12 states sue to stop Warner Bros.-Paramount merger

By Chris Woodward
The Center Square

California Attorney General Rob Bonta is leading 12 states suing to block the acquisition of Warner Bros. Discovery by Paramount Skydance.

The lawsuit was filed Monday in the U.S. District Court for the Northern District of California. In addition to Bonta, who’s a Democrat, the plaintiffs are Democratic attorneys general from Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon and Washington.

Paramount’s California movie and TV studios are in Hollywood. Warner Bros.’ movie and TV studios are about 26 miles away in Burbank. Speaking at a press conference Monday with the famous Hollywood sign on the hill behind him, Bonta said the $110 billion merger would extinguish competition.

“It would result in higher prices, lower content quality, and fewer movies and TV shows,” said Bonta. “Movie theaters, basic cable TV distributors, and audiences on every sofa and in every movie seat would feel the impact of this unlawful merger.”

Bonta added that movies and television programs are not run-of-the-mill commodities.

“The film and entertainment industry doesn’t exist just to buy and to sell them,” said Bonta. “It exists to tell stories, to spark ideas and spark curiosity, to inspire and sometimes to inform, to open our eyes to new perspectives we may have never considered before, to expose us to the things we don’t know we need to be exposed to.”

The lawsuit states the deal is “illegal under the Clayton Act.”

Signed into law in 1914 by President Woodrow Wilson, the Clayton Act was created to supplement the Sherman Antitrust Act of 1890 by prohibiting specific anticompetitive business practices, such as price discrimination and unethical mergers.

By combining two of the five largest film distributors and two of the five largest basic cable channel owners, Bonta said, the resulting behemoth would control nearly one-third of theatrical motion pictures and nearly one-third of basic cable programming, including 50 of the most popular cable channels.

“We’re standing up for a free and fair market, not a rigged market,” said Bonta. “America has no kings in government or the economy.”

Arizona Attorney General Kris Mayes said she’s proud to be part of the lawsuit.

“Consolidation in industry after industry will only lead us in one direction: higher prices and degraded quality and service for Arizonans,” said Mayes. “We cannot let that happen.”

Paramount Skydance said it will fight the suit.

Someone else who has concerns about this lawsuit is Wayne Winegarden of the Pasadena, Calif.-based Pacific Research Institute.

Winegarden said the lawsuit relies on an outdated view of the media industry, which is rapidly evolving.

“There are good reasons to expect the evolution will continue for years,” said Winegarden, PRI’s senior fellow in business and economics, answering The Center Square’s questions by email. “Both Paramount and Warner Bros are struggling to compete in this environment. The merger is an attempt to fix that problem for both companies.”

Preventing companies from adapting to these evolutions is – in Winegarden’s opinion – “a surefire way to ensure that there will be less effective competition and consumers will have fewer choices” for media.

“The merger is predicated on the belief that the scale will help the combined company to effectively compete against the new media giants such as Netflix, Apple and Amazon,” said Winegarden. “With greater resources, the combined company will allegedly be able to provide better products for consumers.”

Warner Bros.’ assets include the HBO Max streaming service and cable networks such as CNN, TNT, TBS and Turner Classic Movies. Warner Bros. is also known for classics such as “Casablanca,” the Harry Potter movies, and films featuring Superman and other DC Comics heroes. Paramount Skydance’s assets include CBS and the Paramount+ streaming service. Paramount is also known for popular TV and movie franchises such as “Star Trek” and “Mission: Impossible.”

If the merger is a good move, the greater scale from the consolidation will increase competition, Winegarden said. He added that if the merger turns out to be wrong, the combined company is in the same position as both companies individually are today.

Meanwhile, there is yet another issue raised by the lawsuit, one that Winegarden said sets a troubling precedent.

The merger has been approved by federal regulators, which Winegarden said is the proper regulatory authority to judge whether there are any competitiveness issues. The U.S. Department of Justice concluded the merger would not hinder competition or harm consumers.

“Allowing the state AGs to also sue creates another regulatory hurdle that any merger or acquisition would have to manage,” said Winegarden. “These additional burdens will obstruct the functioning of the U.S. financial markets to the detriment of economic growth. Consumers will pay the price in terms of worse services, higher costs and less income growth.”