Editorial
The Gist
- Traditional moats are crumbling. Structural defenses built on contracts and switching costs lose potency as digital transformation enables instant customer switching and competitive replication.
- Preference moats alone aren't defensible. Netflix spent $82.7 billion acquiring Warner Bros. because building a strong preference moat through innovation and quality isn't enough—competitors can build preference too. By combining preference with irreplaceable assets, Netflix created a moat that competitors cannot fully replicate.
- The strongest moats blend preference with exclusivity. As switching costs flatten, brand loyalty and authentic preference become important—but only when paired with irreplaceable assets (IP, data, infrastructure) that competitors cannot access.
Competitors move fast, especially within digital media, but nothing slows down a competitor's advancement on your organizational "castle" than a moat. Moats are meant to protect a business model. Traditionally, they have served as economic barriers to prevent competitors from trying to emulate a business model or acquire a business. Often, acquisitions have been a moat in and of themselves.
But the Netflix-Warner Bros deal exposes how moats have changed. As 2026 soon kicks into high gear, marketers should ask what actually protects a company's profit and market position.
This article explores how business moats work and what acquisitions like the Warner Bros deal mean for marketers and customer experience leaders navigating consolidating digital markets.
Table of Contents
- The Digital Disruption: When Preference Moats Become Fragile
- Combining Preference With Exclusive Assets: The Defensible Moat
- How Preference and Exclusive Assets Work Together
- How Moats Work Across Industries
- Strategic Implications for Marketing Leaders
- The Bottom Line: What Really Protects Your Profit
The Digital Disruption: When Preference Moats Become Fragile
Netflix on Dec. 5 announced an agreement to acquire Warner Bros.' film and television studios, HBO Max, and DC Studios for $82.7 billion. The move shocked the streaming industry, indicating critical insights about how competitive moats actually work in the digital age.
A competitive moat is a barrier to entry that allows a company to maintain higher profits and fend off competitors. For Netflix, that moat was genuine preference—customers preferred Netflix because of the quality shows it made. Since its transition to streaming services, Netflix operated on a simple strategy: outrun competitors through relentless content innovation and speed to market. After establishing a streaming customer base, Netflix produced original franchises like Stranger Things, Squid Game and Bridgerton from scratch, moving faster than traditional media competitors.
Then competitors discovered Netflix's playbook. HBO invested heavily in prestige television. Disney+ launched with Star Wars and Marvel. Amazon Prime invested in prestige shows. Apple TV+ signed major creators. Suddenly, customers could choose based on whose original content they preferred. Every competitor was now building preference through innovation and quality.
But Netflix faced an insurmountable problem: Warner Bros. Discovery owned something Netflix couldn't out-innovate—Harry Potter, Game of Thrones, the entire DC Universe, The Sopranos, Friends, The Wizard of Oz. These franchises hold tremendous brand recognition built over decades, with cross-generation appeal. Netflix could invest in original content to match competitors' preference. But Netflix couldn't create the excitement at the scale of a Harry Potter franchise.
Bank of America analysts concluded: "If Netflix acquires Warner Bros., the streaming wars are effectively over." Not because Netflix innovates faster. Because Netflix combined its preference moat (great original content customers love) with irreplaceable assets (IP no competitor can replicate).
This reveals a fundamental truth: preference moats built through innovation are real and valuable—but alone they're not defensible when every competitor invests in quality original content. When you combine earned preference with exclusive assets, competitors cannot replicate that combination.
Related Article: Netflix's Next Growth Hack: Turning Viewers into Marketers
Combining Preference With Exclusive Assets: The Defensible Moat
Most digital strategy focuses on either building customer preferences through innovative, high-quality offerings, or nurturing brand loyalty through superior customer experiences. But Netflix realized neither alone is defensible when every competitor invests billions in the same approach.
Netflix CEO Ted Sarandos told investors: "Over the years, we have been known to be builders, not buyers. We already have incredible shows and movies and a great business model ... this is a rare opportunity." This signals Netflix's strategic shift. Building the next Stranger Things takes years and millions of dollars. Netflix earned customer preference through genuine quality. Building Harry Potter is impossible—it's an asset that can only be acquired, not invented. When competitors also invest billions in quality original content, preference becomes competitive rather than defensible.
Netflix's acquisition bid combines earned preference with irreplaceable exclusive assets—strengthening the preference moat by adding something competitors cannot replicate. The result: Netflix-HBO Max becomes the undisputed powerhouse of streaming, with a "content moat" that no stand-alone streamer could touch, accounting for more than a fifth of U.S. streaming viewing time.
