The Case Against WarnerMount, with CA Attorney General Rob Bonta

0:04Matt Belloni:This episode is presented by AMC Network. A new chapter in Anne Rice's Immortal Universe begins with AMC's The Vampire Lestat. Get a backstage pass to the iconic frontman who Pace Magazine calls a Bowie-inspired rocker that will have fans screaming. Don't miss the legendary vampire Lestat de Liancourt in his own electrifying rock saga. Watch The Vampire Lestat Sundays only on AMC and AMC+. Learn more at amcplus.com. It is Monday, July 13th. It finally happened. After months of speculation, 12 U.S. states sued this morning to block the merger of Paramount Skydance and Warner Brothers Discovery.

0:44Matt Belloni:Rob Bonta, the California Attorney General leading the charge on behalf of Paramount's home state, for now, as well as New York, New Jersey, and mostly other Democratic states, He claimed the$110 billion deal will inflict substantial harm on movie theaters, basic cable distributors, and ultimately audiences nationwide. I read the complaint. It's interesting how it doesn't focus on the job losses from the merger and instead defines the antitrust argument focusing on big-budget theatrical movies and cable TV channels. In the U.S. alone, the combined WarnerMount would control nearly a third of movies and theaters and a third of cable channels, including TNT, MTV, and of course, CNN.

1:24Matt Belloni:The unlawful merger of these two entertainment behemoths would lead to higher prices, lower quality, and less content for film and television, harming movie theaters, basic cable distributors, and ultimately audiences on every sofa and movie theater seat in the U.S., Fanta said today at a press conference. He then asked the Ellison family, which is spearheading this merger, to pause the closing of the deal. And if they won't, he'll seek an injunction to stop it. Remember, the close was set for as early as this week after regulators in 24 jurisdictions around the world and the Trump Justice Department signed off on this deal.

1:59Matt Belloni:Paramount, in response, they put out their own fiery statement. I love a good fiery statement. They said the suit, quote, distorts settled antitrust law and is, quote, based on a misrepresentation of competition in the entertainment industry today. They're vowing to fight and saying that delaying the deal will only harm entertainment workers. Okay, so a big line in the sand moment here. Everyone from the Writers Guild to the theater industry lobbyists, they've come out in favor of this suit. The legal analysts have been much more skeptical. So today we asked Rob Bonta himself to come on the show and explain and defend his major antitrust action against the biggest merger in Hollywood history.

2:37Matt Belloni:Our normal Monday guy, Lucas Shaw, is here as well. And today it's the States versus Warnermount. Now it's war. From the Ringer and Puck, I'm Matt Bellany, and this is The Town.

2:50Matt Belloni:All right, we are here with the Attorney General of California, Rob Bonta, and Lucas Shaw, our normal Monday guy. Welcome, guys. Thank you for having me. Honored to be with you. Rob, I'm sorry to say this, Mr. Bonta, but I am afraid that you are not going to get an invite to the Top Gun 3 premiere. Who knows? I'm holding out hopes still. Yeah, you got hopes. All right. So Lucas and I both have questions here. You have done your press release. You have done your filing of the lawsuit. You did a press conference today in Hollywood. Great background, by the way, with the Hollywood sign. Nice touch.

3:26Matt Belloni:Thank you, team. I want to start with the question that first jumped out at me when I saw this suit and read it. There are three words that are nearly entirely missing from this complaint. And those three words are Amazon, Netflix, Apple. Those are, in my mind, as someone who covers this business very closely, three of the dominant players in entertainment. So how can you define this market for movies and TV without considering those three major competitors? Great question. We looked at the proposed merger and, as part of our due diligence, looked at the different markets impacted by these two very diversified companies and looked at the market concentration and what it would mean and applied the appropriate law.

4:21Here it's the Clayton Act, Section 7. And we determined that the law was being broken with respect to three markets. when it comes to wide-release theatrical films, their distribution, the distribution of top-grossing theatrical films, blockbusters, if you will, and also with respect to the licensing of cable channels to cable distributors. And so I know that's a little technical, but it's our duty to analyze the different markets and make a decision based on each about whether antitrust law is violated or not. And so we narrowed it down to these three markets. And Paramount Warner Brothers is still talking about those companies.

5:06I think they're trying to suggest that a merged company of Paramount Warner Brothers would help compete with Netflix and Apple and other streamers. But we haven't brought a lawsuit challenging that market concentration in the streaming market. How did you decide that the theatrical movies or blockbuster movies were a market unto themselves when you have, you know, to Matt's question, a company like Netflix that releases dozens of original movies a year, Apple, Amazon also make movies that might not fit that definition, but would seem to be competing for the time and money of movie fans?

