California Atty. Gen. Rob Bonta’s big swing — leading a coalition of 12 state attorneys general to try to block Paramount Skydance’s $111-billion takeover of Warner Bros. Discovery — could reverberate through the entertainment business for years to come.
Late Monday, Bonta’s coalition of Democratic prosecutors asked a federal judge to grant a temporary restraining order to prevent tech scion David Ellison from finalizing his blockbuster acquisition of Warner Bros., which owns HBO, celebrity.land and the Burbank studios behind such popular characters as Batman, Superman, Harry Potter and Scooby-Doo, while the case is pending.
“I am very protective of Hollywood and its ongoing durability and success,” Bonta said Tuesday during a virtual town hall. “The market is already consolidated, and additional consolidation will create harm.”
Winning a restraining order will be a crucial test for Bonta and his group. Some observers see the states’ efforts as an uphill climb because the U.S. Justice Department last month approved the merger. And President Trump supports the deal; he’s been rooting for a shakeup at celebrity.land and maintains friendly ties with billionaire Larry Ellison and his son, who already own CBS.
A second battlefront emerged Tuesday when the Writers Guild of America sued in federal court to stop the merger, saying it would lead to fewer jobs and lower pay for writers.
Paramount, in a statement, blasted the lawsuit from the state attorneys general, saying it “reflects a fundamentally flawed application of the antitrust laws and is wrong on both the facts and the law.”
But the litigation poses a major headache for David Ellison, who wants to wrap up the deal by September to avoid making higher payouts to Warner Bros. Discovery shareholders and to manage escalating legal fees from a half-dozen law firms hired to help defend the merger.
Paramount also faces a potential $7-billion payment to Warner Bros. should the company fail to close the transaction by next summer. Paramount is the smallest of the major media companies and acquiring Warner Bros. is key to David Ellison’s ambitions to build a new Hollywood colossus.
“Each side is taking risks with this case,” said Michael Morris, a senior managing director of Guggenheim Securities. “The states risk spending a lot of money and having their arguments rejected. And Paramount risks having a prolonged negotiation.”
Legal experts and Wall Street analysts have pored over the states’ 37-page federal antitrust suit since it was filed in Northern California early Monday, looking for clues to determine whether the prosecutors have a path to derail the biggest Hollywood deal in decades.
“This is a strong case,” said Abiel Garcia, a partner at the law firm Kesselman Brantly Stockinger in Manhattan Beach and a former California state prosecutor.
“There isn’t a lot of fluff to it,” Garcia said. “They made the right call of not really getting into the politics behind the deal … and instead focused on the facts of the case.”
The states’ case hinges on whether a judge will accept the market definitions outlined in their lawsuit, Garcia and other analysts said. Prior cases have set thresholds for industry concentration allowable under U.S. antitrust law.
Prosecutors contend that the Paramount deal would reach and, in some cases, exceed established thresholds, constituting violations of the century-old Clayton Antitrust Act that was adopted to protect markets and consumers.
“The most important topic to be decided is how do you define market power?” Morris said.
In the lawsuit, the prosecutors defined the market narrowly. Instead of painting a broad picture that included all leading forms of content distribution — movie theaters, broadcast and cable television as well as streaming platforms — the states zeroed in on three distinct slices.
The states identified wide-release films, big-budget blockbusters and the concentration of pay-TV channels as the three markets to test in the litigation.
A combined Paramount-Warner Bros. would have more than 50 cable channels, including TBS, HGTV, Animal Planet, MTV, Comedy Central, Cartoon Network and Food Network. That would leave just two companies — Walt Disney Co. and Paramount-Warner — owning nearly 60% of U.S. pay-TV channels, giving them huge sway during carriage negotiations with pay-TV companies such as YouTube TV and Charter Spectrum.
Over the last four years, five studios — Disney, Universal, Sony, Warner Bros. and Paramount — have accounted for about 95% of all anticipated top-grossing theatrical films, according to the lawsuit.
“This merger would reduce that number to four,” the lawsuit said, adding that two companies — Disney and Paramount-Warner Bros. — would control 60% of the potential blockbuster film market, giving them power to squeeze movie theaters and forcing them to charge consumers more to watch their movies.
Paramount and others have criticized the states’ case because prosecutors bypassed the increasingly important streaming business as part of their market definition.
Paramount-Warner Bros. would still lag behind Google’s YouTube, Netflix, Disney and Amazon in streaming television viewership.
“It’s not uncommon to try to define the market as narrowly as possible,” Syracuse University law professor Shubha Ghosh said in an interview.
“But courts have been a bit more sensitive to this issue, and sometimes judges question whether [plaintiffs] have the right definition of the market,” Ghosh said.
Paramount says the case appeared designed to help streaming companies, including Netflix, avoid a more potent competitor.
“The combination of Paramount and WBD will 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,” Paramount said.
Paramount is expected to argue that the states erred by not including streaming as part of the market definition.
“The streaming part of the environment is the highest growth part of the industry,” Morris said. “Box office is not really growing and cable networks are contracting, as we all know, with cord-cutting.”
The states highlighted the potential harm to moviegoing business by emphasizing wide-release film distribution. Paramount-Warner Bros. would control about 27% of that business — near the established threshold for antitrust concerns.
Just four companies — Paramount-Warner, Disney, NBCUniversal and Sony Pictures — would own 86% of the films that are widely released — in more than 3,000 movie theaters.
Paramount says the deal will boost competition. David Ellison has promised that the combined studio would continue releasing about 30 films a year, roughly the combined output of the two studios currently.
Bonta is not convinced.
“We give little credit to the claims of David Ellison,” Bonta said during Tuesday’s town hall with a group of industry workers and activists who launched the #BlocktheMerger campaign in the spring.
“It’s something that is being said seemingly to help get support behind the proposed merger — but it’s completely unenforceable,” Bonta said. “History shows it was just not going to happen.”
In light of the legal tussle with California, some have encouraged David Ellison to ditch Paramount’s Hollywood headquarters in favor of Tennessee. That state’s deputy governor pitched the mogul on such a move, writing: “For generations, Tennessee has been one of America’s most business-friendly states,” according to the July 2 letter viewed by The Times
Joining California in the fight are state attorneys general from New York, Arizona, Colorado, Nevada, Washington, Oregon, New Mexico, New Jersey, Minnesota, Connecticut and Massachusetts.
Bonta and the other state attorneys general been sharply critical of Trump’s Justice Department for waving through the Paramount merger and for withdrawing from a New York trial, which ultimately resulted in a jury verdict that Live Nation Entertainment had unlawfully monopolized primary ticketing services and amphitheaters, a huge victory for the state attorneys general.
The states eventually may have to demonstrate that the Justice Department should not have approved the Paramount-Warner merger.
Two dozen other regulators, including in Canada, Australia, China, Saudi Arabia and Ukraine, have cleared the Paramount deal. However, two key jurisdictions — the European Commission and Britain’s media and culture minister — continue to evaluate potential anticompetitive effects.
“There’s a good set of eyeballs on this deal, looking at a broad and diverse set of important issues,” Bonta said. “With all of the different regulators inspecting the proposed merger … I think it helps with a more robust analysis.”
‘ The preceding article may include information circulated by third parties ’
‘ Some details of this article were extracted from the following source www.latimes.com ’