Here's the strategic insight: Netflix has customers who prefer Netflix because of quality original shows. Now those customers will also discover Harry Potter, Game of Thrones, The Sopranos, and Friends nowhere else but Netflix. Competitors can build preference by investing in quality originals. But they cannot replicate the complete package of quality originals plus legacy franchises available nowhere else.
For marketing leaders, this signals a critical shift: the streaming landscape is consolidating around exclusive content libraries. But it's not just about scale—it's about combining innovation-built preference with assets competitors cannot replicate. This changes how media planning works. Marketers can't assume competitive fragmentation continues.
What This Means for Marketers
A consolidated view of how shifting moat dynamics change marketing strategy, investment priorities and competitive risk.
| Theme | What’s Changing | Why It Matters to Marketers | Action for Marketing Leaders |
|---|---|---|---|
| Competitive Moats | Traditional moats built on contracts, switching costs or scale are eroding in digital markets. | Marketing can no longer rely on friction to retain customers. Preference is earned every cycle. | Shift from defensive retention tactics to continuous value creation and experience differentiation. |
| Preference Alone | Innovation-driven preference is real—but increasingly replicable as competitors invest at parity. | Quality content, UX and brand trust are table stakes, not long-term protection. | Audit whether your strongest advantages can be matched with capital alone. If yes, your moat is fragile. |
| Exclusive Assets | Irreplaceable assets (IP, data, infrastructure, partnerships) now determine defensibility. | Preference becomes defensible only when paired with assets competitors cannot access. | Identify or acquire exclusivity—owned data, proprietary IP, ecosystem control or locked-in distribution. |
| Market Consolidation | Winning strategies increasingly involve consolidation, not just innovation. | Category fragmentation assumptions break down. Fewer, stronger players reshape planning. | Plan media, partnerships and growth strategies assuming fewer platforms control more demand. |
| Speed as a Moat | Innovation speed creates short-term advantage but compresses quickly. | Velocity alone cannot protect margins once competitors catch up. | Use speed to build preference—but pair it with assets that lock in advantage. |
| Switching Costs | Digital switching costs flatten across most consumer and B2B platforms. | Account history and personalization are not retention strategies by themselves. | Stop treating friction as loyalty. Invest in reasons customers want to stay. |
| Regulatory Risk | Consolidation introduces antitrust and regulatory exposure. | Blocked deals can instantly collapse a moat strategy. | Factor regulatory outcomes into long-term marketing and growth assumptions. |
| Strategic Question | The core question has shifted. | “How do we innovate faster?” is no longer sufficient. | Ask instead: “What do we own or control that competitors can never replicate?” |
How Preference and Exclusive Assets Work Together
In digital markets, switching costs flatten—users can easily move from one platform to another. This forces companies to build genuine customer preference through quality and innovation. Netflix's acquisition shows how to make preference defensible by adding exclusive assets that customers cannot access elsewhere.
The combined Netflix-HBO Max will control 21% of U.S. streaming viewing time. Only YouTube (28%) surpasses it. But the real defensibility isn't just scale—it's the combination. Customers prefer Netflix because: (1) Netflix creates quality original content, and (2) Netflix is the only place to watch Harry Potter, DC Universe, Friends, Game of Thrones and Stranger Things. Neither element alone creates defensibility. Together, they create a highly appealing advantage for Netflix.
Marketers are watching, recognizing how the signals reflect a shift: the "streaming wars" are moving beyond pure innovation competition. The winners are combining innovation-built preference with exclusive assets. Expect Disney, Amazon and others to pursue similar strategies—not because innovation failed, but because innovation plus exclusivity is more defensible than innovation alone.
How Moats Work Across Industries
Netflix's strategy illustrates how moats work, but the principle extends across industries. Understanding these patterns helps marketers recognize which defensibility strategies will work in their own markets.
- Visa (Network Effect): Dominates global payments because the more financial institutions and merchants that accept Visa, the more valuable it becomes—making competitors nearly impossible to displace. Visa's moat strengthens as its network grows.
- Walmart (Cost Advantage): Built its moat through massive scale and supply chain efficiency, allowing it to undercut competitors on price while maintaining higher margins. Scale creates defensibility through cost structure.
- Apple (Brand + Ecosystem Lock-In): Customers stay because leaving means abandoning iCloud, the App Store, and years of integrated devices and services. Switching costs feel like stepping backward. Apple's preference moat is strengthened by exclusive ecosystem assets.
