A coalition of 12 states has sued to stop Paramount and CBS from completing a $111 billion merger with Warner Brothers, arguing that the deal would give fewer companies more control over what Americans watch and what entertainment workers can bargain for.
The lawsuit, led by California Attorney General Rob Bonta and filed in the U.S. District Court for the Northern District of California, claims the transaction would violate Section 7 of the Clayton Act. That provision bars mergers whose effect may be to reduce competition or move a market toward monopoly.
According to Bonta’s office, the merger would combine two of the country’s five major film distributors. After the deal, four major distributors would control more than 85 percent of wide-release theatrical films in the United States.
The states also say the transaction would join two of the five major owners of basic cable channels. Bonta’s office said that would leave two companies controlling 59 percent of the U.S. basic cable market.
“Consolidation here not only leads to higher prices, it also leads to fewer opportunities for important stories to come to life, and fewer ways for audiences to encounter stories, ideas, and perspectives beyond their own experiences,” Bonta said in announcing the case. “With this lawsuit, California and our sister states are fighting for free and fair markets, not rigged markets.”
The states joining California are Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon and Washington.
What the states say would break
The complaint argues that the merger would weaken competition across Hollywood at a time when the industry is still dealing with the effects of the pandemic, the streaming shift and earlier rounds of consolidation. The states say the likely results include higher prices, lower-quality output and layoffs.
The entertainment business has seen this movie before, and the ending is usually written in debt service. Large media mergers often create pressure to cut costs after the closing, because the buyer has to make the numbers work. The states are making that antitrust argument in court rather than treating it as an unfortunate side effect of dealmaking.
The lawsuit, as described by Bonta’s office, focuses on market concentration. It does not challenge separate concerns raised by critics about foreign investment tied to the transaction or Larry Ellison’s broader media ambitions. Those issues would normally sit closer to federal review than to a state Clayton Act case.
Paramount says delay would hurt workers
Paramount rejected the lawsuit and said the states are misreading antitrust law.
“The lawsuit filed by the state attorneys general, in the most generous light, reflects a fundamentally flawed application of the antitrust laws and is wrong on both the facts and the law,” the company said in a statement. “Delaying this transaction will only harm entertainment workers who have already suffered over recent years as technology has disrupted their livelihood and cost California tens of thousands of entertainment jobs.”
The company’s argument turns the worker issue back on the states: Paramount says blocking or delaying the merger would worsen an already rough labor market in entertainment. The states say the merger itself would reduce opportunity and increase the power of a smaller number of buyers and distributors.
The case now puts the deal on a slower, more hostile path. For consumers, the immediate effect is legal uncertainty. For Paramount, Warner Brothers and Ellison-backed financing, the larger problem is time: a debt-heavy media acquisition gets harder to sell when regulators and state attorneys general force the parties to explain, in court, why more consolidation should be treated as competition.
This story draws on original reporting from Techdirt.