The Justice Department looked at Paramount's proposed $81 billion deal for rival Warner Bros. Discovery and saw a deal that would benefit Hollywood and consumers. A dozen Democratic-led states, anchored by California, saw a different script at work and sued to block the merger Monday in federal court.
The states' Paramount challenge, filed in Northern California federal court, is a big swing. States haven't typically gone off on their own in merger trials, relying mostly on the federal government to judge which deals to oppose.
The states' move is the most serious challenge to date facing Paramount Chairman and Chief Executive David Ellison's efforts, backed by his billionaire father Larry Ellison, to create an entertainment behemoth that can credibly compete with the likes of Disney, Netflix, Amazon and others. The case is a test of whether states can successfully challenge a deal that the federal government has already blessed. The deal is still awaiting approval in the U.K. and European Union.
Paramount and Warner Bros. have been direct competitors in Hollywood for more than a century. Fusing them into a single entertainment giant would lead to fewer movies in theaters, higher prices for film and television bundles, and hurt the tens of thousands of workers who spin stories into blockbuster movies and television shows, according to California Attorney General Rob Bonta and other plaintiffs.
Paramount said that it would fight Bonta's lawsuit, which it said is "based on a misrepresentation of competition in the entertainment industry today."
"We will vigorously defend the transaction and demonstrate that this challenge is inconsistent with sound competition policy and the competitive realities of the media marketplace," a Paramount representative said.
The states' lawsuit offers coherent concerns about the deal's impact on the film and cable TV marketplaces, but it doesn't look like a slam dunk, according to antitrust experts. Shares in both companies rose slightly Monday.
Even after the merger, Hollywood would still have four major legacy film distributors -- Disney, Universal and Sony in addition to the combined Paramount and Warner. Newer entrants such as Netflix and Amazon are also pumping out movies, creating more opportunities for actors and writers, although Netflix focuses on streaming and not theaters.
Having four major competitors in a market "is probably on the edge of what we tolerate," said Scott Hemphill, an antitrust law and economics professor at New York University. "Think of it as being in the gray area."
The Justice Department last month endorsed the merger in a strongly supportive letter. Hollywood has produced more content in recent years, the department said, even after Disney's purchase of 21st Century Fox in 2019. Paramount is expected to cite the federal government's analysis in its rebuttal of the states' allegations.
"You don't see too many DOJ statements like that going through not only why they approved it, but shooting down the potential theory that they were anticipating the state attorneys general would use," said William Lavery, an antitrust partner at Clifford Chance.
Much of the case will depend on the states' ability to support their claims of potential harm to a market -- one specifically for blockbuster films.
California and its co-plaintiffs said "anticipated top grossing theatrical films" aim to earn at least $100 million and have higher marketing budgets and involve well-known writers, directors or actors. Theaters rely heavily on such films to drive traffic to their screens, the states said.
Paramount is likely to say that such a market is too narrow and was invented for the purposes of the lawsuit.
"The harder question is going to be, is that a good measure?" Lavery said. "Is there support for that in the industry? Is that what people use? They have to be able to back that up."
Paramount and Warner Bros. combined distributed more than 30% of those movies over the past four years, the suit said. Under guidelines issued by federal antitrust enforcers in 2023, and intended to be used by courts in their decisions, mergers that create market shares greater than 30% are presumed to be harmful to competition.
Hitting that threshold doesn't make the states' case conclusive, said Barak Orbach, a law and business professor at the University of Arizona. The guidelines are nonbinding, and Paramount and Warner's combined market share isn't significantly above 30%.
"I think it is very difficult to get it into the legal boxes required for an antitrust remedy," he said.
The Justice Department won a similar case in 2021 when it challenged the tie-up of book publishers Penguin Random House and Simon & Schuster. That lawsuit focused on a portion of the book publishing market -- what enforcers called "anticipated top-selling books." Celebrity author Stephen King testified for the government at the trial.
"The states appear to be self consciously modeling themselves on that earlier case," Hemphill said.
The states also alleged that Paramount's deal would harm workers because the company could reduce the number of movies it distributed as it would no longer face tough competition from Warner Bros. Writers, actors and stage workers would have fewer sets to work on.
Paramount has publicly committed to releasing at least 30 movies a year with a minimum 45-day run in movie theaters.
The case could still settle short of going to trial. Paramount has offered concessions to clear antitrust review in Europe. Potential concessions are expected to include dropping a joint venture with Universal Pictures, a person familiar with the matter said. The company hasn't offered the kind of dramatic concessions, such as selling off overlapping businesses, that Democratic enforcers prefer.
Write to Dave Michaels at dave.michaels@wsj.com and Joe Flint at Joe.Flint@wsj.com
(END) Dow Jones Newswires
July 13, 2026 20:22 ET (00:22 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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