Why Paramount Should Be Worried

In this article for The American Prospect, author David Dayen shares an analysis of the legal battle over the proposed $110 billion Paramount-Warner Bros. Discovery merger. Following a hearing on the states’ request to block the transaction, Judge Araceli Martínez-Olguín issued a 14-day temporary restraining order and indicated that the states had presented compelling evidence that the combined company would hold substantial market shares.

The states argue that the merger would violate Section 7 of the Clayton Act by giving the combined company greater bargaining power over movie theaters and cable distributors, potentially resulting in higher prices and revenue shares. Dayen notes that Paramount’s arguments that streaming competition and potential new entrants would constrain the merged company were met with skepticism, particularly given the stability of the major studios’ market shares and the continued importance of theatrical and cable markets.

Dayen suggests that the judge’s reasoning makes a quick trial or approval of the merger before full litigation unlikely. The court found that the states could establish a presumption of illegality based on the combined company’s market share and indicated that resolving factual disputes would likely require a full trial rather than a limited proceeding focused solely on economic experts. The court also recognized that unwinding the merger after closing could be difficult or impossible.

The merger faces additional challenges from the Writers Guild of America, which argues that the deal would harm creative professionals by reducing competition for their services. Dayen concludes that Paramount may face increasingly difficult choices as litigation costs and delays mount, including negotiating a settlement or abandoning the transaction, which would trigger a $7 billion termination fee…

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