Is ‘Obsession’ Technically A Blockbuster? Lawyers For Paramount, State AGs Spar At Court Hearing On WBD Merger

Obsession and F1 were front and center as lawyers representing Paramount on one side, and a dozen sate Attorneys General on the other, clashed at a Friday hearing over what determines a blockbuster and how quickly the AGs’ antitrust challenge to Paramount’s merger with Warner Bros Discovery should be moved along.

Jeffrey Kessler on behalf of Paramount requested Judge Araceli Martínez-Olguín of the Northern District of California dispense with a temporary restraining order and promised he would not close the deal if she promised to rule on a preliminary injunction by early September. That could potentially avert “very severe harm” to Paramount from a so-called ticking fee – addition payouts by Paramount to WBD shareholders staring October 1 if the deal has not been finalized.

The AGs attorney James Weingarten called it “unprecedented and unfair” for Par to propose a timeline “in order to help them save a payment that they agreed to make.”

The AGs led by California’s Rob Bonta are seeking a TRO or preliminary injunction. Judge Martínez-Olguín said at the close of the hearing in an Oakland County courtroom that she would issue a written ruling before July 22. That’s the date of an anticipated greenlight by EU antitrust authorities and the earliest the merger could theoretically close.

The AGs’ suit focused on three markets – blockbuster films, wide release movies, and cable networks — where it claims the combined company’s large share would undermine competition and harm consumers, making the deal illegal under antitrust law.

The AGs argue a blockbuster is something only the five biggest Hollywood studios have the financial chops to produce, market and distribute on a regular basis. Going from five to four majors would clearly disadvantage theater owners, who depend on those films, and ultimately lead to higher ticket prices for consumers, Weingarten said.

Kessler reiterated Paramount’s argument that the entertainment industry is changing and it makes no sense to look just at the share of the big five. He noted the massive box office for YouTube star Curry Barker’s Obsession, made for $750,000, which has grossed close to $430 million worldwide, calling that a “real world fact” and “undisputed economic evidence” that times have changed.

Weingarten dismissed the Obsession argument as irrelevant. “I’m not saying no one can have a super hit or a breakout, but there are five majors that make blockbusters consistently.”

Obsession was released by Focus Features, the independent film arm of Universal Studios.

Paramount also notes competition from A24, Neon and streamers who have entered the theatrical space. “We had Amazon do F1 last year, which was a dramatic success,” Kessler said, before correcting himself to note that it was an Apple film. “So Apple does not exist as a competitor even though they have shown in the real world that they have done that, and will probably continue to do that?” he asked.

Weingarten gleefully shot back that Apple had indeed made a “successful big movie, but it was distributed by Warner Bros.”

“Apple makes cell phones, not movies,” he said.

Amazon has committed to release 15 films a year theatrically, Kessler noted.

On the ticking fee, the Ellisons, Paramount’s controlling shareholders, agreed to pay 25 cents cash per share per quarter (about $7.2 million a day, or $650 million every three months) for each day the merger is not closed starting October 1. It was a sweetener to convince WBD’s board of directors to accept their $110 billion offer.

But that’s no reason “to short circuit the process in an unprecedented way,” Weingarten insisted. “You need to hear from competitors and customers. Those are the people tell the court what really goes on in the marketplace, so we need a reasonable schedule” in keeping with other cases of magnitude. He noted that Paramount itself has called the merger “industry transforming.”

“I don’t know when in August we are supposed to talk to those people… The orderly course is a TRO. Having two experts in a food fight in a month will just waste everybody’s time.”

Kessler shot back that the lawsuit led by California state Attorney General Rob Bonta could have been filed “a month ago, or six weeks ago,” so it’s the plaintiffs who “created the emergency.”