States sue to block Paramount's $110 billion Warner Bros. deal, warning of a "media behemoth"

What just happened? Paramount Skydance's $110 billion acquisition of Warner Bros. Discovery has run into its biggest obstacle yet. California and 11 other states have filed an antitrust lawsuit seeking to block the mega-merger, claiming it would create a media giant with the power to raise prices, cut jobs, and reduce choice for moviegoers and TV viewers alike.

The lawsuit was filed in federal court in Sacramento on Monday, just a month after the Department of Justice cleared the deal without conditions. California is joined by Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, and Washington, all states with Democratic attorneys general.

The complaint alleges that combining the two companies would harm competition in wide-release theatrical film distribution and the licensing of basic cable channels, with the damage trickling down to consumers in the form of pricier movie tickets and cable packages. It warns that the deal would "create a media behemoth."

California Attorney General Rob Bonta, whose office continued investigating the merger even after the DoJ signed off, said at a press conference that "competition is the lifeblood of a healthy and vibrant economy."

When the agreement was announced in February, Paramount said it would be paying $31 per share in cash for WBD, ending a bidding war that at one point involved Netflix. The merger would place Paramount+, HBO Max, CBS, CNN, and two of Hollywood's best-known film studios under a single owner. This raises the prospect of the streaming services eventually being combined and, the states argue, of subscribers paying more for less.

Paramount called the lawsuit a distortion of settled antitrust law based on a misrepresentation of competition in the entertainment industry. CEO David Ellison has pledged that the combined studios will release at least 30 theatrical movies per year, even after $6 billion in cuts to overlapping infrastructure, marketing, and corporate jobs.

The states counter that the promise is unenforceable, and that even if Paramount kept it, the company would still be positioned to raise prices and lower quality.

Paramount has agreed to pay WBD shareholders around $650 million in fees every quarter the deal remains open beyond October, and has warned that delays could force a renegotiation. The suit has already turned ugly, too: following a report that advisers were urging Ellison to move Paramount out of California over the litigation, Bonta said it "seemed like a last-ditch effort to try to blackmail my office."

The deal has been approved by regulators in more than a dozen countries, though reviews in the EU and UK are still ongoing.