5:44Matt Belloni:Yeah, one of the highest grossing movies of the year in theaters this year came from Amazon, Project Hail Mary. Great movie, by the way. Love that movie. um you know we we looked at the markets that we think the entertainment industry uh recognizes as different markets um you know what wide release theatrical films are are different than you know select release theatrical films or or and and and a release of films straight straight to movie theaters are different than films that get released to streaming platforms first and then later are are released to theaters and so and blockbusters are you know an animal a market and to itself.

6:23And we think that the entertainment industry recognizes those markets as separate markets, and we wanted to look at the impact on each. And we saw that the impact in the blockbuster market, in particular, that's where you see the biggest market concentration. But each of the markets as we've defined them creates a substantial limiting of competition that makes them presumptively illegal. And so we think we have a really strong case in these three markets. Are there other markets that exist in the entertainment industry, as you rightfully point out? Yes. But these three are the focal points of our lawsuit.

6:57Matt Belloni:So it's really just the amount of screens that you are putting your movie on. Because when we talk about budgets for movies, I'm sure if we opened up the books of Netflix and Amazon and Apple, they're spending as much or more on the movies that go to their platforms as these high-budget studios are doing for movies that go to theaters Often they do go to theaters in certain ways. And in many cases, this seems like you're defining this essentially by what the theaters are getting from these, not necessarily by what the studios are producing. Right. It's a relationship that the consolidation in the market has an impact on.

7:43When two previously competing distributors of theatrical films now merge, they have the market share, the market power, the negotiating power to dictate terms. And who do they dictate those terms to? They dictate them to the theaters where they release the films. And so that means that the moviegoers, the audiences will pay more to see those films because of the poor negotiating power of the theaters and that the experience will be eroded, will be lessened, will be decreased. You won't have premium screens. You won't have comfortable seating. You won't have the same quality and variety at concession stands.

8:27But yes, it is because of the concentration of power's impact on the entity that they negotiate with. And here, it's movie theaters. For cable channels, the merged Paramount-Warner brothers would have 50 of the most sought-after basic cable channels in the nation. and when they negotiate with Xfinity, Comcast, or AT &T, or Spectrum, or Cox, they will also be dictating terms, and they'll be able to threaten them with a blackout and say, if you don't pay the terms we're asking for, you're not getting any of these great channels from MTV to HGTV to Cartoon Network. The list goes on. Nickelodeon, Comedy Central, the list goes on.

9:17And so that means higher prices for cable subscribers and satellite dish subscribers. So, you know, this, this, I don't want it to be lost in the, you know, the market definition and the variety of different ways that TV series and film films arrive at audiences. This is about affordability. And this is about everyday people's ability to enjoy and experience some of the joys of life, a movie, a TV series, you know, at home through cable or satellite or, you know, God forbid at a movie theater, you know, for a night out. And this merger will make that experience the quality less and make it eroded and it will make the price higher.

10:00Your suit, you know, it mentions not just what would happen in terms of concentration with Paramount and Warner Brothers getting together, but you draw that connection with Disney. And And I'm curious, because we're now seven years or so out since Disney bought Fox's movie studio. The risks that you're warning about in this case, have you seen demonstrative evidence that the combination of Disney and Fox both led to higher prices for consumers and degraded the movie experience? Because I'm just curious, in your suit, you also describe the theatrical business as booming. So it would seem like those are maybe at odds with one another.

10:38Yeah, you know, part of the analysis that we've done here is talking about the concentration of power, sorry, the additional market concentration here with the Paramount-Warner Brothers proposed merger in an already concentrated marketplace, one that has seen a consolidation in the past, as you mentioned, Disney-Fox. And what we wanted to point out about Disney Fox and we set forth in the complaint is that the content output decreases. The number of movies is fewer. And they will cut on content and on output because they can. And it'll save them money. And the Disney executive leadership said that.

11:20We quote that in the complaint. So the impacts that we are suggesting will occur here. We've seen with some demonstrable evidence in the entertainment industry specifically, we've also seen similar impacts when it comes to other markets and other spaces. But generally, consolidation means higher prices, lower wages, jobs that get cut, lower quality, lower competition, and less choice.

