By Fiona Scott Morton, Gene Kimmelman, and Norman Eisen
David Ellison is threatening to move Paramount Skydance out of California to bully state Attorney General Rob Bonta into ending his challenge of Paramount’s $111 billion purchase of Warner Bros. Discovery. Ellison has apparently told Los Angeles Mayor Karen Bass’s office and Attorney General Rob Bonta’s office that Paramount is “deadly serious” about its threat, and the company has let a trail of leaks suggest that preparations are under way with Tennessee, where Ellison’s father is moving Oracle’s headquarters.
Following this steady drumbeat, news reports suggest Bonta is now moving toward a settlement. But Ellison’s threat is empty, and the AG should call that out -- not give in to it. Let’s start with the illogic of the threat. Suppose Paramount wins the litigation. It then owns Warner Bros., whose studio occupies 142 acres of Burbank and more than two dozen soundstages. The combined company’s roughly 30,000 Southern California jobs are the ones Ellison told Sen. Adam Schiff and Rep. Laura Friedman, in writing, that he would preserve, with both studios operating. A legal win makes moving counterproductive.
Suppose Paramount loses. Warner Bros. stays independent, and it stays in California, along with its stages, its crews, and its talent. The only thing that can leave is Paramount itself, a company of about 17,600 employees worldwide whose securities filings still list 1515 Broadway in New York as its principal executive office. The result? A studio nominally headquartered in Tennessee that still has to make its movies and television shows with the crews, stages, and talent in California.
Either way, Paramount is sinking the cost of moving before it knows what businesses it owns and how best to combine and organize them — which makes expensive strategic mistakes inevitable.
Ellison told his executives that the ticking fee of $7 million a day is why Paramount must cut costs. But relocation costs money well before it saves any. Lease exits, severance, recruiting, and moving expenses must all be paid at the same time as the deal’s “ticking fee,” which starts October 1. The savings from leaving shrink on inspection, too. Ellison told his senior team the move could save some $500 million a year in taxes and other costs. But California apportions corporate income tax by where a company’s customers live, not where its executives have their offices, so the taxable income would not change unless the audience moves, too. The savings Paramount could reasonably expect come from incentives a new host state would offer. These are unlikely to make much of a dent in the merged company’s $79 billion debt.
Labor costs are also unlikely to fall as forecast. The talent, the writers’ rooms, the post-production houses, and the vendors will stay put, because California’s labor pool is the asset. Paramount’s own plan, a five-year strategy Ellison told executives his board has approved, keeps a creative presence in Hollywood for exactly that reason: its talent partners and vendors are there.
Paramount paid for a study that forecasts big harms to California if Paramount left the state. But it seems more likely the move would hurt Paramount, not California. A company that raises its own costs while leaving behind the most valuable labor in the industry does not threaten California; it threatens itself. Paramount shareholders should be gravely concerned. From California’s point of view, job losses will occur if Paramount moves, and job losses will occur if the merger goes through as the combined company cuts costs. Ellison’s corporate move eliminates any leverage he might have had.
Ellison has also asked the court to make the states and the Writers Guild post a $1.88 billion bond to cover its ticking fee. Paramount negotiated the fee, and its own investors agreed to fund it, but Paramount would now like California’s taxpayers to pay it instead. California taxpayers should not underwrite a company’s bet that it could merge without appropriate public oversight. Nor does the law require that; as court filings have pointed out, quite the opposite.
Of course, there is also the possibility that Ellison is planning to move Paramount to Tennessee regardless of how the lawsuit resolves. But a threat that applies regardless of what the California attorney general decides to do should not cause the AG to change his behavior. If Paramount is already leaving for Tennessee (or perhaps Texas), why would Bonta give concessions to a company that isn’t even Californian?
No company should be permitted to bully a state into abandoning its job of protecting consumers against increased market power. Ellison’s threats may be an indication that his corporation is afraid of the scrutiny a merger trial would bring. The Trump Justice Department closed its review in June without requiring a single divestiture, reportedly over the objections of the department’s career lawyers. This leaves the states as the last check on a transaction that appears to be a plain vanilla horizontal merger in a concentrated market that significantly lessens competition — much like the illegal merger between Penguin Random House and Simon & Schuster. California consumers and workers are well served by Bonta’s lawsuit — and would be betrayed if he abandoned it.
Fiona Scott Morton served as the deputy assistant attorney general for economic analysis (chief economist) at the Antitrust Division of the U.S. Department of Justice. Gene Kimmelman was chief policy counsel in the Antitrust Division under President Obama and deputy associate attorney general under President Biden. Norman Eisen is founder of Democracy Defenders Action.
Such a smart analysis. Thank you. Hope AGS are listening. 💔🇺🇸
Call Paramount's bluff.