Clearing the way for a Paramount-Warner Bros. merger

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Kimberly Adams (1:01)

A major legal settlement clearing the way to create a massive media company.

From Marketplace in Washington, I'm Kimberly Adams. Paramount Skydance reached a settlement yesterday which will help clear the way for its $111 billion acquisition of Warner Bros. Discovery. The takeover will give Paramount and its CEO, David Ellison, control over both CBS and CNN while also combining control over two major streaming services, Paramount Plus and HBO Max. The agreement resolves an antitrust lawsuit brought by 12 states and led by California Attorney General Rob Bonta. The terms include a number of concessions to push the merger along. For more, we're joined by Eric Gordon, a professor at the University of Michigan's Ross School of Business. Good morning.

Eric Gordon (1:49)

Good morning, Kimberly.

Kimberly Adams (1:50)

First, remind us how we got here.

Eric Gordon (1:53)

Well, this all started when Warner Bros. Discovery, the film people that brought us Harry Potter and a lot of other stuff, sort of went up for sale. And Paramount, that's the David Ellison side, decided that one, wanted to buy them, Netflix jumped in and ended up getting the deal.

They got the deal until Paramount came back, wrestled the deal back away from Netflix to Paramount, and then all of the antitrust stuff started. So that's where we started.

Kimberly Adams (2:24)

What concessions has Paramount agreed to make to help this go through?

Eric Gordon (2:29)

So Paramount has agreed to what are called behavioral concessions. That's where the company promises, oh, we'll do some good stuff and we will not do some bad stuff. So they've agreed that they will continue to produce 30 to 32 new films each year for five years. They've promised to spend another $1.5 billion on US film production.

They agreed, now this is really key to what's going on here, they agreed to not leave California for Texas or Tennessee. And they agreed to put together some kind of editorial panel to oversee CBS News and CNN, which will all be owned by the same new big company.

Kimberly Adams (3:14)

How significant would you say these concessions are?

Eric Gordon (3:18)

You know, they're not much.

What the Attorney General of California said he was going for when he started the fight, he said he wanted structural concessions. Structural concessions is when you sell off parts of the business to a competitor so that you're not the huge big company. And structural concessions are powerful because you can't undo them easily and you can't interpret them. These behavioral concessions, well, you know, the two companies were making about the same number of films beforehand. So it's no big increase. A little increase in spending.

Was Ellison really going to move Paramount from California? I don't know. It seems like a settlement that is more like saving face for the attorneys generals who bought it than some kind of real big victory.

Kimberly Adams (4:13)

What does this merger and the way it's been handled tell us about the way the current administration is handling antitrust these days?

Eric Gordon (4:22)

What's interesting is that the federal government said, oh, no problem, go ahead and merge. They didn't ask for anything. The suit we're talking about is brought by state attorney generals led by California. So it looks like antitrust enforcement might fall to the states, but it also looks like the states aren't as powerful as we might have hoped.

California did a lot of saber rattling and in the end, they caved.

Kimberly Adams (4:50)

Eric Gordon is a professor at the University of Michigan's Ross School of Business. Eric, thank you so much.

Eric Gordon (4:55)

My pleasure, Kimberly.

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