Webinar Video: The Paramount Merger Litigation
Updated: Oct 15
The Committee for Justice’s webinar, The Paramount Merger Litigation: Can State AGs Stop the Deal?, examined the state attorneys general lawsuit challenging Paramount Skydance’s proposed acquisition of Warner Bros. Discovery. Moderated by CFJ’s Ashley Baker, the panel featured Asheesh Agarwal, Eric Fruits and Michael Toth.
What the Case Is About
The panel began by setting the stage for the litigation. After federal review, the Department of Justice declined to challenge the transaction, and numerous international competition authorities also allowed the deal to proceed. A coalition of twelve state attorneys general, led by California, then sued to block the merger. A trial is currently scheduled for March 2027.
Market Definition and Consumer Harm
The discussion focused heavily on the states’ theory of harm, including their proposed markets for wide-release theatrical films and “anticipated blockbusters.” Panelists questioned whether those categories reflect the realities of today’s entertainment marketplace, especially given the growing role of streaming platforms, technology companies, and new theatrical entrants.
Hollywood’s Changing Economics
Panelists also examined whether the lawsuit properly accounts for an industry already undergoing major structural change. The conversation highlighted declining theatrical attendance, shifting consumer behavior, and the importance of continued investment in film production. The panel discussed Paramount’s commitments to maintain both studios, increase theatrical output, and preserve theatrical windows as potentially important evidence in assessing the deal’s real-world effects.
The Role of State Attorneys General
A major theme of the webinar was the expanding role of state attorneys general in national merger enforcement. The panel explored whether state challenges can provide an important safeguard when federal enforcers decline to sue, or whether overlapping state litigation risks creating uncertainty, delay, and a de facto state veto over national transactions.
What to Watch Next
The webinar closes with a discussion of what may happen before trial, including possible settlement dynamics, the effect of litigation delay on the parties, and the broader implications for merger review across industries.
Key Moments
[0:00] Introductions
[1:29] Asheesh Agarwal: background on the states’ Clayton Act challenge
[5:38] Eric Fruits: market definition and “anticipated blockbusters”
[11:38] Output expansion, the LA jobs study and film commitments
[20:28] Why not settle? Behavioral remedies and the Merger Guidelines
[29:19] State attorneys general vs. federal merger clearance
[41:54] California’s COMPETE Act and states setting national antitrust policy
[45:08] Is politics driving the case? CNN and the Ellison family
[56:31] Predictions: will the case reach trial in 2027?
Speakers
President, Agarwal Strategies LLC
Director of Economic Research, International Center for Law & Economics
Director of Research, Civitas Institute
Executive Director, The Committee for Justice
Related CFJ work: “California Is Suing to Preserve Hollywood’s Decline” and “The Merger Isn’t Killing Hollywood. Hollywood Already Did That”.
Transcript
Ashley Baker: Good afternoon, and welcome to the Committee for Justice’s virtual panel discussion, “The Paramount Merger Litigation: Can State AGs Stop the Deal?” I’m your host, Ashley Baker, and I’m the Executive Director of the Committee for Justice. I will now introduce our panelists.
Asheesh Agarwal is president of Agarwal Strategies LLC, where he advises companies and trade associations on competition law and policy. He has served in senior roles in state and federal government, including at the Department of Justice and the Federal Trade Commission.
Eric Fruits is Director of Economic Research at the International Center for Law & Economics, where he leads data-driven analysis of antitrust, competition policy, and technology and telecommunications regulation. He has served as an expert witness in state, federal, and international courts, with merger and antitrust experience spanning a wide range of industries.
Michael Toth is Director of Research at the Civitas Institute, where he focuses on the legal and policy developments reshaping global markets. His work has appeared in numerous major publications. His analysis is informed by his firsthand experience as general counsel to several early-stage companies, where he has navigated the complex regulatory environments at the core of today’s policy debates.
Before we get started, a quick note about audience questions. We welcome questions from our audience, time permitting. If you have a question for the panelists, you can submit it through the Q&A function in Zoom webinar at any point, and we will get to it whenever we can.
Next, I’d like to turn to Asheesh to set the stage with a little bit of background information about the case and where it stands. So, Asheesh, before we get into the merits, could you briefly explain how we got here, where the case stands, and what the states must prove?
Asheesh Agarwal: Will do, and Ashley, thank you so much for those kind introductions and for hosting this panel. CFJ is always ahead of the curve when it comes to these things. Let me set the stage for people who might not have been following every twist and turn of this matter, because there’s a lot that we could cover.
It was in February of this year that Paramount outbid Netflix to acquire Warner Bros., and as part of the merger, Paramount is going to acquire Warner Bros. film and television studios, as well as its streaming video-on-demand channels, most notably HBO Max, as well as its cable networks, including, most prominently, CNN.
Now, Paramount argued that the deal would be pro-competitive and good for consumers, as well as movie theaters. They argued that, even though they were combining studios, the deal would give the combined firm the resources to create more content. In fact, they committed to 30 film releases a year, and to having those films stay in theaters for at least 45 days, something important to the theater businesses. They also argued that the cable channels were complementary, and that the streaming mergers would allow the combined company to compete more vigorously with the market leaders: Netflix, Amazon, as well as Disney. Now, Paramount’s arguments have so far carried the day in most places. The Department of Justice reviewed the deal and did not interpose an objection. Something like 60 competition agencies around the world have reviewed the deal and also not interposed an objection.
Nevertheless, Paramount faces at least two significant lawsuits. One is coming from the Writers Guild of America, and they are arguing that the merger would reduce demand for writers, similar to an argument made in opposition to a publishing merger a few years ago. That suit has been combined with another lawsuit brought by 12 state attorneys general led by California. That lawsuit was brought under the Clayton Act and alleges that the merger would reduce competition in a couple of different markets. The way the states define the market, it’s not obvious, but what they say is there is a market for wide-release films, as well as one for top-grossing film releases.
