Judge Halts Paramount-Warner Bros. Combination

US District Judge Araceli Martínez-Olguín issued a temporary restraining order on Monday that prevents the companies from closing the transaction or integrating operations while litigation brought by a coalition of 12 states proceeds. The order is scheduled to remain in place until at least early August, when the court will consider whether to extend the restrictions through a preliminary injunction hearing.

The legal challenge, led by California Attorney General Rob Bonta and joined by attorneys general from several other states, argues that the proposed merger would substantially lessen competition in markets ranging from theatrical film distribution to cable television programming and streaming services.

According to reporting by The New York Times, the court action represents one of the most significant obstacles yet to Paramount’s effort to combine with Warner Bros. Discovery and create a new entertainment giant encompassing major film studios, television networks and streaming platforms.

If completed, the transaction would unite assets including Paramount Pictures, CBS, Paramount+, Nickelodeon and MTV with Warner Bros.’ film studio, HBO, CNN, HBO Max and a portfolio of globally recognized franchises such as Harry Potter, Game of Thrones, Top Gun and the DC universe.

State officials contend that the merger would eliminate direct competition between two of Hollywood’s remaining legacy studios and increase the combined company’s leverage over theaters, distributors, advertisers and consumers. In court filings, the states argued that allowing the deal to close before judicial review is completed could result in irreversible operational integration, employee layoffs and the exchange of competitively sensitive information.

Judge Martínez-Olguín wrote that the states had raised substantial questions regarding whether the transaction complies with federal antitrust law, according to court filings and subsequent reporting by Reuters and the Associated Press. The judge also indicated that potential harms resulting from integration could be difficult to unwind if the merger is ultimately found unlawful.

Related: FCC’s Carr Criticizes California-Led Bid to Block Paramount-Warner Bros. Discovery Deal

The proposed transaction, announced earlier this year, values Warner Bros. Discovery at approximately $110 billion on an enterprise basis and about $81 billion in equity value. Paramount has argued that the combination is necessary to compete more effectively with larger digital rivals including Netflix, Amazon and Disney, all of which have expanded their influence in global entertainment markets.

In statements released after the lawsuit was filed, Paramount characterized the states’ allegations as legally and factually flawed, arguing that the entertainment industry has become increasingly competitive due to the rise of streaming services and technology companies with significant financial resources.

The antitrust challenge highlights a growing debate over how regulators should assess consolidation in media markets. Critics of the transaction have argued that combining two major content producers could reduce opportunities for independent creators and increase bargaining power over exhibitors and distribution partners. Supporters of the deal contend that legacy media companies require greater scale to compete against technology-driven streaming platforms with global subscriber bases and extensive capital resources.

According to Reuters, state attorneys have argued that the merged company could account for roughly 27% of widely released theatrical film distribution in the United States, potentially giving it increased leverage in negotiations with movie theaters and other industry participants.

Source: The New York Times