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Are blockbuster films a separate market? Or are they interchangeable with other forms of entertainment?
The $111 billion Paramount-Warner Bros. merger may hang on that question. On July 13, a coalition of 12 states sued
to block the deal, arguing that it will lead to excessive concentration in the theatrical and basic cable markets. The strongest claim may be that the combined entity will control 30% of the market for “anticipated top-grossing films.”
California Attorney General Rob Bonta is leading a lawsuit to block the Paramount-Warner Bros. merger.
“I think this is a strong case,” says Abiel Garcia, partner at Kesselman Brantly Stockinger LLP. “I think a massive movie like ‘The Odyssey’ or ‘Spider-Man’ — these are very different movies than art films.”
The suit, led by California Attorney General Rob Bonta, leans on a 9th Circuit Court of Appeals case from 1986, in which AMC accused rival circuit Syufy Enterprises of illegally monopolizing the San Jose, Calif., market for anticipated top-grossing films. Syufy argued that all first-run films effectively compete with each other — and that AMC’s definition was too narrow.
But the court sided with AMC, noting that “if the price for admission to ‘E.T.’ goes up, audiences will not flock to ‘My Dinner With Andre.’”
A lot has changed in entertainment in the past 40 years, but the state coalition is gambling that much is still true. Paramount Skydance has argued that the lawsuit is “fundamentally flawed” and vowed to fight in court.
It’s a big risk for the states. Antitrust cases are expensive, and when states take them on they typically team with the Department of Justice, which has more resources to challenge the world’s biggest companies.
But under President Trump, it’s become a different story. Amid perception that federal enforcement has taken a backseat to crony capitalism, states have pursued a more aggressive course on case after case: HPE-Juniper Networks, Live Nation-Ticketmaster, and Nexstar-Tegna.
The DOJ has already given its blessing to the Paramount-Warner merger. In the Trump era, the states get the last word.
“We’re the most important law firm in the country right now,” Paula Blizzard, the head of the California antitrust division, said on a panel last year. “It’s very sexy to work for us right now.”
Blizzard came to the A.G.’s office nearly a decade ago after a long career on both sides of antitrust enforcement. Early on, she worked in the DOJ’s Antitrust Division in San Francisco, where she was part of the trial team that tried unsuccessfully to block Larry Ellison’s software giant Oracle from acquiring PeopleSoft in 2005.
Now Blizzard is taking aim at Ellison’s son, David, who is seeking to use $40 billion of his father’s money to combine two of Hollywood’s five legacy studios. Blizzard’s boss, Attorney General Rob Bonta, laid out the case against the merger at a press conference in front of the Hollywood sign
on July 13.
At times, his argument seemed more political than legal. The Ellisons have been courting Trum. The The Wall Street Journal reported that Larry Ellison gave $45 million towards his reelection. Bonta noted that he has already sued the Trump administration more than 70 times.
“Trump is pro -rigged economy, and so our role is more important,” he said. Oregon’s attorney general, Dan Rayfield, made a similar argument in his own news conference two hours later. “There is a credibility issue in the way that U.S. Department of Justice is making decisions,” Rayfield said. “What we want as states is a partnership with the U.S. Department of Justice, and we just don’t have that right now.”
The costs of going it alone are sizable. Between outside economists and litigators, the states could end up spending $20 million.
“California has a pretty large budget, but it’s really nothing compared to the infrastructure the federal government has,” says Marc Remer, a former DOJ economist who now teaches at Swarthmore College.
California has been preparing for this fight. In May, Gov. Gavin Newsom sought and obtained an additional $14 million for antitrust enforcement, saying the DOJ had abandoned the field. The office has posted job openings for lawyers who want to work on Paramount-Warner Bros. and other high-profile cases.
“We’re really hoping to get a lot of great new people to come help us do what we foresee is an increase in litigation in the next, say, two to four or five years,” Blizzard said on an industry webinar in June. “We’re doing all the fun cases.”
Even with DOJ support, bringing cases against powerful companies is always an uphill fight. And without it, California and the other states will be decided underdogs. Paramount has retained Jeffrey Kessler, a high-profile antitrust litigator who argued for the states in the Live Nation case, as well as Eric Stock, who ran the antitrust bureau at the New York attorney general’s office, and Andrew Finch, a former top deputy to Makan Delrahim in the DOJ Antitrust Division. Delrahim is now Paramount’s top legal officer.
“This is a pro-competitive deal,” Kessler tells Variety. “It’s really needed for the whole industry. The new combination is going to produce more shows, more movies, than the two companies were producing on their own.”
Hollywood unions are unconvinced by such promises.
“We need assurances, and we need penalties tied to that,” says Lindsay Dougherty, head of the Hollywood Teamsters union. “They can say this all day long. But if there’s not any remedy tied to that, they could say one thing and do the other.”
Antitrust cases often end in a settlement that includes certain conditions. But for now at least, no deal has been forthcoming.
“We’re always open to hearing legitimate concerns,” Kessler says. “Nothing has been proposed by the states.”
