Paramount Sued By States In Bid to Block $111 Billion Warner Bros. Merger

A coalition of state attorneys general have sued Paramount to stop its $111 billion takeover of Warner Bros. Discovery, a sweeping legal challenge to a merger that threatens to reshape Hollywood amid the absence of the Trump administration’s intervention in big deals.

In a much-anticipated lawsuit filed in California federal court on Monday, the states allege that the acquisition will substantially throttle competition in wide-release and top-grossing theatrical distribution and cable licensing in violation of antitrust laws. They argue that the merger will combine two of the two five studios in Hollywood, leading to higher prices, fewer movies in theaters and a reduction in the variety and quality of content.

The states allege a violation of the Clayton Act, an antitrust law accounting for potential monopolies. They’ve asked Paramount not to close the deal until the case is decided. If not, they say they’ll file a temporary restraining order. The coalition is comprised of Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon and Washington.

“The unlawful merger of these two entertainment behemoths would lead to higher prices, lower quality, and less content for film and television, harming movie theaters, basic cable distributors, and ultimately, audiences on every sofa and movie theater seat in the U.S.,” said California Attorney General Bonta. “California’s film and entertainment industry touches the lives of Americans daily — it comes into the living rooms of families, has a starring role in many young people’s first dates, and is a point of immense pride and employment for Californians up and down our state.”

In a statement, Paramount said that the lawsuit “reflects a fundamentally flawed application of the antitrust laws and is wrong on both the facts and the law.”

“The combination of Paramount and WBD will create a stronger, well-capitalized, creative-first media company that is better positioned to compete with companies like Netflix that have come to dominate the industry for audiences, premium content, and creative talent,” it added. “Put simply, any attempt to block this transaction undermines the very principles antitrust law is designed to promote: more competition, more choice for consumers, and more opportunities for creators and workers.”

The lawsuit, which may stretch on for years, marks another effort by state attorneys general to oppose major mergers as the government embraces a more lenient view on consolidation, particularly in media and entertainment. The Justice Department in June signed off on Paramount’s bid to purchase Warner, finding that the merger will increase competition in the markets for streaming, linear TV and the development, production or distribution of films for theatrical release. The green light doesn’t require any divestitures, behavioral remedies or concessions.

The approval and absence of concessions have magnified speculation of Trump putting his thumb on the scales for Paramount CEO David Ellison’s plans to assemble a media conglomerate. His father, Oracle scion Larry Ellison, has leveraged a symbiotic relationship with Trump, who has been critical of most mainstream coverage, to aid that effort. A merger between Paramount and Warner will bring CNN under the family’s control.

If Paramount is allowed to acquire Warner Bros., four studios will control over 85 percent of all wide-release theatrical films, according to the complaint. These movies, defined as feature-length films intended for broad initial exhibition in theaters, accounted for 98 percent of all box office revenue over the past four years, the lawsuit says.

The states also argue that the deal will harm the market for the distribution of blockbuster films. Paramount will control more than 30 percent of these movies after the merger, with just four distributors controlling more than 90 percent.

In turn, theaters will likely be forced to pay a greater split of their revenues and face more onerous caps on discounts and on the number of complimentary tickets they can offer viewers, the lawsuit says. And with a handful of film distributors siphoning a greater portion of box office revenue, the states argue that theaters will likely be forced to raise ticket prices and slash investments for larger screens, luxury seating and concessions.

“Movie theatres rely on competition between Paramount and Warner Bros,” states the complaint. “Through this competition, theatres incentivize creativity and quality, and they secure competitive prices and terms for themselves and for audiences.”

Separately, the states claims that the deal will undermine the market for the licensing of basic cable TV channels. Paramount and Warner Bros. are two of the top three players in this area, owning a portfolio of over 50 basic cable channels and the rights to some of the most in-demand programming such as March Madness and MLB games. This will translate to “enormous bargaining power” if the deal is allowed to close, the states allege.

At the forefront of Paramount’s multipronged defense: tech giants like Netflix, Amazon and Google cornering Hollywood such that the only way to compete is through consolidation. Paramount chief Makan Delrahim has repeatedly pointed to “tech monopolies” threatening consumers, talent and labor across the industry.

“The practical effect of this lawsuit is to shield those dominant streaming platforms like Netflix and technology companies from much needed competition while preventing the significant benefits this transaction will deliver for consumers, creators, workers, and the broader Hollywood economy,” Paramount said in a statement.

So far, antitrust enforcers in China, South Africa, Saudi Arabia, Ukraine, Serbia and North Macedonia, among others, have found that the deal doesn’t violate antitrust laws. Regulators probing foreign investments from Gulf sovereign wealth funds in Germany, Italy, France, Romani, Slovenia, Belgium, Czechia, New Zealand and Spain have also approved the merger.

Paramount awaits regulatory approvals from the Federal Communications Commission, U.K. antitrust regulators and the European Commission, which is expected to sign off on the merger ahead of an upcoming deadline to open an in-depth probe.

Another obstacle is posed by consumers who’ve sued to block the deal. In a lawsuit filed in April, Paramount subscribers alleged that the acquisition will substantially reduce competition in streaming, news and theatrical distribution. The merger will consolidate “Paramount’s ability and incentive to raise prices, reduce output, narrow slates, reduce quality, and worsen consumer-facing terms, including through control of distribution, exclusivity, windowing, and licensing,” stated the complaint.

To curry favor for the merger and quell concerns, David Ellison has pledged to release at least 30 movies a year theatrically with minimum 45-day theatrical windows and operate Paramount and Warner Bros. as independent studios. The former commitment has drawn criticism from some in the industry who are skeptical the company can maintain that output. A major concern is the estimated $79 billion in debt the combined company would carry if the deal is completed, with only $3 billion in annual free cash flow.