Well, that argument has carried the day so far before a federal district court, which granted a temporary restraining order against the deal. After the TRO was issued, Paramount agreed not to close the merger until the conclusion of a trial, which is set for March of next year. What the court found was that the merger would give the combined company something like a 27% market share of theatrical releases, and the court relied on some dicta from the 60-year-old case, Philadelphia National Bank, as well as the current Merger Guidelines, to say that creates a presumption that the deal is going to be anti-competitive.
So that’s where we are now, actually: waiting for a trial next spring. There are some rumors of ongoing settlement discussions. There is a rumor out there that Governor Gavin Newsom of California is pushing for there to be a settlement, because Paramount is threatening to leave California, potentially. The governor’s worried about the impact on California. But this case raises a whole slew of issues: antitrust, labor, political with CNN, as well as the role of state attorneys general. So there is plenty to talk about.
Ashley Baker: Great, thank you, Asheesh. Now I’d like Eric to weigh in a bit with his perspective as an economist. The AGs’ suit’s primary claims are about jobs and prices, so I want to ask you about the fundamentals from an economic lens. When evaluating whether a merger harms competition and consumers, what is actually measured, and does this deal show any warning signs?
Eric Fruits: Right, and again, thanks for having us here. I’m really glad you put this together, because if you’re an antitrust nerd, this will be one of the most exciting cases. First of all, it involves Hollywood. People love Hollywood. But the other thing, too, is that it actually does introduce some very interesting questions about antitrust and market definition, because the key thing that the AGs have to prove, and the Writers Guild has to prove, is: would this deal substantially lessen competition in the relevant market? And so one of the questions is, what is the relevant market? The AGs allege three markets. One, as Asheesh pointed out, is wide-release films. Most people know what that is. Another one is what they call anticipated blockbusters. And then the last one is for the writers, on the supply side, the labor market part of it.
What’s interesting is, most of the time, antitrust analysis is supposed to focus on harm to consumers. And when we think of consumers in entertainment, we think of the people who buy a ticket and go to the theater. But in this case, those customers who sit in the theater are actually further down the chain. The most immediate customers of these film studios are the exhibitors themselves. And so then the question is, how much will this affect the market among those exhibitors as buyers, as consumers of the goods? And that’s where things get a lot more complicated.
When we talk about the demand side, think about the Writers Guild case, where essentially they’re saying that this merger means that there will be fewer people buying writers’ work. And on its face, that’s true, right? You’re going from five major studios to four, so that could be the case. Now, what’s interesting about that is, how does streaming play into this? When you think about theatrical release, they’ve defined the market in such a way that streaming is kind of excluded from that market. But as soon as you get into the input side, on the writers’ side, all of a sudden those streamers become a very important part of the relevant market, because those streaming services, Netflix, Amazon, Apple, also buy those writing services. So there’s really no way that you can completely exclude streamers from the analysis.
The other thing that I think is really interesting is this idea of anticipated blockbusters, which is, A, speculative, right, because it’s anticipated. How much money will it make? I think that’s going to be a really hard one to demonstrate. They’ve pointed to some other cases where they’ve used, essentially, the inputs: how much money they budget for a project. And again, that’s very different from alleging consumer harm, because now you’re looking at input markets. So I think the case is really going to turn in large part on what the relevant market is and who should be included in it. And then, once that’s done, we get into the issues of whether or not this 27% market share, if that’s correct, is actually enough to presume anti-competitive effects.
Ashley Baker: A quick follow-up about the relevant market. I found that very odd, too: anticipated blockbusters. It seems to me, at least, that it is built around getting the numbers that they need, because it doesn’t really make much sense that a film doesn’t count as part of the market if you didn’t see the blockbuster coming. And, like you were saying, how do you evaluate that? One of the methodologies is how much investment is put into it, and that points it toward coming out of one or several major studios, which would narrow the market down naturally for this case. So do you think that the market definition was built to produce the numbers, or what is the best rationale for this?
Eric Fruits: Well, I think it clearly was, and that’s nothing unique to the AGs’ case, because that’s what plaintiffs always do, and what the government always does if they’re opposing a merger. But if you think about blockbusters, as you pointed out, just look at this year. Monsters vs. Minions was supposed to be a blockbuster. It wasn’t so much a blockbuster. Then you look at Obsession. No one would have thought that was a blockbuster, and it became a mega-blockbuster. So how would you treat films like that?
I looked at box office over different periods of time, and it’s amazing how the market shares and, quote-unquote, concentration, if you just look at box office, vary wildly over time. You go back to 2019: of the top 10 movies, Disney had eight, and all of the top six. Last year, Warner Bros. had an amazing run, and so their market share would seem higher based on that. This year, it’s going to be a bit more modest, because they front-loaded into last year some of those movies that could have come out this year. So if you’re looking at blockbusters or wide-release films and trying to base market shares on that, you really have to think about what timeframe you are going to be looking at, because you can have wild swings in concentration from year to year just based on one blockbuster.
Ashley Baker: Thanks. Next, I want to turn to the most recent news, I guess you’d say, surrounding this case. This is an economics question for Eric, but I know Michael’s also written on this, so if you could weigh in as well. Yesterday there was news that a Los Angeles County-commissioned study puts it at 4,500 jobs and $2.8 billion over three years that the merger would supposedly cost. Ticket sales are half what they were in 2002, though. So how does the court tell the difference between harm caused by a merger and an industry that is just naturally in decline? And do you have anything to say about the report and its methodology?
Michael Toth: Eric, I’m happy to jump in on this one first. And Ashley, again, thank you for organizing this conversation, and thank you for the great question. I think the Los Angeles study really exposes the fundamental flaw, from a legal perspective, with the states’ complaint. If we take a step back, antitrust law exists to protect the market from output restriction. What Paramount and Warner Bros. are planning to do is output expansion, right? If you go back to decades of Supreme Court precedent, you could look at the 1984 NCAA case, where the U.S. Supreme Court describes output restriction, producing less, a monopolist restricting supply to gain monopoly profits, as the, quote, “paradigmatic” harm that the Sherman Act exists to prevent. And what we have here is the opposite. Paramount and Warner Bros. produced 20 movies as separate companies in 2025. They’re proposing to produce 30 movies going forward as a merged entity.
