Paramount is in active talks to settle a lawsuit seeking to block its purchase of Warner Bros. Discovery, as it tries to avoid a costly fee triggered by delays in completing the deal, according to seven people with knowledge of the discussions.
A settlement would clear the way for a $111 billion acquisition that could transform Hollywood, resulting in a media and entertainment behemoth with control of two movie studios, the major news outlets CBS News and CNN and the streaming services HBO Max and Paramount+.
In talks with the 12 states that brought the lawsuit, led by California, the two sides have discussed measures to protect the editorial independence of CNN, said five of the people familiar with the discussions. They have also talked about the divestiture of some cable channels, including Comedy Central, according to two of the people.
The negotiations come as Paramount stares down a deadline that will make its purchase of the rival entertainment conglomerate more expensive. A provision written into the $111 billion deal requires Paramount to pay shareholders of Warner Bros. Discovery about $7 million per day beginning on Oct. 1 if the deal hasn’t closed by then.
A spokeswoman for Rob Bonta, California’s Democratic attorney general, said his office could not “confirm or deny whether settlement talks are occurring or their alleged substance.” A spokeswoman for Paramount declined to comment.
The Wall Street Journal earlier reported that Paramount and the state attorneys general were making progress toward a deal.
The ongoing battle over Warner Bros. Discovery has inflamed anxieties in Hollywood, which has already undergone generations of disruption in the span of a decade. The rise of streaming, the slow death of the cable bundle and the uncertainty around traditional moviegoing have put one of California’s iconic industries on edge.
The 12 state attorneys general argued in their July lawsuit that Paramount’s acquisition would concentrate too much power over cable channels and movie distribution under one corporate owner. Paramount has responded that Hollywood needs a counterweight to tech giants like Netflix that have come to dominate the film and TV industry.
Judge Araceli Martínez-Olguín, of the U.S. District Court for the Northern District of California, has scheduled the trial to begin in March.
Discussions over a possible settlement were touch-and-go in the months after the lawsuit was filed. A meeting between Mr. Bonta and Paramount scheduled for last month was scrapped after Mr. Bonta accused the film studio of leaking details of the negotiations to the press.
As the discussions stalled, Paramount has sought to ratchet up the pressure on Mr. Bonta. David Ellison, the studio’s chief executive, suggested that the company could leave California if the two sides didn’t reach a settlement, a move that could disrupt California’s already fragile film and TV industry. In recent years, already facing competition from other states offering generous tax incentives, California has lost a substantial amount of production to overseas destinations.
Against the backdrop of Mr. Ellison’s comments, prominent California Democrats, including Gov. Gavin Newsom and Mayor Karen Bass of Los Angeles, have expressed a preference for Mr. Bonta to settle the case.
In addition to the possible sale of Paramount’s cable channels and measures to protect the independence of CNN, negotiators have talked about enshrining in the settlement Paramount’s promise that the combined studios will produce 30 films a year, said two people familiar with the matter.
Over the past few months, tensions over the acquisition have been on display in public and in private.
On Monday, during the Emmy Awards at the Peacock Theater in downtown Los Angeles, Governor Newsom approached the actor Mark Ruffalo, an outspoken opponent of Paramount’s deal for Warner Bros., and delivered surprising news, according to two people familiar with the conversation.
Mr. Newsom told Mr. Ruffalo that he had just received a call from Mr. Ellison. Negotiations had stalled, Mr. Newsom said, and Paramount was possibly preparing to announce plans to leave California.
“This is a perfect example of a company doing everything wrong to get what they want,” Mr. Newsom said, according to the two people.
Izzy Gardon, a spokesman for Mr. Newsom, said that the comment was specifically about a dust-up over Mr. Ruffalo’s remarks on the Ellison family and Israel, not the company’s broader behavior during negotiations. The governor did not tell Mr. Ruffalo that Paramount was “definitely” leaving California, Mr. Gardon said, but was instead referring to “statements the company had made about possibly exiting California.”
Mr. Bonta, interviewed in New York on Thursday after speaking at The Atlantic Festival, suggested Paramount was trying to threaten the attorneys general into a settlement. He said leaving California would run counter to the company’s pledge to help revitalize the film and television business.
“If they choose to leave California after they professed their commitment to California and to the future of Hollywood, I would see that as being hypocritical,” Mr. Bonta said. He added that Paramount’s paying the $7 million daily fee if the deal was delayed was akin to “sleeping in” a bed that the company had made itself.
Maureen Farrell contributed reporting.
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