California and 11 States Sue to Block Paramount’s $110 Billion Warner Bros. Deal

California and 11 other states sued Monday to block Paramount Skydance Corp.’s proposed $110 billion acquisition of Warner Bros. Discovery, arguing the deal would reduce competition across major parts of the film and television business.

The lawsuit, filed in the U.S. District Court for the Northern District of California, claims the merger would combine two of the nation’s five major film distributors and two of its largest owners of basic cable channels. The states are asking the court to permanently stop the transaction under federal antitrust law.

Paramount agreed in February to acquire Warner Bros. Discovery for $31 per share. The combined company would control Paramount Pictures, Warner Bros. Motion Picture Group, CBS, HBO and more than 50 basic cable channels, including CNN, TNT, Nickelodeon, MTV, HGTV and Cartoon Network.

Although the deal reaches across streaming, broadcast television and film production, the states focus their challenge on three narrower markets. They identify the distribution of wide-release films, anticipated top-grossing releases such as blockbusters, and the licensing of basic cable channels to television providers.

The complaint claims Paramount and Warner Bros. currently compete when negotiating with movie theaters over revenue sharing, ticket promotions, release dates, and screen placement. Combining the studios would remove that competition and give the merged company greater bargaining power, the states argue.

Movie theaters could be required to surrender a larger share of ticket sales and accept tighter limits on discounts and scheduling. The states claim those terms could lead to higher ticket prices and less spending on seating, screens and other improvements. They also argue the company may release fewer films because it would have less reason to place its own titles in competition with one another.

The cable claims center on the threat of channel blackouts. Paramount and Warner Bros. now negotiate separately with cable, satellite and internet television providers. After the merger, one company would control a broad group of news, sports, children’s and entertainment channels that many providers would have difficulty replacing.

A television provider rejecting the company’s fee demands could risk losing dozens of popular channels at once, the states argue. Greater bargaining power could lead to higher carriage fees, which providers may pass to subscribers through monthly bills. The complaint also claims weaker competition could reduce spending on original programming and leave viewers with fewer choices.

The lawsuit is based on Section 7 of the Clayton Act, which allows courts to block a merger when its likely effect may substantially reduce competition or move a market toward monopoly control. The law focuses on whether the combined company would gain enough power to raise prices, reduce output, weaken qualit,y or limit consumer choice within a defined market. The states argue the Paramount and Warner Bros. deal would create those harms in film distribution and basic cable licensing.

A relevant market is the group of products or services that customers view as reasonable substitutes within a particular area. The states treat wide-release films, expected blockbusters, and basic cable licensing as separate nationwide markets because they argue theaters and television providers cannot readily replace them with limited-release movies, streaming services, or other programming.

The filing also relies on a measure known as the Herfindahl-Hirschman Index, or HHI, which estimates how concentrated a market would be after a merger. A higher score means a smaller group of companies controls more of the business. The states claim the transaction would push all three markets beyond levels that support a presumption that the deal is anticompetitive.

By their calculations, the combined company would hold more than 27 percent of wide-release film distribution, more than 30 percent of anticipated top-grossing films and more than 27 percent of basic cable licensing revenue. The cable share would reach 34 percent when measured by viewership.

The complaint also argues that new competitors could not quickly replace either company. Major film distribution requires theater relationships, large marketing budgets and valuable franchises, while cable programming depends on sought-after content and established agreements with television providers.

Paramount and Warner Bros. pledged in March to release at least 30 films annually. The states argue the promise is not legally enforceable and does not address their concerns about cable fees, content spending or the quality of future releases.

The states are seeking a permanent injunction barring the acquisition and any similar transaction that would combine control of the companies’ businesses or assets.