You might have heard that Paramount-Skydance’s proposed $111-billion acquisition of Warner Bros. Discovery will be a boon for the Southern California film industry. Or that, if it doesn’t come off, the damage to the local economy will be epic. Or that, even if it does happen, that might not be good for the economy.
In that respect, like many other merger battles, this one has been producing more murk than light.
The deal is currently on hold, thanks largely to a lawsuit to block it filed by California and 11 other states. U.S. District Judge Araceli Martínez-Olguín of Oakland has scheduled a trial for March 2. But Paramount faces a tighter deadline — if the deal is not closed by Oct. 1, it will owe approximately $7 million per day of delay to Warner shareholders as a “ticking fee.”
California Atty. Gen. Rob Bonta says he’s willing to negotiate with Paramount over concessions that would prompt him to drop the lawsuit. But he has been irked at what he says is Paramount’s under-the-table maneuvering.
Meanwhile, conjectures about the impact of a deal or non-deal have proliferated. The most recent comes from an organization that presents itself as the producer of sober, professional economic analysis.
That’s the Los Angeles County Economic Development Corp., a nonprofit affiliated with the county, which says that completing the merger would produce as much as $1.01 billion in economic growth for the state over the next five years, but that the deal’s collapse would cost the state as much as $21.2 billion a year into the limitless future.
Those figures come from a draft LAEDC report leaked to Politico. What the draft doesn’t mention is that the report was commissioned by Paramount. Obviously, that makes its conclusions suspect. But it also makes the LAEDC complicit in muddying the waters about the merger deal.
Alas, there’s nothing new or uncommon about self-interested financial studies posing as objective analyses. Big businesses commission such studies all the time, then tout the results as validation for their own policies and practices.
It gets to the point where it’s impossible to accurately assess the value of official-sounding statistics. Back in 2024, I reported that the fast-food industry, via ads placed by the California Business and Industrial Alliance, was touting figures indicating that California’s minimum wage law for fast-food workers had cost 10,000 fast-food jobs. Unfortunately, the statistic was based on a mathematical error and other rank malarkey; in fact, fast-food employment had risen during the period under study.
LAEDC itself is no stranger to this behavior. In 2011, the corporation issued a study asserting that California’s film production tax credit, which aimed to dissuade production from leaving the state, had been a huge economic boon: After only two years and $200 million spent, it said, the program had produced $3.8 billion in economic gains and supported more than 20,000 jobs.
That would have been impressive, if it were the product of objective analysis. But as I reported at the time, the report had been commissioned by the Motion Picture Assn. of America, which is Hollywood’s leading lobbying group and which favored more and better public subsidies. The MPAA’s sponsorship wasn’t mentioned in the report itself, but was subsequently confirmed by the report’s author.
That brings us back to the LAEDC report on the pros and cons of the Paramount-Warner Bros. merger. The draft itself was rather more evenhanded than the coverage it received in much of the press, which headlined the purported gains from the deal (New York Post, for instance) or the potential economic hit from a breakdown (The Hollywood Reporter, among others.)
From Paramount’s vantage point, this coverage was all to the good, as my colleague Meg James reported, because it all tended to favor the deal and sound a caution about a non-deal.
The LAEDC acknowledges that Paramount paid for the report. To be precise, an LAEDC spokesman told me that “Paramount engaged LAEDC’s Institute for Applied Economics to conduct an independent analysis.”
If you think that Paramount truly asked the LAEDC to produce an “independent analysis,” raise your hand. Me neither.
The draft reads as though the authors’ task was to assemble empirical data to validate a pre-established conclusion — namely, that relocating Paramount’s operations out of California would mean a hit of more than $21 billion a year in “economic output.” Dire indeed.
Justin Adams, senior director at the Institute for Applied Economics, told me by email that its goal was to game out “‘best case’ and ‘worst case’ scenarios given the inherent uncertainty. The best case shows modest, negative impacts. The worst case shows significant, negative impacts. We do not ascribe likelihoods to either scenario.”
Yet the LAEDC put its thumb on the scale in assessing the consequences. For one thing, it took as gospel Paramount’s position that, if a settlement with the states isn’t reached, “it would be compelled to relocate the company’s headquarters and thousands of jobs out of California … to a more hospitable regulatory environment such as Georgia, Tennessee, or Texas.”
Of course, nothing could “compel” Paramount to relocate, absent a settlement. That would be the choice of David Ellison, Paramount’s boss, pure and simple, which makes it more likely that he’s wielding the relocation option for leverage in settlement talks. In any event, relocating an entertainment behemoth out of California, to some entertainment hinterland like those states, would be more complicated and certainly costly than staying put.
The report accepted as read Ellison’s “commitment” that the merged company would produce 30 feature films a year for three years, and penciled out the potential economic gains. But “commitment” is Paramount’s term. There’s no written, enforceable guarantee anywhere I can find that Ellison would follow through.
Then there’s the question of who leaked the report. Paramount says the leak didn’t come from the company. The LAEDC says it “did not share our preliminary findings report with any external party.” Politico didn’t respond to my question about how it acquired the report.
That leaves us with an inquiry into who benefits from its disclosure. The answer plainly is Paramount. The company told me that it’s “pleased with the analysis” and added, “we regularly provide data to credible and verified third-party research firms and institutes to ensure accuracy and factual representation in any public reporting.”
The LAEDC did refer, in a sidelong way, to what some objective analysts have found to be the financial pressures that a merged company would have to manage, such as a debt overhang of some $80 billion. That will challenge Ellison’s pledge of a stepped-up pace in film production, and places in question Paramount’s suggestion that it can generate $6 billion in savings post-merger by selling off some real estate and consolidating the merged entities’ streaming services, rather than through layoffs.
The LAEDC specified that it didn’t examine “the likelihood or potential impacts of any consolidation that could occur after a successful merger between Paramount and WBD” (that is, Warner Bros. Discovery).
It’s hard to say where someone can go for a fact-based study of what’s at stake in this fight. The most sober analysis may be the one commissioned by L.A. County’s Department of Economic Opportunity from the firm CVL Economics. CVL was pessimistic about the local economic impacts of the merger, which it said would place 4,495 direct film and television job-years at risk between 2027 and 2030. “As those losses move through businesses that support production and the broader County economy,” CVL asserted, “total employment exposure reaches approximately 10,360 job-years.”
CVL was careful to specify that its estimates only reckoned “employment capacity at risk” and wasn’t “a forecast of layoffs.” But it did report, accurately enough, that the merger “would consolidate decision-making within a highly leveraged company at a time when there is less production activity to go around and greater ability to move that activity elsewhere.” Anyone looking for empirical data to help gauge what’s at stake in this transaction would be well-advised to start there.
It would be wise to think about this deal not as an effort to make the entertainment industry more efficient, or to create better movies and TV. As I wrote last year when this deal was first announced, and like most big-money mergers, what the participants typically bring to the table are boatloads of money, and ego. And it’s the second factor that really matters.
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