concerns that the deal would result in Netflix getting:
more power over consumers and leaving fewer alternatives and streaming platforms.6
While Paramount did not attend this hearing, it is believed that it has raised concerns about the Netflix-WBD deal to regulators. Netflix co-CEO, Ted Sarandos, has also met with Donald Trump to discuss the deal. However, Trump subsequently stated that the deal ‘could be a problem’.7
The EU and UK markets
Furthermore, whilst all the companies involved are American, both the mergers with Netflix and Paramount are being investigated by the European Commission as markets in Europe would be affected.
In the UK, a group of politicians and former policymakers, have written to the Competition and Markets Authority urging it to conduct a full investigation of the Netflix-WBD merger. The letter argues that the merger could have:
damaging consequences for consumers, the UK’s world-leading creative industries and the UK cinema industry.
and that:
At a time when the British consumer can ill-afford more price increases, Netflix would possess an unprecedented ability to raise prices to access television and films.8
The letter comes at a time when pressure is being placed on the CMA to adopt a generally more business-friendly approach.
The impact of the merger on the UK market is particularly complicated since Warner Bros.’ streaming service, HBO Max, is only due to launch in the UK in March 2026. This is still the plan, with WBD’s head of global streaming, Jean-Briac Perette acknowledging that:
We are likely the last scaled global streamer to come to market. We’ve tried to learn from the rest. We’re a complementary and distinct service to the more volume-driven or basic cable-like streamers in the market. More is not better. Better is better.9
An alternative route to regulatory approval
An easier route to regulatory approval may well be instrumental in allowing Netflix or Paramount to win the battle for WBD. Netflix stresses that the deal will create economic growth and jobs. Netflix’s Sarandos highlighted that:
This is not a typical media merger where you end up with what’s called the Noah’s Ark problem — two of everything. We are buying a company that has assets that we do not, and we will keep investing in those.10
The problem of economic power
In contrast, critics argue that either of the deals would create a new company with too much power. However, given the nature of the firms involved, the competition issues will be fundamentally different between the two deals.
The Paramount deal would primarily reduce the number of studios in the market. This could provide the new merged studio with more bargaining power over distributors, advertisers and creators. Ultimately, this could negatively impact on the final product that consumers watch in the cinema and on television.
The Netflix deal on the other hand would impact directly on the streaming market. In the USA, 80% of consumers have both Netflix and HBO Max.11 After the merger, consumers would have less choice of competing services and Netflix-HBO Max combined may well have an incentive to raise its subscription prices.
In the UK, there are currently three leading streaming services: Netflix, Amazon Prime and Disney+, each with around 23% of the market.12 The merger with WBD could allow Netflix to become the clear market leader.
Concerns about YouTube
When examining streaming markets in all countries, an important factor will be whether to include YouTube in the market. Netflix certainly argues that it is a key competitor, at the hearing Sarandos stated that:
we are competing for the same content, we are competing for the same viewers, we are competing often for the same ad dollars. YouTube is not just cat videos anymore. YouTube is TV.13
If YouTube is included, in the USA it would be the market leader with 13%, ahead of Netflix on 9%. However, the competition authorities may conclude that YouTube’s product and business model is sufficiently different and so not include it in the streaming market.14
The issue of cinemas
A second concern in the Netflix deal will be the Warner Bros.’ studio content that Netflix would own. The merged business may have an incentive to discontinue, raise the price or reduce the quality of the studio output that it supplies to cinemas. Thus, the competition authorities’ investigations will also pay close attention to the impact on the cinema market.
In line with these arguments, the Hollywood screenwriters’ union, the Writers Guild of America, has indicated that the Netflix-WMD deal should be stopped and filmmakers are clearly concerned about Netflix prioritising streaming.15
The competition authorities may well consider imposing remedies before they are willing to allow either deal to go ahead. With this in mind, it is interesting that Netflix has already made clear that it will continue the 45-day exclusive window that Warner Bros. provides cinemas to show its films.
