Paramount's defence: the market was invented

Almost every contested merger case turns on one question decided before the economics are argued: what market is this deal in? Draw it narrowly and the combined share looks alarming. Draw it broadly and the same deal looks unremarkable.

Paramount Skydance has now made that the centre of its defence. TheWrap reported the filing, which argues the alleged markets are not the product of sound economic analysis or current market realities and have been invented for one purpose only: to trigger a presumption, however weak, in the hope the court looks no further.

The substantive claim behind the rhetoric is about streaming. The company argues that streaming services have sharply increased competition in cinemas and cable television over recent years, and that the states' case depends on ignoring that.

That is a real argument rather than a lawyer's flourish. A market definition drawn around theatrical exhibition and cable carriage describes the industry of 2015, and the question for the court is whether those boundaries still describe where the competition happens.

The filing's strongest point is not economic but political. Paramount notes that the largest cinema chains — AMC, Cinemark and Regal — have publicly said they support the merger, despite the twelve states suing partly to protect them.

It adds that Cinema United, the exhibition industry's largest trade and lobbying organisation, has called for a settlement between the states and the company. An enforcer arguing that a deal will harm a class of businesses is in an awkward position when those businesses say otherwise in public.

The states' theory, filed in July, is that the roughly $110 billion acquisition would increase the combined company's leverage over cinemas, cable platforms and streamers, allowing it to raise prices, cut content spending and leave consumers with fewer options.

Each of those harms lands on a different party, and only the last lands on the public. That is the structural weakness the filing is aiming at: a case that describes injuries to intermediaries who are not complaining.

The counter-argument is that support from the exhibitors proves very little. A cinema chain dependent on a studio's release slate has an obvious reason to avoid a public fight with it, and enthusiasm expressed under those conditions is not disinterested.

The filing lands in the same fortnight as settlement talks scheduled for the end of October, which is not a coincidence. Arguments made publicly before a negotiation are positioning as much as pleading.

What the court decides about market definition will matter well past this transaction. Media assets have been consolidating for a decade on the theory that streaming made the old boundaries obsolete, and this is the first case likely to test that theory at trial.