The Wall Street Journal reports that Warner Bros. Discovery (WBD) has entered exclusive negotiations to sell its studios and HBO Max streaming business to Netflix. The deal is expected to be announced imminently. The obvious questions surrounding WBD’s acquisition are focused on pricing and regulatory concerns. But the real story is about power laws forcing Netflix into a defensive acquisition it may not be able to protect against disruption from YouTube and generative AI.
Netflix’s own data reveals 2% of content drives 30% of viewing. This power law dynamic creates a perpetual content crisis. As YouTube captures a growing share of TV consumption and traditional studios fragment or fail, the pool of premium IP that can sustain the top of that curve shrinks. If HBO and/or Warner Bros. studios are acquired by anyone else, Netflix loses titles like “Sex And The City” that rank in the top 7% to 14% of shows watched.
It is better to overpay for diminishing assets than lose access to the titles that drive subscriber value. Without a reliable supply of fat-tail-to-mid-tail-level franchises, Netflix risks its own power law working against it.
