Paramount Settles State Lawsuit, Clearing Path for $110 Billion WBD Deal

Paramount Skydance will pay $30 million per film if it breaks promises to boost U.S. production, under a settlement with state attorneys general that clears the way for its $110 billion merger with Warner Bros. Discovery to close within about two weeks.

California Attorney General Rob Bonta announced the terms Monday. He was quick to frame the agreement narrowly. "The settlement is not a vote of support for this merger," Bonta said at a press conference. "It's not a blessing of the broader merger. Broadly speaking, we believe further consolidation in markets that are central to American economic life doesn't serve the American economy, consumers, or competition well."

Shares of the company fell 3% following Bonta's press conference after rising earlier in the day.

The lawsuit, led by Bonta and filed by California and 11 other states in mid-July, had been set for trial in March and threatened to hold the deal in limbo through mid-2027. In July, Paramount agreed to delay the merger until June 2027 while the legal challenge played out. That delay carried a steep price: a ticking fee of 25 cents per share per quarter to Warner Bros. Discovery shareholders after Sept. 30, worth an estimated $650 million per quarter in cash value.

Concrete Commitments

Under the settlement, Paramount will increase its domestic production, boosting U.S. production spending by at least $300 million annually. If a federal film credit is approved, the company must produce 20% of its films domestically in the first two years after closing and 30% in the three years after that. Bonta said roughly 5% of Paramount's current film production is domestic. Paramount must also keep both the Paramount and Warner Bros. production lots in Los Angeles.

The studio committed to releasing 30 films theatrically in its first two years and 32 in the following three years. At least 20 films in each of the first two years must get wide releases in more than 2,000 theaters, rising to at least 21 in the three years after. Four films must be independent productions, and Paramount must establish a fund dedicated to purchasing indie films. A person familiar with the matter, not authorized to speak publicly, told CNBC the company expects the majority of its theatrical films to be wide releases apart from some limited-run indies.

At least 20% of annual releases must be tentpoles with production budgets exceeding $50 million. Paramount expects to exceed that figure, the person said. The company had already agreed to a 45-day exclusive theatrical window and a 90-day window for subscription video on demand.

Penalties are severe. Beyond the $30 million per-film fine, with 90% going to workers, Paramount would be forced to divest Miramax if it misses the release goals, and to divest a suite of cable channels if it fails to negotiate cable packages separately, as required. The company will also pay $9.5 million annually for workforce training, career development in film and TV production, and community arts programs. Paramount must honor existing collective bargaining agreements and bargain in good faith with unions.

The settlement also mandates a new board for CBS News and CNN to ensure editorial independence — a response to critics alarmed by joint ownership of two major news organizations. "Together we'll select a trustee to monitor Paramount's compliance with these terms," Bonta said. "And if they ever fail to comply with the many critical terms we have in our settlement, we can go to court."

Writers Guild Settles Too

The Writers Guild of America, which sued over "specific harm to writers," settled its claim the same day. "We continue to believe the merger will cause damage to writers and the industry at large," the WGA wrote in a statement. "Now that the Attorneys General have settled with Paramount, however, as a nonprofit, the WGA must contend with the reality of forging ahead alone, with no backing from government enforcers, with a complex antitrust lawsuit that would cost millions of dollars to pursue through trial."

Paramount agreed to prohibit writer layoffs at CBS News' broadcast team for five years and to pay $17.5 million toward the guild's health fund plus attorney's fees.

Paramount CEO David Ellison, in a statement, thanked Bonta, fellow AGs, the WGA and Governor Newsom, saying: "Our shared aim was an outcome that best serves consumers, workers and — most importantly — the creative community so vital to the art of visual storytelling." Ellison told employees the company aims to close in about two weeks, according to a memo obtained by CNBC. The deal had already won approval from U.S. and international regulators.

Skeptics point to history. After Disney acquired 21st Century Fox in 2019, combined annual output never topped 16 films, versus Fox's 13-to-23 and Disney's 9-to-13 before the deal, according to Rentrak data. No studio has released more than 25 wide releases in a single year in the past 25 years. Ellison has offered three-year contracts to cinema operators, and at least one exhibitor signed — securing the right to sue Paramount for monetary compensation if the 30-film promise goes unmet.

RedBird Capital, which invested $1.8 billion in the earlier Paramount-Skydance deal and is financing $43.6 billion of this merger alongside the Ellison family, defended the logic. "I think this type of consolidation and business planning is needed for Hollywood and for the content creation industries in a world where technology is disrupting everything," founder Gerry Cardinale told CNBC.