California and 11 other US states have filed a lawsuit to block Paramount’s proposed $110 billion acquisition of Warner Bros. Discovery, arguing that the deal would reduce competition in the entertainment industry and ultimately hurt moviegoers, television distributors and consumers, reported Reuters.
The lawsuit marks one of the biggest legal challenges yet to Paramount CEO David Ellison’s plan to expand the company into a stronger rival to streaming giants Netflix and Disney. The states say that combining two of Hollywood’s biggest studios would give the merged company too much control over film distribution and cable television, allowing it to exercise greater influence over prices and content.
California Attorney General Rob Bonta said the lawsuit aims to protect competition in the entertainment market. “With this lawsuit, California and our sister states are fighting for free and fair markets, not rigged markets,” Bonta said in a statement, as reported by Reuters. “It 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 US,” he added.
Why are states trying to stop merger?
According to the lawsuit, the proposed merger would significantly increase Paramount’s influence across the US entertainment industry. The states said the combined company would control about 27% of the US film distribution market, around 30% of blockbuster film distribution and 27% of the market for basic cable television channels, reported Reuters.
State attorneys general say that Paramount and Warner Bros. Discovery currently compete for prime movie release dates and screen space at thousands of theatres across the country. If the companies merge, that competition could disappear, leading to higher costs for theatres and, eventually, higher ticket prices for audiences.
The lawsuit also says cable and pay-TV providers could face reduced bargaining power because the merged company would own several major television networks, including CNN, MTV, HGTV, Cartoon Network and Nickelodeon. The states argue that fewer competitors in the market could reduce consumer choice and affect the quality and variety of programming.
The attorneys general have asked Paramount to delay completing the acquisition until the court reviews the case. If the company refuses, they plan to seek a court order to prevent the transaction from closing.
What could lawsuit mean for Paramount’s deal?
The legal challenge could delay the merger for months, creating fresh uncertainty around one of the biggest media deals in recent years. Paramount has already warned that any prolonged delay could increase costs by hundreds of millions of dollars and complicate financing arrangements, reported Reuters.
Under the terms of the agreement, Paramount must pay approximately $650 million in quarterly fees to Warner Bros, according to Reuters report. Discovery shareholders if the transaction does not close before October. The company has also said extended delays could affect its share price or even put the entire deal at risk.
Actors, writers and other entertainment workers have expressed concerns that combining the two companies could lead to job losses across the industry. Theatre owners have also opposed the deal, saying that fewer major studios could result in fewer films reaching cinemas.
Paramount has defended the acquisition, saying the combined company would become more efficient after eliminating about $6 billion in overlapping corporate, marketing and infrastructure costs, reported Reuters. The company has also said it plans to increase film production rather than reduce it.