Judge Won’t Rule On Paramount-Warner Bros. Merger Settlement Until At Least Next Week

Key Facts

What to Watch for

It’s unclear how long it will take for Martinez-Olguin to rule in the case, with the judge saying Thursday only that she would rule in “due course.” It’s in Paramount’s best interest for her to rule swiftly, as the company will owe Warner Bros. shareholders a combined $7 million per day if the deal doesn’t go through by Oct. 1. Should the judge agree with Booker and subject the settlement to additional review, that could also significantly delay the merger. Booker asked the judge Thursday to ask both parties to submit a statement that would lay out how exactly the settlement reflects the concerns outlined in the states’ initial lawsuit. He also argued she should consider appointing an “independent economic expert” to analyze the settlement and determine how well it would “restore competition” in the impacted markets.

What Does The Settlement Agreement Say?

The proposed settlement, which will only be in place for the first five years of Paramount and Warner Bros.’ joint operations, commits the new larger media company to make at least 30 films per year for the first two years of the agreement, and 32 films for the three years after that. Paramount had already committed to that 30-film quota, but the settlement added penalties if the company doesn’t meet it, including paying a $30 million fine per film that’s not produced and potentially having to divest from film studio Miramax. At least four films each year must be “independent” films, which the settlement filing defines as either being “based on an original screenplay” or produced by a non-major studio, and 20% of each year’s films also have to be “tentpole films” with a production budget of $50 million or more. Paramount must produce at least 20% of its films in the U.S. for two years, and then 30% in the U.S. for the following three. That number will increase to 40% should California and New York pass more lenient tax incentives for film production. The settlement also requires Paramount to establish an indie film fund and invest $9.5 million annually for workforce training and development and in community arts organizations, and prohibits Paramount and Warner Bros. from closing their lots in Los Angeles. For CNN and CBS, the “independent editorial board” will be made up of “established” journalists appointed by Paramount’s board. The editorial board will establish editorial principles for CNN and CBS’ operations, settle any disputes journalists have regarding the company allegedly infringing on their journalistic independence, and “[monitor] adherence to ethical journalism.” An independent monitor will also be appointed to ensure that Paramount is complying with the full terms of the settlement agreement.

What Happened At Thursday’s Hearing?

Martinez-Olguin expressed concerns about how well the agreement actually reflected the states’ initial argument that the merger violates antitrust laws, noting that while she understood how the settlement addresses potential “harms” that could arise from the merger, she was more confused about how the settlement would actually enable more competition. California’s attorney Paula Blizzard claimed the states didn’t actually want to block the merger entirely—despite that being what their initial lawsuit requested—because the film market is “very dynamic” and could “change over time.” While federal law “allows us to block a merger,” Blizzard argued, “we are also always evaluating, ‘What are the witnesses in the market telling us, and is blocking it completely the best solution?’” The judge then went on to ask about specific provisions in the agreement, such as why divesting from Miramax would be enough of a deterrent to ensure Paramount meets its yearly film quotas. Most notably, Martinez-Olguin questioned provisions that allow the settlement to be modified if it “impairs” Paramount’s “ability to successfully operate the business and to compete effectively,” and a provision that allows Paramount not to comply with the settlement if there are events “beyond the Parties’ reasonable control,” like weather events, labor actions or wars. The judge questioned whether those are in line with what’s required under federal antitrust law, which the states and Paramount argued they are. Both sides noted recent “serious headwinds” like Hollywood labor strikes and the COVID-19 pandemic, which necessitated them preparing for the possibility of events that could impact film production. Martinez-Olguin also pointed to provisions that require Paramount to submit information to states each year and lay out requirements for making changes to the agreement, saying they have to also involve the court in those provisions. The judge noted the settlement agreement is a “consent decree” in which the court still has involvement over enforcing it, rather than a settlement “where you all settle it and go away.” “If the court is part of this, then the court is part of this,” Martinez-Olguin said.

What Did Paramount And The States Say Thursday?

California attorney Blizzard spoke directly to the public in comments at the end of Thursday’s hearing, noting that while the state “absolutely recognize[d] that this merger has engendered a lot of controversy,” a lot of the concerns people have are “outside antitrust,” and, “At the end of the day, this is an antitrust case .. focused on the very particular markets that we’ve alleged” would be harmed by the merger, like movie theaters and film production. “We hear and appreciate the broader voices … but at the same time, we are here to enforce the law,” Blizzard said, arguing the settlement “does the most to fulfill the goals of” federal antitrust law and “preserve competition in a very dynamic and changing market.” Josh Holian, the attorney representing Paramount, said the company “wants to get to work” and was merging with Warner Bros. because it “wants to compete” against film industry heavyweights like Disney. The settlement “lets Paramount do that,” Holian said, arguing the agreement “is really, in a lot of ways, validating what Paramount wants to do” with the merger. The two sides did disagree on Paramount’s recent threat to pull film production out of California amid the broader fight over the merger, which Blizzard described as “blackmail” to pressure the state to give in. “I don’t agree that anybody was blackmailing anybody,” Holian said in response, arguing Paramount’s calculation about leaving California was a “business decision.”

