A federal judge has granted a temporary restraining order that will pause Paramount‘s merger with Warner Bros. Discovery for 14 days.
The order is in response to a lawsuit filed by California Attorney General Rob Bonta and 11 other states, claiming that the proposed merger violates antitrust laws.
U.S. District Judge Araceli Martinez-Olguin wrote that the state AGs “present compelling evidence that the combined firm resulting from the transaction will possess substantial market share in the wide-release theatrical distribution market.”
“On this combined firm market share alone, the Court is persuaded that it can presume the proposed merger is likely to violate antitrust laws,” the judge wrote.
Read the judge’s order pausing Paramount-Warner Bros. Discovery merger.
The judge’s order bars Paramount and Warner Bros. “from closing or consummating the Transaction or taking any steps, directly or indirectly, to integrate or consolidate their operations pursuant to the Transaction.”
The states claim that the merger creates undue concentration in the markets for wide release films, distribution of anticipated top-grossing theatrical films and licensing of basic cable channels.
A TRO is an order to preserve the status quo in the short term as the judge more fully considers the merits of the case. But in her order, Martinez-Olguin wrote that the “balance of equities, combined with the public’s vital interest in antitrust enforcement, therefore tips sharply in favor of the requested injunctive relief.”
The states had asked that a temporary restraining order was needed because Paramount had not made any guarantee that it would not close the transaction after July 22. The European Union is expected to its decision on the transaction around that date.
The judge’s granting of a TRO is not a major surprise, and Paramount had signaled that it would delay a close to the transaction. At a hearing on Friday, Paramount’s lead attorney, Jeffrey Kessler, said that they were prepared to commit to not closing the merger for the next 28 days.
Bonta said in a statement, “This is a critical first win in our case to ensure this megamerger never sees the light of day.”
He added, “We have a full tank of gas, the law on our side, and look forward to continuing to make our case.”
New York Attorney General Letitia James said, “This lawsuit is about a simple fact: when one company controls a massive share of our film and television industries, workers, artists, businesses, and consumers suffer.”
A Paramount spokesperson said, “We are confident the evidence will demonstrate that the State AGs’ antitrust arguments are without merit as their alleged markets and claims of anticompetitive effects are without any basis in modern market realities. This merger is lawful, pro-competitive, and will benefit consumers, creators, workers, and the entertainment industry. We will continue to vigorously defend the transaction and will look forward to the hearings on the substance of the State AGs’ action.”
The timing of the legal proceedings is significant. Paramount faces the prospect of paying a $7 million per day “ticking fee” to Warner Bros. for each day that the transaction is not closed after Sept. 30. That was a sweetener that Paramount made to win the bidding for WBD.
The judge set a schedule for the stage AG’s motion for a preliminary injunction, which could halt the merger indefinitely as the legal process plays out. She set a hearing date of Aug. 3, with the motion due by Thursday, the opposition brief from Paramount due by July 27 and the state AGs’ reply by July 30.
The judge wrote that even though Paramount’s legal team argued that certain market concentration figures are not binding on the courts, they did not present “countervailing evidence” to rebut the data.
Paramount also argued that the state AGs presented “fundamental misunderstandings and incorrect assumptions regarding the economics of theatrical film distribution in the United States,” pointing to the opinion of a competing expert witness. But the judge wrote that their proof still did not show that the merger would not “substantially lessen competition.”
She wrote, “At best, Defendants’ proof regarding these robust, dynamic markets creates disputes regarding the facts and legality of the Transaction’s market effects.” She wrote that the state AGs showed that “serious questions going to the merits remain, weighing in favor of preliminary injunctive relief.”
The judge also signaled that she was not sympathetic to Paramount’s arguments of economic harm if the merger is blocked beyond Sept. 30. She wrote, “Even if Defendants argued that they would suffer economic harm as a result of delaying the merger, the equities do not weigh in their favor when contrasted with the potential public harms that would result from consummation of the Transaction, including the loss of competition.”
The transaction looked to be on its way to closing in June, after the Justice Department announced that it was closing its investigation and, in a statement, explained why it believed that the merger was not anticompetitive.
Paramount contends that the transaction would bolster competition in streaming, as the combination of Paramount and Warner Bros. would stand a better chance against stronger rivals like Netflix, Disney+ and Amazon Prime.
The states, though, focused on theatrical and cable markets, arguing that consolidation impacts theater owners and cable distributors, with consumers ultimately feeling the impact.
Jill Goldsmith contributed to this report.
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