Attorney General Mayes Joins Coalition Challenging Paramount/Warner Bros. Merger

PHOENIX – Attorney General Mayes today joined a coalition of 12 attorneys general in filing a lawsuit challenging the $110 billion acquisition of Warner Bros. Discovery, Inc. (Warner Bros.) by Paramount Skydance Corporation (Paramount). The proposed merger would combine two of Hollywood’s five major film distributors and two of the five major basic cable companies, extinguishing competition between Paramount and Warner Bros., and inflicting substantial harm on movie theaters, basic cable distributors and, ultimately, audiences nationwide.

If allowed to merge, in the U.S. alone the combined titan would control nearly one-third of theatrical motion pictures, and nearly one-third of basic cable programming. The coalition has asked Warner Bros. and Paramount not to close the merger until after the judicial process concludes, and if they do not agree, the coalition will be filing a temporary restraining order.  

“If this merger goes through, Arizonans could face higher prices to see new movies and to access basic cable channels,” said Attorney General Mayes. “Consolidation in industry after industry will only lead us in one direction: higher prices and degraded quality and service for Arizonans. We cannot let that happen.”

For more than a century, Warner Bros. and Paramount have stood astride the film and television industry as independent sources of creativity and competition. The lawsuit, filed in U.S. District for the Northern District of California, alleges that the merger violates Section 7 of the Clayton Act, which holds that mergers that may substantially lessen competition or tend to create a monopoly are illegal.

The attorneys general allege that if Warner Bros. and Paramount are allowed to merge it would lessen competition in the areas of:
 

• Wide Release Theatrical Film Distribution, where Warner Bros. and Paramount are two of the five major film distributors and would combine for around 27% share of the market. After the merger, only three distributors will control 75% of these films, and only four distributors (Defendants, Disney, Universal, and Sony) will control 86% of them.
• Anticipated Top-Grossing Theatrical Film Distribution, a submarket of theatrical film distribution focused on anticipated blockbuster films with wide audiences and large production budgets. After the merger, Defendants will control more than 30% of these films, and four distributors (Defendants, Disney, Universal, and Sony) will control more than 90% of them.
• Licensing Basic Cable Television Channels, or the market for distributing basic cable channels to cable and satellite providers. Warner Bros. is the second largest and Paramount is the third largest in this market, and they would combine for a 27% share.

Currently, Paramount and Warner Bros. compete fiercely to create and distribute new, different, and innovative film and television content to American viewers. To promote their films, they negotiate with thousands of movie theaters across the country and bargain with those theaters to secure the most coveted screens and calendar slots.

Movie theaters rely on competition between Paramount and Warner Bros. to incentivize creativity and secure competitive prices and terms for themselves and for audiences. Paramount and Warner Bros. also compete to market their basic cable channels. To acquire the rights to distribute that content to subscribers, distributors negotiate with Paramount, Warner Bros., and other cable channel owners.

Alternatives are essential in these negotiations as is the leverage that each entertainment company provides to distributors. For example, if Paramount insists on onerous financial terms, the distributor can gain leverage by turning to Warner Bros. — and vice versa. Distributors rely on this competition to secure low prices for themselves and for their subscribers, and to encourage programmers to invest in new and exciting content for television.  

Paramount’s proposed acquisition of Warner Bros. will end this competition, threatening viewers with higher prices, the decline of theatrical exhibition of films, and a reduction in the variety, quality, and amount of content distributed.

In filing today’s lawsuit Attorney General Mayes joins the attorneys general of California, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, and Washington. 

A copy of the complaint is available here.