Paramount Skydance laid out its legal defense Thursday against a lawsuit filed by a dozen states seeking to block its merger with Warner Bros. Discovery. The company called the case one of the weakest merger challenges in modern antitrust history.
The filing came ahead of a Friday hearing on the states’ request for a temporary restraining order. Paramount urged the federal judge to reject any attempt to halt the deal before it can close.
This marked a shift from earlier statements. Paramount had voiced opposition to the lawsuit before, but this was the first time the company laid out its full legal arguments in court.
What the states are arguing
A coalition of 12 states filed the antitrust lawsuit on Monday, defying the Department of Justice, which had approved the merger the month before. California Attorney General Rob Bonta led the coalition. The states allege the $111 billion deal violates the Clayton Act by reducing competition in three markets: wide release theatrical distribution, top grossing theatrical distribution, and basic cable licensing.
The states pointed to specific market share numbers. Their suit claims the merged company would control 30 percent of the market for blockbuster film distribution. It also claims four companies, including Disney, Universal and Sony, would then control 93 percent of that market.
The states also noted that Paramount and Warner Bros. currently rank as the second and third largest basic cable distributors.
Paramount’s counterargument
Paramount pushed back using current data from the film industry. The company argued that the states’ claim about harm to competition is contradicted by the real world economics of the film business.
Paramount cited Amazon MGM Studios and the success of its film “Project Hail Mary” this year as evidence. The company argued that Amazon MGM, along with distributors like A24 and Lionsgate, could raise production levels if Paramount scaled back, which would offset any pricing power Paramount might gain over theater chains.
Paramount also addressed the cable business directly. The company argued that its channels and Warner Bros. Discovery’s cable networks mostly complement each other rather than compete directly, making a reduction in competition unlikely.
The filing pointed to a broader trend in the industry. Paramount said the ongoing decline of pay TV has weakened the negotiating position of every programmer in the space. The filing included a direct quote on this point, stating that every programmer’s bargaining position is weakening because the subscriber base used to calculate affiliate fees keeps shrinking each year.
Paramount also raised a procedural argument. The company said the states failed to show the kind of imminent, irreparable harm required to justify emergency relief.
Paramount summarized its position by stating that the states cannot come close to establishing a likelihood of success in the case, and argued the merger is procompetitive rather than anticompetitive.
Streaming angle
Though streaming is not part of the lawsuit, Paramount brought it up anyway. The company argued the merger would bring the combined business closer to parity with larger streaming platforms and would encourage further investment.
Where the case stands
The lawsuit was filed in federal court in the Northern District of California on Monday. The case is being heard by Judge Araceli Martinez-Olguín, who was newly assigned to it.
A judge in Oakland County was set to hear arguments for and against the temporary restraining order.
A related case moved forward earlier in the week. A group of Paramount+ subscribers failed to win a separate order blocking the merger on Thursday. They had originally sued in April, alleging price hikes and reduced viewing options as a result of the transaction. The states are set to make their own attempt at a restraining order on Friday.
Other legal pressure on the deal
Paramount is facing multiple legal challenges beyond the states’ lawsuit. A Paramount shareholder filed a derivative suit on Wednesday on behalf of the company against the Ellison family and the board of directors. The Writers Guild of America filed a separate suit the day before, seeking to block the merger entirely.
Deal background
Paramount and Warner Bros. are two of the five remaining legacy movie studios. Together with Disney, Sony and Universal, the five companies control 86 percent of theatrical distribution and 90 percent of blockbuster distribution, according to the states.
The Department of Justice approved the merger in June, issuing lengthy commentary arguing the deal would not harm competition across theatrical, streaming and linear TV markets. Despite that approval, opposition has come from multiple directions. Hollywood unions have also raised concerns or outright opposition to the deal.