Paramount Global’s planned $111 billion takeover of Warner Bros. Discovery, led by CEO David Ellison and backed by his father Larry Ellison, faces an unexpected countdown after a group of state attorneys general sued to block the deal. Though federal and international regulators have largely cleared the merger, the legal challenge — and a “ticking fee” in the merger agreement — mean the companies could face real financial pressure if the transaction is delayed beyond late 2026.
Where the merger stands now
The deal received a blessing from the Justice Department in June, reportedly over the objections of staffers who were reviewing it. The European Union has also cleared the transaction, with Paramount agreeing to end its film distribution partnership with Universal in Europe. Paramount has noted that regulators in 65 jurisdictions have “either cleared the transaction or chosen not to challenge it on competition and/or foreign direct investment grounds.”
Paramount and WBD already face a built-in financial consequence for delays: the merger agreement includes a “ticking fee” that will pay WBD shareholders 25 cents per quarter for each quarter past Sept. 30, 2026, that Paramount-Warner Bros. doesn’t close. That amounts to about $7 million per day — meaning if the deal has not closed by Oct. 1, Paramount will begin owing substantial sums.
The states’ lawsuit and preliminary court action
On July 13, a coalition of 12 state attorneys general — all Democrats and led by California — filed suit alleging the merger would violate antitrust law. The states contend the combined company would harm competition in three markets: basic cable, tentpole theatrical releases and wide-release theatrical distribution, arguing the deal would join two of the top three cable programmers and two of the top five film distributors.
Judge Araceli Martinez-Olguin granted the states a temporary restraining order that pauses the Paramount-WBD merger for at least 14 days and set an Aug. 3 hearing on the preliminary injunction the states seek. Paramount is pressing to move that date to the week of Aug. 17 or Aug. 24 and wants a three-day evidentiary hearing so its lawyers can cross-examine the states’ economist and other witnesses.
In granting the TRO, the judge wrote that, “At best, Defendants’ proof regarding these robust, dynamic markets creates disputes regarding the facts and legality of the Transaction’s market effects” and that “Plaintiff States’ showing at least demonstrates that serious questions going to the merits remain, weighing in favor of preliminary injunctive relief.” She added that Paramount has acknowledged it will not be harmed by the delay until the end of September.
Paramount’s defense
Paramount has rejected the states’ claims, calling the lawsuit “one of the weakest merger challenges in modern antitrust history.” The company said the filing “distorts settled antitrust law and is based on a misrepresentation of competition in the entertainment industry today,” and that it will “vigorously defend the transaction.”
On the basic-cable front, Paramount argues that the Paramount and WBD cable lineups are complementary rather than direct substitutes, and that cable providers will still seek access to all channels. Regarding theatrical distribution, Paramount contends that “The real-world economics of film distribution and the merger’s economic incentives demonstrate that the transaction will increase, not decrease, theatrical motion picture output and will not adversely affect the price terms to theaters.” The company has also pointed to newer entrants such as A24 and Amazon MGM Studios to argue the theatrical market is competitive and dynamic.
Streaming’s role — and the court’s view
Paramount has said combining Paramount+ and HBO Max is essential to achieving the scale needed to compete with Netflix, Disney and Amazon. Some observers have criticized the states’ suit for failing to take a holistic view of the entertainment market that includes streaming.
But in her ruling, Judge Martinez-Olguin rejected the notion that efficiencies in one market can offset competitive harms in another, writing: “Courts have expressly and repeatedly rejected the defense that a challenged merger will result in economic efficiencies ancillary to competition in the relevant market.”
Could the companies settle with the states?
Settlement remains a possibility, but the form it would take is uncertain. “If Paramount wants to ‘come forward in good faith and sincerely want to make a settlement offer, we’ll always consider a settlement offer,’” California attorney general Rob Bonta, who is leading the state coalition, told CNN last week. “And it would have to include structural remedies. We’re not interested in behavioral remedies — empty promises, self-serving promises, promises that are unenforceable, that won’t be kept, that history shows won’t be kept. So we’ll consider what they propose, but they haven’t proposed anything.”
Paramount has not publicly signaled what concessions, if any, it would be willing to make.
Would spinning off CNN be enough?
Reports — including an anonymously sourced claim cited by FCC Chairman Brendan Carr — suggested the antitrust litigation might be dropped if Paramount spun off CNN. Bonta denied that idea. In response to reporting that linked a CNN divestiture to a potential settlement, he tweeted, “Unsure where this reporting originated from, but I’ve literally never said this. Spinning off one channel from a media conglomerate is not a sufficient remedy to protect consumers and preserve competition in the film and television industry.”
Other legal fronts
The state AGs’ lawsuit appears to be the most significant legal threat, but it is not the only one. The Writers Guild of America has filed an antitrust suit alleging the Paramount-WBD merger will reduce writers’ pay and undermine competition in three labor markets: blockbuster scripts, writing for episodic shows and writers’ overall deals. The union is also seeking an injunction to block the deal.
Separately, a group of Paramount+ subscribers sought a preliminary injunction alleging they would face price hikes and lose viewing options; Judge Martinez-Olguin denied that request. And a Paramount shareholder has sued Paramount CEO David Ellison and Larry Ellison, alleging they cut an “illegal” deal with President Donald Trump to secure U.S. governmental approval for the takeover. That complaint asserts the Ellisons offered “the opportunity to improperly funnel cash” to the president by settling his legal claims against CNN and allegedly promised that CNN anchors whom Trump dislikes would be fired after the WBD takeover. Addressing those allegations, a Paramount spokesperson said in part, “This lawsuit recycles allegations that have already been reported and already addressed. As we’ve said consistently: no commitments from either David or Larry Ellison have been made to any government body, State AG, or federal agency regarding the future of CNN or any other news property, other than the goal to deliver truth-based journalism.”
How likely is it the Ellisons will abandon the deal?
Walking away appears improbable. If Paramount were to terminate the agreement, it would face a $7 billion breakup fee, on top of the $2.8 billion it already paid to Netflix after outbidding the streamer for Warner Bros.’s streaming and studios businesses. The merger agreement is set to expire March 4, 2027, subject to one automatic extension to June 4, 2027. Given the Ellisons’ financial commitment and previous persistence in pursuing Warner Bros. Discovery, it seems likely they will press to complete the takeover before those deadlines.
