By Jody Godoy and Dawn Chmielewski
NEW YORK/LOS ANGELES, July 13 (Reuters) - California and 11 states sued to block Paramount's $110 billion acquisition of Warner Bros. Discovery, alleging the deal would create a media behemoth with the power to raise prices in film and television.
The lawsuit threatens to derail Paramount CEO David Ellison's bid to transform his company into a major rival of Netflix and Disney.
But the states argued the deal would harm theaters and television distributors, and that
harm would trickle down to hurt consumers and workers.
"After this merger, for every dollar generated by wide-release theatrical films and basic cable channels in this country, the combined company will pocket more than a quarter," the states said in the lawsuit, adding, "This merger, in short, would create a media behemoth."
Paramount said the lawsuit distorts settled antitrust law and is based on a misrepresentation of competition in the entertainment industry.
Critics of the deal have said Paramount's political connections smoothed the path to clearance last month from U.S. federal antitrust watchdogs. Paramount CEO David Ellison's father, billionaire Oracle co-founder Larry Ellison, has cultivated ties with Republican President Donald Trump. All of the state attorneys general involved in Monday's lawsuit are Democrats.
If allowed to move forward with the deal, Paramount would control 27% of the distribution market for films that appear on screens across America, 30% of blockbuster film distribution and 27% of the market for basic cable channels, the states said.
Hollywood workers have slammed the deal, fearing it would hurt jobs. Theater owners opposed it, worrying it would result in fewer films. The U.S. Department of Justice cleared the deal last month, saying it would benefit consumers and workers.
Paramount shares added slightly to the gains after the lawsuit was filed, and were up 2.9%. Warner Bros shares rose 2.6% after the news.
It will likely take months for a ruling on the states' claims, causing a delay that could rack up hundreds of millions of dollars in costs for Paramount. The states have asked Paramount to delay closing the deal until the legal process concludes. Otherwise, the states said, they will seek an order keeping the deal from closing.
Paramount and Warner Bros compete for the best release dates and screens at thousands of movie theaters across the country, the states said. Without that competition, theaters and moviegoers could face higher prices, the states argued.
Similarly, pay TV distributors and their subscribers rely on competition between the two companies, which together would control major channels such as CNN, MTV, HGTV, Cartoon Network and Nickelodeon.
Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, and Washington joined the lawsuit.
Oregon Attorney General Dan Rayfield said, “Despite the federal regulators rubber-stamping this bad deal, we’re stepping up to protect families, small businesses, and Oregon’s film industry.”
Paramount has said the deal will allow it to produce more, not less, after it cuts $6 billion in redundant infrastructure, marketing and corporate jobs. Ellison has vowed that the combined film studios would release 30 movies a year.
The states called that commitment unenforceable, and said that even if the company stuck to that promise, it would still be in a position to raise prices and decrease quality after the merger. They said the merger would ripple through the states' economies, harming tens of thousands of writers, actors, film crews and others.
Paramount has committed to pay around $650 million in fees to Warner Bros. Discovery shareholders each quarter if the deal does not close before October. The company has said delays could force it to renegotiate the deal's financing, cause uncertainty for its stock price, or even scuttle the transaction altogether.
(Reporting by Jody Godoy in New York and Dawn Chmielewski in Los Angeles; Editing by Chris Sanders, Nia Williams, Franklin Paul and David Gregorio)
