What Democrat AGs Are Getting Wrong About Paramount Deal

The 12 Democratic attorneys general suing to block Paramount Skydance’s proposed acquisition of Warner Bros. Discovery said they were trying to protect competition, moviegoers and Hollywood workers, but the states’ case rests heavily on a disputed view of the theatrical movie business.

Their lawsuit describes theatrical moviegoing as “a big business, and it is thriving,” even as attendance has fallen sharply from its peak and production employment has declined. Americans bought roughly 770 million movie tickets last year, less than half the 1.57 billion tickets sold in 2002 and about 37% below 2019 levels.

The disconnect is important because the states’ case depends heavily on how they define the market.

The attorneys general have identified a market for wide-release films and a narrower market for “anticipated blockbusters” — movies expected to generate at least $100 million at the box office. But defining competition around movies that must be identified as potential blockbusters before they are released could produce a substantially narrower market than the one consumers actually experience.

That issue was on display during recent court proceedings, when lawyers debated whether “Obsession” should count as a blockbuster. The horror film reportedly cost just $750,000 to make and went on to gross more than $400 million worldwide, according to Forbes.

The movie illustrates the difficulty of predicting which films will become major hits before audiences have a chance to see them. A market definition that excludes successful films because they were not predictable successes could capture Hollywood according to expectations rather than actual competition.

The broader entertainment market was also larger than the traditional Hollywood studios emphasized by the states. Netflix and Amazon produce content; Amazon has expanded into theatrical distribution; Apple has entered the movie business and independent studios such as A24 and Lionsgate compete for audiences.

The Justice Department’s (DOJ) Antitrust Division reached a different conclusion after an eight-month investigation involving more than 2 million documents from more than 80 custodians. The department concluded the transaction was unlikely to harm competition or American consumers.

The DOJ identified competition from Disney, Sony, Universal, Lionsgate and Amazon-owned MGM, as well as independent studios including A24, NEON and Blumhouse. It also pointed to Netflix and Apple’s growing interest in theatrical releases.

The states sued anyway.

That does not automatically make the states wrong. But it makes their market definition particularly important.

The contrast with the failed JetBlue-Spirit merger is instructive. In that case, the DOJ argued that JetBlue and Spirit were direct competitors on numerous routes and that eliminating Spirit would remove an important source of low-cost competition. A federal judge ultimately blocked the $3.8 billion deal, and JetBlue later abandoned the transaction.

The Spirit case involved a relatively concrete competitive relationship: two airlines competing directly on specific routes. The Paramount-Warner Bros. dispute is more complicated, with the states attempting to define competition around a particular category of movies while the entertainment market continues to expand across streaming platforms, technology companies and independent studios.

The condition of Hollywood also complicates the states’ argument that blocking the merger would protect workers.

Los Angeles County lost more than 42,000 motion-picture jobs from 2022 through 2024, while on-location production fell sharply and production employment reached roughly a three-decade low.

Those losses occurred before Paramount and Warner Bros. made a deal.

Paramount committed to maintaining both studios, releasing 30 theatrical films annually and guaranteeing a 45-day theatrical window. A University of Wisconsin-Whitewater analysis estimated that the commitment could generate nearly $12.3 billion in annual economic activity and support more than 46,000 jobs.

The federal government spent months investigating the transaction before concluding that it was unlikely to harm competition. The state attorneys general nevertheless proceeded with their own litigation.

The states do not have to automatically defer to federal regulators. But their case will have to contend with that review, as well as a broader entertainment market that includes streaming companies, technology giants and independent studios.

For an industry already struggling with declining attendance and production, blocking the deal could mean fewer movies, less production and fewer jobs — not more competition.