Netflix Content Reliance Deemed Limited by Bernstein Amid Paramount, Warner Bros. Discovery Merger Talks

Analysis Mitigates Merger Concerns for Netflix

Bernstein analysts have maintained an Outperform rating and a price target of $1,390.00 for Netflix (NASDAQ:NFLX), addressing market concerns regarding the streaming giant's content licensing relationships. This reaffirmation arrives amidst increasing speculation about a potential acquisition of Warner Bros. Discovery (WBD) by Paramount Global (PSKY), an event that could significantly reshape the competitive landscape of the global media sector. Bernstein's assessment suggests that while such a merger could drive substantial consolidation, its impact on Netflix's content pipeline would likely be immaterial.

Content Licensing Scrutiny Amidst Industry Consolidation

The potential merger between Paramount Global and Warner Bros. Discovery has prompted a re-evaluation of content licensing agreements across the streaming industry. Bernstein's deep dive into Netflix's content catalog reveals that the streaming leader's reliance on licensed material from these two entities is notably low. Specifically, out of 151 unique titles that achieved a spot in Netflix's Global Top 10 year-to-date, only five originated from Paramount or Warner Bros. Discovery. This figure underscores the dominance of Netflix Originals, which constitute over 90% of the platform's TV hits this year.

While movies present a somewhat higher exposure, with approximately 30% of licensed hit movie titles year-to-date coming from Paramount and Warner Bros. Discovery, analysts emphasize that films generally contribute less engagement compared to television series on the platform. The strategic move towards proprietary content has fortified Netflix's position, allowing it greater autonomy from third-party licensing fluctuations.

Market Dynamics and Strategic Interdependencies

The proposed Paramount-Warner Bros. Discovery merger, following Skydance Media's prior acquisition of Paramount Global, is viewed by the market as a significant consolidation play. Warner Bros. Discovery shares have seen a rise of approximately 50% over the past week, with Paramount Skydance (PSKY) shares advancing 31% in the last month, indicating investor optimism for potential synergies and expanded market reach. A combined entity, potentially valued at over $55 billion, would control a vast library of intellectual property, including HBO Max (125 million subscribers) and Paramount Plus (77 million subscribers), positioning it to challenge established streaming leaders like Netflix.

Despite this, Bernstein highlights a critical interdependence:

"PSKY and WBD still depend on Netflix not only as a licensee of content, but also as an effective marketing platform… and a likely a bundle partner in the future."

This suggests that even a merged entity would find it strategically beneficial to maintain a relationship with Netflix, rather than completely severing content ties.

Broader Implications and Regulatory Landscape

The drive for consolidation within the legacy media space is a response to the evolving competitive landscape, where smaller players face increasing pressure from streaming giants. Analysts from KeyBanc estimate that a Paramount-Warner Bros. Discovery merger could unlock $3 billion to $4.5 billion in cost reductions, translating into $24 billion to $36 billion in value creation—a figure roughly equivalent to Warner Bros. Discovery's net debt.

However, such a large-scale merger would undoubtedly face rigorous regulatory scrutiny. Both companies operate extensive linear networks, direct-to-consumer streaming services, and studio businesses, leading to significant overlap. Previous media mergers, such as Warner Media and Discovery's combination in 2022, experienced extended antitrust reviews despite more limited operational overlaps. The concentration of valuable intellectual properties, from Mission: Impossible to Harry Potter, will be a key consideration for regulators.

Financial Health and Future Outlook for Netflix

Netflix (NFLX), currently trading at $1,188.44, has demonstrated robust financial health, reporting a 70% return over the past year and maintaining a Piotroski Score of 9. Recent financial results further underscore its strength: Q2 earnings per share (EPS) of $7.19 surpassed analyst estimates of $7.07, and revenue reached $11.08 billion, exceeding estimates of $11.04 billion and marking a 15.9% year-over-year increase. Projections for 2025 anticipate continued revenue growth of 14% to approximately $44.4 billion, with operating profit expected to reach $13.2 billion.

In a related development, Amazon.com (AMZN) recently secured a partnership with Netflix to integrate its ad inventory into Amazon's demand-side platform (DSP). This collaboration has led KeyBanc Capital Markets to reaffirm its Overweight rating on Netflix, also setting a $1,390.00 price target, citing the partnership as a positive step for enhancing ad monetization. Looking ahead, investors will monitor the progress of media sector consolidation and its indirect effects on content ecosystems, alongside Netflix's continued execution of its original content and advertising strategies.