Paramount may have won the bidding for Warner Bros. Discovery, but the regulatory and political scrutiny is not over.
Hours after Netflix announced that it would not offer a rival bid, California’s Attorney General Rob Bonta was out with a statement, reminding that his office still has a role in examining the merger, as attention has focused on the Trump Justice Department.
“These two Hollywood titans have not cleared regulatory scrutiny — the California Department of Justice has an open investigation, and we intend to be vigorous in our review,” he wrote.
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While the conventional wisdom is that Paramount-WBD will have an easier time of clearing the U.S. Justice Department, there are still state attorneys general and overseas regulators, including the European Union.
There’s also the political factor: Democrats are hammering Paramount CEO David Ellison on his contacts with the Trump administration not just over this transaction, but also last year’s efforts to secure regulatory approval for Paramount Global.
“While the odds favor approval, potential hurdles remain,” wrote New Street Research policy adviser Blair Levin, former chief of staff at the FCC. “The EU and UK may pose issues. The Democratic state AG’s may sue. And certainly there will be political opposition from a variety of different stakeholders in the entertainment ecosystem. But whether those forces can assemble a critical mass remains to be seen.”
He brings up other factors, like the highly leveraged nature of the deal and the drop in Oracle stock, impacting key investor Larry Ellison, David Ellison’s father.
In a research note, Doug Creutz and Mei Lun Quach at TD Cohen wrote that approval from the federal government “seems likely given the political environment.” They, too, raised the prospect of state regulators challenging the deal along with the European scrutiny.
As the battle for Warner Bros has played out, some in the industry have pointed to the dominance that a combined Paramount-Warner Bros Discovery would have in cable channels, even if it is a segment of the market on the decline.
While California and other states will scrutinize the transaction, to block the merger they will would have to make a strong legal argument, which is easier said than done.
Timing is a factor, something that could prove a factor as European regulators examine the transaction and likely such things as sports rights. The transaction is a horizontal merger in that it combines two legacy studios, and while unions and Democrats lawmakers have expressed concerns about job loss, Disney’s purchase of Fox assets had a relatively speedy path to securing the regulatory greenlight in 2019.
Diana Moss, VP and director of competition policy at the Progressive Policy Institute, said that even though the subscription streaming market would consolidate as a result of the merger, Paramount and HBO would control just over 20%, a contrast to the 35% for a Netflix-WB combination. Netflix’s main argument was that the competitive landscape included YouTube, a market definition that Paramount urged lawmakers to dismiss.
Moss wrote via email that the Par-HBO combination would not trip federal guidelines for a merger, unlike Netflix-HBO, “So it is unlikely that the DOJ would flag concentration in the streaming market as a concern. If the DOJ doesn’t flag it, it would be a heavy lift for the states to do so.”
After the Justice Department cleared the Sprint-T-Mobile merger in Trump’s first term, requiring some divestitures, states challenged the transaction in court but lost.
While the Paramount-WB transaction also would be combining legacy film studios, Moss said that it would be a “marginal call” for the DOJ to flag that as tripping merger guidelines. The deal also would concentrate the market for labor specializing in creative content. Moss noted that that it is unclear what the dimensions of the market would be “given the formative nature of labor-side antitrust cases.”
That said, she wrote that she suspects the Trump DOJ “would ignore this, given how the Antitrust Division has handled previous mergers. There is no political advantage to be had for calling out a merger on a labor side case for Trump 2.0, and that is the currency in which the administration deals.”
Then there is CNN, she wrote, and Trump has long targeted the network, going back to when AT&T sought to buy Time Warner.
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“In the climate of politically weaponized antitrust at the DOJ and FTC, I could see White House interference that makes merger approval conditional on changes at CNN,” Moss wrote. “This would be a terrible outcome for antitrust, competition, and consumers, as we have seen with other mergers.”
This already played out last year, when the previous Paramount owners settled Trump’s lawsuit against CBS for $16 million, even though the case, over the way that 60 Minutes edited an interview with Kamala Harris, was seen by many legal experts as frivolous. The settlement was seen as the cost of doing business; similarly, demands for change at CNN are outside the purview of an antitrust review.
Within minutes of Netflix announcing that it would not present a counter-bid, Democrats were sounding the alarm, calling for David Ellison to testify before Congress next week and questioning the political influence of the Trump administration. Ellison may have only fomented the political opposition to the deal when he appeared as a guest of Sen. Lindsey Graham (R-SC) at Trump’s State of the Union, posing for a picture with the senator in which they both had their thumbs up, a Trump trademark.
Congress does not have a yay or nay on the merger, but Democratic lawmakers have warned of investigations and other actions, something that will prove much more salient if the party gains control of one or more chambers in the midterms.
While it’s unlikely that the media merger will become a primary campaign topic, Democrats have been tying Trump’s influence into their overall theme of corruption. Lawmakers have already called for a review by the Committee on Foreign Investments in the United States, given the investments from three sovereign wealth funds: Public Investment Fund (Kingdom of Saudi Arabia), L’imad Holding Company PJSC (Abu Dhabi), and Qatar Investment Authority (Qatar). But Paramount has insisted that none is needed, as the investment groups “agreed to forgo any governance rights – including board representation – associated with their non-voting equity investments.”
Democrats already are vowing to scrutinize corporations across industries who have kowtowed to Trump, something that has gotten the president’s attention. After Susan Rice, the former ambassador and national security adviser, warned on a podcast that for corporate interests would be held accountable, the president seethed, noting that she is a Netflix board member and that the streaming giant should fire her “immediately” or “pay the consequences.”
As of Friday, Rice was still on the board.
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