Paramount and state AGs settle lawsuit, allowing Warner Bros. merger to proceed

Paramount Skydance's $110 billion merger with Warner Bros. Discovery will move forward as the company settled Monday with a group of state attorneys general that sought to block the deal on antitrust grounds.

The lawsuit, brought by a group led by California's Rob Bonta, was previously set to head to trial in March and would have left the deal in limbo through mid-2027.

"We are grateful to Attorney General Bonta and his fellow AGs, as well as the WGA, for engaging in good faith to find a path forward to a resolution that serves all parties, and to Governor Newsom for his support throughout this process," Paramount CEO David Ellison said in a statement Monday. "Our shared aim was an outcome that best serves consumers, workers and — most importantly — the creative community so vital to the art of visual storytelling."

Ellison told employees that the company is looking to close in about two weeks, according to a memo obtained by CNBC.

The acquisition will bring together two storied film studios, Paramount and Warner Bros. Discovery; a portfolio of TV networks; broadcast network CBS; and two popular streaming services in Paramount+ and HBO Max. The agreement Monday follows backlash from not only the state officials, but also the Writers Guild of America union and prominent actors and directors, who shared concerns about the effects on the U.S. film industry and creative roles.

Bonta detailed the terms of the agreement during a press conference Monday, but noted that "the settlement is not a vote of support for this merger."

"It's not a blessing of the broader merger," he said. "Broadly speaking, we believe further consolidation in markets that are central to American economic life doesn't serve the American economy, consumers, or competition well."

Shares of the company fell 3% following Bonta's press conference after rising earlier in the day.

Bonta said Paramount has agreed to increase its domestic production, including boosting its production spending in the U.S. by at least $300 million annually. The company also agreed that if a federal film credit is approved, it will ensure that 20% of its films are produced domestically in the first two years after the deal closes and 30% of all films in the three years after that. Currently, around 5% of Paramount's film production is domestic, Bonta said. The company must also keep both the Paramount and Warner Bros. production lots in Los Angeles.

The studio will also release 30 films theatrically in its first two years and 32 in the following three years, Bonta said. Four of these films must be independent productions and Paramount must establish an fund dedicated to purchasing indie films.

The fine print of the deal mandates that at least 20 of those films have a wide release in more than 2,000 theaters for the first two years and at least 21 films in the three years after. The company expects that the majority of its theatrical films will have wide releases with the exception of some limited run independent films, a person familiar with the matter who was not authorized to speak publicly about the details told CNBC.

Additionally, at least 20% of annual releases must be tentpole features, meaning the films must have production budgets that exceed $50 million. Paramount also expects to surpass that figure, the person said.