US States Sue to Block Paramount's Acquisition of Warner Bros. Discovery

Background of the Deal

Behind Paramount stands the family of software billionaire Larry Ellison, who is known as a supporter of President Donald Trump. Paramount is led by Larry Ellison's son — the film producer David Ellison. He wants to use the acquisition of Warner to gain weight in Hollywood and make Paramount a serious competitor to Netflix and Disney. "Paramount is among the smaller players in the industry," the plaintiffs emphasize.

Paramount, however, persisted and submitted a higher bid for the entire Warner Bros. Discovery group, including television networks such as CNN. The deal is now worth roughly $111 billion, including debt and non-voting stakes from sovereign wealth funds in Saudi Arabia, Qatar, and the United Arab Emirates. The financing plan calls for the company to take on roughly $80 billion in new debt.

California Attorney General Rob Bonta said in justifying the lawsuit: "The unlawful merger of these two entertainment behemoths would lead to higher prices, lower quality, and less content for film and television, harming movie theaters, basic cable distributors, and ultimately, audiences on every sofa and movie theater seat in the U.S." He added: "With this lawsuit, California and our sister states are fighting for free and fair markets, not rigged markets. America has no kings in government or our economy."

Political Dimension and Trump Connections

Trump had repeatedly said it was particularly important to him that the news network, which often reports critically about him, change owners as part of a Warner deal. Speaking to CNN anchor Jake Tapper, he stated: "We're trying to have CNN go in a normal path." Trump critics fear that CNN under Paramount ownership could lose its editorial independence. The newsroom of the Paramount network CBS drew attention after the Ellison family's takeover with friendlier coverage of the Trump administration. In the popular reporting show "60 Minutes," several correspondents were dismissed, some of whom complained of politicized pressure.

Resistance to the mega-deal is coming, of all places, from the political camp that had effectively given the green light through the Justice Department. The US government had previously approved the billion-dollar deal without conditions. The Justice Department concluded after an eight-week review that the merger would harm neither competition nor US consumers in TV, streaming, and film. According to a Wall Street Journal report, the merger was approved by the department's leadership before the responsible attorneys could issue a recommendation.

Arguments of the Suing States

In addition to California, Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, and Washington are participating in the lawsuit. The states argue that the elimination of competition between Warner and Paramount would hit cinemas, TV providers, and cable operators hard. They have called on Paramount to postpone completion of the transaction until the court proceedings conclude. The lawsuit was filed in federal court in the Northern District of California.

The dispute also has a financial dimension: If the deal is not completed by June 4 of the following year, Paramount would have to pay Warner seven billion dollars. Starting October 1, a so-called "ticking consideration" of roughly $650 million per 90 days of delay would also accrue. The delay could cost Paramount hundreds of millions of dollars. A decision on the lawsuit is expected to take months.

Warner includes, among other things, the DC superhero universe with Superman and Batman, film franchises such as "Harry Potter," as well as a strong streaming business based on the pay-TV channel HBO. The deal would combine Paramount's and Warner Bros. Discovery's competing film studios, streaming services (Paramount+ and HBO Max), sports programming (CBS Sports and Turner Sports), and news divisions (CBS News and CNN).

Industry Impact

Last year, Netflix had reached an agreement with Warner to purchase the streaming and studio business of the industry giant. At the time, the value of that segment was put at roughly $83 billion. Paramount subsequently submitted a higher bid for the entire company. Warner chief David Zaslav had announced plans in the summer to break up the company. AT&T had divested the Warner media businesses less than four years earlier after the acquisition of Time Warner; they were taken over by Discovery, burdening the new company with tens of billions of dollars in debt.

FCC Chairman Brendan Carr had said about the Paramount bid in March: "I think this is a good deal, and I think it should get through pretty quickly." The FCC has not yet approved the deal; Paramount holds broadcast licenses for 28 local television stations. Trump had awarded Larry Ellison and Oracle a controlling stake in the US operations of TikTok last fall. Of the Ellison family, Trump said in March: "It's a great family." Critics see the case as an example of how the US government rewards friends and donors with lax regulation.

After the lawsuit became known, Warner stock rose slightly, roughly two percent. If the states succeed, the planned reshaping of the Hollywood landscape would be halted for the time being. Bonta summed up the thrust of the lawsuit with the words: "Mit dieser Klage setzen sich Kalifornien und unsere Nachbarstaaten für freie und faire Märkte ein – nicht für manipulierte Märkte."