By blocking it, the states are actually doing what they accuse monopolists of doing, which is standing in the way of pro-consumer, pro-worker economic activity. And that’s exactly what the Los Angeles study, commissioned by the County of Los Angeles, which just came out last week, shows. I encourage everyone who’s watching this to find this study, but essentially what they’re saying is that by blocking this merger, not by the merger happening, but by the states’ regulatory overreach, we’re looking at 4,500 film and TV jobs put at direct risk, and $2.8 billion in economic value over a year put at risk.
So from my perspective, this lawsuit is essentially a hammer in search of a nail, which is why I think it’s drawn bipartisan opposition, with prominent Democrats and Hollywood unions joining Republican attorneys general like Steve Marshall from Alabama, who produced a nice article in the Washington Post really calling on the states to drop this one.
Eric Fruits: Thank you, Michael. I’m glad you recommended that people take a look at the report. You should take a look at it, but I have to warn you, it’s 118 pages, so it’s not something you want to read in bed. But I think what’s neat about that is you could read that report and come away with different conclusions. One conclusion, the one that struck me, is that it’s really telling the story of an industry that is undergoing a massive, fundamental transformation, and it’s been happening over a long period of time.
The other part of it is what would happen if we had a further decline in that industry. I think it doesn’t really say anything about the merger itself, because it’s not really related to competition issues. It just says, what would happen if we had essentially reduced investment in making films? And as Michael pointed out, Paramount Skydance has made the commitment to release at least 30 films a year. Some people are skeptical of that, but I think what we’re seeing is that Paramount is now walking around to distributors and trying to get written deals to actually demonstrate that they have skin in the game on that commitment. Whether that happens or not, at least they’re going through the motions.
The thing is, I think that LA report is more just background. It’s more for the political and PR side of it, because I don’t think that any judge is going to look at that and see that it is relevant to whether or not competition has been harmed by the merger.
And just going back, Warner Bros. itself is kind of the story of this, right? They had their failed merger with AT&T. This is all because the industry’s fundamentally changing. They had that merger with AT&T that got unwound. Then they became a standalone company, and last year, Warner Bros. decided to split the company into two separate sections: the streaming and studios, and the linear assets. And then this merger opportunity came up. So Warner Bros. is a microcosm of what’s happening in the industry, and it’s an industry undergoing massive transformation, and firms are trying to reorganize in a way to deal with that transformation.
Ashley Baker: That makes a lot of sense. Michael, I want to turn back to you regarding those film commitments. As you mentioned earlier, Paramount has committed to maintain both studios and release at least 15 theatrical films annually from each studio, which sure is a lot, and would do a lot for the economy, it seems. But given these commitments, what specific competitive harm do the states contend still requires blocking the merger?
Michael Toth: Right, well, it’s a very good question. From my perspective, I’ve looked at the complaint a few times now, and it really looks like it was written 25 years ago. It just ignores the facts on the ground right now. Just to begin with, the three major theater chains are all in favor of the merger right now. AMC was in favor of it early on. Regal and Cinemark just came out in favor of the merger. As Eric pointed out, Paramount has been offering binding commitments, not just to release at least 30 movies a year, but to keep them in theaters for an exclusive run of 45 days. AMC’s CEO has said he’s never felt more optimistic about the theater business.
And mind you, that’s in part because of Amazon, which is nowhere mentioned in the complaint. This is an antitrust complaint. Amazon is now making movies. It owns MGM Studios, which produced Sheep Detectives and Project Hail Mary, two blockbuster hits. You have a very well-capitalized company, which itself has been subject to antitrust scrutiny, which is in this marketplace, and it’s nowhere mentioned in an antitrust complaint. And I’m not suggesting that Amazon is in any way involved in any antitrust activity in the moviemaking space, which is a cutthroat, competitive space, but Amazon is now planning to release 15 theatrical releases a year, right?
And I think for all of these reasons, this is why former Attorney General of California Xavier Becerra is saying you can get more done in the conference room rather than in the courtroom. I think if this case continues toward the courtroom, it’s only going to destroy jobs and put shareholder value at risk.
And maybe I have a slight disagreement with Eric’s point about whether a judge is really going to be concerned about this sort of threat and harm to the labor markets. I think we’ve seen this movie before, right? It’s the Spirit Airlines debacle. The previous administration blocked the merger between Spirit and JetBlue. They convinced a federal judge to enjoin the merger, and what happened next? Attorney General Bonta, who’s leading this case, called the previous administration’s suit against Spirit a win for consumers. Well, what did consumers get? That lawsuit killed off a discount option, and upwards of 20,000 employees of Spirit, flight attendants, flight crews, got the pink slip, because the company declared bankruptcy as a consequence of the government’s actions.
So I think we’ve seen these movies before. I’m not suggesting that these companies are going to go out of business, but this is, as the LA report and others have pointed out, an industry which is in dire need of additional investment, and the attorneys general are putting all of that at risk. And I think that’s why the unions, as well as other Hollywood players like Rahm Emanuel, are rallying behind the deal.
Ashley Baker: So that raises a point, though. Wouldn’t the AGs’ concerns be better addressed, and wouldn’t it be more productive for everyone, if it were through an enforceable settlement, rather than stopping the transaction entirely?
Michael Toth: I think so. I think the case in court is very weak, and I think there is a deal to be done. And from what I’ve seen in the news reports, I think Paramount’s open to it. But whether that’s going to get the attorney general to the table, we’ll see.
