BURSTLast night, the news broke that Paramount beat Netflix in a bidding war for Warner, which is one of the most important moments in Hollywood history. This win is something of a turnaround. In early December, Warner agreed to be acquired by Netflix, with a significant $2.8 billion fee to the streaming giant should the deal fall apart. But over the past week, Paramount raised its offer, and the Trump administration likely put political pressure on Netflix. It culminated with Netflix co-CEO Ted Sarandos visiting the White House yesterday, and then announcing afterwards that the company would stop trying to acquire Warner.
Though Paramount is buying a direct rival in a concentrated industry, which seems to violate the Clayton Act, no one expects the Trump administration to challenge it, because the company is owned by close Republican friends of the President.
But then, something interesting happened. As I’ve been saying, there are other enforcers who have jurisdiction here, most notably state officials. And one of them, California Attorney General Rob Bonta, announced the merger is “not a done deal” and that he has an open investigation.
Other state attorneys general are likely to join Bonta in this investigation. I’m going to walk you through the legal and political situation. I went on the Ankler with Richard Rushfield last night to discuss it, you can watch that video here.
What Are the Stakes?
Paramount and Warner are both significant media conglomerates, with assets spanning film production, distribution, and news. They are each one of the big five studios, which make and distribute most of the commercial films that go into theaters. They each have significant TV production and streaming assets, from Paramount Plus to HBO Max. The merged company would hold broadcast rights for the NFL, NHL, MLB, NCAA, PGA, NASCAR, NCAA March Madness, the College Football Playoffs, UFC, and the French Open, and will rival Disney/ESPN if they are allowed to combine.
On a political level, Paramount owns CBS News, while Warner has CNN. The President has indicated he expects the Ellison family to reorient CNN to become a more conservative and friendly media outfit, as they have done for CBS under the leadership of Bari Weiss. Pairing CBS, CNN, and HBO with the Ellison family’s ownership of TikTok will give this family outsized political control of the American tech and media ecosystem, and their alliance with the Trump administration is the fusion of corporate and government power that anti-monopolists have warned about.
This deal will place huge debt on the combined company, and there will be significant bloodletting as a result. In total, Paramount/Warner will have around $90 billion in debt, which is roughly seven times what it will earn. The only way to cut that debt is cost cuts. And sure enough, the Ellison family is projecting $6-9 billion in “synergies,” which is to say layoffs. As of 2024, Warner had 35,000 employees and Paramount has 17,600. If you assume that half of the cost will come from firing people, and budget $200,000 in cost per employee, that’s 15,000 to 20,000 layoffs out of a total of 52,600, about a third of the company. But don’t worry, Warner CEO David Zazlav will get $567 million if the deal goes through, and become a billionaire. So he’ll be fine.
Some of these firings will be in duplicative administrative roles, but you can’t cut this many people without genuinely impacting operations. What the cuts likely mean is the number of films and TV shows coming out of the combined company will drop dramatically. When Disney bought Fox, the number of released films from those studios fell by 44%. Something similar seems likely here. And with thousands of movie theaters tottering on the brink of insolvency, the lack of product to sell could push them over the edge.
Paramount’s strategic rationale is that they simply do not have the scale to compete in a world of giants like Amazon, YouTube, Netflix, and Disney. So they have to bulk up to develop the streaming customer base to finance the content necessary to compete. We’re in a world of vertically integrated giants, and they believe that adding one more big streamer by combining two smaller streamers adds competition to the marketplace.
The Law
Is this deal illegal? The Clayton Act is pretty vague, it just says that mergers that “may substantially lessen competition or tend to create a monopoly” are illegal. But there are more specific guidelines based on case law last updated in 2023.
This deal could violate six of them. Courts are skeptical of:
mergers in concentrated markets
mergers of head-to-head rivals
mergers that create a firm that might limit access to products its rivals use
mergers in industries already trending to consolidation
mergers that are part of a series of acquisitions and
mergers that lessen leverage for workers, creators, or suppliers
On a basic level, enforcers will look at market shares and pricing power. In terms of movie tickets sold, Paramount was the number five movie studio in 2025 with 6.47% market share and Warner was number two with 21.70% market share. That doesn’t quite hit 30% of the market, which is a legal threshold for presumptively illegal, but it’s close. According to standard antitrust methodology, this merger would take the market from unconcentrated to moderately concentrated.
