Why Netflix's New Growth Strategy Could Reshape the Entire Streaming Landscape

The ongoing battle between the big streaming players took an important turn recently, as Netflix (NASDAQ: NFLX) announced a deal to acquire Warner Bros. Discovery's (NASDAQ: WBD) film, TV, and streaming studio for $72 billion. The plot thickened a few days later when Paramount Skydance (NASDAQ: PSKY) made a $108 billion hostile bid for Warner Bros. Discovery.

The Netflix deal, should it close, would represent a major shift in the streaming landscape. Netflix would bolster its position as the streaming leader, while also eliminating a competitor and keeping valuable intellectual property (IP) away from its competitors.

Let's look a little closer at this deal and what it could mean for the streaming industry and consumers.

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The war for IP

One of the most important aspects of this deal is the valuable IP that would now fall under the Netflix banner. Warner Bros. Discovery is the owner of well-known franchises like the DC Universe, Harry Potter, and longtime cable giant HBO. Being able to acquire these properties is a major win for Netflix that further cements its position as the must-have streaming service for consumers.

However, for those exact reasons, this deal is likely to face significant regulatory scrutiny. The rest of the streaming industry is understandably concerned about the largest streamer getting even larger, and it would be reasonable to expect they will exert whatever pressure available to try to block this acquisition.

For its part, Netflix seems confident in its ability to get this deal past regulators. As part of the agreement, Netflix has agreed to pay a $5.8 billion breakup fee should the deal get blocked. That's a large amount of money to be sure, but it represents only about nine months' worth of Netflix's free cash flow. Netflix certainly doesn't want to have to pay it, but it wouldn't be as material to the business as it might appear at first.

Subscription fatigue

Despite the potential antitrust concerns with this acquisition, from a consumer standpoint, there's a case to be made that this is what's needed. According to a recent survey, while most consumers who have canceled a streaming service cite cost as the main reason, the second and third most common reasons were not using a service enough and paying for too many services.

One of the compelling value propositions for streaming was that it allowed consumers to get away from the cable bundle, which included a dizzying amount of channels that mostly went unwatched. With the proliferation of streaming services over the past several years, it feels to some like we're taking a step back rather than venturing into a better future.

Shifting chess pieces

It will be important to watch what happens next in the streaming space. For Netflix's streaming competitors, conversations will certainly be taking place about how to counter this move. The decision to do nothing seems unlikely, so one can reason that the other streamers will either fight the Netflix deal or consider making an acquisition of their own. The most immediate way in which things could shift would be if the Paramount Skydance hostile bid ends up disrupting the Netflix deal before it even gets done.

Time will tell how this turns out, but one can imagine a future where there are just a few streaming services, and some of the smaller players get swallowed by the larger streamers. This could have varying impacts on consumers. Fewer streaming services would certainly limit the streaming fatigue expressed by some, but it could also result in higher prices overall for streaming entertainment.

Whether the Netflix acquisition of Warner Bros. Discovery goes through, we may not be done with breaking news in this space. If the acquisition does close, it will be important for investors to pay attention to competitors to see if more deals are in the future. Either way, the streaming landscape may have changed forever.

Jeff Santoro has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.