California’s Paramount Settlement Doesn’t Stop at Antitrust

P aramount’s $110 billion merger with Warner Bros. won approval from the Department of Justice as well as regulators in dozens of countries, including the European Commission and the U.K.’s Competition and Markets Authority. Those reviews asked the question that merger law always asks: Would the deal harm competition and consumers? The resounding answer was “No.”

The only major public challenge to the deal came from twelve state attorneys general led by California Attorney General Rob Bonta. Their settlement, which a federal judge approved on Wednesday, partly addresses competition questions. But it reaches far beyond antitrust to enact industrial policy: dictating where Paramount must film its movies, earmarking penalty money for union benefit funds, and creating a board to guard “editorial independence” at CNN and CBS News that raises its own First Amendment concerns. More troubling than any effects on competition is what the decree does to antitrust itself: It uses competition law to enact industrial policy goals that have little to do with competition.

All summer, Bonta insisted that any settlement “would have to include structural remedies,” meaning asset sales, and he dismissed Paramount’s pledge to release 30 films a year as an “old, stale promise.” He made this case to the public on numerous podcasts, on cable news, and on his Substack. Ironically, the stale promise made it into the settlement and the structural remedies didn’t, absent a breach by Paramount.

Otherwise, the decree relies on behavior rules, such as requiring Paramount and Warner to negotiate with cable providers separately. Lina Khan, the former Federal Trade Commission chair, said the merger “seems facially illegal” and argued that behavior remedies “routinely fail.” Whether those remedies address competition is at least an antitrust argument. Much of the rest of the settlement isn’t about competition at all.

Under Bonta’s conception of antitrust, none of the settlement’s other terms is beyond the law’s scope. For him, antitrust law exists to keep prices fair and to “make sure that jobs are not cut, wages aren’t reduced.” If that is antitrust, then a settlement that keeps production at home and funds union benefits is not contradictory. But he sued under the Clayton Antitrust Act, which is understood to be strictly about competition. A settlement, of course, can give the states more than a judge would order after trial.

Yet there is a limit. In Firefighters v. Cleveland, the Supreme Court held that even a consent decree must serve the law behind the lawsuit, and the Clayton Act’s purpose is plain: It bars mergers whose effect “may be substantially to lessen competition.” The labor market may be part of that, but guaranteeing jobs and funding union benefits is a different concern.

Before she approved the settlement, Judge Araceli Martínez-Olguín asked whether the settlement actually “addresses the Clayton Act concerns.” By that measure, the cable and film rules fared the best by matching an antitrust remedy to the competitive harms the states alleged. This division targets the leverage the states say distributors would lose once Warner stops being a rival. The film quota is clumsier: It fixes how many movies come out, not when, or how good they are.

So the decree piles on rules: three years of theater terms no worse than before the merger, big-budget minimums, and a monitor to check the math. Whatever their effectiveness, at least they aim at competition, but only in a static sense: They preserve the same kind of big-budget theatrical films rather than recognizing that competition may come from different kinds of films, new business models, or other forms of entertainment.

The rest of the settlement drifts away from competition, meaning lower prices, greater output, and more innovation. Instead, it pursues other policy goals: keeping production and jobs at home, funding union benefits, and protecting newsroom independence. Those may be worthy ends, but they are not what the Clayton Act is for.

The production terms make the distinction clear. Paramount must spend $1.5 billion more on U.S. production over five years, and the required domestic share rises if Congress passes a major film tax credit and rises again if California or New York adds one. But where a movie is made says little about whether markets remain competitive: A film made in Toronto still competes for the same screens as one made in Burbank. Tying merger relief to the location of subsidized production performs industrial policy, rather than a remedy for reduced competition.

Then there is the money. The decree directs $47.5 million over five years to job-training programs and community arts groups, which Bonta pitched as helping workers displaced by the merger, though the decree doesn’t limit it to them. But the decree goes further in penalties for Paramount missing the quota. For every film Paramount falls short, it owes $30 million, even if it releases the missing movie later. Half goes to health and retirement trusts for the Writers Guild, the Directors Guild, the Teamsters, IATSE, and other production unions the states select. Another $12 million goes to an industry charity, and the last $3 million funds state antitrust enforcement. Instead of ensuring competition, this looks far more like the states picking their favorite interest groups.

The last provision isn’t about economics at all and rather attempts to have antitrust protect their vision of journalism. Bonta’s own antitrust lead even told the judge that concerns about “the state of the news media” lie “outside antitrust.” Yet the decree has Paramount create a board to resolve newsroom disputes over “alleged reporting bias” at CNN and CBS News. Paramount may appoint the board, but refereeing reporting bias is a long way from box-office terms, cable fees, and the other economic questions normally considered during a merger review.

The problem is that these provisions move beyond remedying an antitrust violation and into legislating how the merged company should operate. Antitrust, Herbert Hovenkamp, the dean of antitrust scholars, writes, targets practices that raise prices, limit output, or restrain innovation, and a remedy must undo those effects. That requires a causal link between the violation and the fix. A court, in his words, has no “quasi-legislative power” to redesign how a firm operates. Where Paramount shoots its films, which union funds collect its penalties, and who settles bias disputes at CNN have no such link to prices, output, or innovation in movie theaters or cable. That is legislating, not remedying.

Bonta may be right that a promise to make a certain number of movies cannot fix an antitrust problem by itself. But the settlement piles on so many other goals that competition risks becoming an afterthought entirely. And those goals already have homes: subsidies and jobs with legislatures, worker benefits with employers and their employees, newsrooms with editors.

To pursue these goals through antitrust turns enforcement into a substitute for legislation. And with the judge’s signature, the next attorney general can sue on competition and settle on everything else. An antitrust remedy should focus on restoring competition, not try to administer a company.

A lawsuit about competition in movie theaters has become a five-year plan for where movies get made.