Paramount-Warner $US110 million deal derailed after California, other states sue

California and 11 other US states are suing to block Paramount’s acquisition of Warner Bros Discovery, alleging the deal will create a media behemoth with the power to raise prices in film and television.

The lawsuit filed in Oakland federal court threatens to derail Paramount CEO David Ellison’s bid to transform his company into a major rival of Netflix and Disney.

But the states argued the deal would harm theatres and television distributors, and that harm would trickle down to hurt consumers and workers.

“After this merger, for every dollar generated by wide-release theatrical films and basic cable channels in this country, the combined company will pocket more than a quarter,” the states said in the lawsuit, adding, “This merger, in short, would create a media behemoth.”

The proposed deal is worth $US110 billion ($A158 billion).

Paramount said the lawsuit distorts settled antitrust law and is based on a misrepresentation of competition in the entertainment industry.

Critics of the deal have said Paramount’s political connections smoothed the path to clearance in June from the US Department of Justice. Paramount CEO David Ellison’s father, billionaire Oracle co-founder Larry Ellison, has cultivated ties with Republican President Donald Trump.

If allowed to move forward with the deal, Paramount would control 27 per cent of the distribution market for films that appear on screens across America, 30 per cent of blockbuster film distribution and 27 per cent of the market for basic cable channels, the states said.

Hollywood workers have slammed the deal, fearing it would hurt jobs. Theatre owners opposed it, worrying it would result in fewer films.

Paramount and Warner Bros compete for the best release dates and screens at thousands of movie theatres across the country, the states said. Without that competition, theatres and moviegoers could face higher prices, the states argued.

Similarly, pay TV distributors and their subscribers rely on competition between the two companies, which together would control major channels such as CNN, MTV, HGTV, Cartoon Network and Nickelodeon.

Paramount has said the deal will allow it to produce more, not less, after it cuts $US6 billion ($A8.6 billion) in redundant infrastructure, marketing and corporate jobs. Ellison has vowed that the combined film studios would release 30 movies a year.

The states called that commitment unenforceable, and said even if the company stuck to that promise, it would still be in a position to raise prices and decrease quality after the merger. They said the merger would ripple through the states’ economies, harming tens of thousands of writers, actors, film crews and others.

Paramount shares added slightly to the gains after the lawsuit was filed, and were up 2.9 per cent. Warner Bros shares rose 2.6 per cent after the news.

It will likely take months for a ruling on the states’ claims, causing a delay that could rack up hundreds of millions of dollars in costs for Paramount. The states have asked Paramount to delay closing the deal until the legal process concludes. Otherwise, the states said, they will seek an order keeping the deal from closing.

Paramount has committed to pay around $US650 million ($A936 million) in fees to Warner Bros. Discovery shareholders each quarter if the deal does not close before October. The company has said delays could force it to renegotiate the deal’s financing, cause uncertainty for its stock price, or even scuttle the transaction altogether.

Similar cases in recent years have taken an average of eight months for a judge to reach a determination, a Reuters review of recent federal merger cases found.