The European Commission has cleared Paramount and Warner Bros. Discovery’s pending $110 billion merger, subject to full compliance with commitments previously offered by the David Ellison-led media giant.
The EC’s investigation looked into the transaction’s impact on the production and distribution of films for release in cinemas, the production and licensing of audiovisual (AV) content, the wholesale supply of television channels and the retail supply of AV services.
At the film production level, the review found that enough film studios remain as competitors in the European Economic Area (EEA), including Disney, NBCUniversal, Sony, Amazon MGM Studios, A24, Lionsgate and European studios. It also determined that enough alternative competitors remain within the AV value chain to “exert sufficient competitive pressure on the merged entity in the EEA.”
“In particular, regarding the overlap in pay TV channels for children, the Commission found that streaming platforms offering children’s content will continue to act as a competitive constraint on the merged entity’s TV channels,” the regulator said.
However, at the film distribution level, it determined there will be “high concentration and increased transparency” in the EEA countries where Paramount has a structural partnership with Universal, due to the addition of Warner’s film portfolio.
“The transaction would have meant Warner’s films were also distributed via UIP and, without the commitments, it would have led to worse rental and distribution terms for cinema operators, ultimately disadvantaging consumers,” it added.
During a meeting with EU officials last month, Paramount agreed to terminate its stake in United International Pictures, an international film distribution joint venture with Universal Pictures, within 13 months. For a period of 10 years, it will also not directly or indirectly enter into any agreement or understanding with Universal to jointly co-distribute films in the EEA.
During that period, it also won’t shift the distribution of Warner’s films from Warner’s existing distributor to the theatrical distributor used by Paramount, where that distributor also distributes Universal’s or Disney’s films in all UIP countries in the EEA.
Additionally, in the UIP countries where Paramount and Universal don’t share the same distributor, it won’t shift the distribution of Paramount’s films from Paramount’s existing distributor to the theatrical distributor used by Warner, where that distributor also distributes Universal’s or Disney’s films.
“These commitments fully address the competition concerns identified by the Commission by ensuring that the films of the merged entity will not be distributed jointly with those of Universal or Disney,” the EC said. “Following the positive feedback received in the context of the market test, the Commission concluded that the transaction, as modified by the commitments, would no longer raise competition concerns.”
Countries that fall under the EEA include Bulgaria, Croatia, Czechia, Cyprus, Denmark, Estonia, Finland, Greece, Hungary, Iceland, Latvia, Lithuania, Norway, Poland, Portugal, Romania, Slovakia, Slovenia and Sweden
The decision is conditional upon full compliance with the commitments. Under the supervision of the Commission, an independent trustee will monitor their implementation.
In addition to investigating competition concerns, the EC examined the foreign investment in the deal under its Foreign Subsidies Regulation, with that review and suspension period expiring last week with no additional action.
In a statement, Paramount Chief Legal Officer Makan Delrahim said that the company appreciates the EC’s “constructive engagement and thorough analysis throughout its review” and is pleased that it joined other regulators in signing off on the merger.
Following the EU’s approval, bodies and governments representing 65 jurisdictions have either cleared the transaction or chosen not to challenge it on competition and/or foreign direct investment grounds.
In addition to the EC’s approval, the merger was cleared by the U.S. Department of Justice in April. Other countries where the deal has received clearance or where relevant waiting periods have expired include Australia, Austria, Brazil, Canada, China, Kuwait, Saudi Arabia, Serbia, South Africa, Ukraine, Montenegro, New Zealand and North Macedonia. Foreign direct investment authorities in Spain, Germany, Slovenia, Belgium, Czechia, Italy, France and Romania have also signed off.
“Not only does this combination not pose any competitive harms, it actually enhances competition by creating a scaled media and entertainment company
with the ability to truly challenge the tech platforms that have come to dominate the industry,” Delrahim added. “By strengthening competition it will support increased investment in content, expand opportunities for creatives and deliver greater choice for consumers.”
However, it still faces scrutiny from the United Kingdom, where Secretary of Culture, Media and Sport Lisa Nandy informed Paramount and WBD that she feels “minded to intervene” and asked the companies to address her concerns. A final decision from the U.K. on whether to clear the merger or move to a Phase 2 investigation is expected by Aug. 7.
Meanwhile, the Federal Communications Commission is reviewing the foreign investment in the deal and a preliminary injunction hearing is set for Aug. 3 after a group of 12 state attorneys general secured a temporary restraining order against the merger that pauses it for 14 days.
Paramount argued that the EC’s conclusions “directly refute key assumptions that
underpin the state AGs’ complaint seeking to block the transaction.”
“The European Commission did not find that high-budget or ‘blockbuster’ films constituted a relevant market. It rather considered them as an element of differentiation in its competitive assessment, and found that the market will remain competitive for these types of films too,” the media giant said. “The European Commission rightly considered streaming platforms as competing directly with linear TV. These conclusions further undermine the market definition relied upon by the state AGs in their complaint.”
In addition to the state AG lawsuit, the Writers Guild of America, a Paramount shareholder and a group of consumers all filed separate lawsuits to block the merger. The latter was denied a preliminary injunction after a judge ruled that they failed to show irreparable harm or that their case would have a likelihood of success.
In the event the transaction does not close by Sept. 30, WBD shareholders will receive a 25 cent per share “ticking fee” for each quarter until closing. In the event that the deal does not close at all due to regulatory matters, Paramount will pay WBD a $7 billion termination fee.
