California’s Democrat Attorney General Rob Bonta has filed a lawsuit with 11 other state attorneys general to block the pending merger of Paramount-Skydance and Warner Brothers Discovery. Bonta either misunderstands or is ignoring the economics of the proposed deal, punishing his least favorite media company in the process.
The complaint filed in the Federal District Court for the Northern District of California alleges that this deal would result in unacceptable consolidation of film distribution and cable:
The merger combines two of the nation’s five major film distributors, leaving only four to control over 85 percent of all wide release theatrical films in the United States. It combines two of the five major owners of basic cable channels, leaving only two (the combined company and Disney) to control 59 percent of all basic cable in the United States.
This sounds serious at first glance because 85% is a big, scary number. But thinking about it for more than one second, 85 divided by 4 is 21.5%. On average, each distributor would control about one-fifth of the capital-intensive movie market, which has always been dominated by a small number of studios in fierce competition with one another. Meanwhile, it is cheaper and easier than ever for anyone to make content that competes with the movies for eyeballs.
Even more absurd is the charge that two cable conglomerates would control 59% of the market. Again, this breaks down to less than 30% apiece, but cable should not be treated as its own closed market. Cable companies compete with each other and other technologies, especially streaming. In fact, cable is bleeding subscribers as consumers adopt alternatives. Bonta is probably unaware, but a shrinking customer base is a market signal that there are too many providers. Consolidation should follow without government lawyers getting in the way.
Speaking of streaming, the medium that is picking up cord-cutters in droves is also a highly competitive market where Paramount and WBD both play. In this case, Paramount+ currently ranks sixth in market share while HBO Max ranks third. Combined they would tie Prime Video for first place at 22%, barely edging out second-place Netflix.
Except, this measurement of market share treats Hulu and Disney separately when they share a parent company. In reality, Paramount-WBD would tie Amazon for second place behind Disney’s current 23% position. Once again, the market would go from having three players with over 20% to four. Streaming also has a case for consolidation, which is the opposite of cable’s: the market is growing, but does anyone think we suffer from a lack of streaming services? For a middle class household to afford to access all this content, some consolidation is necessary. To truly compete with the big three – Disney, Amazon, and Netflix – Paramount and WBD need to join forces or get swallowed up individually. This is very far from a monopoly in any of these markets.
Of course, even when market consolidation occurs, monopolies rarely last for very long. Unless protected by government mandate, the high prices enabled by market consolidation creates an incentive to develop new ways of getting products to consumers at lower cost. The higher the price, the more competitors stand to profit by charging slightly less or improving quality at the same price. This is exactly what cable did to the mid-century network TV triopoly and what streaming is now doing to local cable monopolies.
Most importantly, WBD is the property of its shareholders. They should have the right to dispose of their property as they see fit. Bonta’s lawsuit is an attempt to tell the shareholders that they are not allowed to sell their property when they want to because some judge knows better.
Clearly there is no case for the government to stop this merger from proceeding. So why are Bonta and the other Democrat AGs trying to stop this?
It might have to do with who is involved.
Paramount’s Chairman and CEO is David Ellison, a major Republican donor. He has been eager to fund movies that portray the U.S. Military in a favorable light, like Top Gun: Maverick. And he has used his purchasing power to root out left-wing bias with CBS News. Perhaps Mr. Bonta is really concerned with how he will be covered by CNN if Paramount acquires that too. Perhaps the real concern is not a monopoly that they cannot prove exists but rather finding a way to use the power of the state to punish a free press.
Perhaps, with the sixth-highest violent crime rate in the nation, the attorney general of California should have more urgent priorities. Instead he seems focused on punishing media companies that don’t give him favorable coverage.
He should be laughed out of court.
