If you thought the news was bad for Netflix (NFLX) yesterday when it made an offer to buy entertainment giant Warner Bros. Discovery (WBD), then you will likely not like how today turned out. With the government lining up against the deal, consumers are now stepping in, and a lawsuit has been filed against Netflix to try and block the deal that way. The news did little to hurt Warner, though, as investors sent Warner shares up nearly 4% in the closing minutes of Tuesday’s trading.
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The lawsuit is currently a “proposed class action” suit, and was filed on Monday by a Max subscriber. The subscriber in question asserted that the deal would “…reduce competition in the U.S subscription video-on-demand market.” This is a familiar assertion, one that has already emerged from Congress members. The lawsuit also noted, “Netflix has demonstrated repeated willingness to raise subscription prices even while facing competition from full-scale rivals such as WBD.”
This is particularly bad news for Netflix, as this was just the outcome it tried to prevent by launching its “charm offensive” recently. It sought to convince regulators that its market dominance in streaming would not be a problem, that there were many other options. Some even asserted customers would save money by no longer needing to subscribe to both Max and Netflix at the same time.
Will Netflix Follow Through?
And then one of the oddest assertions of all emerged: Netflix may just be engaged in a head-fake here, and will ultimately bow out to let Paramount Skydance (PSKY) walk away with Warner after all. That was the idea advanced recently by Puck‘s Matt Belloni during an interview with CNBC.
Belloni’s assertion is that, “at a certain point,” Netflix will just let Paramount have the entertainment giant. Netflix has been seeing a lot of share loss since it placed its bid, Belloni noted, and it may not be willing to see it through to the end. With disturbing signs growing that there are elements of Hollywood who oppose Netflix, and oppose Paramount, for different reasons, the idea that someone might just step aside is not especially crazy.
Is WBD Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on WBD stock based on eight Buys and 12 Holds assigned in the past three months, as indicated by the graphic below. After a 150.05% rally in its share price over the past year, the average WBD price target of $22.65 per share implies 19.85% downside risk.