Why Has The Settlement Agreement Been Criticized?

Opponents of the Paramount-Warner Bros. merger have been broadly critical of the settlement, arguing it’s overly deferential to Paramount and doesn’t sufficiently address concerns associated with Paramount-Warner Bros. gaining control over a large swath of the entertainment industry. “Based on all reports, this weak deal contains nothing but unenforceable, empty Paramount promises,” Jessica J. González, co-chief executive of the nonprofit Free Press, said in a statement, arguing the merger “will cut jobs and raise prices.” Critics have also been particularly opposed to the merger bringing CBS News and CNN under the same umbrella—and being overseen by Trump-friendly Paramount leader David Ellison—with even Connecticut Attorney General David Hong, a party to the lawsuit, saying Monday he was “deeply disappointed that we could not do more” to keep the news institutions independent during the settlement negotiations.

What Are The New Parties Arguing Before The Court?

In their filing asking to submit a full brief opposing the settlement, a coalition of film industry groups—known as “Block the Merger”—argued the settlement presents “serious and complicated questions” that have yet to be resolved. The groups raised issues like the fact the agreement requires the new merged studio to produce fewer films per year than Paramount and Warner Bros. already do independently. A requirement in the settlement for Paramount and Warner Bros.’ cable networks to negotiate cable packages separately may also be “unworkable,” the coalition argued, and it alleged the editorial board that would oversee CNN and CBS may “present free speech problems” since it will be partially overseen by the court. LULAC also argued in its initial filing to the court that the agreement “fails to adequately address the serious harms” the merger could pose—namely that it would result in fewer films being produced, and of lower quality. The settlement only imposes “quantitative” requirements for film production, LULAC argued, while also getting rid of the competition between studios that would typically incentivize them to create higher quality programming. That could result in the merged companies meeting the minimum quotas “while reducing investment in documentaries, films by and about Black and Latino communities, or other distinctive projects that might have been greenlit by the independently competing studios,” LULAC warned.

What About The Writers Guild?

The Writers Guild of America, which represents screenwriters and some journalists, also challenged the Paramount-Warner Bros. merger in court, arguing the reduced competition would harm its members. The WGA separately reached its own settlement with Paramount on Monday in the wake of the states resolving their lawsuit, with the union telling members that while it still believes “the merger will cause damage to writers and the industry at large,” the fact the states settled their case meant the WGA had to “contend with the reality of forging ahead alone, with no backing from government enforcers, with a complex antitrust lawsuit that would cost millions of dollars to pursue through trial.” Martinez-Olguin is also overseeing that case, and similarly has not yet ruled on whether or not to approve the settlement. She has not held a hearing over that agreement, and said in an order Tuesday she would rule in “due course.”

Tangent

Thursday’s hearing also comes after Semafor reported Wednesday that Paramount could controversially seek investment from billionaire Elon Musk in the merged Paramount-Warner Bros., as Ellison and father Larry Ellison continue to seek equity to finance the deal. The Trump administration has also allowed at least 49.5% of the expanded media company to be financed through government-owned sovereign wealth funds in the Middle East, though Paramount has alleged they will not have any voting power over the company.

Key Background

The state attorneys general settled with Paramount this week after first suing to block the Warner Bros. merger over the summer, alleging it violated antitrust laws and would result in fewer films being produced, job losses and higher prices for consumers. The case had initially been slated to go to trial in March 2027, but after initially agreeing to delay the merger amid the litigation, Paramount started putting pressure on the states to settle as the Oct. 1 deadline for its $7 million “ticking fee” to kick in got closer. Paramount threatened to pull its operations out of California—whose AG Rob Bonta led the litigation against the merger—which would harm the state economically and result in widespread job losses, and the media company also asked the court to force states to pay the $1.9 billion in losses Paramount would incur by delaying the trial. Bonta had held firm against Paramount’s tactics, cancelling planned settlement talks in August after he alleged the company was leaking details to the media—which Paramount denied—but the two sides ultimately started settlement negotiations last week, culminating in the agreement. In a news conference announcing the settlement, Bonta told reporters the agreement “is not a vote of support for this merger,” but claimed the deal would result in “more production, more choice” and “more guardrails.”

Further Reading

States Settle Paramount-Warner Bros. Lawsuit—Clearing Way For Merger To Go Through (Forbes)