It will be fascinating to see how the competing bids play out and how the competition regulators view them.
* * *
This post has been updated in a Postscript, following a further bid from Paramount that was not matched by Netflix.
References
- AT&T agrees deal to combine WarnerMedia with Discovery
The Guardian, Mark Sweney (16/5/21)
- HBO and CNN owner to split streaming and cable businesses
BBC News, Adam Hancock (10/6/25)
- Netflix’s co-CEO went to an antitrust hearing and a culture war broke out
NBC News, Saba Hamedy (3/2/26)
- Warner Bros gives Paramount seven days to make ‘best and final’ offer
The Guardian, Mark Sweney (17/2/26)
- ibid.
- NBC News, op. cit.
- Trump says $72bn Netflix-Warner Bros deal ‘could be a problem’
BBC News, Osmond Chia (8/12/25)
- UK politicians call for competition review of Netflix bid for Warner Bros
Financial Times (26/1/26)
- Warner streaming boss defends HBO Max UK launch ahead of Netflix takeover
Financial Times (9/2/26)
- NBC News, op. cit.
- Netflix and Warner Bros struggle to defend merger
BBC News, Danielle Kaye (3/2/26)
- Netflix, Disney+, Prime: Streaming platform market share report UK 2025
InsiderMedia, Jennifer O’Keeffe (2/12/25)
- BBC News, Danielle Kaye op. cit.
- Paramount sweetens Warner Bros bid with offer to pay Netflix break-up cost, other fees
Reuters, Harshita Mary Varghese and Aditya Soni (11/2/26)
- In a takeover of Warner Bros., Netflix makes a play for 21st century Hollywood’s throne
NBC News, Daniel Arkin (5/12/25)
Articles
Questions
- What are the similarities and differences between Netflix’ and YouTube’s business models? How close substitutes do you think they are?
- Do you think cinemas are a closer or more distant substitute to Netflix than YouTube?
- Which deal do you think raises the most competition concerns? What might be a possible remedy that could alleviate these concerns?
In my previous blog post on this site, I examined how AI-powered pricing tools can act as a ‘double-edged sword’: offering efficiency gains, while also creating opportunities for collusion. I referred to one of the early examples of this, which was the case involving Trod Ltd and GB Eye, where two online poster and frame sellers on Amazon used pricing algorithms to monitor and adjust their prices. However, in this instance there was also an explicit agreement between the firms. As some commentators put it, it was ‘old wine in new bottles‘, meaning a fairly conventional cartel that was simply facilitated through digital tools.
Since then, algorithms have increasingly become part of everyday life and are now embedded in routine business practice.
Some of the effects may have a positive effect on competition. For example, algorithms can help to lower barriers to entry. In some markets, incumbents benefit from long-standing experience, while new firms face significant learning costs and are at a disadvantage. By reducing these learning costs and supporting entry, algorithms could contribute to making collusion harder to sustain.
On the other hand, algorithms could increase the likelihood of collusion. For example, individual algorithms used by competing firms may respond to market conditions in predictable ways, making it easier for firms to collude tacitly over time.
Algorithms can also improve the ability of firms to monitor each other’s prices. This is particularly relevant for multi-product firms. Traditionally, we might expect these markets to be less prone to collusion because co-ordinating across many products is complex. AI can overcome this complexity. In the Sainsbury’s/Asda merger case, for example, the Competition and Markets Authority suggested that the main barrier to reaching and monitoring a pricing agreement was the complexity of pricing across such a wide range of products. However, the CMA also suggested that technological advances could increase its ability to do so in the future.
The ‘hub-and-spoke’ model
One of the other growing concerns is the ability of AI pricing algorithms to facilitate collusion by acting as a ‘hub’ in a ‘hub-and-spoke’ arrangement. In this type of collusion, competing firms (the ‘spokes’) need not communicate directly with one another. Instead, the ‘hub’ helps them to co-ordinate their actions.
