UK watchdog investigates mega takeover with Paramount and Warner Bros

**Gideon Long** (0:01)
The Warner Bros Paramount deal is under the spotlight, amid some opposition from Hollywood.

**Brian Cranston** (0:07)
I'm personally against the merger. I think these two legendary studios can operate perfectly on their own.

**Gideon Long** (0:14)
It's World Business Report from the BBC World Service. I'm Gideon Long. Yes, British regulators are looking at that Paramount deal. Meanwhile, the Swiss are set to vote on whether to cap the size of their population to limit migration and will look ahead to SpaceX's mega stock market offering later this week.
We're gonna start today by talking about that proposed takeover of Warner Bros by Paramount in Hollywood. You'll remember that back in April, Warner's shareholders approved Paramount's plan for $110 billion acquisition, effectively ending Netflix interests in the company. But now Paramount has to get the green light from regulators, and today, the Competitions and Markets Authority, the CMA, here in the UK said it's formally opened an investigation into the deal to see if it breaches competition rules. So what exactly will the CMA be looking at? I'm joined by Tom Smith, competition lawyer at Gerardine Partners in London and formerly the legal director at the CMA. Tom, first of all, this is a proposed takeover of one US company by another in the US. So just explain to our listeners why the CMA, a British authority, has to get involved at all.

**Tom Smith** (1:30)
Yeah, that's right. There's always a bit of a clash between global mergers and national regulators. But the CMA has jurisdiction like many other national regulators have jurisdiction where a merger affects competition in their territory.

**Gideon Long** (1:42)
And it'll need approval elsewhere, not just in the UK and of course in the US, in the EU as well. Where would you expect the biggest obstacles to come?

**Tom Smith** (1:50)
Yeah, they're often the three biggest ones, the EU, US and then UK. But a big merger like this often needs a dozen or so merger filings around the world and clearances before they can complete the merger.

**Gideon Long** (2:01)
And what kind of things will the CMA consider in its investigation?

**Tom Smith** (2:06)
So the legal test is whether the merger gives rise to a substantial lessening of competition. So basically the regulator looks at whether they think competition might be harmed. And often they look at whether there are enough competitors around post-merger. Here there's arguably only three or four major studios left after the merger. So they'll be looking at that, whether that's enough.

**Gideon Long** (2:28)
Now it's been a fair amount of opposition to this merger from within Hollywood. Just take a listen to this. This is the actor, Brian Cranston, famous for his role in the TV series Breaking Bad. He's explaining to CNBC why he's not keen on it.

**Brian Cranston** (2:42)
We're in a very challenging time. I'm personally against the merger. I think these two legendary studios can operate perfectly on their own.
It's just bad for creativity all around because there'll be contraction. There'll be a lot less people developing movies and television. There'll be a lot less people working in and around Los Angeles specifically. So it's a challenging moment for the industry. I would love to see them stay independently operated.

**Gideon Long** (3:13)
So Tom, only one view there from Brian Cranston. He says it's going to be bad for creativity and possibly bad for jobs industry. But are those the kind of things that the CMA will consider or will they take a much narrower brief? Are they only interested in whether this will breach competition law?

**Tom Smith** (3:28)
Yeah, you don't often look at whether wages and jobs are affected too much in a competition analysis, but it can feed into it. I think the way it might be framed is whether the merger will reduce output, whether they'll produce fewer films or worse films or less diverse films post merger. And that can be a consumer harm.

**Gideon Long** (3:48)
And this is just the first phase of the investigation that starts now. The second phase, if it's required, would start in August. As I understand it, that's not obligatory. Do you think there will be a second phase? How long do you think this whole process will is likely to go on for?

**Tom Smith** (4:03)
Yes, so the UK, the EU and lots of other countries do a kind of two phase system, like you say. Most mergers are cleared after the first phase, which is often a month or two. And then a handful of mergers each year go through to a second phase, which is a really in depth investigation.
So yes, I mean, I don't know which, whether the CMA will send it to phase two or the European Commission will send it to phase two in this case, but the companies seem pretty confident they won't, so we'll see.