Paramount WBD merger faces cable TV antitrust fight
A state lawsuit says the Paramount-WBD deal could give one company outsized cable power, even as Paramount argues the market is fading.
By Bianca Rossi · Entertainment Editor
4 min read
The Paramount WBD merger cable fight has moved to the center of a $110 billion deal that many expected to be judged mainly on movies and streaming.
Twelve state attorneys general are suing to block Paramount’s planned acquisition of Warner Bros. Discovery, arguing the combined company would create monopoly risks in three areas, including basic cable networks. The Writers Guild of America has filed separate litigation raising concerns about the merger’s effect on workers, according to Deadline.
U.S. District Judge Araceli Martínez-Olguín in Northern California granted a temporary restraining order last week that paused the transaction. In her ruling, she wrote that Paramount’s claim that the merger would not increase its bargaining clout with pay-TV distributors relied on “false assumptions” about the market for licensing basic cable channels.
The judge later extended the order. Paramount then chose to bypass a preliminary injunction hearing and move toward a full trial, though no trial date has been set, Deadline reported.
Why is cable TV an issue in the Paramount WBD merger?
The states say a combined Paramount and Warner Bros. Discovery would own more than 50 networks and control more than one-quarter of total affiliate revenue. Affiliate revenue is the money distributors pay programmers to carry their channels, a key cash source for cable network owners.
The cable argument is striking because the U.S. Department of Justice did not cite it when approving the merger earlier this year, according to Deadline. Cable cash flow is also important to Paramount’s plan to reduce the debt load created by the transaction.
The public fight around the deal has often focused on film. The states’ complaint also flags two movie markets: wide-release films and “anticipated top-grossing” releases. Paramount CEO David Ellison and other executives have pushed back on concerns that the merged company would shrink theatrical output, saying it would release 30 films a year.
A senior TV executive told Deadline that pay-TV is declining but remains a real market, especially because live sports continue to draw viewers. Charter Communications, the parent of Spectrum TV, said Friday it lost 107,000 video customers over the past 12 months, less than 1% of its 12.5 million subscriber base, an improvement from comparable earlier periods.
What is Paramount arguing?
Paramount’s legal defense is being led by Chief Legal Officer Makan Delrahim, a former head of the Justice Department’s antitrust division. In a brief opposing the states’ temporary restraining order request, Paramount argued that its cable channels and Warner Bros. Discovery’s channels are “complements, not substitutes.”
The company said distributors carry and would continue to carry the channels before and after the merger, so the deal would not increase bargaining power. Paramount also argued that cord-cutting and weaker demand for cable bundles are reducing every programmer’s leverage.
Delrahim made a similar case on The Town podcast, saying the deal should be judged against a broader market that includes YouTube, subscription streaming and free streaming services. He said MTV does not compete with TNT, and CNN does not compete with Nickelodeon.
Some deal watchers are skeptical. Sam Weinstein, a former DOJ antitrust attorney and now a professor at Cardozo School of Law, told Deadline that companies often argue they need to merge to rescue a struggling industry. He said courts tend to focus on market concentration and how a deal changes it.
Rich Greenfield of Lightshed Partners wrote in a recent blog post that horizontal cable network mergers have historically been about gaining leverage with traditional and virtual pay-TV distributors. He argued Paramount cannot tell courts the networks are complements while telling investors the combined portfolio becomes more essential for distributors.
Michael Morris of Guggenheim Securities offered a more favorable reading for Paramount in a client note. Citing the Supreme Court’s 1974 General Dynamics decision and the later Baker Hughes case, he wrote that declining markets can weaken the force of current market-share evidence.
The states put the merged company’s share of affiliate revenue at 27%. Morris calculated it at 28.5%, while also noting that affiliate fees and cable’s share of TV viewing continue to fall, Deadline reported.
This story draws on original reporting from Deadline.