New Jersey joins lawsuit to block $110 billion Paramount-Warner Bros. merger

The proposed media merger could raise prices and reduce film and television choices for consumers

New Jersey Attorney General Jennifer Davenport has joined 11 other state attorneys general in a lawsuit seeking to block Paramount Skydance Corporation’s $110 billion acquisition of Warner Bros. Discovery, arguing the massive media merger would reduce competition, raise prices, and leave consumers with fewer film and television choices.

The proposed deal would combine two of Hollywood’s five major film distributors and two of the five largest basic cable programmers. The combined company would control roughly one-third of films and nearly one-third of basic cable programming in the United States, according to the lawsuit.

The challenge comes as New Jersey has sought to establish itself as a major center for film and television production, attracting large studios and expanding tax incentives for the industry.

“New Jersey is the birthplace of the American film industry, and the state is now a burgeoning hub for film and television production,” Davenport said in a statement. “Given our state’s leadership in the film and television industry, we must protect our residents when corporate media monopolies threaten to upend the industry by raising prices and reducing content choices.”

“The proposed merger between Paramount and Warner Bros. Discovery will hurt our state’s residents, plain and simple,” she added.

The lawsuit, filed in federal court in Northern California, alleges the merger violates the Clayton Act, a federal antitrust law that prohibits acquisitions that may substantially reduce competition or create a monopoly.

Warner Bros. and Paramount have operated as independent film and television companies for more than a century. The states argue the companies currently compete to develop movies and television programs, secure theater screens and release dates, and license cable channels.

Eliminating that competition would give a smaller number of major entertainment companies substantially greater control over what consumers watch and how much they pay, the lawsuit alleges.

A smaller group controlling more films

Paramount and Warner Bros. are two of only five major distributors of films released widely in U.S. theaters. Together, the companies would control about 27% of the market for widely released theatrical films, according to the lawsuit.

After the merger, just three distributors would control 75% of the market. The merged Paramount-Warner Bros., Disney, Universal, and Sony would collectively control 86% of widely released films.

The concentration would be even greater for movies expected to become major box-office hits.

The attorneys general identified anticipated top-grossing films as a distinct part of the film market. Those movies generally have large production budgets, broad audiences, and the potential to draw significant numbers of people to theaters. The merged Paramount and Warner Bros. would control more than 30% of those films, according to the lawsuit. Four distributors would control more than 90% of the market.

Those numbers matter not only for moviegoers but also for theaters, the attorneys general argue.

Major studios negotiate with thousands of theaters over which movies will be shown, when they will be released, and which screens and calendar slots they receive. Paramount and Warner Bros. currently compete for the most desirable screens and release dates. That competition gives theaters leverage during negotiations, according to the lawsuit.

Currently, if Paramount seeks unfavorable terms, for example, a theater can negotiate with Warner Bros. Combining the companies would eliminate that competition and leave theaters facing one fewer major distributor. The attorneys general argue the resulting imbalance could mean worse financial terms for theaters and contribute to a decline in the number and variety of films shown on the big screen.

Cable prices and programming

The merger would also combine two of the country’s largest owners of basic cable channels.

Warner Bros. is the second-largest company that licenses basic cable programming to cable and satellite providers, while Paramount is the third-largest. Together, they would control about 27% of the market, according to the lawsuit.

Cable and satellite companies negotiate with media companies for the right to distribute their channels to subscribers. The availability of competing programmers plays an important role in those negotiations, the attorneys general argue.

If Paramount demands higher prices or more restrictive financial terms, a cable or satellite provider can use Warner Bros. programming as an alternative or as leverage in negotiations. Warner Bros. faces the same competitive pressure from Paramount. A merger would eliminate that rivalry.

The states argue the combined company could gain greater bargaining power over cable and satellite providers, potentially resulting in higher licensing costs. Those costs could ultimately be passed on to consumers through higher subscription prices. Competition also gives media companies an incentive to invest in new programs and develop content that attracts viewers, according to the lawsuit.

With fewer major competitors, the attorneys general argue, companies could face less pressure to create new and innovative television and film content. The proposed merger threatens viewers with “higher prices, the decline of theatrical exhibition of films, and a reduction in the variety, quality, and amount of content distributed,” the lawsuit alleges.

States threaten emergency court action

The coalition has asked Paramount and Warner Bros. not to complete the merger while the court challenge is pending. If the companies refuse, the attorneys general said they will ask a judge to issue a temporary restraining order preventing the deal from closing until the case is resolved.

Davenport accused major media companies of seeking greater profits at the expense of consumers.

“We will always stand up against corporate monopolists that seek to exploit hardworking New Jerseyans by driving up prices and turning a massive profit at their expense,” she said.

Davenport joined attorneys general from California, Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Mexico, New York, Oregon, and Washington in filing the lawsuit.