States sue to stop Warner-Paramount merger

LOS ANGELES (CN) — Several states filed suit against Warner Bros. and Paramount on Monday to stop the merger of the media giants, saying the consolidation would hurt Hollywood and consumers alike.

California and others argue the $110 billion purchase of Warner Bros. by Paramount would damage movie theaters, basic cable distributors and audiences. The merger would create a powerhouse that would control about a third of theatrical motion pictures and almost a third of basic cable programming.

The states want a federal judge in the Northern District of California to declare the merger a violation of the Clayton Antitrust Act, stop the acquisition from happening, and award attorneys’ fees. They want the merger placed on hold while the lawsuit moves through the court system. If the media giants decline, California Attorney General Rob Bonta said he’d seek an order forcing a pause.

“Consolidation here not only leads to higher prices — it also leads to fewer opportunities for important stories to come to life, and fewer ways for audiences to encounter stories, ideas, and perspectives beyond their own experiences,” Bonta said in a statement. “With this lawsuit, California and our sister states are fighting for free and fair markets, not rigged markets.”

According to Bonta, the merger violates the antitrust law because it would lessen competition and trend toward the creation of an illegal monopoly. At a press conference held in Los Angeles, he said movies spark ideas and curiosity, holding the power to bring people together. The merger would stifle competition, lead to higher prices and hurt the quality of content, as well as lead to fewer movies and TV shows.

Bonta said Paramount CEO David Ellison thought the merger would be an offer California couldn’t refuse — a reference to “The Godfather,” a Paramount film. The attorney general said Ellison is wrong.

“This deal is illegal under the Clayton Act,” he added.

In the complaint, Bonta says Warner Bros. and Paramount currently are two of five major film distributors. After consolidation, three distributors would control 75% of films. Four distributors — the defendants, Disney, Sony and Universal — would control 86%.

Bonta also points to anticipated blockbuster films, which he calls a submarket of theatrical film distribution. Warner Bros. and Paramount would control over 30% of those films if they merged. They, along with Disney, Sony and Universal, would control over 90% of them.

Concerning the market for basic cable channels, the two giants would jointly have a 27% share.

Bonta says in the complaint that Warner Bros. and Paramount currently compete to make and distribute films and TV shows. They work with movie theaters across the country, making deals for the movie screens and calendar spots.

Theaters need that competition because it spurs creativity and helps push down prices for them and moviegoers.

The defendants also compete with their basic cable channels. Distributors negotiate with the companies to distribute content to their subscribers. Those distributors can secure lower prices because of the existing competition between Warner Bros. and Paramount, which in turn results in investments by the defendants into new content, Bonta says in the complaint.

Paramount has distributed movies for over a century, including “Titanic” and “Breakfast and Tiffany’s,” along with franchises like “Mission: Impossible.” Warner Bros. has distributed blockbusters like “Barbie,” “Casablanca,” and “The Matrix.”

“Americans deserve fair prices,” Bonta said, adding: “They deserve to know they’re not being cheated.”

Paramount called the lawsuit a fundamentally flawed application of antitrust law.

“We will vigorously defend the transaction and demonstrate that this challenge is inconsistent with sound competition policy and the competitive realities of the media marketplace,” the company said in a statement. “Delaying this transaction will only harm entertainment workers who have already suffered over recent years as technology has disrupted their livelihood and cost California tens of thousands of entertainment jobs."

Representatives for Warner Bros. did not respond to a request for comment by press time.

States joining California in the lawsuit include Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon and Washington state.