- Adobe (Consolidation): Offerings like Creative Cloud retains creative professionals because switching means losing workflow compatibility and collaborative features. Like Netflix, Adobe combined preferred software with consolidation to create defensibility.
These examples share a common thread: the strongest moats take years or decades to build because they're constructed from assets, relationships or data competitors can't quickly replicate. What's changing is how companies build moats in digital-first markets.
Traditionally, moats were structural and passive—you owned a resource (Walmart's supply chain), controlled access (Visa's payment network), or benefited from regulatory protection.
Today's most durable moats combine speed, data and consolidation. Shein built a fast-fashion moat not through brand recognition but through algorithmic speed and data: every click and abandoned cart feeds machine learning models that predict trends before competitors.
Google's moat started with superior algorithms but now depends on the data it collects from billions of searches—each search makes Google's systems smarter. In digital markets, the ability to consolidate, control data and iterate faster increasingly matters more than traditional structural assets like physical infrastructure or regulatory licenses.
Strategic Implications for Marketing Leaders
The Netflix-Warner Bros deal shifts how marketing leaders should think about competitive strategy:
- Building defensible preference requires more than innovation alone. In mature digital markets, quality original content builds real preference—but it's replicable. Combine preference built through innovation with exclusive assets, data or partnerships competitors cannot access.
- Regulatory risk is a moat vulnerability. If your competitive strategy depends on consolidation or exclusive partnerships, regulatory approval is part of your moat. The Netflix-Warner Bros deal would consolidate No. 1 streamer Netflix with No. 3 HBO Max, surpassing the 30% regulatory threshold. If the FTC or international regulators block the deal, Netflix pays a $5.8 billion reverse termination fee and returns to competing on innovation alone—the strategy it just admitted wasn't sufficient. Monitor antitrust developments in your industry.
- Preference moats need defensibility beyond investment. If your competitors can build equivalent preference through similar investments in quality and innovation, your moat isn't defensible. You need exclusive assets (IP, data, infrastructure, partnerships) that create defensibility preference alone cannot provide.
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The Bottom Line: What Really Protects Your Profit
In the pre-digital era, moats were structural and passive. You built them once and collected returns indefinitely.
In the early digital era, moats became active and behavioral. You had to innovate and build preference continuously. Netflix proved this—by innovating faster and creating better shows, Netflix earned genuine customer preference.
Today, preference alone is valuable but not defensible. The strongest moats combine earned preference (built through innovation and quality) with exclusive assets competitors cannot replicate.
The Hierarchy of Moat Defensibility
Here’s how the hierarchy of moat defensibility is likely to shake out moving forward.
| Moat Tier | What This Enables | Defensibility Outlook |
|---|---|---|
| Tier 1: Preference + Exclusive Assets | Strong customer preference built through sustained innovation and quality (customers genuinely prefer Netflix), combined with irreplaceable exclusive assets (e.g., Harry Potter, DC, Friends available nowhere else). | Strongest. Competitors may replicate preference or acquire assets, but rarely both at scale. The combination creates a moat neither element can deliver alone. |
| Tier 2: Preference Alone | Deep preference driven by original content, brand trust and superior customer experience. Platforms like HBO Max and Disney+ compete here by investing heavily in quality. | Moderate. Defensible only as long as competitors underinvest. Capital and talent parity eventually erode advantage, especially in mature markets. |
| Tier 3: Exclusive Assets Without Earned Preference | Ownership of valuable IP without ongoing innovation or relevance. Legacy libraries exist, but customer preference has shifted elsewhere. | Weak. Assets decay without demand. Owning great IP matters little if customers don’t actively prefer the experience built around it. |
| Tier 4: Innovation and Speed Alone | Competing on velocity—shipping features faster, experimenting aggressively and creating short-term preference through momentum. | Weak long-term. Speed advantages compress quickly as competitors invest. Netflix demonstrated this when rivals matched innovation pace. |
| Tier 5: Digital Switching Costs Alone | Reliance on saved preferences, usage history or personalization data that makes leaving inconvenient. | Weakest. Easy to replicate with capital and product quality. Switching friction disappears the moment a better option emerges. |
Netflix spent a decade building Tier 2 (strong preference through innovation). Then Netflix realized Tier 2 alone isn't defensible when competitors also build preference. So Netflix moved to Tier 1: combining preference with exclusive assets.
For marketing and CX leaders, the strategic question has shifted from "how do we innovate faster?" to "how do we build genuine preference through quality AND secure defensibility through exclusive assets or data?"
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