Bonta Cancels Paramount Meeting Over Leak Claims

California Attorney General Rob Bonta canceled a scheduled meeting with Paramount representatives that was intended to begin settlement talks over the state's lawsuit seeking to block Paramount's proposed $110 billion acquisition of Warner Bros Discovery. According to The New York Times, as reported by both TimesLIVE and Reuters, Bonta accused Paramount of leaking details from a previous meeting held on Friday, acting in bad faith.

Not only did Paramount leak the alleged substance of settlement discussions, but they misrepresented these discussions, demonstrating a lack of good faith. As soon as Paramount stops playing games and engages sincerely, my office is happy to meet again.
- Rob Bonta

The state's lawsuit alleges that the merger would lessen competition in film distribution and cable television, harming theaters, pay TV distributors, and potentially raising prices for consumers while making wages less competitive for workers. The Writers Guild of America East and West have also filed a separate lawsuit to block the deal, arguing it would create the largest buyer of film and television writing in the U.S., reducing competition and negatively impacting writers' compensation.

Paramount has defended the merger, stating it will allow for more production rather than less. CEO David Ellison has vowed that the combined studios would release 30 movies a year. However, critics point to previous mergers, such as Disney's acquisition of Fox and the Warner Bros-Discovery tie-up, which resulted in fewer wide-release films, layoffs, and project cancellations.

The delay in the Paramount-Warner Bros merger has also raised concerns about a potential chill on other media M&A activity. Industry insiders suggest that increased scrutiny by state regulators and lengthy legal processes could put additional deals on hold. According to CNBC, this regulatory environment may lead companies to focus more on partnerships, bundles, and content creator deals rather than large-scale mergers.

The Los Angeles Times reports that Bonta is leading a coalition of 12 states in the antitrust lawsuit against Paramount. The attorney general has called for significant concessions from Paramount, including selling cable television channels like TBS, TNT, and CNN to resolve the court battle. However, Ellison has been resistant due to the need for steady cash flow from these channels to finance the deal's $80 billion debt.

Bonta expressed frustration with Paramount after weeks of drama, including threats to leave California and accusations against actor Mark Ruffalo. He emphasized that Paramount reached out for settlement discussions but violated confidentiality by leaking lies to the press. The Wall Street Journal reported that Bonta planned to ask Paramount to keep Warner Bros and Paramount Pictures as separate units.

Paramount declined to comment, denying it was the source of the leaks. Despite this, Bonta's office has won significant court victories, including a temporary restraining order blocking the deal and setting a March 2 trial date. Bonta expressed openness to finding a truce if Paramount engages in good faith.

Warner Bros Discovery is feeling whiplash from the delay in the merger process. The company had planned significant changes, including splitting into separate entities for streaming and film units and global linear TV networks. However, these plans have been put on hold due to regulatory challenges. According to CNBC, Warner Bros Discovery CEO David Zaslav has stated that executives are trying to maximize the company's value while awaiting regulatory approval.

The proposed $110 billion sale price includes a provision for a 'ticking fee' if regulatory approval is delayed beyond September. This fee would increase the deal's value but also raises questions about what Paramount would be acquiring after an extended delay and what happens to Warner Bros Discovery if the deal falls through.

Despite the uncertainty, Warner Bros Discovery has some flexibility under interim operating covenants laid out in the merger agreement. The company can run itself as an independent entity while the deal moves toward closing. This includes inking licensing deals and other types of agreements or partnerships with media peers. According to CNBC, content creators are still pitching themselves to Warner Bros Discovery, and licensing out content has proven lucrative.

The longer the delay in combining streaming services, the more lead time competitors may have to outpace them individually. Analysts suggest that if the deal falls through, both streamers would be saddled with standalone platforms unlikely to compete long-term. Warner Bros Discovery's recent earnings report showed record-breaking revenue growth for its streaming segment but also highlighted challenges in linear TV and film studios.

Speculation has begun about what assets David Ellison would be willing to lose to preserve the merger. According to CNBC, potential assets that could attract bidders include New Line Cinema, TNT, TBS, or lifestyle networks like HGTV. The regulatory environment remains a significant factor in all dealmaking.