Paramount Skydance has been hit with its first lawsuit seeking to block its planned acquisition of Warner Bros. via five Paramount subscribers suing the company on antitrust grounds.
In a lawsuit filed Thursday in California federal court, the plaintiffs allege that the Paramount-Warner Bros. lawsuit, if allowed to be completed, will strengthen “Paramount’s ability and incentive to raise prices, reduce output, narrow slates, reduce quality and worsen consumer-facing terms, including through control of distribution, exclusivity, windowing and licensing.”
“If Paramount’s proposed acquisition of Warner Bros. Discovery is consummated, the combined firm would have increased ability and incentive to reduce theatrical film output and narrow release slates, substantially lessening competition by leaving moviegoers with fewer theatrical titles, less genre and budget variety, and fewer meaningful alternatives at local theaters,” the lawsuit reads.
The lawsuit claims that Paramount is violating Section 7 of the Clayton Antitrust Act, which bars mergers that substantially reduce competition and the number of top companies in any given marketplace. While box office market share can vary from year to year based on the films released, the lawsuit estimates that with Warner under its ownership, Paramount would control roughly 24% of the theatrical distribution market.
That level of market control is a reason why movie theater trade org Cinema United has publicly opposed the merger, even as Paramount Skydance CEO David Ellison has repeatedly pledged that Paramount and Warner would release a combined 30 films per year after the merger.
“Skydance’s nontrivial acquisition of Paramount Global and the proposed nontrivial acquisition of Warner Bros. Discovery reflect the same strategy of refusing to compete by building better products, investing, innovating, or winning customers through rivalry on the merits, but instead pursuing scale through consolidation that eliminates independent rivals and weakens the competitive constraints that protect consumers,” the complaint states.
However, Paramount stood by the planned merger on Thursday, defending the deal “will create a stronger competitor.”
“We are aware of the private action filed today in federal district court and are confident that it is without merit,” a spokesperson for Paramount told TheWrap. “The combination of Paramount and WBD will create a stronger competitor that is well positioned to serve as a champion for creative talent and consumer choice.”
The consumer lawsuit comes as Paramount Skydance is seeking to close the merger with Warner Bros. by the end of September, a goal it has publicly expressed confidence in reaching. If the deal is not closed by then, WBD shareholders will receive a 25 cent per share “ticking fee” for each quarter until closing. In the event that the deal does not close at all due to regulatory matters, Paramount will pay WBD a $7 billion termination fee.
California Attorney General Rob Bonta has said that he is reviewing the merger and is expected to be a part of any legal action from state attorneys general against the merger.
“Paramount/Warner Bros. is not a done deal,” Bonta wrote in February after Netflix declined to match Paramount’s increased bid for Warner Bros. “These two Hollywood titans have not cleared regulatory scrutiny — the California Department of Justice has an open investigation, and we intend to be vigorous in our review.”
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