Paramount’s planned acquisition of Warner Bros. Discovery hit a significant roadblock this week when a group of twelve state Attorneys General filed an antitrust lawsuit to halt the $111 billion merger. Led by California AG Rob Bonta, the lawsuit argues that the consolidation of these major elements of the media industry would harm both workers and consumers and is therefore in violation of the 1914 Clayton Act. The states argue in particular that movie theatres would be harmed by the combination, resulting in less availability of new films distributed to theatres.
The states have asked the U.S. Federal District Court in Northern California to freeze progress on the deal until their arguments can be thoroughly reviewed. Experts expect that motion to be granted, which could be costly for Paramount, given the “ticking fee” they agreed to with Warner Bros. Beginning on October 1st in less than three months, Paramount is obligated to add 25 cents per share to its proposed purchase price for every quarter that passes without the deal closing, amounting to a per-quarter purchase price increase of $650 million. If the deal were to go under review, at least the first of these quarterly ticking fee increases would come into effect.
Then there is the larger question of whether the states can succeed in nixing the merger entirely. Analysts are more skeptical about this outcome. The lawsuit focuses on the reduction of the five major Hollywood studios down to four. It does not “count” the studio presence of Amazon/MGM, A24, and Lionsgate, each of whom have opened wide release movies this year with domestic box office sales of at least $80 million. Also, the lawsuit focuses on the plight of the stable or declining markets of theatrical exhibition and cable TV, while largely ignoring the expanding market of on-line streaming services. Bonta explained that if antitrust law is violated the deal should be blocked, period. It does not matter which specific industry or industries the merger is negatively impacting. The industry trade association of movie theatre owners Cinema United welcomed news of the lawsuit, saying that the “consequences of Paramount’s deal will be significant and lasting, not just in Hollywood, but on Main Streets across this nation.” On the other hand, the CEO of AMC Theatres, the largest cinema chain in the U.S., has given his public support to the proposed merger.
