On Monday, Paramount settled the antitrust suit that twelve states filed to block its $81 billion takeover of Warner Bros. Discovery. Leading the coalition, California Attorney General Rob Bonta sued in July and quickly won a temporary restraining order, forcing Paramount to agree to not close the deal until the lawsuit was resolved or until June 1, 2027. For most of the summer, Bonta made it clear he wasn’t interested in a compromise and simply wanted the merger blocked.
To win Warner, Paramount made a costly promise. During the bidding war with Netflix, David Ellison, CEO of Paramount Skydance, agreed that if the deal wasn’t finished by October 1, Paramount would start paying Warner shareholders a penalty of about $7 million a day.
That’s why this $1.5 billion is actually a good deal for Paramount. Paramount isn’t handing that money to the states, but instead it’s agreeing to spend more on its own movies and shows over the next five years, which the company can at least earn money back on. On the other hand, a long court fight could easily have cost more than that in penalties alone, and Paramount would have gotten nothing in return.
The rest of the settlement is mostly made up of promises, with penalties if Paramount doesn’t follow through. For the next five years, Paramount must release at least 30 films a year, and if it misses that goal, it must pay $30 million for each missing film and then sell its stake in Miramax, the film studio behind movies like Pulp Fiction and Good Will Hunting. Paramount also agreed to set up a board to make sure CBS News, which it already owns, and CNN, which it will own after the merger, can report without interference from the company’s leadership. The states wanted Paramount to sell off cable networks like CNN, but Paramount said no. Since the combined company will have almost $80 billion in debt, it needs the money those channels will bring in.
Paramount also had some leverage, as it had been talking with Tennessee and threatened to move out of California if a deal couldn’t be reached. Losing one of Hollywood’s oldest studios would have been a major hit to California, costing jobs and hurting an industry that’s already been struggling as more filming moves to other states and countries. At the same time, Governor Gavin Newsom was worried Bonta might lose at trial, so he quietly helped bring both sides together. Bonta said the threat to leave didn’t affect his decision, but it’s hard not to notice how much of the final deal is about protecting Hollywood jobs and keeping Paramount in Los Angeles.
Now, the bigger question is what happens after the deal closes. With that much debt, making fewer movies would be an easy way for Paramount to save money, but the settlement makes that hard, since every film that falls short of 30 comes with a $30 million penalty.
Ultimately, Ellison got his deal for less than a long court fight would have cost. Now he has to prove that the company can handle its debt and still make enough movies to keep its promises.