While there have been only limited examples of an AI pricing algorithm acting as a hub in practice, what once seemed to be a largely theoretical concern has now become a live enforcement issue.
A very recent example is the RealPage case in the United States. The Department of Justice (DOJ) filed an antitrust lawsuit against RealPage Inc. in August 2024, alleging that RealPage, acting as the ‘hub’, facilitated collusion between landlords (the ‘spokes’).
RealPage provided pricing software to numerous landlords, including the largest landlord in the USA, which manages around 950 000 rental units across the country. These landlords would normally compete independently in setting rental prices, discounts and lease terms to win consumers. However, by feeding competitively sensitive information that would not usually be shared between rivals into RealPage’s system, the software generated pricing recommendations that, according to the DOJ, led to co-ordinated rent increases across competing apartment complexes.
I
n the RealPage case, the authorities reported that they had access to internal documents and statements from the parties involved, which helped support their allegations. These included references within RealPage to helping landlords ‘avoid the race to the bottom’ and comments from a landlord describing the software as ‘classic price fixing’.
Evidence in these cases really matters because the standard of proof required to establish a hub-and-spoke arrangement is much higher than for traditional cases of explicit collusion. This is because it can be difficult to distinguish between legitimate and anti-competitive communication between retailers and suppliers. Also, proving ‘anti-competitive intent’ is inherently challenging.
Other competition authorities around the world are also turning their attention to these issues. For example, the European Commission recently announced that a number of investigations into algorithmic pricing are underway, signalling a clear shift toward more active scrutiny. As technology continues to advance, it is clear that algorithmic pricing will remain an area where both firms and authorities must move and adapt quickly.
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Questions
- In what ways does the RealPage case differ from the earlier Trod Ltd and GB Eye Ltd case? Consider the roles played by the firms, the nature of the alleged co-ordination, and the extent to which pricing algorithms were used to facilitate the conduct.
- How might the use of pricing algorithms affect the likelihood of firms colluding, either explicitly or tacitly? Consider ways that algorithms may make collusion easier to sustain but also ways in which they may reduce its likelihood.
- Should firms be held liable for anti-competitive outcomes produced by algorithms that ‘self-learn’, even if they did not intend those outcomes? Explain why or why not.
The UK energy regulator, Ofgem, has announced that the UK energy price cap will rise in October by an average of 2%. The energy price cap sets the maximum prices for electricity and gas that can be charged by suppliers to households. For those paying by direct debit, the maximum electricity price per kilowatt-hour (kWh) will rise from 25.73p to 26.35p, with the maximum daily standing charge rising from 51.37p to 53.68p. As far as gas is concerned, the maximum price per kWh will fall slightly from 6.33p to 6.29p, with the maximum daily standing charge rising from 29.82p to 34.03p. Ofgem estimates that this will mean that the capped cost to the average household will rise from £1720 to £1755.
The average capped cost is now much lower than the peak of £4279 from January to March 2023. This followed the huge increase in international gas prices in the aftermath of the invasion of Ukraine and the cutting off of gas supplies from Russia. Note that although the suppliers received these capped prices, average consumers’ bills were limited to £2500 from October 2022 to March 2024 under the government’s Energy Price Guarantee scheme, with suppliers receiving a subsidy from the government to make up the shortfall. But despite today’s cap being much lower than at the peak, it is still much higher than the cap of £1277 prior to Russia’s invasion of Ukraine: see Chart 1 (click here for a PowerPoint).
So is the capped price purely a reflection of the international price of gas, or is it more complicated? The picture is slightly different for gas and electricity.
Gas prices
As far as gas prices are concerned, the price does largely reflect the international price: see Chart 2 (click here for a PowerPoint).
