The legal headaches surrounding the deal between Netflix (NFLX) and entertainment giant Warner Bros. Discovery (WBD) are blossoming into full-blown migraines. This is evidenced wonderfully by the revelation that Paramount Skydance’s (PSKY) chief legal officer is calling the deal “presumptively unlawful.” This, oddly, did not hinder Warner stock much, as shares were up over 2% in the closing minutes of Friday’s trading.
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The word came from Paramount’s chief legal officer, Makan Delrahim, who made the unexpectedly forceful declaration in question. The deal was “presumptively unlawful,” Delrahim noted, because it would “…further cement its (Netflix’s) dominance in streaming video on demand.” Delrahim put the objections into a letter, which Delrahim then sent to a Congressional committee on the same day it was holding hearings about the streaming market.
The hearing also played host to the argument that Netflix is not merely a subscription streamer, but rather, competes in a broader market that includes things like YouTube and social media. Delrahim openly scoffed at this assertion, declaring the definition of broader market in this case “…tortured and absurd,” and noted that it was something “…no serious regulator would ever accept.”
Theaters Are Still Nervous
Meanwhile, the theaters are still profoundly unnerved by the notion of a company that believes their entire industry is obsolete buying one of their primary suppliers. The organization that represents North American theater owners, Cinema United, recently went to Congress itself to try and get the deal called off. But Cinema United does not particularly want Paramount buying in, either.
Regardless of who buys Warner, Cinema United asserts, the same thing will likely happen: fewer movies made, less diversity of films made, studios will have greater leverage over theaters, and more jobs will be lost. Certainly it would be true of Netflix, which would route Warner properties into streaming. But it would also be true of Paramount, as there would be one less producing studio in the mix.
Is WBD Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on WBD stock based on six Buys and nine Holds assigned in the past three months, as indicated by the graphic below. After a 191.96% rally in its share price over the past year, the average WBD price target of $24.98 per share implies 13.52% downside risk.
