States settle lawsuits challenging Paramount-Warner merger, clearing key hurdle for $81 billion deal

Twelve states and Hollywood's Writers Guild of America have agreed to settle lawsuits challenging Paramount's proposed USD 81 billion acquisition of Warner Bros Discovery, removing a major legal hurdle to the blockbuster merger.

The settlement, announced Monday by California Attorney General Rob Bonta, includes new commitments from Skydance-owned Paramount on domestic film production, support for workers affected by the merger and safeguards for the editorial independence of its news operations.

The agreement still requires final approval from a judge.

The proposed combination would bring together two of Hollywood's remaining "big five" studios, along with major television networks including CBS and CNN, streaming services HBO Max and Paramount+, and extensive film and television libraries featuring franchises such as "Harry Potter" and "Top Gun".

Under the settlement, Paramount has agreed to spend at least an additional USD 1.5 billion on film production in the US over the next five years, or USD 300 million annually. It will also contribute USD 47.5 million towards training and career development for workers displaced by the merger.

Paramount must release at least 30 films annually for the next two years and 32 films annually for the following three years. If it fails to meet those commitments, the states said the company would be required to divest Miramax Studios and pay USD 30 million for each missed film into health care and retirement trust funds associated with the Writers Guild of America and other industry unions.

The settlement also requires Paramount to negotiate separately for current Paramount-owned and Warner-owned basic cable channels for the next five years. State officials said the measure was intended to help limit pressure on consumer prices.

Paramount must also establish a "News Editorial Independence Board" to monitor news operations at CBS and CNN.

Bonta said at a news conference in Los Angeles that the settlement was aimed at "protecting people's careers, the lives they've built here in California, the livelihoods their families rely on", while stressing that it was not an endorsement of the merger.

Paramount CEO David Ellison welcomed the agreement with the states and WGA, describing it as "complete clearance" for the merger and saying the combination would "build a stronger Hollywood".

The states, including California and New York, had sued in July to block the transaction, arguing that it would "extinguish competition" and reduce choices for consumers, particularly moviegoers and cable customers.

The WGA also agreed to settle its challenge but continued to warn about the potential impact of the merger.

"We continue to believe the merger will cause damage to writers and the industry at large," the union said in a statement. It said that, as a nonprofit without government backing, continuing the complex litigation would have cost millions of dollars.

New York Attorney General Letitia James, who helped secure Paramount's USD 17.5 million commitment to the Writers Guild health care fund, said she would monitor the company's activities to ensure compliance with the agreement and the law.

Paramount had previously agreed to delay the transaction well into next year to allow the legal challenges to proceed. The company subsequently pushed for a settlement as the potential cost of the deal increased.

Paramount had agreed to pay Warner shareholders "ticking" compensation of USD 7 million a day if the transaction remained incomplete after September 30.

Including debt, Paramount's acquisition of Warner is currently valued at about USD 111 billion based on outstanding shares.

Critics question settlement

The settlement has drawn criticism from some opponents of the merger, who argued that the commitments did not go far enough.

"Today, billionaires have yet again bribed, censored, and bullied their way to the top," Alvaro Bedoya, senior adviser at the American Economic Liberties Project and a former Federal Trade Commission commissioner, said in a statement. He predicted layoffs and higher costs for consumers and businesses.

Bedoya also accused Bonta and California Gov Gavin Newsom of yielding to pressure, particularly after reports that Paramount had threatened to leave California during the antitrust dispute.

Paramount has not publicly commented on a possible move from California, and the settlement does not specify that its headquarters must remain in the state. Tennessee officials, however, wrote to Ellison during the summer encouraging the company to relocate there.

Connecticut Attorney General William Tong, whose state was part of the lawsuit, said his priority had been protecting the editorial independence of CNN and CBS News and that he wanted full divestiture of the two news organisations.

Tong said Paramount had refused to agree to editorial independence for the outlets a week earlier.

"The complete abdication of the federal government's enforcement role in this fight left states with one arm tied behind our backs," Tong said.