Rob Bonta's High-Stakes Legal Showdown with Paramount Escalates

California Attorney General Rob Bonta has expressed a conditional willingness to re-engage in settlement talks with Paramount regarding its proposed acquisition of Warner Bros. Discovery. The crucial condition set by Bonta is that Paramount must "put a lid on their lying leaks" and ensure sincerity and good faith in discussions. This comes after Bonta canceled a previously scheduled meeting due to news reports emerging about the private discussions, which he characterized as a violation of confidentiality and "amateur hour."

Paramount, which denies being the source of the leaks, had initiated the request for a meeting to resolve the 12-state antitrust case that has stalled the merger until at least next spring. The company stated its hope to continue good-faith discussions, mentioning "structural remedies" it is open to discussing, though it has not elaborated on what these entail. Paramount has also pledged to produce at least 30 films annually for the next three years, a "behavioral" commitment that Bonta has dismissed as unenforceable, emphasizing that any resolution must include "robust structural remedies" across basic cable, wide-release theatrical, and blockbuster film distribution markets.

The legal landscape for Bonta's antitrust suit, filed in July, has recently seen a shift. While Bonta had successfully stalled the deal, securing an agreement from states to block the merger through trial, his winning streak faced a setback when major cinema chains, including Cinemark, AMC, and Regal, joined in backing the merger. This defection prompted Cinema United, an exhibitors trade group and a former staunch Bonta ally, to advocate for a settlement. Experts like William Kovacic, a professor of antitrust law, suggest that the plaintiffs' case is weakened when significant customers express support for the deal, as their testimony is typically vital to proving illegality.

Paramount has deployed various tactics, including op-eds and threats to leave California, to exert political pressure on Bonta, but these have largely been dismissed. However, the cinema chains' support is different as it directly impacts the viability of Bonta's case at trial, particularly concerning the allegations of excessive power in markets involving theater chains. With consolidated studios potentially putting theaters in a weaker negotiating position over windows and revenue splits, the support from these major chains challenges the narrative of harm.

Adam Aron, CEO of AMC and a board member of Cinema United, has consistently argued that the merger would benefit theaters by strengthening the combined studio, leading to more movies. Following Aron's stance, Regal and Cinemark have also fallen in line. Cinemark CEO Sean Gamble noted that Paramount's David Ellison had made satisfactory commitments, including a written pledge to release 30 films a year for three years with a 45-day theatrical window, which Paramount plans to offer to other exhibitors as well.

Despite these developments, not all issues are resolved. Cinema United, while pushing for a settlement, still calls for "enforceable safeguards" on film access and maintains concerns about marketing budgets and rental terms. Furthermore, Bonta's case may still hold weight, as internal documents subpoenaed from Regal and AMC could reveal differing perspectives from what is publicly stated. Legal experts, such as Abiel Garcia and Harry First, point out that customers might face pressure to stay on good terms with suppliers, and their support for a merger could be influenced by incentives or fear of retaliation, which itself can be evidence of excessive market power. Bonta may also find support from smaller circuits, who could have more to fear from a consolidated studio. The Attorney General remains resilient, asserting that the case could conclude swiftly if Paramount were to provide "robust structural remedies," otherwise, it will proceed to trial, by which time Paramount will have incurred substantial "ticking fees" to Warner Bros. Discovery shareholders.