11:49Matt Belloni:You mentioned before the cable channel distribution business. So I'm going to read you the Nielsen gauge numbers from last month. 48 % of viewing in this country was on streaming services. 22 % of viewing was on cable channels. Clearly, the overall market for watching content at home has moved beyond cable. and that, you know, by all, we covered all the time on this show, that is a dying business. It's not a nothing business. It still serves its audience, but it is not where the growth is and is where the consumers are going. So you're essentially alleging here that this is an anti-competitive merger in an area of the business that by most accounts is going away.

12:43Matt Belloni:how how can you not consider the larger viewing ecosystem when looking at this consolidation because they're competing with it they're absolutely going up against netflix and amazon yet you're saying that this one aspect of television viewing and cable channels is the one that is anti-competitive one of the three yeah uh in addition to the the two theatrical film releases that we're talking about, you know, wide release as well as blockbusters. So we did not look at it. We looked at all the impacts. And, you know, I think as we're duty-bound and obligated to do, and, you know, the streaming market is different than the cable market, is different than the theatrical release market.

13:31And each one has its own independent analysis. And where we landed was three clean markets where the impact of the merger is presumptively illegal based on a clear threshold that the law has defined. We think we have a really strong case. And if we block the merger, then the whole merger gets blocked, not just the merger in those markets. And so, you know, we think that it's our job to bring forth the best case that we have based on the facts and the law. That's what we did here.

14:03Matt Belloni:Paramount's statement on that issue says, and I'm quoting here, the practical effect of this lawsuit is to shield those dominant streaming platforms like Netflix and the technology companies from much-needed competition while preventing the significant benefits this transaction will deliver for consumers, creators, workers, and the broader Hollywood economy. Are you shilling for Netflix? Obviously not. You know, the statement, it's painful to hear it each time I hear it. And I've heard it multiple times. Why is it painful? I mean, like that they're helping consumers and creators and workers and the Hollywood ecosystem.

14:43That's not what the producers say. It's not what the independent filmmakers say. It's not what the directors say. It's not what the writers say. It's not what SAG-AFTRA says and the actors and the creatives. So I'm not sure why their perspective is different than the actual people they're trying to speak for. Well, I can think of some reasons. I mean, obviously, I mean, it's self-serving and it's just not true. You know, this is a hundred and ten billion dollar proposed merger, the largest merger in the history of Hollywood, should it be consummated? And they want to point to someone else who is a black hat.

15:18They want to point to Netflix.

15:19Matt Belloni:Well, but there are these monoliths that are dominating Hollywood right now. We're seeing it. Scale matters. And these are globally vertically integrated companies for the first time in the history of the entertainment business that can do it all. Distribute film and television around the world instantaneously via the Internet. And it has completely caught the rest of the entertainment business flat footed. And they are now scrambling to catch up. So, you know, the argument would flow from there that by combining forces of these two companies, you could perhaps create a real competitor to Netflix or Amazon.

15:53Matt Belloni:That's their argument. Yeah, but why are they wrong? Because we're not challenging them based on that market. And they're missing the mark by a mile. We haven't challenged their merger based on the impact on the streaming service market, on the streaming market. We've challenged it based on three other markets. And I mean, I don't see their argument is almost like you have to allow us to do illegal things so that we can create a combined megacorporation that can compete with these other megacorporations. And that's not how the law works. If you break the law, you've broken the law. We only need to have identified that they violated the law, antitrust law, in one market.

16:37We've done that 3x. 3X. We've identified three markets, and they're not allowed to violate the law in any market. So it's an awkward argument. I guess it's from a legal perspective. It makes no sense. It falls flat. From a PR perspective, I think that is probably the space where they might have any support. And I don't know if it's true. I don't know how they're going to compete. I think they're going to have worse quality, lower amount of output, less TV series and less films. So it's a theoretical argument. I don't know if it would be realized, but I think it's their best PR argument, but it just has nothing to do with this case legally.

17:21So I'm curious about that because you make the point about depressed output. I think a lot of people feel that that is inevitable because it would stand to reason. Usually when you combine things, you're not doing it to make more. They have been adamant that they are going to release more movies, 30 movies a year, increase production for streaming. So do you just not believe them? Yeah. And it's not enforceable. It's what an executive would say to get a merger done when history shows otherwise. Disney Fox shows otherwise. Output went down, not up. And despite them saying that they were going to maintain or produce more.

17:58You know, these unenforceable statements by executives that are self-serving to get a merger done, I can't credit them. What could they do, I guess, to make you feel, okay, that they actually mean it? If they had committed to a certain amount of output, committed to spending a certain amount for a California production, something like that, would that help? These are referred to in sort of the jargon as behavioral remedies, when there's a promise to do something, as opposed to a structural remedy like a divestiture, a breakup, a split up of two corporate entities. And the behavioral remedies just are tough to realize.

