Paramount-Warner Bros. Merger Clears as 12 States Settle Suit

A settlement that ends the last major fight

On September 21, Paramount Skydance settled the antitrust lawsuit that a coalition of 12 state attorneys general had filed to block its takeover of Warner Bros. Discovery, and that settlement opened the path to closing the largest deal in Hollywood history.3 California Attorney General Rob Bonta led the coalition and announced the agreement at a Los Angeles press conference.1 He also took care to say he was not endorsing the deal itself.12 Federal Judge Araceli Martínez-Olguín approved the consent decree on October 1. That removed the last formal obstacle, since the merger already had clearance from regulators in 68 jurisdictions, the Justice Department among them.4 By mid-October, reports described the transaction as closed.6

The coverage does not agree on the deal's size. CNBC, NBC News, CBS News and the BBC call it a $110 billion merger.39 NPR, Variety, The Hollywood Reporter and The New York Times use $111 billion.1441513 One CNN report put the figure at $108.4 billion.1 Most of the gap comes from how the deal is measured. When Paramount announced the definitive agreement in February, it valued WBD at $81 billion in equity and $110 billion in enterprise value. It paid for the purchase with $47 billion of equity and $54 billion of debt, and Larry Ellison personally guaranteed most of the equity.11

How the lawsuit got here

The states sued on July 13, a month after the Justice Department had approved the deal.98 Their complaint named three markets they said would be harmed: cable programming, wide-release films and blockbuster films.8 The states argued that theaters and cable and satellite distributors would face higher prices and fewer choices, and that those costs would be passed on to consumers. Early on, the judge granted a 28-day restraining order after finding the states had made a strong showing of competitive harm in basic cable and theatrical distribution. Paramount chose not to fight a preliminary injunction. It agreed to hold off closing until the antitrust claims were resolved or June 1, 2027, whichever came first.9

The federal position was very different. In June, the Justice Department's Antitrust Division concluded that the acquisition would increase competition, and it approved the deal without divestitures, behavioral remedies or other concessions.15 Paramount kept pointing to that difference and called the states' case "one of the weakest merger challenges in modern antitrust history."9 The judge's early rulings, though, suggest the states had a real case. A trial was set for March 2, 2027.

The ticking fee drove the timing

The settlement makes most sense as a story about money and deadlines. To persuade WBD's board, Paramount had agreed to a "ticking fee" that would start on October 1 if the deal had not closed. The fee works out to about $7 million a day, or 25 cents per share each quarter.810 CNBC calculated that it would add roughly $650 million in cash value to the deal every quarter.12 Deadline estimated that the fee could have cost Paramount close to $2 billion if the case had gone to trial.11 In August, Paramount asked the court to make the merger's opponents post a bond of nearly $1.9 billion to cover the cost of delay.9 NPR reported that no state wanted to put up that money, particularly because Paramount had offered the fee voluntarily as a sweetener.14

Paramount also pressed on several other fronts. It threatened to move out of California, with Texas and Tennessee both courting it, and Bonta called that move "blackmail."15 It recruited Democratic state lawmakers to push Bonta toward a settlement, and IATSE and the Directors Guild of America called for a deal as well. The biggest blow to the states' case may have come from theater owners. Cinema United had opposed the merger at first, but it changed its position after AMC, Cinemark and Regal each came out for a settlement. That left the states trying to prove harm to exhibitors while many exhibitors were no longer backing them. My reading is that the coalition's leverage weakened faster than its legal arguments did.