Asheesh Agarwal: Yeah, Ashley, it really reminds me of a return to the prior administration’s Khan-era enforcement. You have really gerrymandered market definitions that don’t meaningfully reflect market definitions. I mean, who, before seeing this complaint, would have ever thought that there was a market that you could know in advance about, anticipated blockbusters? We’ve already seen examples of movies that were supposed to do really well and break the bank and did not, and then some that came out of nowhere.
You see a real resistance to behavioral remedies of the sort that Paramount is offering with its guarantees here. And I will just note that both the FTC and DOJ have gotten slapped down by courts in the very recent past for not agreeing to seemingly reasonable behavioral remedies that would address any competitive concerns.
And you’re also seeing, I’d say, the ongoing deleterious effects of the Merger Guidelines, which were enacted under the prior administration on a purely partisan vote, with a vigorous minority dissent. It’s really kind of surprising that those guidelines remain in effect. They embrace structural presumptions and minimize the potential efficiency benefits of a merger. And just like we saw in this case, we see courts relying on these guidelines that embrace, I would say, outdated theories. We’re seeing international competition agencies embrace these guidelines, or at least cite to them. So that is something that I’d really encourage the administration to take a look at.
Eric Fruits: I’m going to say something that might sound a little strange, but I think if the feds had actually made some efforts to talk about blocking this merger, we may not have been here now. The DOJ and the FTC have a long history, they have skilled staffers, and they are probably in the best position among plaintiffs to negotiate some sort of settlement. State AGs are in a very different position. They don’t have as much of an incentive to do a settlement, and they aren’t as equipped to do some sort of settlement and specify remedies. And so AGs tend to go for all or nothing: either block the merger or let it go. It’s much harder for the state AGs, I think, to negotiate some sort of remedy.
Now, the other thing, too, is I think that Rob Bonta, the California AG, has really laid down a marker that he wants to block this merger. He’s doing what one of my friends in finance calls “make the money sweat”: trying to run out the clock and make this as expensive as possible. But he’s put himself in a position where, with any sort of negotiated settlement he makes with the merging parties, he will be accused of selling out. And so he’s under, I think, tremendous political pressure to keep this going, and that puts the whole process in a very awkward situation in terms of trying to negotiate something.
Because I think something could be negotiated. I know a lot of people don’t like behavioral remedies, but when you have behavioral remedies that are backed by contractual commitments and could be enforced with penalties, that’s a very different kind of behavioral remedy than just a promise to release 30 movies a year. If you have a commitment to the theater owners that says, “We will do this, and we will pay a penalty if we don’t,” that’s a very different type of arrangement.
Ashley Baker: That’s interesting. Can you maybe elaborate a little bit on that, and on how the federal government could or couldn’t be more helpful at this point? Because it seems that a lot of their commitments do need to be formalized, but as you said, Bonta is very much against any form of settlement, just as Asheesh pointed out, just like Lina Khan was, and the Biden administration as well. Do you see any possibility for a settlement going forward?
Eric Fruits: I think there’s always a possibility for a settlement, but we’re in such a weird situation, one that has nothing to do with the economics and more to do with the personalities and the politics, where a settlement may be very hard to reach unless there’s some sort of outside pressure on the AGs to play ball.
Ashley Baker: That makes sense. I had a different question for you, Eric, that’s a little bit broader, about competitive harm. For those who aren’t immersed in antitrust day to day, what is the relationship between market concentration and actual competitive harm? Because a lot of this case, like many other antitrust cases, does rest on the size of the company and the market share, although it’s still below, like you said, that 30%. How do those two factors play into each other?
Eric Fruits: Yeah, so the basic thinking in antitrust law is, if you have a merger, you’re removing a competitor. And so the question is, does taking that competitor away reduce competition? On the one hand, by definition it does, because you’re going from N competitors to N minus one. But will that actually have any effect on output and prices? That’s where market power comes in, and market power can be assessed or evaluated based on things like the market shares of the merging companies, or another measure known as the Herfindahl-Hirschman Index, which is just another measure of concentration.
Then the mechanism, the thinking goes, is that you increase the market shares of those merged companies, and they get closer to a monopoly, although maybe not a monopoly, and therefore they can exert power over price. They can raise prices without any competitive response, and so consumers are worse off: they pay higher prices for movie tickets, and they may see fewer movies. In that case, consumers are harmed. So that would be a theory of consumer harm, and that’s what’s known as a unilateral effect, because the company itself is doing that.
Another effect is what’s known as the... why am I drawing a blank? Not unilateral. The idea that... what’s that?
Asheesh Agarwal: Coordinated.
Eric Fruits: Coordinated. The word escaped me. Coordinated effects. So here you’re going to have five movie studios that go down to four. The idea is, it’s harder for five movie studios to get together and agree on certain things, and now that you only have four, it’s a lot easier for them to do that, and they can have some sort of arrangement to suppress output or raise prices. And so it can happen through both of those effects.
The way I read the complaint, I think most of it is alleging unilateral effects rather than coordinated effects. In this case, the argument goes, on the theatrical releases, that reduced competition will lead to higher prices paid by movie theaters, or exhibitors, and they, in turn, will pass on those higher prices to consumers, and that’s the consumer harm. So you’ve got two steps before you actually get to the consumer.
In some ways, I think the Writers Guild argument is a little bit cleaner, because they’re arguing, okay, now we’re going from five major studios to four, and so writers will only have four studios to sell their work to instead of five, and that could suppress the amount that they’re being paid for their work. Again, it’s clean on paper because it’s a much more direct route. It goes directly from the studios to the writers.
The problem is, then, what is the market for those writers’ services? Because those writers write for studios, they also write for TV, they might write for advertising, but they also write now for streamers. And so the market for writers could be much bigger than just the studio market, and I think that’s probably the biggest weakness in the Writers Guild case.