The UK is no longer self-sufficient in gas and relies in part on imported gas, with the price determined in volatile international markets. It also has low gas storage capacity compared with most other European countries. This leaves it highly reliant on volatile global markets in periods of prolonged high demand, like a cold winter. Is such cases, the UK often has to purchase more expensive liquefied natural gas (LNG) from global suppliers.
Additionally, taxes, environmental levies and the costs of the nationwide gas distribution network contribute to the overall price for consumers. Changes in these costs affect gas prices. These are itemised below in the case of electricity.
With electricity pricing, the picture is more complex.
Electricity prices
Electricity generation costs vary considerably with the different methods. Renewable sources like wind and solar have the lowest marginal costs, while natural gas plants have the highest, although gas prices fluctuate considerably.
So how are consumer electricity prices determined? And how is the electricity price cap determined? The price cap for electricity per kWh and the daily standing charge for electricity are shown in Chart 3 (click here for a PowerPoint).
Marginal cost pricing. The wholesale price of electricity in the UK market is set by the most expensive power source needed to meet demand on a day-by-day basis. This is typically gas. This means that even when cheaper renewables (wind, solar, hydro) or nuclear power generate most of the electricity, high gas prices can increase the cost for all electricity. The wholesale price accounts for around 41% of the retail price paid by households.
It also means that profits for low-marginal-cost producers could increase significantly when gas prices rise. To prevent such (low-carbon) suppliers making excess profits when the wholesale price is high and possibly making a loss when it is low, the actual prices that they receive is negotiated in advance and a contract is signed. These contracts are known as Contracts for Difference (CfDs). CfDs provide a fixed ‘strike price’ to low-carbon generators. The strike price is set so as to allow low-carbon generators to recoup capital costs and is thus set above the typical level of marginal cost. If the wholesale price is below the strike price, payments to generators to cover the difference are funded by amounts collected from electricity suppliers in advance using the CfD Supplier Obligation Levy. If the wholesale price is above the strike price, the difference is returned to consumers in terms of lower electricity bills.
Policy costs. Electricity bills include an element to fund various social and environmental objectives. This element is also included in the cap. From October to December 2025, this element of the cap will be 11.3%. The money helps to subsidise low-carbon energy generation and fund energy efficiency schemes. It also funds the Warm Home Discount (WHD). In the October to December 2025 price cap, this amounted to a discount for eligible low-income and vulnerable households of £150 per annum on their electricity bills. The WHD element is included in the standing charge in the price cap. From October 2025, more generous terms will mean that the number of households receiving WHD will increase from 3.4 million to 6.1 million households. This is the main reason for the £35 increase in the cap.
Network costs. These include the cost of building, maintaining and repairing the pipes and wires that deliver gas and electricity to homes. From October to December 2025, this element of the cap will be 22.6%.
Supplier business costs. These include operating costs (billing, metering, office costs, etc.) and servicing debt. From October to December 2025, this element of the cap will be 15.4%.
Profit Allowance. A small percentage is added to the price cap for energy suppliers’ profits. This is known as the Earnings Before Interest and Tax (EBIT) allowance and is around 2.4%. This has a fixed component that does not change when the overall price cap is updated and a variable component that rises or falls with changes in the cap.
Reliance on gas, low gas storage facilities, marginal cost pricing and the commitment to invest in low-carbon electricity and home heating all add to the costs of energy in the UK, making UK electricity prices among the highest in the world.
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Information and Data
Questions
- Why are the UK’s energy prices among the highest in the world?
- What are the arguments for and against subsidising wind power?
- What is the Contracts for Difference scheme in low-carbon energy. What CfDs have been awarded? Assess the desirability of the scheme.
- Is the capping of gas and electricity prices the best way of providing support for low-income and vulnerable consumers?
- How are externalities relevant in determining the optimal pricing of electricity?
Artificial Intelligence (AI) is transforming the way we live and work, with many of us knowingly or unknowingly using some form of AI daily. Businesses are also adopting AI in increasingly innovative ways. One example of this is the use of pricing algorithms, which use large datasets on market conditions to set prices.
