In a letter to Warner Bros. Discovery’s board, David Ellison argued that Paramount would be the “best partner” to merge with, citing “significant (perhaps insurmountable) hurdles” for other potential acquirers due to their “dominant market positions.” But that doesn’t mean a Paramount-WBD deal would be without its own regulatory challenges.
Unlike Skydance’s acquisition of Paramount, an acquisition of Warner Bros. Discovery would not require a review by the Federal Communications Commission, as there is no required transfer of broadcast licenses. But a deal would still be subject to the same standard antitrust review that other bidders would face, not to mention the financial burden that comes with taking on Warner Bros. Discovery’s roughly $35 billion in debt.
A Paramount-WBD combination appears to be in the pole position in the eyes of the White House, with President Donald Trump reportedly throwing his support behind the company’s bid. Paramount is also able to leverage the expertise of its chief legal officer Makan Delrahim, who served as a former assistant attorney general of the DOJ’s antitrust division during Trump’s first term.
Still, Hollywood has already been left battered from years of consolidation, and a deal of such magnitude will draw scrutiny on a number of levels. Regulators could see divestitures or other long-term commitments to offset the power and reach a combined company would have.
“In contrast with the Skydance/Paramount deal in which almost no one other than the principals and the President was affected by the outcome, here everyone, from theater owners to sports leagues to streamers to broadcasters to all the MVPDs and VMVPDs to all the Hollywood guilds will be affected, due to the increased leverage PWBD will have in negotiations,” New Street Research analyst and former FCC chief of staff Blair Levin wrote in a Sept. 16 research note. “As far as we can see, everyone in the sector will be negatively affected if the deal is approved.”
In other words, it’s not a slam dunk, despite Trump’s support.
Representatives for Paramount and Warner Bros. Discovery did not immediately return TheWrap’s request for comment.
What would a DOJ antitrust review look like?
For any bidder, the Department of Justice’s review would look at a combined company’s impact on the market concentration across areas such as theatrical, streaming, advertising and sports.
The agency calculates market concentration using what’s known as the Herfindahl–Hirschman Index (HHI), which operates on a scale of zero to 10,000 points. An HHI between 1,000 and 1,800 points is considered moderately concentrated, while an anything in excess of 1,800 points is considered highly concentrated.
Based on his own initial review, Levin estimated that a combined Paramount-WBD’s impact on the concentration of movie studios could climb from an HHI score of 1,730 to about 2,087, which he said could be “troubling.” But he doesn’t expect Trump’s DOJ to oppose the deal on those grounds, noting that other bidders would likely have a similar effect.
Similarly, he said the combined company — which would likely merge Paramount+ and HBO Max into one streaming service — could make the streaming market “moderately concentrated,” but noted that factors such as must-have titles, exclusives and bundling matter a lot and that he expects the DOJ to combine its HHI with “content-specific evidence” to determine if anything needs to be divested.
Where things start to get tricky is the concentration of linear networks, which Levin said would give Paramount-WBD bargaining leverage with cable, satellite and streaming distributors, raising concerns of higher prices for consumers.
Another hurdle would be Paramount-WBD’s combined sports rights portfolio, Levin said, noting that the market would become highly concentrated, while the advertising markets may also shift from “moderately concentrated to highly concentrated,” which could spur the DOJ to seek divestitures or other structural steps.
Additionally, Levin warned a combined company could reduce bargaining power for creators and artists by consolidating the market for talent and content licensing and result in thousands of job cuts through the consolidation of overlapping businesses.
There’s also the media diversity and political influence issues raised by combining CBS News and CNN, but Levin said approval would likely require similar concessions that were made to approve the Skydance-Paramount deal, such as the appointment of an ombudsman. Paramount-WBD would also have increased leverage over broadcast affiliate owners in negotiations, which may require a condition to provide CBS affiliates more financial and other support.
Other potential hurdles
Beyond the DOJ, Paramount and WBD would have to get antitrust clearance from international regulators, who would need to review cross-border competitive effects. Those regulatory bodies would include the European Union, the United Kingdom’s Competition and Markets Authority and Canada’s Radio-Television and Telecommunications Commission.
Even if the federal government approves a Paramount-WBD merger, it still could be subject to scrutiny by state attorneys general, who could sue to block it. But Levin points out that challenging a deal thats already received sign-off is an uphill battle.
“The key state to watch will be California which has both an Attorney General who has the resources to bring an action and the largest number of jobs at stake in the transaction,” Levin said. “New York may also participate to oppose the deal as may other states where movies are a significant economic driver (including Georgia, Illinois and New Mexico) but we expect California to be the lead state, if states oppose the deal.”
Others who have publicly expressed opposition to the deal include the Writers Guild of America, as well as lawmakers like Sens. Elizabeth Warren and Bernie Sanders.
Convincing WBD
There’s also the most important matter: convincing the WBD board that a deal for the entire company would create more value for its shareholders than continuing on with its planned split, on track for completion in April. Ellison has argued that Paramount would look at any dealmaking through the lens of “wanting to make more, not less.”
“The way we approach everything is first and foremost, what’s good for the talent community, what’s good for our shareholders and value creation and what’s good for basically, storytelling at large,” Ellison told Bloomberg’s Screentime conference earlier this month.
Thus far, WBD has rejected three separate takeover bids from Paramount ranging between $19 and $23.50 per share and has put up a formal for sale sign for all or part of its business, citing “unsolicited interest” from “multiple parties.” Other potential suitors who have been floated include Comcast, Amazon, Apple and Netflix.
Netflix executives have said they would be “choosy” with M&A and are not interested in linear networks but have a “responsibility to look at every significant opportunity.” Comcast and Amazon declined to comment, while Apple did not immediately return TheWrap’s request for comment.
Shares of WBD, which are trading around $21 per share as of Friday morning, have climbed 179% in the past year, 97% year to date, 147% in the past six months and 6% in the past month.