Ashley Baker: Thank you. Now I’d like to turn a bit to one of the broader themes that this merger brings up, which is the tension between federal antitrust clearance and state AG enforcement, and the problems that could arise. I’ll start with Asheesh, since he worked at the FTC. From the perspective of someone who has worked inside a federal enforcement agency, what are the implications of state AGs essentially having a veto over federal merger clearance?
Asheesh Agarwal: Yeah, well, I wouldn’t say exactly a veto, but it can be problematic. A few years ago, I worked on a paper looking at the role of state AGs in antitrust enforcement, and I’ll start out by saying I think there is a valid role for the states. I think they can really bring a lot to the table when it comes to local issues, for example, local price fixing and bid rigging. I think they can be a force multiplier in terms of assisting the antitrust agencies, the FTC and DOJ, when it comes to big cases, helping develop evidence about, say, local price effects. And sometimes, I think the states have been a good check on overly aggressive federal antitrust enforcement, quite frankly.
But what we found in the paper is that when states try to become more aggressive than the feds, they end up both not succeeding and reducing consumer welfare. And that goes back to cases like U.S. v. Microsoft in the 1990s, to Ohio v. Amex, to New York v. Facebook. In all of these cases, the states adopted theories that were more aggressive than what the feds were proposing. They declined to get on board with seemingly reasonable settlements, and they ended up losing, and they ended up just costing consumers, depriving them of maybe years of the benefits of a synergy.
People like Judge Richard Posner, back in the day, expressed a lot of concern about the role of the states. He thought they could engage in political grandstanding. He thought that they would focus more on local and regional issues rather than national issues. I think those are all legitimate concerns.
So my thought for the states is that they should remain active in antitrust, but really focus on local issues, because they do not have the resources, quite frankly, that the FTC and the DOJ do. They don’t have the institutional experience. They don’t have legions of economists who are able to ferret out the unilateral and coordinated effects of complicated mergers like these.
Ashley Baker: That actually goes hand in hand with an audience question that I just saw, so I’ll ask you if you have anything to elaborate on that. To what extent do state AGs have the resources to litigate a merger of this scale?
Asheesh Agarwal: Well, they don’t. Most state AGs’ offices, your midsize, your smaller states, maybe have one person who has antitrust as part of his or her overall civil portfolio. And that’s great, but that person, no matter how smart and competent, can’t possibly have the institutional expertise to bring a case like Paramount that the FTC and DOJ do.
And look, I think you have to acknowledge that the states have had some successes recently in court. If you look at Live Nation-Ticketmaster, if you look at Nexstar, there have been some successes there in court. We’ll see how it plays out, and if they ultimately prevail and get relief that’s broader than what, say, the Justice Department or FTC would have gotten. But on balance, the track record is pretty poor when states try to get over their skis.
Ashley Baker: On the topic of states, I think it makes sense to turn to Michael now, who should have some insights on that, because he served in the Texas AG’s office when it launched one of the largest antitrust coalitions ever assembled. Now 12 states are saying that federal, and also global, antitrust enforcers got it wrong. What is, in your mind, the line between legitimate state enforcement and states making national economic policy through litigation?
Michael Toth: Yeah, these 12 states are really on an island. As was mentioned before, I think by Asheesh and Eric, there are over 60 regulators around the world that have greenlit this deal. The U.S. has greenlit it, the UK has greenlit it, Canada has greenlit it, the nations in the European Union have greenlit it. And you can contrast the situation with the big tech cases, say what you will about them, in the late 2010s. In those cases, you had a large multistate coalition, bipartisan, Democrats and Republicans. You had the Trump administration, then the Biden administration. You had Europe as well as the U.S., both sides of the Atlantic, all working together on these cases. And that consensus just doesn’t exist here.
And to your other part of the question, Ashley, about what the legitimate line is: cases turn on the facts. In this case, if you just take a step back and rewind the tape to after the merger was announced, or even if you go back further to when, as I think Eric referred to, Netflix was bidding for Warner Bros., you start there, and then you play the tape forward through this deal getting buttoned up. What was everyone talking about? Everyone was talking about streaming, right? Paramount+ and HBO Max, the fourth- and fifth-biggest streaming companies, coming together. Is that going to be an issue? The complaint focuses almost no attention on streaming. It doesn’t make a claim about the two streaming services coming together. This case is like Standard Oil without the oil. Instead, it hangs its hat on the cable business and the theater business, and I think it just completely misses the factual realities of those businesses.
As was mentioned before, for a brief period of time, Paramount and Warner Bros., if you look at the two studios combined, had about 25% of the market. We can question whether that, in and of itself, is even an antitrust issue in such a competitive marketplace, but they cherry-picked the time, right? This is 2021 until 2025. Amazon is not really making movies during that time period. Its purchase of MGM happens during that time period, and it’s really not until this year, with Sheep Detectives and Project Hail Mary, that Amazon is making movies.
What else do you have in 2026? You have Netflix, with the theatrical release that’s coming of the Narnia movie, and maybe more in 2027. Netflix is now leaning into the theater business. And then you just look at the facts, and I think it was Eric who referred to this before. Paramount and Warner Bros. have only one movie in the top 20 in terms of the biggest box office movies of 2026. This complaint was filed six or seven months into 2026, and there’s not a word about 2026. I think if you look over the last year, Warner Bros. and Paramount are less than 20%, about 18%, of the theatrical market. If you look at just the first seven or eight months of 2026, the number is even lower.
And so these are the facts on the ground. I think it’s painfully apparent, when you take a close look at the case, that on the facts of it, as, again, Xavier Becerra, the former Attorney General of California who’s running for governor, put it, you can do more in a conference room in this case than in the courtroom. And I think the emphasis of the quote from former General Becerra is that you’re not going to do much in a courtroom, based on these facts.
Ashley Baker: Thank you for that. Eric, I want to talk a little bit about the $1.9 million bond that Paramount has recently asked the states and the Writers Guild to post. I think this is relevant to you, mostly because you live in Oregon, and Oregon is one of the 12 states challenging the merger. If the court does grant that request, or grants it for a smaller amount, what could Oregon taxpayers, and taxpayers in general, be on the hook for, and what are the chances of that really happening?