While these tools can drive innovation and efficiency, they can also raise significant competition concerns. Subsequently, competition authorities around the world are dedicating efforts to understanding how businesses are using AI and, importantly, the potential risks its use may pose to competition.
How AI pricing tools can enhance competition
The use of AI pricing tools offers some clear potential efficiencies for firms, with the potential to reduce costs that can potentially translate into lower prices for consumers.
Take, for instance, industries with highly fluctuating demand, such as airlines or hotels. Algorithms can enable businesses to monitor demand and supply in real time and respond more quickly, which could help firms to respond more effectively to changing consumer preferences. Similarly, in industries which have extensive product ranges, like supermarkets, algorithms can significantly reduce costs and save resources that are usually required to manage pricing strategies across a large range of products.
Furthermore, as pricing algorithms can monitor competitors’ prices, firms can more quickly respond to their rivals. This could promote competition by helping prices to reach the competitive level more quickly, to the benefit of consumers.
How AI pricing tools can undermine competition
However, some of the very features that make algorithms effective can also facilitate anti-competitive behaviour that can harm consumers. In economic terms, collusion occurs when firms co-ordinate their actions to reduce competition, often leading to higher prices. This can happen both explicitly or implicitly. Explicit collusion, commonly referred to as illegal cartels, involves firms agreeing to co-ordinate their prices instead of competing. On the other hand, tacit collusion occurs when firms’ pricing strategies are aligned without a formal agreement.
The ability for these algorithms to monitor competitors’ prices and react to changes quickly could work to facilitate collusion, by learning to avoid price wars to maximise long-term profits. This could result in harm to consumers through sustained higher prices.
Furthermore, there may be additional risks if competitors use the same algorithmic software to set prices. This can facilitate the sharing of confidential information (such as pricing strategies) and, as the algorithms may be able to predict the response of their competitors, can facilitate co-ordination to achieve higher prices to the detriment of consumers.
This situation may resemble what is known as a ‘hub and spoke’ cartel, in which competing firms (the ‘spokes’) use the assistance of another firm at a different level of the supply chain (e.g. a buyer or supplier that acts as a ‘hub’) to help them co-ordinate their actions. In this case, a shared artificial pricing tool can act as the ‘hub’ to enable co-ordination amongst the firms, even without any direct communication between the firms.
In 2015 the CMA investigated a cartel involving two companies, Trod Limited and GB Eye Limited, which were selling posters and frames through Amazon (see linked CMA Press release below). These firms used pricing algorithms, similar to those described above, to monitor and adjust their prices, ensuring that neither undercut the other. In this case, there was also an explicit agreement between the two firms to carry out this strategy.
What does this mean for competition policy?
Detecting collusion has always been a significant challenge for the competition authorities, especially when no formal agreement exists between firms. The adoption of algorithmic pricing adds another layer of complexity to detection of cartels and could raise questions about accountability when algorithms inadvertently facilitate collusion.
In the posters and frames case, the CMA was able to act because one of the firms involved reported the cartel itself. Authorities like the CMA depend heavily on the firms involved to ‘whistle blow’ and report cartel involvement. They incentivise firms to do this through leniency policies that can offer firms reduced penalties or even complete immunity if they provide evidence and co-operate with the investigation. For example, GB eye reported the cartel to the CMA and therefore, under the CMA’s leniency policy, was not fined.
But it’s not all doom and gloom for competition authorities. Developments in Artificial Intelligence could also open doors to improved detection tools, which may have come a long way since the discussion in a blog on this topic several years ago. Competition Authorities around the world are working diligently to expand their understanding of AI and develop effective regulations for these rapidly evolving markets.
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Questions
- In what types of markets might it be more likely that artificial intelligence can facilitate collusion?
- How could AI pricing tools impact the factors that make collusion more or less sustainable in a market?
- What can competition authorities do to prevent AI-assisted collusion taking place?
