California State Attorney General Rob Bonta filed a lawsuit against the $110 billion merger between Warner Bros. Discovery Inc. and Paramount Skydance Corp. last week, leading a coalition of 12 state attorneys general to block Warner Bros. deal – and spurring speculations of Paramount leaving its historic home in California.
Claiming that the combined conglomerate would engulf almost a third of theatrical motion pictures and cable programming while “inflicting substantial harm” on cinemas, distributors and audiences across the states, the lawsuit alleges that the merger would lead to higher prices, less content and worse quality in film and TV.
Filed in the Northern District of California, it urges the companies to postpone the merger until the conclusion of the judicial process or face a temporary restraining order.
“In this country, no one is above the law. With this lawsuit, California and our sister states are fighting for free and fair markets, not rigged markets,” Bonta said in a statement. “America has no kings in government or our economy.”
Responding to the claims, Paramount last week issued a statement saying that the suit “distorts settled antitrust law” and was founded on “a misrepresentation of competition” within the entertainment landscape.
“Put simply, any attempt to block this transaction undermines the very principles antitrust law is designed to promote: more competition, more choice for consumers, and more opportunities for creators and workers,” a Paramount spokesperson said.
Leaving California?
The mounting legal pressure has reportedly pushed those close to Paramount Chief Executive David Ellison to suggest shifting the corporate headquarters in Hollywood outside of the Golden State, along with a majority of its $30 billion in planned spending, according to Semafor.
Sources familiar with the matter also said that no such decisions have yet been made. The report further pointed out that the consideration could be “a show of brinkmanship” as entertainment production increasingly seeks greener pas- tures in other jurisdictions.
Though Paramount has not yet responded publicly addressing the relocation claims, it would not be the only company to leave California between regulatory battles in recent years.
Elon Musk led the departures of Tesla Inc. and Space Exploration Technologies Corp. to Texas, while Oracle Corp. moved out of Silicon Valley in 2020.
The reality of a potential curtain call for Paramount in the state, however, means more than shredding jobs in the entertainment capital of the world. Variety pointed out that a complete exodus of film and TV productions out of California for the combined behemoth would be “daunting.”
“Not only would it take several years to do that, it would poison the merged company’s relations with Hollywood professionals, who are already concerned that a combined Paramount-WBD will curtail job opportunities in the region,” according to the report.
Corey Martin, managing partner at Beverly Hills-based entertainment law firm Granderson des Rochers, echoed the view that the industry is still largely centered in California, including talent, studio spaces and key historic real estate. That means Paramount would possibly still have a large presence here, and a po- tential headquarters move might just be “more symbolic than anything else.”
“It’s completely not plausible to me that they would move the entirety of the company’s operations outside of California,” Martin said. “I don’t think anybody’s taking that threat very seriously.”
If Paramount decides to move, however, it would have an option to lean into its new campus in the Garden State, where it signed a lease for 300,000 square feet of studio space last year. New Jersey’s Attorney General Jennifer Davenport, on the other hand, is among the 12 attorneys general who filed the antitrust lawsuit on last week.
A political suit
The lawsuit attracted a fair amount of controversy itself.
While the attorney general’s argument is consistent with guild protests and county-wide economic reports that the merger would shrink the industry by occupying a large swath of the entertainment market, whether it constitutes a monopoly depends on which specific sector is in question, wrote Court Stroud, a professor of integrated marketing at New York University.
“If the market is defined as traditional Hollywood film and television, the state attorneys general are right. This Paramount takeover of Warner Bros. Discovery will prove very monopolistic,” he wrote to the Business Journal. “If the market is defined as the modern ‘attention economy,’ which includes Netflix, Amazon, TikTok, and YouTube, then Paramount is making a quite valid defense. Traditional studios must achieve massive scale so they won’t be swallowed by the massive tech giants.”
Martin further pointed out that the lawsuit curiously steered away from discussions about streaming and instead focuses on traditional media. A combined company would dominate the latter, but to expand in the former category, he said, was really Paramount’s goal in chasing Warner Bros. Discovery’s extensive intellectual property library.
If the merger goes through, the combined entity will still rank below Netflix Inc., The Walt Disney Co. and Amazon.com Inc. in streaming posing significantly less monopoly threats in the market.
“I disagree with the fundamental premise of the lawsuit, primarily because they seem to be stripping out its impact on the streaming landscape,” Martin said, “(But) being competitive in streaming is the primary impetus behind this transaction.”
The political undertones of the suit, furthermore, are hard to ignore. All 12 state attorneys general are Democrats, and the Ellison family is publicly friendly with the Donald Trump administration. Trump’s son-in-law, Jared Kushner, formerly backed the acquisition through private equity firm Affinity Partners before pulling out in December last year.
“I think politics is driving this lawsuit more so than any genuine concern of the impact of this deal on consumers,” Martin said. “They also made it a point in filing the lawsuit to essentially criticize the Justice Department, the fact that the Justice Department fast-tracked this transaction for approval, and the fact that the Justice Department is taking a light touch when it comes to media mergers in general.”
Filing the lawsuit can also be a way to use time as a weapon, Stroud wrote. If the deal is delayed past the end of September this year, Paramount would need to pay Warner Bros. Discovery shareholders ticking fees of about $650 million per quarter. That came to a staggering $7.2 million per day.
“The state AGs don’t need a legal win to kill the merger,” Stroud wrote. “They only need to run out the clock long enough to make the deal financially ruinous for Paramount.”
Possible outcomes
The tussle might yet result in a separation of the linear cable assets for the combined company, Martin said. Warner Bros. Discovery previously considered spinning off its shrinking cable networks, including CNN and the Discovery Channel, before Paramount launched a bid to buy everything in cash at a 147% premium.
Paramount did not pay the high price for linear cable assets, however, Martin said. The real incentive is the streaming and the intellectual property, and the cable business just came to sweeten the deal.
“I would anticipate that this lawsuit will ultimately result in some sort of negotiated settlement, and that there will be concessions made,” he said. “The lawsuit specifically mentions linear cable. If they wanted Paramount Skydance to divest the linear cable assets or to spin out the linear cable assets … I’m sure they would be happy to do so.”
