Twelve state attorneys general filed a lawsuit Monday seeking to block Paramount $PARA Skydance Corporation's $110 billion acquisition of Warner Bros. Discovery, alleging the deal would harm competition in film distribution and cable television and ultimately leave audiences paying higher prices for less content.
California Attorney General Rob Bonta led the coalition, which also includes Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, and Washington — all states with Democratic attorneys general. The suit was filed in the U.S. District Court for the Northern District of California and alleges the merger violates Section 7 of the Clayton Act, which bars deals that would substantially lessen competition or tend to create a monopoly.
"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 statement.
The complaint identifies three specific markets where competition would be harmed: wide-release film distribution, anticipated blockbuster film distribution, and the licensing of basic cable channels to distributors. The combined company would control nearly one-third of wide-release theatrical films and nearly one-third of basic cable programming in the United States, the attorneys general alleged. Post-merger, just two companies — the new entity and Disney $DIS — would control approximately 60 percent of the anticipated top-grossing film market, according to the complaint.
Paramount called the lawsuit "wrong on both the facts and the law," saying the states had misrepresented competition in today's entertainment industry, according to CNN. The company argued the combination would create a stronger competitor to dominant streaming platforms such as Netflix $NFLX.
Should Paramount and Warner Bros. proceed toward closing before a court ruling, the attorneys general said they are prepared to file for a temporary restraining order — a step they will take if the companies decline a request to voluntarily hold off.
No prior legal challenge has loomed as large over the deal, which the U.S. Department of Justice let pass last month without demanding any remedies or conditions. When the DOJ closed its investigation, career lawyers had been leaning toward recommending a lawsuit, but senior officials moved to close the review before staff could formally communicate that recommendation. Staff attorneys at the agency believed the closing statement had been written in a way designed to make it harder for states to mount their own challenge, according to The Wall Street Journal.
The European Union is still reviewing the deal, with a provisional deadline of July 22 for its determination, according to CNBC. A September deadline carries serious financial consequences for Paramount: once that window closes, the company owes Warner Bros. shareholders a penalty of approximately $650 million per 90-day period that the deal remains unconsummated, according to NPR.