Eric Fruits: Well, let’s just assume it did happen. If it did happen, it really depends on how it gets allocated. It could just be split pro rata across the states, or it could be what’s known as joint and several. So each state could be on the hook for the full 1.2, or whichever states are remaining could be on the hook for that amount.
My guess, and maybe a lawyer might have a better idea, is that it’s not going to happen, for a number of reasons. The main reason is that you can ask for one of these bonds if the court issued some sort of restraining order or an injunction and you are questioning the merits of that, and so you require the other side to post a bond in case it turns out that there are no merits. The challenge that Paramount has with this is that they voluntarily agreed to delay the trial, so there wasn’t a court order. And so I would be suspicious that a court would grant a $1.8 billion bond, and I doubt that they would grant a bond at all. If they did, it’d probably be pretty small. It could be as low as a million or less, which wouldn’t have any real bite.
I think there is a role for these sorts of bonds, because they would temper states from filing what other people might call a frivolous lawsuit in hopes of getting some sort of injunction to delay something and draw the money out. So I think these sorts of bonds have a role. I think that, strategically, Paramount played its cards in such a way that I don’t think it’ll get those bonds.
But again, going back, there is a problem. If the bond was issued and the states did have to pay, a state like Oregon doesn’t have the money for that. We’d have to have legislation approving that money to get paid out, so that could be a very awkward situation for our attorney general. And I think my attorney general in Oregon is doing what a lot of them do. He’s just free-riding off of California, right? It’s all politics and press releases for him. And so I think there’s something to be said for making these AGs have a little bit of skin in the game, instead of just free-riding off of other states.
Ashley Baker: Anyone else can weigh in on that, but I’d like to add a question to that. Even though, statistically, the likelihood of a bond being granted is low, and it seems that in other cases, historically, it’s not all that likely to happen, taxpayers are still affected here, right? There are months or years of litigation that are taxpayer-funded. It’s not exactly cheap for them to pursue these cases.
Eric Fruits: Well, that’s true, especially in a merger case. Unlike a vanilla case, where the states might sue some company for price fixing and could get damages and awards that could get paid out to consumers, when you’re blocking a merger, there’s no money that changes hands from the merging parties to the states. And so there’s no positive upside, in a monetary sense, to the states from pursuing this, and it’s all downside, because they have to pay to carry on this case.
That’s why you have to put on your tinfoil hat and always view these cases with a little bit of cynicism: part of it is just self-interest for the AG who’s pursuing it. Now, I think Bonta, to his credit, is addressing real concerns among people in the industry in California. And I think if you had a drink with him, he would be very candid and say, “Yeah, I’m really worried about how this will affect Californians, and that’s why I’m blocking it.” And I don’t think he’d be lying to you. I think that’s really what he feels.
Asheesh Agarwal: Yeah, Eric, I think that’s right, but I think this gets to a broader concern about states more or less dictating national economic policy. You see this in Europe, where you not only have to worry about the European Union, you have to worry about what member states might or might not do. It acts as a regulatory tax on business and, ultimately, slows innovation.
And Ashley, I know you’re very familiar with some of the antitrust amendments that California is looking at right now, both when it comes to antitrust policy and some of what California, Colorado, and other states are looking at when it comes to AI policy. I do think when states break so sharply from the national consensus and try to dictate national policy, it does end up harming consumers and taxpayers all around the country.
Eric Fruits: Well, Asheesh, I think you make a really good point, and Ashley, this would be a great conversation for a whole other webinar, because I think it’s a really big deal. These California laws are coming down the pike. The COMPETE Act is one of them, and then the California Law Revision Commission is working on draft language regarding mergers.
If those go through the way that they’re written right now, California will essentially be the de facto antitrust agency in the country, because their rules will be so much stricter, and it will be so much easier for plaintiffs to prevail, that there would be no reason for any plaintiff to go talk to the feds when they could just go to California, and the way the rules would be written, they would probably win. That could be a California takeover of competition policy in the United States, and that’s something I think we all need to be at least talking about.
Michael Toth: Yeah, absolutely. I’ll just chime in here: 100%. I think this is another case of regulation without borders, and it’s kind of a sneak preview of this legislation that Asheesh and you, Eric, have just described. There are theaters all across the country, from Los Angeles to Boston, and people want to go see what’s in the theaters. And essentially, this state action from just a handful of states is throwing a monkey wrench into this industry, which is driving ticket sales and concessions in communities all across the country.
Now, the bitter irony here is that it has the most acute impact inside the state of California. And that’s why you see this sort of intrastate division that’s been playing out over the last several weeks, with the current governor and potential future presidential candidate, Gavin Newsom, basically saying, “I want to see a deal.” You see the former Attorney General of California, who’s running to succeed Gavin Newsom, also pushing for it, and major Hollywood unions also pushing for the deal. The Los Angeles study we talked about is basically saying this is going to have some really negative knock-on effects if this deal doesn’t get done, and that it’s going to have particularly acute effects right here in California.
Whether that’s enough to get current General Bonta to the table, we shall see. I share some of your concerns about the practicalities of that, though, Eric. As you mentioned before, once you’re in a case, it can be hard to get out if you brought it. So we shall see.
Ashley Baker: Can we address a little bit the elephant in the room here, which is, what exactly are the underlying concerns among many people in Hollywood? I do agree with Eric that there are some concerns that people believe are legitimate. There are also a lot of concerns that people aren’t going to like their new boss, and they will not be agreeing with his politics. A lot of this really does come down to politics. A lot of the messaging, a lot of what’s being said outside the courtroom, is more political.
