Paramount’s $110 billion deal to acquire Warner Bros. Discovery has taken a major step forward after receiving approval from the European Union’s antitrust watchdog. As previously reported, Paramount agreed to solutions, most notably exiting its international distribution deal with Universal Pictures.
The European Commission’s green light for a massive media merger on Wednesday was welcome news for David Ellison as he faces legal challenges in the US and regulatory uncertainty in the UK.
In a statement, Paramount called the approval “a major milestone in completing the deal in line with the publicly announced timeline,” and said the EU findings “directly rebut key assumptions underpinning the state prosecutors’ complaint seeking to block the deal.”
Paramount planned to close in the third quarter, specifically by the end of September. The Ellisons had agreed to pay Warner shareholders a large fee for every day after September 30 that the deal was not closed.
The lawsuit filed by California Attorney General Rob Bonta and 11 other states alleges that the proposed merger violates antitrust law in three markets — for wide release films, blockbusters, and cable network licensing. Earlier this week, the judge in the case issued a temporary restraining order pausing the merger for 14 days. The prosecutors are now preparing a motion for a preliminary injunction to prevent the deal from closing pending the results of the trial.
A hearing on the injunction is scheduled for August 3 in the Northern District of California.
Separately, the Writers Guild of America is also seeking a preliminary injunction to block the deal.
In today’s decision, the European Commission did not find that the merger puts undue pressure on film production, or “audio-visual” channels. She said there were enough film studios in the EEA to compete with the combined Paramount-WBD. It outperforms the major American companies Disney, Universal, and Sony, and other companies such as Amazon MGM, A24, Lionsgate, and European studios.
The U.S. lawsuit focuses on Hollywood’s Big Five, which will be reduced to four at Paramount Group and WBD. It does not take into account smaller studios in determining the relevant market.
As for the “autonomous vehicle value chain,” the Commission said its investigations showed that “there are still enough alternative competitors to exert sufficient competitive pressure on the entity merged in the European Economic Area.” This includes children’s pay TV channels, finding that “streaming platforms offering children’s content will continue to act as a competitive constraint on the combined entity’s TV channels.”
“The European Commission rightly considered that streaming platforms compete directly with linear television. These conclusions undermine the definition of market on which the government prosecutors relied in their complaint,” Paramount said.
Distribution treatment
As expected, the commission found competitive risks in film distribution, writing that as a result of the deal, “there will be heightened concentration and increased transparency in EEA countries where Paramount has a structural partnership with Universal, due to the addition of the Warner Pictures portfolio.”
“The partnership focuses on distributing Paramount and Universal’s films to cinema operators through their joint venture, United International Pictures (‘UIP’). The deal would have meant that Warner’s films were also distributed via UIP and, without the commitments, would have resulted in worse rental and distribution terms for cinema operators, ultimately disadvantaging consumers.”
Paramount has 13 months from the expiration of the deal to divest its UIP stake in the EEA.
The Commission stated that “for a period of ten years, Paramount will not, directly or indirectly: enter into any agreement or understanding with Universal to engage in the distribution of films in the EEA; transfer distribution of Warner films from Warner’s existing distributor to the theatrical distributor used by Paramount, such distributor also distributing Universal’s or Disney’s films in all UIP countries in the EEA (Bulgaria, Croatia, Czech Republic, Cyprus, Denmark, Estonia, Finland, Greece and Hungary). Iceland, Latvia, Lithuania, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Sweden); and in EEA UIP countries where Paramount and Universal do not share the same distributor, switch distribution of Paramount films from Paramount’s existing distributor to the theatrical distributor used by Warner, where that distributor also distributes Universal’s or Disney’s films.
It added that these commitments “fully address the competition concerns identified by the Commission by ensuring that the combined entity’s films are not jointly distributed with Universal or Disney films.”
An independent trustee under the supervision of the Committee will monitor implementation.
