Paramount Skydance is arguing that its $110 billion merger with Warner Bros. Discovery is necessary for it to compete with streaming giants Amazon, Disney and Netflix, and that the mega-deal will bring “new competitive” energy to the entertainment biz.
The argument came in a letter Paramount’s chief legal officer Makan Delrahim sent to California Attorney General Rob Bonta on May 7 “in response to certain misinformation about the marketplace expressed in recent public commentary.”
The letter, which was first reported by Semafor on Tuesday, was sent ahead of a Monday press conference by Bonta in which he left the door open to filing a lawsuit to try and kill the deal.
“There are red flags everywhere for us,” Bonta said. “We’re looking at things like higher prices, lower wages, fewer jobs, less quality, less choice, less competition — the things that you look at when you’re looking at an antitrust case and a proposed merger.”
Delrahim’s letter stressed Paramount’s “continued commitment and support to California movie theater audiences,” part of the company’s efforts to sell Bonta on the purported pro-competitive benefits of a combined Paramount-WBD as the deal faces potential antitrust scrutiny at the state level.
Paramount said in February the deal had cleared a key federal regulatory hurdle.
The merger would combine Hollywood studios Paramount Pictures and Warner Bros., streaming services Paramount+ and HBO Max and news outlets CNN and CBS, among others.
Delhrahim argued in the letter that Paramount and WBD together will “drive meaningful improvements for movie theaters and their audiences” and reiterated CEO David Ellison’s commitment that the merged company will release at least 30 movies a year.
He also addressed the company’s streaming ambitions, noting that Paramount+ and HBO Max do not on their own have the scale to “compete effectively” against players like Netflix, Disney+ and Amazon Prime Video.
Both Paramount+ and HBO Max “lack the scale” to go up against leading streaming services, Delrahim wrote.
“Absent something transformative, neither party is positioned to grow to a scale where they would catch up to the leading streamers,” he added.
He said that Paramount only had 5.8% of US subsciptions of streaming viewership and Warner Bros. Discovery had 5%, noting that the top three streamers together capture about 65% of all US streaming subscriptions. Netflix has 32.5%, Disney nabbed 16.7% and Amazon had 15.3%, according to Nielsen’s December data.
The lawyer also stressed that Paramount’s relationship with movie theater operators “will not materially change after the merge,” adding that the combined companies will only represent 25% of the domestic box office.
“In this environment, Paramount must continue to compete aggressively to find outlets for its films, with many other substitutes available for theaters to fill their screens,” Delrahim concluded.
