California Attorney General Rob Bonta has been making headlines with his bold stance against the proposed merger between Paramount and Warner Bros. Claiming that the merger will negatively impact theaters and cable providers, Bonta filed an antitrust lawsuit in July, successfully stalling the deal until spring 2024. However, recent developments suggest that Bonta’s momentum might be waning.
The Shift in Support
Last week, Cinemark joined AMC and Regal in supporting the merger, a move that has caused some ripples in the exhibitors’ trade group, Cinema United. Once a staunch ally of Bonta’s efforts, Cinema United is now advocating for a settlement, indicating a significant shift in the dynamics surrounding the case.
Expert Analysis on the Case
“The states’ case is weaker now than it was a week ago,” observes William Kovacic, a professor of antitrust law at George Washington University Law School. He emphasizes that having the affected parties testify is crucial for establishing a compelling narrative of illegality. “If you have significant customers who say, ‘We like it,’ that hurts the plaintiffs’ case.”
Paramount’s Strategic Moves
In response to Bonta’s lawsuit, Paramount has attempted various strategies to exert political pressure, including op-eds, letters from allies, and even threats to relocate from California. Bonta, however, has largely dismissed these efforts, even canceling a meeting with Paramount after details leaked, accusing the company of “playing games.” The recent backing from major cinema chains adds a new layer of complexity to Bonta’s case.
The Allegations Against the Merger
The lawsuit, filed on July 13, asserts that the merger could grant Paramount excessive power in three distinct markets, particularly affecting theater chains. Bonta and eleven other state attorneys general argue that consolidating two of the five largest distributors will weaken theaters in negotiations regarding film windows and revenue splits.
Backing from Cinema Chains
Paramount might bring the CEOs of the three largest cinema chains to testify in its defense. Adam Aron, the CEO of AMC, has publicly voiced his belief that the merger will strengthen the combined studio, ultimately benefiting theaters by leading to more movie production. With Aron’s support, Regal and Cinemark felt compelled to follow suit.
Promises from Paramount
During an investor call in May, Cinemark CEO Sean Gamble mentioned that Paramount’s David Ellison was “saying all the right things.” Subsequently, Ellison committed to releasing 30 films annually for three years, with each having a 45-day release window. Paramount has indicated it would extend similar commitments to other exhibitors. However, while issues seem to be moving towards resolution, Cinema United has requested “enforceable safeguards” regarding film access, expressing ongoing concerns about marketing budgets and rental terms.
Potential Legal Challenges Ahead
Despite the cinema chains’ support, it doesn’t mean Bonta’s case is without merit. Prior to filing the lawsuit, the states subpoenaed documents from Regal and AMC, which could serve as essential evidence in court. “Sometimes in these types of deals, some of the parties step up and say, ‘We can compete’ — but their internal documents say differently,” remarks Abiel Garcia, a partner at Kesselman Brantly Stockinger. Evidence of customer pressure to remain on good terms with suppliers could also indicate excessive market power.
Concerns About Testimonies
Harry First, a professor of antitrust at NYU School of Law, highlights the complexities of customer testimonies in such cases. “When a customer says, ‘We’re cool with it,’ you have to wonder: a) did they get something? or b) are they afraid of something?” This fear of retaliation can make securing honest testimonies challenging for antitrust investigators.
The Road Ahead for Bonta
Bonta may also rely on insights from smaller cinema chains that could face more severe repercussions from a merged entity. Garcia emphasizes Bonta’s resilience, suggesting that the current support for the merger from larger chains isn’t the definitive end for Bonta’s case. “The question is: Does the A.G. have enough in the documents?”
