The entertainment industry is once again facing a potential oligopoly, with the recent news of Netflix's bid to acquire Warner Bros. sparking debate. This potential deal, valued at a staggering $83 billion, could reshape the media landscape, raising concerns about the power dynamics between tech platforms and traditional Hollywood players.
The rise of entertainment oligopolies is not a new phenomenon. In the early 20th century, a few powerful players dominated the industry, setting the rules and shaping the fate of moviegoers and TV audiences. Adolf Zuker, a theater chain owner, pioneered a new business model by merging his film distribution company, Famous Players-Lasky, with Paramount and the Balaban and Katz theater chain. This vertical integration allowed for the assembly line production of films, a model that would become the foundation of Hollywood's dominance.
The Warner brothers, Harry, Albert, Sam, and Jack, were early theater owners during the nickelodeon era, using financial backing from Goldman Sachs to merge their theaters with independent production companies. However, the most significant Hollywood conglomerate was Metro-Goldwyn-Mayer (MGM), formed by the merger of Loews theater chain with Metro Pictures, Goldwyn Pictures, and Mayer Pictures.
At its peak, MGM held non-compete contracts with top stars and controlled a substantial portion of the industry's gross revenues. By the mid-1930s, a handful of vertically integrated studios, including MGM, Paramount, Warner Brothers, RKO, and 20th Century Fox, dominated Hollywood, functioning as a state-sanctioned oligopoly. They controlled the workforce, film production, and distribution, maintaining stable industry rules until after World War II.
In 1938, the Department of Justice and the Federal Trade Commission sued the 'Big Five' studios, arguing their vertical integration was anti-competitive. The Supreme Court's 1948 decision, known as the Paramount Decision, forced the studios to sell their theater chains, weakening their cartel power. This led to the flourishing of independent filmmakers and a more diverse film industry.
The rise of Netflix and streaming services has brought a new wave of innovation in storytelling, similar to the period after the Paramount Decision. Netflix's direct-to-subscriber model for its indie film 'Beast of No Nation' threatened Hollywood's blockbuster model, which relies on a small number of big-budget films. However, Hollywood quickly adapted by developing its own streaming platforms and restricting access to its vast catalogs.
The recent AT&T-Discovery merger, resulting in Warner Bros. Discovery, has raised concerns. The company's bundled streaming platform, Max, combined HBO Max and Discovery+, confusing consumers and the market. CEO David Zaslav's deals have been criticized for being anti-competitive, leading to gutted newsrooms and canceled scripted shows. The merger has validated critics' warnings about 'market first' policymaking.
The potential Netflix-Warner Bros. merger, if it goes through, will likely please Wall Street but could further decrease the power of creators and consumers. Netflix, under pressure to be profitable, has been squeezing its subscribers with higher fees and more restrictive login protocols. Buying HBO Max would enable Netflix to charge even more, a practice that tech blogger Cory Doctorow calls 'enshittification'.
The Department of Justice's push to sunset the Paramount Decision under the first Trump administration highlights the potential for media concentration. With artificial intelligence threatening to displace film production, the new parent company of Warner Bros. will prioritize profits and cost-cutting, potentially impacting the use of film libraries for machine training. The entertainment industry's history suggests that consumers and competing creatives will face challenges in this new era of oligopolies.
