Netflix Inc’s (NASDAQ: NFLX) $82 billion deal to buy Warner Bros Discovery Inc’s (NASDAQ: WBD) studio and streaming assets may reshape Hollywood for the next century, but its most immediate effect is headed straight for the ETF market.
The deal promises to turn the Communication Services Select Sector SPDR (NYSE: XLC) into one of the most concentrated mega-cap vehicles in the U.S., renewing questions about whether sector ETFs can still work as diversified exposure tools in an era of consolidation.
XLC Risks Becoming A Lopsided Fund
XLC already carries one of the highest concentration levels among major sector ETFs. Meta Platforms, Inc (NASDAQ: META) and Alphabet Inc’s (NASDAQ: GOOGL) two share classes control more than 30% of the fund. Netflix sits further down the roster, though still among the top five. But absorbing Warner Bros.’ studio and streaming assets, including HBO and HBO Max instantly supercharges the company’s scale, earnings footprint and possibly index weight.
Analysts say that if the deal closes in 2026, Netflix could leapfrog into the ETF’s top tier, creating a three-company bloc that would dominate approximately 50%, if not more, of XLC’s portfolio. At that point, XLC no longer resembles a broad communications services basket. It becomes a mega-cap trio with slivers of Old World media attached.
Passive Flows Could Distort Pricing
With no significant competing operational streaming-themed ETFs in the market, XLC is now the only liquid vehicle through which most passive mandates access the sector. This leaves the ETF uniquely exposed to a feedback loop:
- A larger Netflix increases its index weight
- A larger weight draws more automated inflows from XLC
- Those flows force-buy Netflix shares
- Forced buying pushes the stock higher — and the cycle repeats
Should the merger clear regulatory hurdles, XLC could turn out to be the single biggest amplifier of Netflix’s post-acquisition valuation.
Bottom Line
For retail and institutional investors looking for diversified sector exposure, this transformation of XLC may create a mismatch between expectations and reality.
The product's label may say “communication services,” but its underlying structure could soon say “three-stock mega-cap vehicle.” In other words, the Netflix–Warner Bros merger can spark a turning point for the sector ETF model — and a warning that diversification is becoming harder to deliver as whole industries collapse into the hands of a few giants.