Not so fast, Paramount.
After a long, tumultuous fight for Warner Bros. Discovery, the Hollywood giant has finally bested rival bidder Netflix but now faces a new challenge: Winning over regulators.
The competition concerns are big. Paramount’s buyout of Warner Bros. would reshape Hollywood and the wider media landscape in a way that Netflix never threatened to do. Netflix, which abruptly dropped out of the running this week, wanted only part of Warner. Paramount wants the entire company.
The U.S. Justice Department still needs to weigh in on the blockbuster combination that could give Paramount pricing power over movies and other offerings, potentially hurting customers. The agency and other regulators, including the Federal Trade Commission, have tripped up many seemingly done deals before by suing to demand changes or blocking mergers outright.
And even if U.S. regulators do sign off, those in individual states such as California and in other countries where Paramount and Warner operate may not, throwing up additional, possibly unsurmountable roadblocks.
Another wildcard: President Donald Trump.
Traditionally, presidents have left antitrust decision to regulators for fear of injecting partisan politics into business matters, but Trump appears willing to wade into affairs normally left to government lawyers and regulators.
A Paramount-Warner Bros. tie-up would reduce the remaining “big five” movie studios to four and make it the biggest.
Paramount’s lineup includes blockbusters such as “Top Gun,” “Titanic” and “The Godfather.” The 102-year-old Warner Bros. studio has produced titles ranging from “Harry Potter” and “Superman” to “Barbie” and “One Battle After Another.”
Paramount closed its own $8 billion merger with Skydance just months ago. Warner Bros. merged with Discovery in a $43 billion deal four years ago.
The question for regulators: How big is too big?
When Netflix and Warner struck their deal, they said combining Paramount and Warner, two companies with very similar assets, posed a higher risk for job losses and other competitive concerns.
Warner’s chief revenue and strategy officer Bruce Campbell told a Senate antitrust hearing that “one of the reasons that the Netflix offer appeals to us so much” was that the streaming giant didn’t have the same film studio and production infrastructure as Warner. He said a Netflix acquisition would keep those operations intact, free of any forced selling by regulators, and allow the film side of the combined companies to grow.
Now Warner must argue in favor of combining the two studios.
Then there are questions around the fate of employees.
Trade groups have warned for months that any deal could lead to big job losses — a fear heightened because of the massive debt Paramount is taking on to finance its offer.
And though some experts think layoffs are unlikely to draw antitrust scrutiny, there are related concerns. Jim Speta, a professor at Northwestern University’s Pritzker School of Law, said regulators may balk if they believe the combined company will become so big that it can decide worker pay, too.
Beyond traditional film production, a combined Paramount and Warner would also hold big power in the TV and streaming wars.
Paramount owns networks including CBS, MTV and Nickelodeon, as well as the Paramount+ streaming service. As for Warner, its counts CNN, Discovery and HBO Max among its offerings.
Paramount has argued that merging with Warner will allow it to deliver larger content libraries to its customers and compete with much bigger streaming rivals. In the U.S., according to streaming guide JustWatch, the combined company would control 20% of on-demand subscriptions — about the same share as Netflix alone holds now.
But will the merger benefit consumers? Skeptics argue a combined company would wield enough power to control prices and increase subscription requirements to watch certain titles.
Democratic Sen. Elizabeth Warren, a longtime antimonopoly hawk, called a Paramount-Warner merger “an antitrust disaster threatening higher prices and fewer choices for American families.”
The regulatory arguments will likely come down to how the market is defined and whether it is much broader than commonly thought including rivals like Google’s YouTube.
Netflix had said it competes against all manner of video libraries available online, not just streaming services, and that combining with Warner wouldn’t make it too big.
Just weeks ago, Paramount CEO David Ellison said that line of reasoning was Netflix “trying to mask its dominance.” It’s possible he will now parrot Netflix’s argument.
Regulators will also be asking whether putting CNN and CBS under the same roof hurts competition so essential in the news business.
Some experts don’t think news will carry the same weight in the antitrust review as streaming and content library questions. But a CNN-CBS combo will probably still be discussed.
Similar to broadening the definition of the streaming market, advocates of the Paramount merger will probably point to wider media offerings beyond traditional TV news, including information-sharing on social media platforms.
The president previously suggested he would weigh in on any Warner deal before walking back those statements and maintaining that regulatory approval will be up to the Justice Department.
In Paramount’s favor is Trump’s close relationship with the billionaire Oracle founder Larry Ellison, the father of Paramount’s CEO David Ellison, a Trump donor and a heavy financial backer of Paramount’s bid to buy Warner.
And under new Skydance ownership, Paramount has made changes that Trump may like. It has taken steps to appeal to more conservative viewers in its news operations, for instance, by making Free Press founder Bari Weiss editor-in-chief of CBS News. If the company’s takeover bid of Warner is successful, many expect similar shifts at CNN — something Trump is likely to welcome given his frequent criticism of its news coverage.
“The president does not like CNN, and he’s made that very clear — and he’s even suggested that changes to CNN might be relevant to review of the merger,” said Northwestern’s Speta.
Then again, Trump is unpredictable and could still wreck the deal.
Despite the new CBS management, and the $16 million Paramount paid Trump to settle a lawsuit over a CBS’s “60 Minutes” program he thought unfair, the president has continued to lash out at Paramount over editorial decisions on the show.