18:38And even in Ticketmaster Live Nation, there were behavioral remedies in that case and a consent decree from years ago. And we ended up in court with them again for violation of antitrust law and won on every single question posed to the jury. So behavioral remedies, I think, just are not as strong or successful historically as structural remedies, as a divestiture.

19:03Matt Belloni:But it could be an alternative to two to three years of costly litigation for an uncertain result. Maybe. You know, enforceability is something that's very important to us. You know, if you say you can do something, you got to do it with a remedy and a consequence if you don't. Saying you're going to do something and then later saying, hey, you know, just the numbers don't add up this year to do 30 films. We're only going to do 15. Right. Which is what I've said from the beginning that would likely happen at some point. You know, they do it for a couple of years. then they'd have a bomb or two and then they'd say, you know, we're retrenching.

19:34Matt Belloni:You guys in the complaint noted that David Zasloff, the CEO of Warner Discovery, he promised 20 movies in 2024. They ultimately released nine. Right. So that is a good piece of evidence there. I'm curious why your complaint does not focus on the labor markets here. So much of the complaints about this merger focus on the thousands of jobs that are going to be lost and hiring for talent and all this. You don't really focus on that. And why is that? Because in the Simon and Schuster case recently, that whole monopsony argument about having fewer choices for talent to sell their books to, that was a key focus in that case.

20:18Matt Belloni:You haven't focused on that here. Yeah. And not for not thinking about it. It doesn't appear in the final complaint, but I think our due diligence brought us everywhere. We thought about the streaming market. We thought about the labor market, as you've just described it, as a market on its own. But we also, certainly, our complaint has multiple references to impacts on workers, impacts on labor, job loss, loss in the entertainment industry of jobs and opportunities, of lower wages. And so that's part of our overall,

20:53contextualization of the case and something that's very important to me and I think is an important impact and element of this antitrust case that we've brought. But we didn't identify a specific labor market as one of the markets that we were going to bring a case on. It's more part of the overall impact of the anti-competitive outcomes from this merger. It will lead to less output, as we just talked about, there are less movies being made, less TV series being made. When there's less movies being made, less TV series being made, workers are working less. There are less jobs. So there's inevitably an impact on the workers based on this merger.

21:34And we've touched on that, but not described a separate labor market, as you mentioned.

21:40Matt Belloni:This episode is brought to you by Accenture. When your advertising operations fall out of sync, campaigns slow down, insights get buried, and opportunities get missed. That's why Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. To learn more, check out Accenture.com slash Spotify. Are you at all surprised that there kind of hasn't been the same groundswell of opposition from the kind of Hollywood labor community to this deal as there was to Netflix?

22:23I mean, there's been some, but Netflix people were framing and sort of like an existential threat to the whole industry. This one, it's felt a little more muted. Yeah, I mean, I think that's kind of what you were both describing earlier, the sort of growing concern. Maybe it's already at level 10 about Netflix and these streaming services and their impact on the traditional studios. I think maybe that was seen by some as a bigger threat, but I've definitely heard a lot of concern, a major outcry, you know, from the different types of labor, from, you know, the actors to, you know, the crew on the sets, you know, IATSE, SAG-AFTRA, we've heard from the writers, we've heard from directors, we've heard from producers, we've heard from independent filmmakers, you know, all types of workers in the space and almost unanimously, almost with one voice, they've been opposed and think that this proposed merger is bad for whatever group of workers that they represent.

23:20And the Writers Guild issued a statement today that was very clear about what they think about this. I read that.

23:26Matt Belloni:So just jurisdictionally here, just so we have it clear, the Ellisons are likely going to extend their middle finger here and say, go with God and file for your injunction. So ultimately, this will be up to a judge on whether to enjoin this deal before it closes. And you did an interesting thing in the complaint. You have stated that this case is related to an existing case that is already going on in the Northern District. Does that mean that you are happy with that judge in that case, Martinez-Alguin? You would like that judge to oversee this case as well? Yeah, we like that judge as someone who has experience on this issue already, is already doing some deep thinking and has taken a deep dive into this space.

24:14That judge has a case in front of her brought by private plaintiffs challenging this merger. So the fact that the judge is already up to speed, is thinking about this, thinking about its impacts, we like that. And so we related our case to the private plaintiff's case, and we are before that judge who's already thinking about the issues that we want to talk about.