The Justice Department broke the law, and the remedy is getting what they want.
That was the verdict from Judge Casey Pitts in the merger settlement involving Hewlett Packard Enterprise and Juniper Networks, the first case that really put the pay-to-play corruption of Donald Trump’s antitrust enforcement in full view. A law called the Tunney Act was written to prevent merger settlements that are the product of backroom deals, by empowering judges to block those settlements out of respect for the public interest.
Judge Pitts indeed found that the Justice Department violated the Tunney Act. Hewlett Packard Enterprise hired well-connected lobbyists William Levi, Mike Davis, and Arthur Schwartz, and threatened the leaders of the Antitrust Division personally (“If you don’t approve this settlement, I will destroy you,” Davis reportedly told then-antitrust chief Gail Slater) in demanding their settlement. When they met resistance, the lobbyists went over their heads to senior DOJ leadership (including some meetings which DOJ failed to disclose, as per the law) and got the settlement approved, with some inadequate divestitures. Hewlett Packard even wrote the competitive impact statement, something the Justice Department is required to do in a merger settlement; DOJ didn’t meaningfully change what the company sent them. Those who resisted at the Antitrust Division were all eventually fired.
Yet Judge Pitts ultimately approved the merger settlement. While it would affirmatively concentrate market power, he helplessly concluded that DOJ could respond to any blockage of the settlement by dropping the case entirely and allowing the merger to go forward, and then the public wouldn’t get the benefit of the inadequate divestitures DOJ used to paper over their concierge service to lobbyists.
This essentially negates the Tunney Act as a meaningful check on the corruption of antitrust enforcement. Judge Pitts is saying that he must accept whatever the Justice Department spits out because the alternative will always be worse. At a time when the Justice Department is literally devising how to accelerate merger reviews, this is a rubber stamp for lobbyists selling endless concentration.
Judge Pitts did add, however, that the states, which initiated the Tunney Act challenge, could always file their own lawsuit against the merger.
That’s what’s happening in the lawsuit 12 state attorneys general, led by California’s Rob Bonta, have filed to block the merger between Paramount and Warner Bros. Discovery. We now have a trial date of March 2 next year, five months after the merger contract stipulation kicks in that will cost Paramount $7 million every day it doesn’t close. So having been forced to face judgment in an actual court, Paramount is turning to the court of public opinion, in a massive spin job to confuse observers and policymakers and pressure the AGs to settle.
The strategy has two parts. First, Paramount is arguing that the lawsuit is politically motivated to stop the takeover of CNN, even though anyone can read that the AG lawsuit doesn’t contain a single reference to it. Second, Paramount is whispering it would move out of California if Bonta doesn’t negotiate a settlement, a likely empty threat that even if carried out would show the very imposition of market power Paramount claims it doesn’t have.
These misinterpretations, half-truths, and intimidation schemes may take in clueless public officials—see California gubernatorial nominee Xavier Becerra saying the AGs should settle. But to give in to this pressure campaign would mirror Judge Pitts, conceding helplessness in the face of ongoing corruption. And Bonta has shown no indication that he would do this and extinguish the last hope against effective corporate control of government.
DAVID ELLISON’S OP-ED LAST WEEK in The New York Times rolled out part one of the strategy. There, the Paramount CEO and scion to mega-billionaire Larry Ellison claimed the merger controversy all comes down to cable news. “The issue is whether I can be trusted as a steward of Warner’s CNN,” he writes, going on to make vague statements about his politics and a commitment to “tell it straight down the middle.”
Put aside the ways in which Ellison’s existing news product, the Bari Weiss–run CBS News, is manifestly not playing it straight. But CNN has nothing to do with the merger challenge. The state AG case says that a combined Paramount–Warner Bros. merger would control a significant enough share of the market in wide-release films, blockbuster films, and basic cable television channels to be presumptively illegal in all three. As a result, the combined firm would obtain power to force more favorable deals for them on theater owners and cable companies, forcing those entities to raise prices on consumers.
