The justices on Friday heard arguments from a coalition of states seeking an injunction to suspend the merger between Paramount and Warner Bros. Discovery, and said they would issue a ruling by next Wednesday.
Judge Araceli Martínez Holguín at one point suggested that Paramount would not be harmed if it was granted a temporary restraining order suspending the merger for up to 28 days.
Twelve states, led by California, are seeking to block the merger on the grounds that it would hurt competition in the theater and basic cable markets. Jeffrey Kessler, Paramount’s lead attorney, argued that the states failed to make the necessary argument that the deal was anticompetitive. Paramount argued that the success of recent productions such as Apple’s “F1” and Amazon/MGM Studios’ “Project Hail Mary” shows the theatrical business is open to new entrants.
“Talent is completely fluid in this industry,” Kessler asserted. “So actors, writers and directors move from studio to studio.”
James Weingarten, arguing on behalf of the state, pointed out that “F1” was actually distributed by Warner Bros., underscoring the stable role of established players in a mature market.
“That’s the power of the five majors,” Weingarten argued. “Apple isn’t in the movie business. They’re in the cell phone and laptop business.”
Martinez-Holguin seems willing to acknowledge that the market concentration issue is at least arguable enough to warrant a restraining order. She asked Kessler, citing evidence submitted by Paramount. “Why is there no support for the conclusion that there are serious questions as to the legality of the merger?”
He also called on the parties to take on the challenge of “unscrambling the egg,” highlighting the difficulty of canceling a merger if it is allowed to proceed and is later determined to be illegal.
Kessler said the company’s primary focus is on obtaining a preliminary injunction by early September. He proposed stipulating that the deal would not close within the next 30 days if the parties agree to a hearing on the injunction motion in late August.
Starting Sept. 30, Paramount will be obligated to pay investors $7 million per day if the deal doesn’t go through, a key deadline in the case. Paramount had previously promised not to complete the deal until July 22nd.
The hearing lasted approximately 75 minutes. Kessler pointed to declining basic cable subscribers and argued that courts should not rely on state statistics on market concentration. In contrast, Weingarten pointed out that 50% of TV households, or 67 million Americans, still have cable TV. He also argued that the five major theatrical distributors – Paramount, Warner Bros., Disney, Universal and Sony – have held consistent market shares over the past 10 to 15 years.
“These industries are not in decline,” Weingarten said. “Movie theater distribution and cable will be $10 billion and $40 billion industries, respectively.”
The states argue that the merger could raise prices and reduce production, harming theater, cable and satellite distribution companies and ultimately hurting consumers. The state’s complaint alleges that the combined company will control 30% of the market for “highest-grossing movies.”
Kessler previewed Paramount’s challenge to that market definition, noting that “Obsession” would not be considered a blockbuster by the state’s definition because it would not be released on at least 3,000 screens. He also noted that Lionsgate (not one of the top five distributors) scored one of the year’s biggest hits with “Michael.”
Kessler also argued that Paramount and WBD’s cable lineups are complementary and not redundant, so merging them would not hurt competition. Weingarten scoffed at that argument.
“You don’t need an advanced degree in economics to understand that when one company owns both packages, it has more negotiating leverage,” he said, adding that the combined company would control 50 of the 189 basic cable channels.
“There is nothing new since 2020,” Weingarten added. “There hasn’t been a single new basic cable channel since 2020, which shows how few entrants there are to this market.”
