Paramount, WBD hit with lawsuit from 12 states, including California, to block merger

A group of 12 state attorneys general filed a lawsuit Monday challenging Paramount Skydance’s proposed acquisition of Warner Bros. Discovery.

The lawsuit, which came after weeks of speculation on if and when it would be filed, seeks to block the merger for antitrust concerns. CNBC’s David Faber reported earlier in the day that the lawsuit was expected to come on Monday.

The merger deal would combine two storied film studios — Paramount and Warner Bros. — as well as streaming platforms Paramount+ and HBO Max. Paramount CEO David Ellison has previously said the streaming services would become one following the transaction.

It would also mean the formation of the largest portfolio of TV networks in the U.S., bringing together Paramount’s broadcast network CBS and pay TV channels like MTV and BET with WBD’s CNN, TNT and others.

Led by California Attorney General Rob Bonta, the lawsuit, which was filed in the U.S. District for the Northern District of California, is also brought forth by attorneys general of Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, and Washington.

“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.,” Bonta said in a release.

In a lengthy statement released on Monday, a Paramount spokesperson called the lawsuit a “misrepresentation of competition in the entertainment industry today,” adding that it plans to “vigorously defend the transaction and demonstrate that this challenge is inconsistent with sound competition policy and the competitive realities of the media marketplace.”

“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,” Paramount’s statement continued.

On Monday, Bonta held a press conference in front of the Hollywood sign in Los Angeles reiterating the points made in the lawsuit.

“This merger would snuff out competition, drive up prices, diminish content quality, and produce fewer movies and shows each year. That is the bottom line,” Bonta said during the press conference. “We have antitrust laws and merger controls for a reason, because competition is the lifeblood of a healthy and vibrant economy.”

The lawsuit filed Monday raised concerns about the size of the combined company, adding that the merged entity would control nearly one-third of films and nearly a third of basic cable TV programming.

“The coalition has asked Warner Bros. and Paramount not to close the merger until after the judicial process concludes, and if they do not agree, the coalition will be filing a temporary restraining order,” according to a statement Monday from the attorneys general.

Paramount countered in Monday’s statement that the merger would “create a stronger, well-capitalized, creative-first 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. Put simply, any attempt to block this transaction undermines the very principles antitrust law is designed to promote: more competition, more choice for consumers, and more opportunities for creators and workers.”

The merger won approval from WBD shareholders in April, and Ellison said on a recent earnings call that it was on track to close by September.

Hollywood has previously expressed concerns about the combination, citing the likelihood of fewer film releases and the potential for job losses in the industry. Ellison has promised that once combined the film studios would put out a slate of 30 movies per year and has said he’s committed to protecting jobs.

Ellison first set his sights on WBD last September. Just weeks after Paramount and Ellison’s Skydance completed its merger, the company made its initial run for WBD, resulting in several bids and a formal sale process.

WBD ultimately signed a deal to sell its film studio and streaming assets to Netflix. However, Paramount launched a hostile takeover offer and subsequently amended its bid. Netflix ditched its deal, and Paramount walked away with an agreement to buy the entirety of WBD for $31 per share.

The deal came under scrutiny from lawmakers in both the U.S. and Europe, including related to foreign funding that was part of Paramount’s offer. In mid-June, the Antitrust Division of the U.S. Department of Justice signed off on the tie-up, clearing it of federal concerns.

“The Division has completed its analysis of the proposed merger of Paramount and Warner Bros. and determined based on the evidence received in its investigation that the transaction is not likely to result in harm to competition or American consumers,” the department said in its determination.

The merger has also won approval from several global jurisdictions as it moves toward a potential close.

However, the European Union is still reviewing the deal for approval, with a new provisional deadline set for July 22. The European Commission said in a public filing this month that Paramount has submitted concessions in a bid to smooth over concerns regarding the deal.