That’s it. It’s a simple antitrust case that says nothing about control of the news media. It states that one company amassing power in key markets lessens competition and should be stopped.
But once Ellison floated his CNN take, leaks from Paramount framed imaginary settlement terms around that topic. There’s talk of an independent editorial oversight committee for CNN; Paramount’s chief legal officer Makan Delrahim even intimated in a public appearance that a possible sale of CNN was “on the table” to settle the deal, something that Paramount execs frantically walked back a day later. It’s hilarious that they had to do that, presumably to prevent Trump from throwing a fit since control of CNN really is what he wants; but again, none of these proposals have anything to do with what the AGs see as intolerable about the deal.
The goal here is to paint the AGs as unreasonable political zealots trying desperately to protect an unpopular liberal media, to discredit the case and suggest a hidden agenda. In reality, the AGs are attempting to mitigate severe harms to everyone who watches, distributes, or works on TV and movies.
The goal here is to paint the AGs as unreasonable political zealots trying desperately to protect an unpopular liberal media.
Part two of the strategy is the stick to the CNN carrot. “If I was governor, I wouldn’t want to lose Hollywood from the state. I wouldn’t want to lose a major company like Paramount to another state,” Delrahim said at the Politico conference, while simultaneously dismissing claims that Paramount was engaged in blackmail. I don’t know what else you would call it.
According to the Los Angeles Times, the Paramount board has approved a relocation to either Tennessee or Texas, though Ellison has told them his “preference” is to stay in California. You can imagine why: Practically every agent, manager, producer, above-the-line and below-the-line personnel lives in Los Angeles, where all the other studios and soundstages are located as well, even as some production has shifted elsewhere. The studio headquarters is where the deals are made, and if you move to a place with no dealmakers, you will be well behind the curve. This is a threat which, if carried out, would hobble Paramount significantly.
And they know that, because the threat is only designed to get skittish policymakers and entertainment industry employees to push for a settlement. Becerra characteristically took the bait immediately; there are reports that Gavin Newsom did the same, though he has issued non-denial denials. The Directors Guild of America and the union representing behind-the-scenes talent (the International Alliance of Theatrical Stage Employees, or IATSE) wrote to Bonta this week that they would support a settlement that keeps Paramount in Los Angeles and stipulates that Paramount and Warner Bros., as separate studios, commit to 30 films a year with a 45-day theatrical window, license content at the same rate, keep HBO as a pay TV channel, and maintain domestic production, among other things.
Not only are these unenforceable promises, and not only do they fail to address the bargaining harms of higher prices and lower quality, but we also have examples of such promises being broken, like the 2010 Ticketmaster settlement. But the timing of the DGA and IATSE dropping that request is clearly influenced by Paramount making noise about moving. They are trying to scare the professionals whose pleas to block the merger helped bolster the lawsuit, and produced a different one from the Writers Guild about the risks to industry worker pay with one fewer buyer for their services.
It flies in the face of Ellison’s claims that his merger would “save Hollywood” to threaten to destroy it. The threat shows that Paramount indeed has market power that it is willing to use.
The bottom line is that Paramount is worried about losing in court. They are engaging in a war to influence public opinion the same way that tech firms have done to try to stop impositions on their conduct by antitrust enforcers. These threats and promises and claims about partisanship are emerging out of fear rather than strength.
Bonta and his fellow AGs aren’t stupid. They know they can win this case and retain competition in an important U.S. industry. They know the threats are self-destructive and the promises are either unenforceable or beside the point. They know that the industry would be seriously damaged, maybe irreparably, by yet more increased consolidation. With Judge Pitts’s settlement in the Hewlett Packard case, they know that their only recourse to prevent this harm is a lawsuit.
They are unlikely to be swayed by PR fluff and gangster tactics, the way Trump’s Justice Department has been.