For example, you have Bonta saying in public interviews that divesting CNN would be mandatory, and that’s all based in political grievances. But then you go back to the lawsuit, and that’s not exactly something that comes up very much. So it seems like they sometimes say the quiet part out loud, and sometimes don’t. To what extent is politics really the motivating factor?
Asheesh Agarwal: Well, I think that’s a real concern, Ashley, and it gets back to what our paper found a few years ago, and what Judge Posner and others have said: when you have overly aggressive state enforcement of the antitrust laws, you do create a risk of greater politicization, where the focus isn’t necessarily on what’s good for consumers, but more on these sorts of political considerations, including potentially some grandstanding.
Look, I agree with Eric. There are legitimate questions about the impact of this merger on labor markets in California. Not that those are necessarily cognizable under antitrust law, but those are legitimate questions that officeholders would want to ask. It seems to me that the behavioral commitments largely address those. And if you have a question about whether the behavioral commitments to 30 films a year are something that Paramount could live up to, because, look, they’re taking on a lot of debt as part of this deal, okay, make it contractually binding. Have some penalties in there to hold Paramount’s feet to the fire.
But beyond that, you do have to wonder whether part of this concern is that CNN is going to come under the control of, look, the Ellison family, which is an ally of President Trump. That does seem to be at least part of the subtext for this lawsuit, and it’s a concern, because that’s not what antitrust law is about. It should be independent of politics, but the more you get heavy-handed state involvement, the more that becomes a risk.
Michael Toth: Eric, please, you go first.
Eric Fruits: Well, I’m just trying to think of a way to steelman the AGs’ complaint. I think the strongest part of the AGs’ complaint, and again, it’s still relatively weak, is the Writers Guild part of it. I think the theatrical and exhibitor part is complicated, one, just from market definition, but also because the consumers who sit in the theaters aren’t the actual customers; it’s the theater owners themselves. And those theater owners have a lot of different levers that they can pull to pass through a price increase. They can have to pay more for movies and possibly not even raise the price of tickets, because they have other things. They can raise the price of concessions instead. There are a lot of different ways they could do that, so I think it’s a lot messier.
And if you look at the Writers Guild argument, which is also representative of other guilds, too, the Screen Actors and so forth, who could be worried about the effect on the labor markets, that’s the strongest case because it’s direct, but it’s still relatively weak. It’s also the most politically salient. Ellison has said repeatedly that he’s going to achieve $6 billion in efficiencies, cost savings, and you don’t have to be a cynic to know that often those cost savings mean that people are going to lose their jobs, right? And so that’s another real concern. Not a competition concern directly, or an antitrust concern, but it’s certainly a political concern that will shade this issue, and that’s a real big issue.
Then the last part is, people always talk about CNN, and CNN is part of it. But remember, Warner also owns HGTV, Discovery Channel, TNT, TBS. If all it took for Paramount to get this deal through was to just throw a bone and say, “Fine, we’ll get rid of CNN,” I think they’d be willing to get rid of CNN. But if they have to get rid of all of the linear assets, then all of a sudden, you’re back to kind of where you were before, where you had Warner Bros. spinning off into studios and streaming, and linear.
And so then, what do you do with those stranded linear assets if they have to be spun off? They generate cash, but they’re like a melting ice cube, right? That cash flow is getting smaller and smaller each year, and so it takes a special kind of business operation to figure out how to wind down those things and still extract the cash out of them. So I still think the AGs have a very tough case. And again, you have to ask, what is the alternative? If this merger doesn’t go through, what is the alternative for Warner Bros. Discovery? And that’s not clear.
Michael Toth: Yeah, absolutely. Just on the political question, Ashley, I have maybe a somewhat different take on it, in the sense that state attorneys general, in the vast majority of the 50 states, are elected by the people. They’re democratically elected in political elections. That is the system that we have set up in the vast majority of the United States, right? Federal judges are not elected. They’re appointed; they’re there for life. So if you’re a democratically elected statewide official, and you stand for election every four years, it’s part of your job to be thinking about the politics. That’s the system that we have set up, and that is a part of what any elected officeholder has to have in mind at some level.
We can debate the ultimate theory around this, but at some level, if you’re in elected politics, you have to be thinking about elections, right? And so, at some level, I don’t think federal courts are really best suited to be questioning that system, to be interrogating states over their intentions. What I think is better for our system is if the judges do their job, push any sort of political thoughts off to the side, and just look at these claims objectively.
And I get back to this idea as I was looking at the complaint. I know we’ve talked a little bit about Lina Khan and Spirit and some of these other cases from the last few years, but to me, this case is best described as the Waterloo for woke antitrust, right? This sort of very dogmatic, head-in-the-sand regulator getting way over his or her skis over an industry that they frankly do not understand. And I think in this particular complaint, there’s very little attempt even to try to understand the industry and the issues, right? Ignoring Amazon’s entry into it, not mentioning Netflix also being interested in leaning into the theater business.
And so I think this is a real opportunity, if the case does go to court and goes through the legal system. But unfortunately, there’s a lot on the line. As you mentioned just a second ago, if this merger doesn’t get done, I think the states can actually do a lot more harm to the marketplace, given what could happen to the employee bases and the ultimate output that we’d otherwise expect from the two companies.
Eric Fruits: Yeah, just to build on that real quick, as I said in my first comments, this is actually a really interesting case. If it does proceed to trial, and a decision, and maybe an appeal, there will be a lot of really interesting questions that will get answered along the way. For example, how do we deal with market definition in entertainment in the world of streaming? That question will probably ultimately get resolved if there’s an appeal.
What’s going to happen with what is known as Philadelphia National Bank, which set this 30% presumption of anti-competitive effects if a merger results in a market share of 30% or more? Because remember, this one’s under 27. There’s been a lot of speculation that if this went as far as the Supreme Court, the Supreme Court could throw out Philadelphia National Bank. And the AGs, who are all Democratic AGs, may end up in a world that they never wanted to live in, because they really like Philadelphia National Bank and the 30% presumption, and if that goes away, they’ve lost something.
