Paramount's settlement with California and a 12-state coalition splits the $81bn Paramount-Warner Bros Discovery giant into two rivals that share a parking lot.
Paramount settled with California and 12 states by agreeing to run the merged Warner Bros Discovery giant as two rival studios on one lot. A painted line, three soccer referees and weekly streaming price cuts will keep the two halves honest. The referees have already decided to merge.
The chicken taco at the Burbank studio commissary now has two prices. It costs $9 at the left register and $8.75 at the right one. Same taco, same cook, same tray. The cook wears two name badges. Ladies and gentlemen, competition is back in Hollywood.
Paramount closed out its fight with California and a 12-state coalition on Monday, clearing the way for its $81bn merger with Warner Bros Discovery. The states had sued because, in their words, combining two of the last five legacy studios would "extinguish competition." Paramount heard that and did what disruptors do. It insourced the competition.
Under the settlement, the merged company will operate as two rival studios. One is called Paramount. The other is called Warner Bros. They will bid against each other for scripts, actors and streaming rights while sharing one CEO, one balance sheet and one very large lot.
Regular readers know we were early on this one. When Paramount handed the attorneys general a writers' room to get talks moving, I called it the boldest media concession since somebody put ads on the ad-free tier. This is bigger. This is a company deciding it is its own most dangerous rival.
Competition as a service
Paramount's chief competition officer, Brayden Kowalcek, walked me through the model from a golf cart. "Legacy antitrust says a market needs two companies," he said. "We say a market needs two mindsets. Our Warner side is going to disrupt our Paramount side so hard that nobody will remember who owns the popcorn machine."
The mechanics are clean. A fresh yellow line now runs down the centre of the main lot. Executives park on one side or the other and are forbidden from lunching across it without a chaperone. The chaperones are three retired referees from a regional soccer league, hired at the states' request to whistle any "collusive behaviour."
"We are not one company pretending to be two. We are two companies that happen to be one company. There is a difference, and it is worth $81bn." - Brayden Kowalcek, Paramount
Streaming gets the same treatment. HBO Max and Paramount+ stay separate apps. Every Saturday at midnight, each app must undercut the other by at least a dollar. Paramount calls this "Price War Saturdays." By my math the two services reach zero dollars in about three weeks, which Kowalcek described as "the ultimate consumer win."
The theatrical side is where the states really flexed. Each half of the company must release at least three films a year that the other half has publicly trashed. The trashing will be delivered by the same publicity department, reading from two different scripts, in two different voices.
Sacramento takes the W
The California attorney general's office announced the deal Monday and framed it as a win for moviegoers. A spokesperson, Deshawn Ferreira-Holt, told SnarkWire the states got everything they asked for. "We demanded competition," he said. "There is now a line painted on the ground. Anyone who steps over it gets a yellow card. That is more enforcement than the Justice Department managed in June."
He is right, and the market agrees. Paramount's share price did what share prices do when a company promises to fight itself for market share. It moved. I will not say which direction, because direction is a legacy metric.
Consumer advocates, predictably, are stuck in the two-company mental model. Marisol Deng of the Coalition for Actually Having Options called the settlement "one company wearing two hats and billing us for both hats." She added that the referees report to the CEO, who is also the person they are supposed to be refereeing.
That is a fair point from a 20th-century perspective. From a 22nd-century perspective, it is a feature. Who understands a company's conflicts of interest better than the company?
Early results
The first cross-lot bidding war happened Saturday, three days before the ink dried. Warner Bros offered a screenwriter a deal for a heist film. Paramount immediately countered with a better deal for the same heist film. The writer accepted both. Both offers were signed by the same lawyer, who charged the company twice.
Kowalcek called it proof of concept. "We just paid ourselves a premium to keep a script we already owned," he said. "Show me another studio doing that. You can't, because there are only four left, and two of them are us."
The taco cook, meanwhile, has started charging himself for lunch. He eats on the Warner side and pays on the Paramount side, and says the 25-cent spread is the best return he has seen all year.
One final note from the lot. The three referees announced late Saturday that they intend to merge into a single referee to "reduce whistle overhead." Paramount has not yet said whether it will sue.
Footnotes.
