Twelve states sued to block Paramount Skydance from taking over Warner Bros. Discovery. The lawsuit, led by California Attorney General Rob Bonta, was filed in California’s Northern District Court, CNBC reported.
The time is specified. The Justice Department approved the $110bn settlement last month without conditions or cuts, after an eight-month review.
The states are, in effect, doing what the federal government has refused to do. It was flagged as a possibility last week, and now it has happened.
What the states actually want
The complaint alleges a violation of the Clayton Act, which prohibits mergers that would substantially lessen competition. It targets three markets.
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That’s wide release theatrical distribution, high-end theatrical distribution or blockbuster, and basic cable licensing. States ranks the combined company at 27% of wide-release distribution, 30% of anticipated blockbusters, and 27% of the basic cable pile.
Bonta put the damages in consumer terms. Consolidation would mean higher prices, lower quality, and less content, he said, to the detriment of cinemas, cable distributors, and audiences.
He even reached for a political book. He said America has no kings in its government or economy.
Paramount’s defense is not weak
The company called the lawsuit flawed and wrong on both facts and law. That’s boilerplate, but the underlying argument is more serious than rhetoric.
Paramount argues that the market has been redrawn by Netflix, Amazon, and Apple, making the share of theatrical distribution less powerful. In this reading, states are suing a business that is already dying.
There is precedent on its side, too. Disney absorbed most of Fox’s Hollywood assets in 2019 for the same reason, and regulators approve.
Ironically, the Paramount beat invader is the strongest show in its story. Netflix had a deal with Warner studios and HBO Max, they walked away rather than get ripped off, and instead approved a $25bn acquisition.
Why is this a technical issue
Take out the studio lot and this is about the Ellisons. Paramount is headed by David Ellison, but the application is funded and endorsed by his father Larry, the founder of Oracle.
Larry Ellison is a Trump supporter and advisor who has sat on the White House advisory board on artificial intelligence. Last year executives gave him and Oracle a controlling stake in TikTok’s US operations.
Think about what that entails. Oracle provides the infrastructure that much of America’s commerce and government runs on, and this same family will now control TikTok’s US arm, CBS News, CNN, two major streamers, and a wall of cable channels.
That clustering of distribution over infrastructure is an area that should be of interest to anyone who integrates technology. It’s not a claim of wrongdoing, and Bonta’s complaint doesn’t rest on it, but it’s the reason this contract is bigger than Hollywood.
Process questions
The DOJ’s approval itself has been challenged. The Wall Street Journal reported that senior officials rushed to get approval before labor lawyers intervened, a claim denied by the outgoing antitrust chief.
Paramount’s chief legal officer is Makan Delrahim, who headed the DOJ’s antitrust division during Trump’s first term. He led a failed attempt to block AT&T’s takeover of Time Warner, the same assets now in play.
Trump has publicly supported the Ellisons and has spoken openly about the future of CNN. The president’s willingness to comment on a pending media issue is a severance agreement for antitrust regulators to act equally.
The FCC hasn’t signed off, because Paramount has licenses for 28 local stations. Chairman Brendan Carr, a Trump appointee, has called it a good deal that should pass quickly.
The money is on the clock
Delays are expensive, which is the point of the lawsuit. Since October, Paramount owes Warner shareholders an estimated $650m every 90 days the deal slips through.
Miss June next year and the bill is $7bn. The funding already includes $80bn of new debt and non-voting shares from Saudi, Qatari, and Emirati sovereign funds, making the combined company a close candidate for deep cuts.
He is expected to coordinate with the courts. Paramount has been consolidating its streaming technology stack to prepare for HBO Max, a property that is also entering markets such as India.
All twelve attorneys are Democrats, and Paramount will say the most. But the states have removed the state’s unconditional review, and the court, not the press release, will now decide that 27% of the blockbuster market is the problem.
