Hollywood Is Now Too Big to Fail: Paramount Deal Binds Studios to the State

Hollywood became too big to fail last week, as California Gov. Gavin Newsom pushed to settle the Paramount antitrust case and Republicans and Democrats in Congress jointly introduced a federal film incentive to keep the industry from leaving the United States.

The two moves mark a historic reversal. "The American government has never done this," says Stephen Galloway, dean of the Chapman University film school. "You have the government stepping in and not saying, 'How can we prevent you from causing damage?' Instead, they're saying, 'How can we prevent you from being damaged?' That's a fascinating turn."

What does the Paramount settlement require?

The Paramount antitrust settlement entails five years of government monitoring and binding commitments:

• Paramount must retain ownership of its studio lots.
• The studio must release at least 30 films a year.
• WBD and Paramount cable carriage contracts must be negotiated as separate entities.
• An oversight board will act as a watchdog for the news networks CBS and CNN.
• If a federal subsidy is adopted, Paramount must quadruple its U.S. production volume.

Neither side in the merger battle wanted this outcome. Paramount CEO David Ellison wanted to buy Warner Bros. Discovery without conditions but accepted state intrusion as the price of scale. California Attorney General Rob Bonta wanted to block the deal outright or at minimum force divestitures.

Why did Bonta change course?

On Sept. 14, Bonta's antitrust chief, Paula Blizzard, laid out the orthodox position. "Structural remedies are always preferable to behavioral," she said at a seminar, "because the government gets in, it says, 'Change the structure; get more competitors,' and then the government gets out." A behavioral solution, she added, would require the state to become a "de facto participant" in the market.

A week later, Bonta announced a package of behavioral remedies. Critics called the deal a "cave." Compared with blocking the merger, it is. But it also commits the attorney general's office to enforcing Paramount's production levels in an unprecedented way.

"If we think that there is a problem, then we are going to initiate the court process," Blizzard told Judge Araceli Martínez-Olguín at a hearing on Sept. 24. "This is an area where it may come back to you."

Why is Hollywood welcoming government involvement?

Hollywood has historically resisted government involvement, from censorship boards to anti-monopolization campaigns. This time, unions and studio chiefs celebrated. "In almost every instance, Hollywood by and large resisted and was scared of interference," Galloway says. "The contrast is that these two moves are by and large welcomed by Hollywood."

The politics have shifted on both sides. Democrats often decry "corporate welfare" but have long exempted Hollywood studios, which provide union jobs. Republicans are now coming around. Last year, Texas increased its state incentive and offered bonuses for "faith-based" projects and films promoting Texas heritage.

"The cultural aspects were used to get more traditional fiscal conservatives on board with something that could be seen as a Hollywood handout," says Pete Johnson, a media industry researcher and visiting assistant professor at New York University. Johnson sees Texas as a precursor to President Trump's backing of a federal film incentive.

The fear of losing the industry proved a powerful motivator across party lines. Paramount's threat to leave California spurred action from Newsom and L.A. Mayor Karen Bass. The end of Peak TV and the decline in production jobs have galvanized support for incentives.

Even Sen. Tim Scott, a Republican from South Carolina — not exactly a film hub — backs federal intervention. "We cannot stand by as more and more American film production moves overseas," he said last week, "taking jobs, investment and an important source of American cultural influence with it."

The week closed with symbolism: Paramount CEO David Ellison attended President Trump's state dinner on Sept. 24. With a consent decree obligating the state to police a studio's output and a federal subsidy advancing in Congress, Hollywood's future now depends on Washington and Sacramento as much as on the box office.