Why California Was Willing to Cave to Paramount

Eight Zoom boxes, each occupied by lawyers for Paramount or California, flanked the judge on the screen. A month ago, they were locked in a bruising legal showdown, with both sides looking for an edge in the lawsuit challenging the creation of Hollywood’s next entertainment and media colossus. This time, they shared the same goal: convincing the court that the settlement is fair and should be accepted.

Lawyers for Paramount and Warner Bros. Discovery had little to say during Thursday’s hearing. Paula Blizzard, the lead attorney for California Attorney General Rob Bonta, did most of the talking. She ended the proceeding with an impassioned defense of the widely-maligned deal.

Nodding to that criticism, Blizzard placed the decision to settle squarely on theater owners that ultimately supported the megamerger and are thought to be protected under annual film quotas guaranteed in the settlement.

“Those are the voices that carry weight because those are the people we’re trying to protect,” she said, adding that there were constraints around addressing concerns of political bias in media due to the nature of the claims.

At the same time, Blizzard dismissed claims that the primary driver of the settlement was Paramount’s threat to leave California if the case wasn’t resolved by the start of next month.

“Some voices carry less weight,” she said. “Those are the ones who are threatening and blackmailing us that they’d pull out of California that doesn’t affect the antitrust case.”

The remark was directed not so much at U.S. District Judge Araceli Martinez-Olguin but rather the roughly 650 onlookers in the virtual gallery, many of whom were likely workers across Hollywood anticipating major shockwaves in the industry once the deal closes. If they were upset coming into the hearing, they were probably further irked to hear Blizzard say that the states challenging the acquisition are eager to go to trial if the court rejects the settlement, an unlikely outcome.

The hearing provided a glimpse into California’s thinking in its decision to settle the case when its leverage appeared the highest, as well as the intense political furor that has spun off from it. It was pressed on Paramount-friendly terms, like the value of a potential divestiture of Miramax — a relatively small production and distribution company owned by the studio — and a force majeure clause allowing the company an out on obligations outlined in the deal.

Outside the courtroom, Paramount on Thursday said that it plans raise an estimated $44.4 billion of additional secured debt on top of a proposed $7.5 billion loan to fund the largest leveraged buyout in history. There’s tension at the core of the settlement: The combined company is taking on more than $80 billion of debt while promising continued investment in content.

It remains to be seen if that’s possible. By Paramount’s thinking, the immense scale brought by marrying Warner Bros. will leave the studio with more cash to pay down debt and fund operations. In 2026, it expects to generate roughly $69 billion of revenue, $18 billion in profit from its core business and over $10 billion in free cash flow while spending more than $30 billion in content per year, according to a securities filing. The studio is positioned to be a top player in streaming, with the merger putting it on a path to achieve more than 240 million subscribers by 2030, according to a Morgan Stanley report, which noted that the figure would put it in the second or third spot among streamers behind Netflix.

Still, paying down interest will be an enormous strain on the studio. Morgan Stanley estimated roughly $6.4 billion of interest expenses in 2027. Even if the company reaches the $10 billion in free cash flow, questions remain of how much of the principal it can pay. It has to keep feeding the debt every year. That’s not to mention Warner Bros.’ existing debt that Paramount is taking on with the deal, some of which is already expensive. Here, refinancing on friendlier terms, which will only be possible if the studio appears successful, will be key.

Leading up to the deal’s anticipated close, expect a lot of chatter on big names who want to get in on the equity or debt sides of the transaction. Make no mistake, CEO David Ellison and his father, Oracle founder Larry Ellison, have no shortage of billionaire friends to tap on this front, Elon Musk among them.

At the same time, Paramount’s finances can’t be the reason the court rejects the settlement. Its primary concern is whether the deal is fair and was reached after arm’s length negotiations between the parties.

During Thursday’s hearing, Martinez-Olguin expressed concerns of whether the agreement addresses the antitrust issues at the core of the lawsuit, particularly about a term requiring separate negotiations for the distribution of basic cable channels.

The intent of the provision, Blizzard said, is to keep Paramount from “consolidating all of its market power into one central negotiation where they say ‘take all 50 channels at prices we say or we black out all 50.'”

Some industry insiders, however, are concerned that the consent decree doesn’t account for the protection of broadcast networks or premium streaming. Paramount could still hypothetically force distributors to take its full bundle for low-value channels if they want a deal with CBS for NFL rights.

The agreement’s shortcomings as it relates to a potential divestiture of Miramax in the event that Paramount doesn’t meet annual film quotas have also been widely shared. Notably, the deal doesn’t contemplate the forced sale of blue chip assets like New Line Cinema or DC Studios.

In one of two brief speaking appearances during the hearing, Paramount lawyer Joshua Holian played up the value of Miramax, citing Scary Movie‘s nine-figure haul at the box office this year. The film is company’s only release in 2026.

Taking a step back, Blizzard described Paramount acquiring Warner Bros. as the lesser of two evils, perhaps in a nod to when Netflix was positioned to come out on top of the bidding war.

The David Zaslav-led studio “originally said it would sell assets,” Blizzard said. “If we block this, there would be another buyer. Is that the best solution for the markets to preserve competition or is it to impose a five-year consent decree that preserves competition and also allows the markets to move forward.”

In a coup for Ellison earlier this year, the country’s three largest movie theater companies backed the merger, a move they likely wouldn’t have made in support of Netflix when it was poised to acquire Warner Bros. That proved to be among the deciding factors in the states’ decision to settle.

Separately, several groups on Thursday threw their hats into the ring to stop or delay the merger, including the Freedom of the Press Foundation, Future Film Coalition and International Documentary Association.

Some of the unlikely names joining the fight: the League of United Latin American Citizens and reverends from the National Baptist Contention and the Southern Missionary Baptist Church in Los Angeles. Their concerns revolve around minority representation in Hollywood and the diversity of news programming.

The court allowed friend-of-the-court briefs to be filed over the adequacy of the consent decree.

Asked about the filings questioning the settlement, Bonta told a Politico reporter on Thursday, “I don’t share them.”