A federal judge ordered a temporary halt to the Paramount-Warner Bros. merger on Monday, as a state coalition argues it would violate federal antitrust law, leading to higher prices and fewer movies and TV shows.
Judge Araceli Martinez-Olguin granted a 14-day restraining order after hearing arguments from both sides on Friday morning. Paramount had previously agreed not to close the transaction before July 22.
“Plaintiff States’ showing at least demonstrates that serious questions going to the merits remain, weighing in favor of preliminary injunctive relief,” the judge wrote, adding that Paramount has acknowledged it will not be harmed by the delay until the end of September. “Paramount and Warner Bros. will continue to operate as separate, viable companies competing in the marketplace while they wait for the Court to adjudicate this case. The balance of equities, combined with the public’s vital interest in antitrust enforcement, therefore tips sharply in favor of the requested injunctive relief.”
The 12-state coalition, led by California, brought a motion for the temporary restraining order. The states are also seeking a preliminary injunction, which would block the merger until the judge rules on the merits of the states’ lawsuit.
The 14-day restraining order could be extended to as long as 28 days. Martinez-Olguin, of the U.S. District Court for Northern District of California in Oakland, also set a hearing on the preliminary injunction for Aug. 3, though that date, too, could be delayed if the parties agree.
Rob Bonta, the attorney general of California, hailed the judge’s ruling as a “critical first win in our case to ensure this megamerger never sees the light of day.”
“History tells the tale of what happens when a few people have great power over markets that are central to Americans’ lives: fewer opportunities for more people, worse products and services for all people,” Bonta added. “With our lawsuit, we’re fighting for a free and fair market and a thriving film and television industry that serves creatives and audiences alike. We have a full tank of gas, the law on our side, and look forward to continuing to make our case.”
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A Paramount spokesperson said that the company is “grateful for the Court’s swift order on the motion for a TRO.”
“Like the timing agreement to which we were willing to stipulate, this TRO preserves the status quo while the Court considers the antitrust issues presented,” the spokesperson said. “We are confident the evidence will demonstrate that the State AGs’ antitrust arguments are without merit as their alleged markets and claims of anticompetitive effects are without any basis in modern market realities. This merger is lawful, pro-competitive, and will benefit consumers, creators, workers, and the entertainment industry. We will continue to vigorously defend the transaction and will look forward to the hearings on the substance of the State AGs’ action.”
In antitrust cases, the injunction is often the whole ballgame. If it is not granted, the deal is allowed to close and it becomes almost impossible to unwind later on. But if it is granted, the deal tends to fall apart before the underlying case can go to trial.
Paramount has pushed for a hearing on the injunction with live witnesses. The company hopes to get a ruling on the injunction by early September. If the deal has not closed by Sept. 30, Paramount will start to owe millions of dollars a day to Warner Bros. investors.
At the hearing on Friday, Martinez-Olguin telegraphed the outcome of the ruling, suggesting that Paramount had conceded it would not be harmed by a temporary pause. Jeffrey Kessler, arguing for Paramount, offered to stipulate that the transaction would not close for up to 30 days pending a hearing on the injunction motion.
The states allege that the merger will harm competition in the basic cable and theatrical markets by combining two of the top three cable programmers and two of the top five film distributors. Paramount has pointed to the success of new entrants — A24, Amazon MGM and others — to argue that the theatrical market is more competitive and dynamic than the state case makes it appear.
Paramount also argues that the cable market is in decline, and that the court should thus not rely on the states’ estimates of market concentration.
Paramount has also argued that the merger is pro-competitive because it will create a stronger rival in the streaming marketplace to dominant players like Netflix and Amazon. But in a footnote, the judge stated that she could not accept the idea that efficiencies in one market offset competitive harms in another.
“The Court notes separately that it cannot accept Defendants’ argument that the Transaction will produce efficiencies in the streaming market,” she wrote. “Courts have expressly and repeatedly rejected the defense that a challenged merger will result in economic efficiencies ancillary to competition in the relevant market.”
Martinez-Olguin’s ruling is available at this link.
From Variety US