If the court says that streamers do compete against theatrical, either for customers or for talent, that’s going to be a big loss to them. So there’s a lot at stake for them, but it’s all kind of long-run rather than immediate.
Ashley Baker: We only have five minutes left, and I do want to close with some final thoughts and predictions from each of you. First, though, I have a really quick question for Asheesh that I think is important, and that’s about the broader implications of this for business. What impact does this have on the predictability of the merger review process, and how does it change the calculus for companies that are considering making deals? You’ve had a lot of hands-on experience consulting with companies that are facing regulatory uncertainty.
Asheesh Agarwal: Yeah, I think it acts as a regulatory tax. I don’t know that any company has walked away from a deal, or that I’m aware of, based on the possibility that a state or multiple states are going to sue them, but it adds to the uncertainty of the process. It adds costs, it adds delays. Even as we’re sitting here, instead of moving forward with whatever new projects Paramount and Warner Bros. each have in mind, they’re in some sort of holding period.
Now, you extend that across industries, oil and gas, tech, airlines, and other sectors, and businesses are having to sit around for months or years. Instead of doing what they need to do to compete vigorously and serve consumers, they’re essentially paying this regulatory tax and sitting on their hands.
I will tell you, I know that large swaths of the business community are very much hoping the Trump administration will review the Merger Guidelines, which came out, again, on a partisan vote under the prior administration, and which embrace these structural presumptions and other progressive theories and minimize efficiencies. I think it would be really beneficial, both for the feds and for state enforcement, and quite frankly for international competition agencies, to have the Trump administration take that up.
Ashley Baker: One final projection from each of you, and I’ll have Eric go first, then Michael, and then Asheesh. Do you think this case will actually make it to trial in 2027, and what should we be watching between now and then? Any final thoughts or predictions from any of you?
Eric Fruits: My bold guess, which could very well not be true, is that it will not go to trial, and if it doesn’t settle, then Warner Bros. will pull the plug, because they earn this ticking fee as the decision gets delayed, plus they have a $7 billion breakup fee that they get if the deal doesn’t go through. If the deal doesn’t go through, they can be in a very good financial position, and so they may not want to see it go through to trial if they don’t get a settlement. That’s my guess. You’ve got to pay attention to that breakup fee and those ticking fees, and see how that affects the incentives for the parties to come to a resolution.
Ashley Baker: Michael?
Michael Toth: That would be a heartbreaker, Eric, for employees of Warner Bros., who are going to get a really high stock price if the deal goes through, but we’ll see. Ashley, great question. I thought you were going to ask who’s going to win the Oscars in March of 2027, if that’s the question.
Ashley Baker: Well, you can weigh in on that, too.
Michael Toth: The Toth family is pulling hard for Sheep Detectives. I think it’s a gem of a movie. It’s relevant, again, to our story, because it’s one of the first Amazon MGM movies. But in any case, I’m going to side with Eric. Maybe it’s because I’m an optimist, and I hope that there’s a deal to be had here, but I’m going to say no on the trial.
And then, in terms of something to keep an eye out for between now and when this case, this controversy, this matter is ultimately resolved: Comcast just spun off NBCUniversal. NBCUniversal is the top-grossing movie studio of 2026. Again, it’s completely left out of the complaint, which looks at an arbitrary period of time that we are getting further and further away from as long as this case goes on. Well, NBC Studios is theoretically now on the market. Now, the owners of NBC Studios are saying it’s not on the market, right? But this has been an incredibly good year, and last year was an incredibly good year, for merger and acquisition activity. There are clearly major players in the space who are interested in NBCUniversal. I’m not going to name any names, but you can read the news reports. Imagine what that does to California’s case if a major player comes in and buys NBCUniversal during the pendency of this case.
And it gets back to the Google point and the big tech point. You mentioned these cases, and we talked about it a second ago: those cases got harder for the states and the federal government as time went on, right? Because Google was search, and no one does search now; it’s all AI. This case, I think, is incredibly weak for the states to begin with, but it could get a lot weaker. If you have YouTube, if you have Netflix making more theatrical releases, what does that do?
And again, it gets back to the point I made before. This is sort of the low-water mark, or maybe the high-water mark is a better way to describe it, of woke antitrust: this very distant, head-in-the-sand attitude of “I’ve never worked in this industry, but somehow I’m going to be the enlightened regulator of it.” The industry is rapidly changing, and I think it’s going to continue to change and continue to show exactly how competitive it is, and how competitive it will always be to get 350 million Americans’ attention for content on any day of the week. The state attorney general’s office will not go out of business following lawsuits. They don’t have to bid for audience attention, but movie studios do, and I think that’s the bottom line of why the case is so weak.
Asheesh Agarwal: Ashley, I think it makes all the sense in the world for this case to settle, and I’m hopeful that it will. For the reasons that Eric mentioned, it makes all the sense in the world for Paramount to want to cut a deal: the ticking fee and the breakup fee are non-insignificant figures. As for the state attorneys general, look, they are political actors, as we’ve talked about. You have possible presidential candidate Gavin Newsom out there saying the case should settle. You have Rahm Emanuel, another potential presidential candidate, out there saying this merger should go forward. The fact that you have a lot of pressure on that side of the aisle out there publicly suggests that at some point, there might be enough pressure brought to bear on the attorneys general to cut a good deal, declare victory, and go home, and that’s certainly what makes sense for consumers.
Ashley Baker: That certainly gives everyone a lot to watch. Although I’d like to point out, to quote Yogi Berra, it’s tough to make predictions, especially about the future, and especially about antitrust cases.
That is all the time we have. Thank you to Asheesh and Eric and Michael. Thank you to everyone who joined us today and to those who sent questions. A recording will be posted on our YouTube channel and circulated to registrants, and also posted online. Thank you all, and have a good afternoon.
Eric Fruits: Thank you very much.
Michael Toth: Thank you!
