A group of a dozen state attorneys general filed suit to block Paramount‘s $110 billion acquisition of Warner Bros. Discovery, long-anticipated litigation to stave off a merger despite receiving clearance from the Trump administration Justice Department.
The lawsuit, filed in federal court in Sacramento on Monday, challenges the transaction as stifling competition for wide release theatrical film distribution, big budget motion picture distribution and licensing of basic cable television channels.
The focus on those aspects of competition come amid concerns that the merger would lead to widespread layoffs as the combined company grapples with its debt burden. Broader concerns have been on the impact on the creative community and the information environment, with Paramount set to own two legacy news brands, CBS News and CNN, although that was not the subject of the lawsuit’s claims.
California Attorney General Rob Bonta, who led the lawsuit, said in a statement, “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.”
Watch on Deadline
Also joining the lawsuit are the attorneys general of Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon and Washington.
“After this merger, for every dollar generated by wide-release theatrical films and basic cable channels in this country, the combined company will pocket more than a quarter. This merger, in short, would create a media behemoth,” the lawsuit stated.
Paramount has been steeling for a courtroom battle, hiring noted antitrust litigator Jeffrey Kessler, who most recently fought on behalf of the states as they challenged Live Nation and Ticketmaster’s market dominance.
The company’s most immediate concern is timing: Its deal for WBD includes a $7 million a day “ticking fee” if the transaction does not close by Sept. 30.
That’s why the most important part of the litigation may be in its initial stages, including whether a judge grants a temporary injunction that would put the transaction on hold. That’s what happened in the case of Nexstar with its proposed acquisition of Tegna. Despite receiving federal approvals, a federal judge put the merger on hold, siding with state attorneys general and DirecTV in their claims that the merger would be anticompetitive. Nexstar is appealing, but that process looks to drag out the transaction for months or into next year.
While Democrats on Capitol Hill have warned about the merger, undoubtedly putting pressure on Bonta to act, Paramount’s lobbying efforts to win Trump administration approval has also helped put it in the partisan crosshairs, even though CEO David Ellison once said that he did not want the company to be politicized.
Ellison attended Trump’s State of the Union address earlier this year, appearing with one of the president’s allies, Sen. Lindsey Graham (R-SC) in a photo in which they each gave the president’s signature thumps up sign. In April, Ellison hosted a dinner for the Trump White House and CBS News correspondents in advance of the White House Correspondents’ Association dinner, an uneasy mix of the business interests of the company with the journalism side. And in June, Ellison mingled with Trump as he attended the UFC championship on the White House lawn, an event that was streamed on Paramount+.
In recent months, critics of the merger have held unofficial hearings in Southern California and on Capitol Hill, while groups include the Democracy Defenders Fund and the Writers Guild of America helped gather more than 5,000 signatures from talent and creatives opposing the transaction.
In their statement last month giving clearance to the merger, the Justice Department said that the “extensive investigatory record reviewed by the Division suggests that the impact of the transaction will be to increase competition across the media and entertainment ecosystem, with benefits for American consumers and workers.”
More to come.
