The attempt to block the Paramount–Warner merger is self-defeating.
Antitrust law exists to protect consumers from the powerful. But consumers don't need to be protected from an industry that they voluntarily abandoned.
P aramount Skydance’s acquisition of Warner Bros. has been cleared by regulators in more than 65 jurisdictions, including the U.S. Justice Department and the European Commission. Yet the deal is headed for trial because a dozen Democratic state attorneys general have sued to block it. Their theory is that combining two of Hollywood’s five major studios will hurt consumers. It will do so, as New York’s Letitia James put it, by harming “the families who buy tickets at the box office.” But the truth is that Hollywood and those families separated long ago, and blocking this merger won’t bring them back together.
The data are clear: We have largely stopped going to the movies. In 2002, Americans and Canadians bought about 1.6 billion tickets, or roughly five per person. Last year, 769 million tickets were sold in both countries combined. What’s more, a Pew survey found that just 53 percent of American adults had been to a theater in the past year, meaning nearly half the country has effectively given up on the theater entirely.
American disengagement with theaters wasn’t caused by studios getting too big or too few in number. It happened because the technological environment radically changed the profitability strategy of the industry.
For decades, the movie industry’s backbone was the mid-budget film. Studios would crank out dozens of $20-to-60 million films that turned a reliable profit at ordinary prices and moderate attendance. In 2024, less than a third of the 62 films released by the five major studios cost under $100 million to make.
Streaming has since devoured that middle-budget movie category. This was partly driven by the fact that streaming annihilated what was an already struggling home-video release market. With no back-end DVD revenue to pad a movie’s revenue stream, a movie studio now has to earn back its entire production and marketing costs during its theatrical run. But aggressively marketing a mid-tier budget film can easily double what a studio has at risk. That can be true for high-budget tentpole films too, but the extra money spent for a mid-budget film can’t reliably raise its audience ceiling in the same way a summer blockbuster does. When given the option to skip a marketing campaign for the movie theaters with these less expensive films directly for streaming, the economics forced the hands of the studios.
Given that studios and movie theaters split ticket revenue, a film that cost $200 million to make and another $100 million in marketing needs to gross close to $600 million just to break even. With fewer people going to the movies, and with everyone going less often, the path to profitability has relied on a market segmentation strategy. Theaters have found ways to get more money from those who still show. They’ve been able to do this with increased ticket prices, up-charges for premium screens or luxury seating, seat selection fees, and surcharges on opening nights. The increase in price might drive some consumers out of the market entirely, but that loss has largely been made up for as they mine deeper-pocketed customers.
Here is what the attorneys general miss: Hollywood didn’t make this pivot out of greed. Streaming took the reliable mid-tier that once filled seats year-round, and the studios fell back on the ground they could best defend, namely the expensive spectacle that is priced as a luxury. The high prices, coupled with the lack of mid-budget films in theaters, are the marks of an industry that is rationally reacting to market incentives.
That reframes the merger entirely. WB and Paramount aren’t combining from a position of strength that will allow them to dominate the market; they’re latching together because neither can survive the new landscape alone. The deal shows signs of with distress: Paramount will owe Warner Bros shareholders $650 million a quarter in fees if the merger is delayed past September 30, and it must pay a $7 billion penalty if it falls through. This is not a monopoly tightening its grip. Rather, it is two wounded giants regrouping.
This is why the lawsuit to block the merger is self-defeating. The lawyers point to fewer films reaching theaters as a potential harm, but theatrical output was already on the decline because streaming siphoned off the mid-budget films that once filled the schedule. Comparing today’s release count to the pre-streaming era compares two fundamentally different markets, and there’s no avenue to return to a pre-streaming era.
Moreover, the merging companies explicitly say their aim is more content, not less. They are making that case not only to regulators but to their investors, who are staking billions of dollars on this deal. And the logic of their claim holds. Only a studio large enough to absorb a nine-figure flop, like this summer’s Supergirl, can keep taking creative risks; a smaller one will necessarily retreat to the safest franchise bets and therefore make fewer films. The old rule that consolidation breeds caution belonged to a market where the mid-budget movies were reliably profitable. Blocking this merger doesn’t protect variety, but rather hastens its disappearance.
Antitrust law exists to protect consumers from the powerful. But consumers don’t need to be protected from an industry that they voluntarily abandoned. You cannot use a consumer-protection statute to reverse a choice consumers made years ago, and you cannot protect competition in an industry that is dismantling its own product. Blocking this merger won’t refill the theaters with attendees or mid-budget films, but it will lock in the worst effects of a retreat that is already all but complete.