David Ellison may have believed that Paramount Skydance could complete its $111 billion acquisition of Warner Bros. Discovery by this point. The deal was approved by the Justice Department in June (despite reportedly being opposed by officials reviewing the deal). This was formally approved by the EU, with Paramount agreeing to a relatively small concession to end its film distribution partnership with Universal in Europe.
In fact, Ellison and his team at Paramount were so confident that they could easily pass regulatory approval that they added a “ticking fee” clause to their offer to Warner Bros. Discovery, including a provision to pay WBD shareholders 25 cents per quarter starting September 30, 2026, but Paramount Warner Bros. has not signed a deal. This equates to approximately $7 million per day. So if the calendar rolls to October 1st and the WBD merger doesn’t reach an agreement, Paramount is considering spending real money.
On July 13, a group of 12 state attorneys general, all Democrats, filed a legal challenge to the merger of Paramount and Warner Bros., arguing that the combined company would violate antitrust laws. The states, led by California, are seeking a preliminary injunction to halt the agreement pending a trial on the merits of the case. Let’s look at the situation here.
Why are states trying to block mergers?
The states argue that the merger would harm competition in three markets: basic cable, tent-pole theatrical release, and wide-release theatrical distribution by combining two of the top three cable programming companies and two of the top five movie distributors. Judge Araceli Martinez-Holguin, who heard the case, granted the states a temporary restraining order halting the Paramount-WBD merger for at least 14 days. On Thursday, she extended the TRO until Aug. 17.
The judge also set a hearing date for August 3 on the preliminary injunctions requested by the states. Paramount has asked to postpone that date to the week of Aug. 17 or 24, and wants to hold a three-day evidentiary hearing so its lawyers can cross-examine each state’s economists and other witnesses.
In granting the TRO, the judge wrote that “defendants’ demonstration of these robust and dynamic markets, at best, raises controversy as to the fact and legality of the market effect of the transaction” and that “plaintiffs’ presentation at least indicates that significant questions remain regarding the merits of the case, supporting preliminary injunctive relief.” He added that Paramount confirmed there would be no impact from the postponement until the end of September.
What is Paramount saying about the state AG’s antitrust lawsuit?
The company called it “one of the weakest merger issues in modern antitrust history.” Paramount said the lawsuit brought by the state auditor’s office “distorts established antitrust law and is based on misrepresentations of competition in today’s entertainment industry,” adding that it “strongly defends this transaction.”
Regarding the states’ claims that the combined company would exercise undue market power in the basic cable space, Paramount said the Paramount and WBD cable lineups are complementary, not market substitutes, and that cable providers will continue to want access to all channels. Regarding the film, Paramount claims that “the practical economics of film distribution and the financial incentives of the merger indicate that this transaction will increase rather than reduce theatrical film output and will not adversely impact theatrical pricing terms.” Paramount also argued that the theatrical market is more competitive and dynamic than state precedent suggests, pointing to the success of new entrants such as A24 and Amazon-MGM Studios.
From the beginning, Paramount has maintained that there were no antitrust issues with the merger with WBD. The company said that to date, regulators and governments representing 65 jurisdictions have “approved or chosen not to challenge this transaction on competition and/or foreign direct investment grounds. These approvals from regulators around the world confirm what the facts have consistently shown: this transaction is pro-competitive, pro-consumer and pro-creative community.”
What about streaming?
Paramount has argued that it needs to merge with WBD to combine Paramount+ and HBO Max and achieve scale comparable to Netflix, Disney, Amazon and others. In addition to Paramount itself, some observers have criticized the state’s antitrust case for lacking a holistic view of the entertainment market that incorporates streaming. But in Monday’s ruling, Martinez-Holguin rejected the idea that the efficiency of one market offsets the competitive harms of another. “Courts have repeatedly and explicitly rejected the defense that challenged mergers result in economic efficiencies attendant to competition in the relevant market,” she wrote.
Will Paramount be able to reach a settlement with the states?
Perhaps — but what form that takes is what really matters. California Attorney General Rob Bonta, who heads the state coalition, told CNN last week that if Paramount “comes forward in good faith and genuinely wants to make a settlement offer, we will always consider a settlement offer.” “And that has to include structural remedies. We’re not interested in behavioral remedies. Empty promises, self-serving promises, unenforceable promises, promises that won’t be kept, that history shows won’t be kept. So we’re going to look at what they’re proposing, and they’re not proposing anything.”
Paramount has not said what kind of concessions it would consider, if any.
If Paramount agrees to spinoff CNN, will states drop their lawsuits?
No, according to Bonta. In response to an article in which FCC Chairman Brendan Carr asserted (citing anonymous sources) that if Paramount spun off CNN, the antitrust case would be dismissed, Bonta tweeted, “I don’t know the source of this report, but I literally never said that. Separating one channel from a media conglomerate is not a sufficient remedy to protect consumers and keep the film and TV industry competitive.”
What will happen to the lawsuit brought by the WGA and others?
Paramount is also dealing with other legal issues related to its merger with Warner Bros., but the state AG’s lawsuit appears to be the most serious threat to the merger. The Writers Guild of America filed its own antitrust lawsuit, arguing that the Paramount-WBD merger would cut writers’ pay and hurt competition in three labor markets: blockbuster scripts, episodic scripts, and overall writers’ contracts. The union is also seeking an injunction to block the deal.
Meanwhile, Judge Martinez-Holguin denied a preliminary injunction seeking to block the deal sought by several Paramount+ subscribers who said they faced price increases and risk losing viewing options as a result of the Paramount-Warner Bros. merger.
Additionally, Paramount shareholders have sued Paramount CEO David Ellison and his tech billionaire father Larry Ellison, accusing them of cutting an “illegal” deal with President Donald Trump to gain U.S. government approval for the Warner Bros. Discovery acquisition. In return, the complaint alleges, the Ellisons offered the president an “opportunity to illegally funnel cash” by resolving legal claims against CNN, and promised to fire any CNN anchors Trump didn’t like after the WBD acquisition. The challenge in this case is to prove the suspicion. A Paramount spokesperson said in part, “This lawsuit recycles allegations that have already been reported and already addressed. As we have consistently said, neither Mr. David nor Mr. Larry Ellison has made any commitments to any government agency, state AG or federal agency regarding the future of CNN or any other news property, other than our goal of providing truth-based journalism.”
Will the Ellisons walk away from their deal with Warner Bros.?
This is unlikely. First, Paramount must pay Warner Bros. Discovery a $7 billion breakup fee. (That’s on top of the $2.8 billion he paid Netflix over the Warner Bros. streamer.) David Ellison, with the financial backing of his father Larry Ellison, indicated he has no intention of backing down from pursuing Warner Bros. Discovery after Netflix struck a deal to buy Warner Bros.’ streaming and studio businesses. Currently, Paramount and WBD’s merger agreement is scheduled to expire on March 4, 2027, subject to an automatic extension until June 4, 2027. I have no doubt that David Ellison will do everything in his power to integrate WBD by then.
