WBD and Paramount's regulatory path could be easier than Netflix merger

one day later supreme skydance emerged as the winner to take over the media giant Warner Bros. DiscoveryQuestions about the regulatory path of companies increase.

WBD's board said Thursday that Paramount's revised $31 per share offer was higher than an existing offer from netflixprompting the streamer to announce that it was walking away from the deal entirely and clearing the way for Paramount.

Paramount's increased offer (from $30 per share) was the latest in a series of actions it took after it launched a hostile bid late last year to buy WBD. It had initially lost a bidding war with Netflix, which offered $27.75 per share.

Paramount's latest offer also included a $7 billion breakup fee if the deal does not win regulatory approval. And according to a filing on Friday, it has already paid the $2.8 billion breakup fee that WBD owed Netflix if the deal fell through.

But media industry experts said the Paramount deal appears more likely to pass government scrutiny than it did when Netflix was on the scene.

Netflix co-CEOs Ted Sarandos and Greg Peters said Thursday that it was “no longer financially attractive” to match Paramount's offer.

Although Netflix executives had said they were “very confident” their deal would win approval, the merger would have united two major streaming services (Netflix and Paramount+) and could have potentially increased prices for consumers and reduced competition.

In early December, Trump said the deal between Netflix and WBD “could be a problem” because of the increased market share Netflix would gain, and claimed he would be involved. He walked back those comments earlier this month, saying the deal would be at the sole discretion of the Justice Department.

And while the size of a combined Netflix and WBD entity was one of the biggest antitrust hurdles for the companies, that question could still arise for Paramount.

Both Paramount and WBD have expanding portfolios of television networks, with Paramount+ reaching 78.9 million subscribers, according to its most recent earnings report, and HBO Max reaching 131.6 million subscribers through the end of 2025.

Paramount executives argued that one advantage of their offer was that a deal with the media company would draw less government scrutiny. The father of Paramount Skydance CEO David Ellison Oracle Co-founder Larry Ellison is known to have close relations with President Donald Trump.

Trump's son-in-law Jared Kushner backs the deal with Paramount, according to a filing with the Securities and Exchange Commission.

Still, Paramount's proposed deal had been criticized for potentially being financed by Saudi Arabia's sovereign wealth funds; Abu Dhabi, United Arab Emirates; and Qatar. The company has previously said that those entities agreed to waive all governance rights, including representation on the board of directors.

California Attorney General Rob Bonta, a Democrat, warned Thursday night that the merger was “not a done deal” and that the California Department of Justice, which has an open investigation into the deal, will be aggressive in its review.

And Democratic Sen. Elizabeth Warren of Massachusetts said in a statement that the merger of Paramount and WBD is “an antitrust disaster that threatens higher prices and fewer choices for American families.”

Analysts at Raymond James said they believe the deal between Paramount and WBD could pose a much lower risk to regulatory approval than a tie-up with Netflix.

In a note on Friday, analysts said the regulatory path forward for Paramount is “significantly easier” than Netflix's, although it wouldn't be a “piece of cake.”

“Of course, there are new challenges with this deal around news, cable networks, international linear networks, etc., but we still feel the WBD/PSKY deal is more generally acceptable,” the analysts wrote. “And, especially after the reaction to the WBD/NFLX deal, we believe PSKY's political position with the current US administration is much stronger than Netflix's.”

Analysts noted that questions remain about how the Justice Department will define the competitive market for the companies, and speculated that Netflix likely decided not to match Paramount's superior offer because of what “would likely be a brutal regulatory review.”

A Friday note from Morningstar analysts echoed those thoughts. Analysts said the move was right for both Netflix and Paramount because they believed Netflix was unnecessarily overpaying for WBD's streaming and studios.

In particular, Paramount intended to buy all of WBD, including its pay-TV networks such as CNN, TBS and TNT, while Netflix only wanted the company's studio and streaming assets.

“In our view, this is the best outcome for Warner shareholders, as we have felt that, with a greater likelihood of early regulatory approval and uncertainty around the value and risk of the network business they would have retained, the best offer would have been $30 in cash,” the analysts wrote.

Analysts added that they do not expect Paramount to face any regulatory issues during the approval process.

Joseph Kalmenovitz, assistant professor of finance at the University of Rochester's Simon Business School, said the timing of Paramount's bid was likely strategic.

“David Ellison didn't just outperform a Hollywood board: he timed the regulatory cycle perfectly,” Kalmenovitz said. “The big-is-bad populist philosophy is out; the deal-friendly establishment is back in.”

Still, Paren Knadjian, a partner at advisory firm EisnerAmper, said the regulatory path forward for Paramount remains nuanced and is not a done deal. While concerns about the Netflix-WBD deal largely focused on library content, the Paramount-WBD deal is much more of a “horizontal consolidation” effort between cable TV, sports, streaming and news, he said.

“I think the biggest thing we're going to focus on is concentrating the intellectual property under one roof,” Knadjian told CNBC. “What power does that give this new entity in terms of the ability to charge more?”

Knadjian said Paramount will also face political concerns, not only from state and federal politicians, but also between CNN and CBS merging under one roof, as well as concerns about blockbuster franchises such as “Star Trek” and “Harry Potter.”

Ultimately, approval of the deal will depend on what concessions the two companies will have to make to allay any fears about a potential media monopoly.

“Regulatory pressure, political pressure, those are the things that will certainly delay the deal and make it more complicated, and I think there will have to be significant concessions for it to happen.

There are so many factors to this. “It's a lot more complicated than a lot of the other deals we've seen in the past,” Knadjian said.

– CNBC's Lillian Rizzo contributed to this report.