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A coalition of state attorneys general has sued Paramount to stop its $111 billion acquisition of Warner Bros. Discovery, a sweeping legal challenge to the merger that threatens to reshape Hollywood amid a lack of Trump administration intervention in big deals.
In a long-awaited lawsuit filed in California federal court on Monday, the states claim the takeover would significantly stifle competition in the top-grossing broadband theatrical distribution and cable licensing in violation of antitrust laws. They argue that a merger would combine two of Hollywood’s five largest studios, leading to higher prices, fewer films in theaters and a decline in the diversity and quality of content.
The states allege a violation of the Clayton Act, an antitrust law that regulates potential monopolies. They have asked Paramount not to close the deal until the case is decided. If not, they say they will file a temporary restraining order.
“There is no debate here: This merger will eliminate competition, raise prices, reduce the quality of content and produce fewer movies and shows each year,” California Attorney General Rob Bonta, speaking at a location near the Hollywood sign, said at a news conference. He was joined in filing the lawsuit by Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon and Washington.
Paramount said in a statement 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 and creative 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,” she added. “Simply put, any attempt to block this deal undermines the very principles that antitrust law is intended to promote: more competition, more choice for consumers, and more opportunity for creators and workers.”
The lawsuit, which could extend for years, represents another effort by state attorneys general to oppose major mergers as the government takes a more lenient view of mergers, especially in media and entertainment. The Justice Department in June signed off on Paramount’s bid to buy Warner, finding that the merger would increase competition in the markets for streaming, linear television and developing, producing or distributing films for theatrical release. The green light does not require any filters, behavioral treatments or waivers.
The approval and absence of waivers have amplified speculation that Trump has his thumb on the scale of 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 a critic of most mainstream media coverage, to aid the effort. A merger between Paramount and Warner would put CNN under the family’s control.
During a news conference, Bonta repeatedly cited Ellison’s family ties to Trump. “Antitrust enforcement is a check on billionaires seeking the president’s favor, so he will do their bidding,” he said.
If Paramount is allowed to take over Warner Bros., the four studios would control more than 85% of all large-scale theatrical films, according to the complaint. These films, which are defined as feature films intended for initial wide release in theaters, accounted for 98% of total box office receipts over the past four years, the lawsuit says.
The states also argue that the deal would hurt the blockbuster film distribution market. Paramount will control more than 30% of these films after the merger, with just four distributors controlling more than 90%.
In return, theaters would likely have to pay a larger portion of their revenues and face stricter limits on discounts and on the number of free tickets they can offer to viewers, the lawsuit says. With a few film distributors taking away a larger portion of box office revenue, states say theaters will likely have to raise ticket prices and cut investments in big screens, luxury seating and concessions.
“Movie theaters depend on competition between Paramount and Warner Brothers,” the complaint states. “Through this competition, theaters stimulate creativity and quality, securing competitive prices and conditions for themselves and the audience.”
Separately, the states claim the deal will undermine the basic cable TV licensing market. Paramount and Warner Bros. Among the top three players in the industry, they own a lineup of more than 50 basic cable channels and the rights to some of the most in-demand programming like March Madness and MLB games. The states claim this would translate into “tremendous bargaining power” if the deal is allowed to go through.
At the forefront of Paramount’s multi-pronged defense: Tech giants like Netflix, Amazon and Google are so cornering Hollywood that the only way to compete is through consolidation. Makan Delrahim, Paramount’s chief legal officer, has repeatedly pointed to “tech monopolies” that threaten consumers, talent and labor across the industry.
“The practical impact of this lawsuit is to protect dominant streaming platforms like Netflix and technology companies from much-needed competition while preventing the significant benefits this deal will provide to consumers, creators, workers, and the broader Hollywood economy,” Paramount said in a statement.
So far, antitrust authorities in China, South Africa, Saudi Arabia, Ukraine, Serbia and North Macedonia, among others, have found that the deal does not violate antitrust laws. Regulators examining foreign investments from Gulf sovereign wealth funds in Germany, Italy, France, Rome, Slovenia, Belgium, Czechia, New Zealand and Spain also approved the merger.
Paramount is awaiting regulatory approvals from the Federal Communications Commission, UK antitrust regulators, and the European Commission, which is expected to sign off on the merger before an upcoming deadline to open an in-depth investigation.
Another hurdle is posed by consumers who have filed a lawsuit to block the deal. In a lawsuit filed in April, Paramount subscribers claimed the acquisition would significantly reduce competition in streaming, news and theatrical distribution. The complaint said the merger would enhance “Paramount’s ability and incentive to raise prices, reduce production, narrow ranges, reduce quality, and worsen consumer-facing conditions, including through control of distribution, exclusivity, windowing, and licensing.”
To win favor for the merger and allay fears, David Ellison pledged to release at least 30 films a year theatrically with theatrical windows of at least 45 days and run Paramount and Warner Bros. As independent studios. The previous commitment has drawn criticism from some in the industry who question the company’s ability to maintain that production. The main concern is the estimated $79 billion in debt the combined company would take on if the deal is completed, with only $3 billion in annual free cash flow.
