Judge pauses Paramount-Warner Bros. Discovery merger for 14 days

Paramount Skydance‘s proposed merger with Warner Bros. Discovery was temporarily blocked for 14 days by a federal judge who cited evidence that the combined company could hold a substantial share of the theatrical film distribution market.

Twelve states seek to halt Paramount-Warner Bros. Discovery deal

The temporary restraining order was issued in response to a lawsuit filed by California Attorney General Rob Bonta and attorneys general from 11 other states. The states alleged that the transaction would violate antitrust laws by reducing competition in theatrical film distribution and cable channel licensing.

U.S. District Judge Araceli Martinez-Olguin barred Paramount and Warner Bros. Discovery from completing the transaction or taking steps to integrate their operations during the 14-day period.

The states had argued that the order was necessary because Paramount had not guaranteed that it would delay closing the deal beyond July 22. A decision from European Union regulators was expected around that date.

The order maintained the status quo while the court considered the states’ request for a preliminary injunction, which could block the transaction for a longer period.

The attorneys general “present compelling evidence that the combined firm resulting from the transaction will possess substantial market share in the wide-release theatrical distribution market,” Martinez-Olguin wrote.

“On this combined firm market share alone, the Court is persuaded that it can presume the proposed merger is likely to violate antitrust laws,” she wrote.

The states alleged that the merger would create excessive concentration in the distribution of wide-release films, the distribution of anticipated top-grossing theatrical films and the licensing of basic cable channels.

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The judge found that the states had raised substantial questions about the transaction’s competitive effects and that the public interest favored temporarily blocking the merger.

“Even if Defendants argued that they would suffer economic harm as a result of delaying the merger, the equities do not weigh in their favor when contrasted with the potential public harms that would result from consummation of the Transaction, including the loss of competition,” Martinez-Olguin wrote.

Paramount had indicated before the ruling that it was prepared to delay the closing. Jeffrey Kessler, the company’s lead attorney, told the court that Paramount would commit to not closing the merger for 28 days.

“This is a critical first win in our case to ensure this megamerger never sees the light of day,” Bonta said.

“This lawsuit is about a simple fact: when one company controls a massive share of our film and television industries, workers, artists, businesses, and consumers suffer,” New York Attorney General Letitia James said.

Paramount disputed the states’ allegations and said the proposed transaction would increase competition.

“We are confident the evidence will demonstrate that the State AGs’ antitrust arguments are without merit as their alleged markets and claims of anticompetitive effects are without any basis in modern market realities. This merger is lawful, pro-competitive, and will benefit consumers, creators, workers, and the entertainment industry. We will continue to vigorously defend the transaction and will look forward to the hearings on the substance of the State AGs’ action,” a Paramount spokesperson said.

Paramount argued that combining with Warner Bros. Discovery would strengthen its ability to compete against larger streaming services, including Netflix, Disney+ and Amazon Prime Video. The states focused their challenge on theatrical distribution and cable markets.

The Justice Department closed its investigation of the transaction in June after determining that the merger was not anticompetitive. The court scheduled an Aug. 3 hearing on the states’ request for a preliminary injunction. The states’ motion was due July 23, Paramount’s opposition was due July 27 and the states’ reply was due July 30.

Paramount could be required to pay Warner Bros. Discovery a $7 million daily fee for each day the transaction remained open after Sept. 30 under the terms of the agreement.

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