What Paramount agreed to

The consent decree relies on behavioral commitments, with forced sales held in reserve. Paramount must release 30 films in each of the first two years after the merger and 32 a year for the following three. At least 20, and later 21, of those must be wide releases shown on 2,000 or more screens. It must spend an extra $300 million a year on domestic production for five years, which comes to $1.5 billion. It may not sell or close the Paramount or Warner Bros. studio lots in the Los Angeles area for at least five years. For the same five-year period, the companies must negotiate their basic cable channels separately. If they do not, the combined company would have to sell a group of cable channels.12

Each film the company falls short of its release target triggers a $30 million penalty. Missing the goal entirely would force a sale of Miramax.12 Accounts of where the penalty money goes differ. Bonta was quoted as saying 90% goes to workers.12 CBS News, citing the proposed decree, reported that half goes to union healthcare and retirement funds and the rest is split between the Motion Picture & Television Fund and the National Association of Attorneys General Fund. The final decree is the authoritative text, so that difference is worth checking against it.

The deal also includes a $47.5 million workforce fund over five years for workers displaced by the merger.9 Paramount must honor existing collective bargaining agreements and bargain with unions in good faith.12 A trustee will monitor compliance.14 CBS News reported that a committee of five states will oversee enforcement.

The newsroom question

The provision that has drawn the most attention covers news. Within 180 days of closing, Paramount must set up an editorial independence board for CBS News and CNN. It will have five working or retired journalists, each with at least ten years of experience. No more than two members may be affiliated with the same political party, and Paramount's board appoints all of them.1 The board will settle disputes about alleged reporting bias and monitor whether the newsrooms remain independent from owners and shareholders.1

According to Variety, the news provisions were a priority for East Coast attorneys general.5 Some of them wanted more than they got. Connecticut Attorney General William Tong said his office had demanded that CNN and CBS News be fully divested and that he was "deeply disappointed" the settlement stopped short. He still credited the board as enforceable under the consent decree.1 Deadline reported that New York, Connecticut, Minnesota and Nevada held out until late Sunday and agreed only after Bonta promised to hold Paramount's "feet to the fire."8 The Hollywood Reporter reported that selling CNN was something Ellison would not accept.15

Politics hang over all of this. The BBC noted that Ellison had hosted a dinner for President Trump earlier in the year and that Trump had recently banned CNN from the White House. The FCC also waived the 25% foreign broadcast ownership cap so that sovereign wealth funds from Saudi Arabia, Qatar and the UAE could own 49.5% of the merged company.11 NPR reported that Paramount has promised those stakes will be non-voting.14 An independence board appointed by the company's own directors offers less protection than an outside one would.

Critics call it a capitulation

The writers' guild settled at the same time and said plainly that it had no real choice. The WGA still opposes the merger, but it said that as a nonprofit it could not afford to fight a complex antitrust case alone once the states had dropped out.3 In return, Paramount agreed to bar writer layoffs at CBS News Broadcast for five years and to pay $17.5 million into the guild's health fund, plus its legal fees.10

Outside groups were harsher. Free Press called the agreement a "capitulation" full of "unenforceable, empty Paramount promises."14 The #BlockTheMerger coalition and the League of United Latin American Citizens asked the judge to reject it, and Sen. Cory Booker urged an independent public-interest review.4 The judge approved the settlement anyway. She acknowledged "meaningful grounds for disappointment" but found that the divestiture backstops made it a fair compromise.4 A California antitrust official explained the reasoning: if the deal had been blocked, WBD would probably have looked for another buyer.4

Why it matters

The headline numbers say little about what comes next. Paramount has promised investors $6 billion in cost savings, which points to deep layoffs despite the job-protection language.11 NPR estimates the combined company's debt at up to $87 billion, and other outlets give somewhat lower figures.1411 That much debt makes it costly to keep the 30-film pledge.14 The settlement also leaves out some things people expected. Bonta confirmed that keeping the company headquartered in California is not part of the agreement.

In my assessment, the states got what their remaining leverage could buy. They secured enforceable conduct rules with divestitures as penalties, not the structural break-up Bonta had called for at the start. The case shows that state attorneys general can force concessions from a merger Washington has approved. Their leverage was limited, though, because they could not prevent the costs of delay from shifting back onto them. Whether these commitments hold up will depend on how strictly the trustee and the five-state committee enforce them over the next five years.