A federal judge on Monday ordered a moratorium on the Paramount-Warner Bros. merger after a coalition of states argued it would violate federal antitrust laws and lead to higher and lower prices for movies and TV shows.
Judge Araceli Martinez-Holguin granted the 14-day restraining order Friday morning after hearing arguments from both sides. Paramount had previously agreed not to complete the deal until July 22nd.
“Plaintiffs’ presentation at least indicates that significant questions remain on the merits and supports preliminary injunctive relief,” the judge said, adding that Paramount had found no prejudice would result from a delay until the end of September. “Paramount and Warner Bros. will continue to operate as independent, viable companies competing in the marketplace pending the court’s decision in this case. Therefore, combined with the public’s vital interest in antitrust enforcement, the balance of equity will tilt heavily in favor of the requested injunctive relief.”
A coalition of 12 states led by California filed a motion seeking a temporary restraining order. The states are also seeking a preliminary injunction to block the merger until a judge rules on the merits of each state’s case.
A 14-day restraining order can be extended for up to 28 days. Martinez Holguin of the U.S. District Court for the Northern District of California in Oakland also set a hearing on the preliminary injunction for Aug. 3, but it could be postponed to that date if the parties agree.
California Attorney General Rob Bonta praised the judge’s decision as “an important first victory in our case to ensure this mega-merger never sees the light of day.”
“History tells us what happens when a few people have too much power over the markets that are central to American life: fewer opportunities for more people and worse products and services for everyone,” Bonta added. “Through this case, we are fighting for free and fair markets and a thriving film and television industry that serves creators and viewers alike. We have our gas tank full, the law on our side, and we look forward to continuing to litigate the case.”
A Paramount spokesperson said the company “appreciates the court’s swift order on the TRO motion.”
“Similar to the timing agreement we were seeking to establish, this TRO maintains the status quo while the court considers the antitrust issues presented,” the spokesperson said. “We are confident that the State AG’s antitrust claims will be proven baseless, as the State AG’s market and anticompetitive effect claims have no basis in modern market realities. This merger is legal, pro-competitive, and will benefit consumers, creators, workers, and the entertainment industry. We will continue to vigorously defend this transaction and look forward to a hearing on the substance of the State AG’s actions.”
In antitrust litigation, injunctions are often the name of the game. If consent is not obtained, the transaction will be allowed to close, making it nearly impossible to unwind later. But if granted, the deal is likely to fall apart before the underlying litigation goes to court.
Paramount pushed for a hearing on the injunction with live witnesses. The company expects a ruling on the injunction by early September. If the deal doesn’t go through by September 30, Paramount will owe Warner Bros. investors millions of dollars a day.
At Friday’s hearing, Mr. Martinez-Holguin telegraphed the ruling and suggested that Paramount was not harmed by the suspension. Jeffrey Kessler suggested that Paramount stipulate that the deal cannot be completed for up to 30 days until a hearing on the injunction is heard.
The states argue that the merger would harm competition in the basic cable and theatrical markets by combining two of the top three cable programming companies and two of the top five movie distributors. Paramount argues that the theatrical market is more competitive and dynamic than state precedent suggests, citing the success of new entrants such as A24 and Amazon MGM.
Paramount also argues that because the cable market is in decline, courts should not rely on states’ estimates of market concentration.
Paramount also argues that the merger is pro-competitive because it will create a strong rival to powerful players such as Netflix and Amazon in the streaming market. But the judge said in a footnote that he could not accept the idea that the efficiency of one market offsets the competitive harm of another.
“The Court separately notes that it cannot accept Defendants’ argument that the Transaction creates efficiencies in the streaming market,” she wrote. “Courts have explicitly and repeatedly rejected the defense that challenged mergers result in economic efficiencies attendant to competition in the relevant market.”
Martinez-Olguin’s decision can be found at this link.