But there are lots of other markets, from distribution of movies to sports to streaming to labor power that are at issue here. In streaming, for instance, prices have gone up dramatically. In 2021, Paramount+ was $4.99/month for its ad-supported tier. Last month, that price increased to $9. That’s an 80% price hike in four years, or four times the rate of overall inflation. No one thinks that Paramount+ is a monopoly, but all of the streaming firms seem to have pricing power or some sort of coordinated capacity to raise costs on consumers.
And then there’s basic easy-to-understand pricing power. If you’ve sold a script and two of the bidders were Paramount and Warner, then this deal reduces competition for your work. In 2022, the Antitrust Division blocked a merger between Penguin and Simon & Schuster in the book industry, which was like these studios consolidating an industry from five to four major players. That deal got blocked over concerns it would cut bargaining power to writers.
What are Paramount’s arguments? If challenged, Paramount is going to argue they have a small market share, so a merger is just not a big deal. Moreover, they will be creating competition by combining HBO and Paramount+ into a big viable streaming competitor. I don’t find that compelling, turning two products into one reduces the ability to get movies and TV shows to market. We’ve seen this promise fail over and over, most recently when Microsoft bought Activision and promised to create more competition in gaming services. The only thing that happened was layoffs and price hikes. But a judge might accept this argument regardless.
Paramount will also lean on the Antitrust Division choosing not to challenge the case. They will say that Federal enforcers are the experts, so a judge should just listen to them. If the Antitrust Division thought the deal was fine, then how can state enforcers, who are certainly not experts and have less information and staff, know this market structure better? That argument is not as persuasive as it was years ago, considering the obvious corruption at work under Trump, but a judge might accept it.
The Politics
There was going to be a hearing over the Netflix deal on March 4th, but Republican Senator Mike Lee, rather than reorganizing it around this new merger, canceled it. And that speaks to how this merger is now splitting along partisan lines.
Democrats generally opposed the previous deal between Netflix and Warner over concerns about corporate power, though the more corporate establishment ones stayed silent. Republicans also disliked that deal over competition concerns, but also because they felt Netflix was “woke.”
This time, the Democratic opposition is much more strident, as layered onto their general dislike of corporate concentration is a recognition that Trump approving a merger in return for restructuring CNN is cronyism. The Republicans, for the converse reason, are silent or supportive.
This deal will likely resonate for years, and will put antitrust on the map inside the party in a profound way. Here are potential 2028 contenders Senators Chris Murphy and Ruben Gallego.
Gallego has been floating the idea of automatically breaking up the companies who merged under Trump’s watch. And the top Democrat on the Antitrust Subcommittee, Senator Cory Booker, is exploring how to undo this merger spree.
Possible Outcome
The best possible outcome is a high-profile trial that puts the entire industry on display in public, and shows how deals get made and the real bargaining works. It’ll then be easier to make the case to re-regulate Hollywood and separate out production and distribution, which will restore the industry to health. Trials are always dice rolls, dependent on the assigned judge and their attitude towards business.
But there’s also a logistical problem. Last week, before the deal was consummated, I wrote about Paramount’s clever and corrupt approach to buying Warner, which assumed the Federal government will let the deal go through. Such an approach would prevent an in-depth review by state enforcers and could close the deal by late March or early April. David Ellison has said it will take six to eighteen months, which is slightly longer.
This scenario is now on the table after Paramount won the bidding war. Now the state enforcers have to come up with a complaint against the deal in a month. The California Attorney General, Rob Bonta, wants to do that, as do many others. The politics is set up for it.
But it is very difficult to get the data and do the analysis on market shares quickly, and to collect the necessary evidence to file a good case. States are just not set up to do that well, they rely on the Antitrust Division. I think there’s a good case here, but they will have make a lot of strategic decisions very quickly, and could get some of it wrong. On the other hand, California does have staff and antitrust capacity. Bonta is the enforcer behind the Amazon price-fixing claim filed earlier this week.
Wall Street puts the odds of a successful challenge to the deal here at 10%, but some analysts think it’s more like 30%. I’m a little more optimistic. But more broadly, I would note that this industry has been dying for a long time, and a challenge and high profile trial is necessary to explain to everyone how to restore it to health. Stopping this merger isn’t going to fix Hollywood or undo media consolidation in general, though it will help. Letting it go through will be harmful, but won’t end the world. But this fight is an outline of what is to come, for all of us.
Thanks for reading! Your tips make this newsletter what it is, so please send me tips on weird monopolies, stories I’ve missed, or other thoughts. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation, and democracy. Consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.
cheers,
Matt Stoller