Democratic Attorneys General Challenge Paramount-Warner Bros. Merger

The 12 Democratic attorneys general filing a lawsuit to block Paramount Skydance’s planned acquisition of Warner Bros. Discovery claim they’re aiming to safeguard competition, moviegoers, and Hollywood jobs. However, their argument heavily relies on a contested perspective of the theatrical film industry.

The lawsuit characterizes theatrical moviegoing as “a big business, and it is thriving,” despite the notable decline in attendance and production jobs. Last year, Americans purchased around 770 million movie tickets, a stark drop from the 1.57 billion sold in 2002 and approximately 37% lower than the figures from 2019.

Understanding this disconnect is crucial since the states’ argument hinges on their market definition.

The attorneys general have categorized a market for wide-release films, alongside a narrower market for “anticipated blockbusters”—those expected to earn at least $100 million at the box office. However, defining competition with such a narrow focus—only anticipating blockbusters—could create a market paradigm that doesn’t reflect the true experiences of moviegoers.

This point became evident during recent court discussions, particularly around whether the film “Obsession” should be classified as a blockbuster. Made on a modest budget of just $750,000, the horror film went on to gross more than $400 million globally, as noted by Forbes.

The movie highlights the challenge of predicting which films will become hits before they even reach audiences. A definition of the market that excludes unexpected successes could distort the competitive landscape in Hollywood.

Additionally, the broader entertainment landscape is larger than the conventional Hollywood studios emphasized by the states. Companies like Netflix and Amazon are producing their own content; Amazon now even engages in theatrical distribution, while Apple has entered the film sector. Independent studios such as A24 and Lionsgate are also vying for audience attention.

In contrast, after an eight-month investigation sifting through over 2 million documents, the Justice Department’s Antitrust Division reached a different conclusion. They found that the merger is unlikely to damage competition or adversely affect American consumers.

The DOJ recognized competitive forces from groups like Disney, Sony, Universal, Lionsgate, MGM, as well as independent entities, and noted the increasing involvement of Netflix and Apple in theatrical releases.

Regardless, the states pursued legal action.

This doesn’t necessarily indicate they are in the wrong, but it underscores the significance of their market definition.

The situation contrasts with the abandoned JetBlue-Spirit merger. In that example, the DOJ argued that the two airlines were direct competitors on various routes, asserting that Spirit’s elimination would diminish low-cost competition. Ultimately, a federal judge blocked that $3.8 billion deal, forcing JetBlue to withdraw.

The JetBlue case involved a straightforward competitive dynamic: two airlines directly competing on specific routes. In contrast, the Paramount-Warner Bros. situation is more complex, with states striving to define competition within a particular movie category while the entertainment market evolves across streaming services, tech companies, and independent studios.

Moreover, the current state of Hollywood complicates the states’ claims about the merger protecting jobs. From 2022 to 2024, Los Angeles County experienced a loss of over 42,000 film jobs, with on-location production plummeting to about a 30-year low.

These job losses occurred prior to any deal between Paramount and Warner Bros.

Paramount has pledged to sustain both studios, aiming to release 30 theatrical films each year and ensuring a 45-day exclusive theatrical window. An analysis from the University of Wisconsin-Whitewater suggested that this commitment could drive nearly $12.3 billion in annual economic activity and support over 46,000 jobs.

Despite the federal government’s extensive investigation concluding minimal impact on competition, the state attorneys general have chosen to move forward with their litigation.

While the states aren’t necessarily required to align with federal regulators, their case will need to contend with that scrutiny and the larger entertainment market, which now encompasses streaming services, tech giants, and independent producers.

For an industry already grappling with dwindling attendance and production, blocking the merger could lead to fewer films being made, reduced production, and ultimately, fewer job opportunities—not an increase in competition.