UK watchdog CMA to investigate Paramount-WBD merger, Netflix under fire

UK antitrust watchdog the Competition and Markets Authority (CMA) has confirmed it will launch an inquiry into the proposed US$110bn merger of Paramount Skydance (PSKY) and Warner Bros Discovery (WBD), while the David Ellison-led company has separately claimed Netflix is trying to “poison” US regulators against the transaction.

David Ellison

On June 10, the CMA will begin “phase 1” of its inquiry, which typically includes a review of whether a deal is likely to cause a substantial reduction in competition in the market. Before August 7, the CMA will rule on whether it approves the deal or whether there is a need for a “phase 2.”

The second phase, which can take around 24 weeks, would include an in-depth investigation into the potential impact of a particular transaction, after which a deal may be approved, approved with remedies or blocked.

While the CMA has not specifically outlined the grounds on which it is assessing the PSKY-WBD merger, the investigation could look at how merging SVoDs HBO Max and Paramount+ might impact streaming competition; how the combination of the companies’ channels and streamers could change the marketplace; and market concentration concerns related to theatrical and studios.

While it is not currently expected that the deal would ultimately be blocked by the CMA, an extension could potentially delay the close of the deal, which values WBD at US$31 per share.

PSKY has said it expects the merger to close by the end of the third quarter (September 30). One of the sweeteners added to the WBD deal was that PSKY would pay an additional 25 cent “ticking fee” for every quarter if the deal has not closed by September 30. That is the equivalent to around US$7m per day.

In addition to the CMA, the European Commission is also reviewing the merger, with the organisation setting a July 7 deadline to arrive at a decision.

Several US states including California and New York are also preparing a lawsuit to block the deal.

PSKY signed its definitive agreement with David Zaslav-led WBD in late February after Netflix, which previously had made an agreement to buy WBD’s studio and streaming businesses, declined to raise its offer.

Elsewhere, PSKY has claimed Netflix is attempting to undermine its efforts to get its WBD deal past regulators.

In a letter sent to the Department of Justice in which it responds to concerns from crew union the Teamsters, PSKY’s chief legal officer Makan Delrahim claims Netflix has been trying to turn regulators against the deal, in part because it is concerned about the competitive strength of a combined PSKY-WBD.

“Indeed, Netflix’s panic-level response and scorched-earth campaign to try and poison regulators and other stakeholders against the transaction shows just how seriously Netflix takes Paramount as a scaled competitor,” wrote Delrahim.

Netflix has described the accusation as “absurd.”