Last month, California Attorney General Rob Bonta announced he was settling a lawsuit he and several other state AGs had filed against Paramount over its merger with Warner Bros.
The American Prospect magazine aptly summarized the settlement: “Bonta Gives Up on the Paramount Case.”
Why would Bonta suddenly drop a lawsuit that was making headlines all over the country? And for a settlement that includes things Paramount was likely to do anyway?
Maybe because it was reported that Paramount was leaving California in search of better business climes. Paramount was even actively looking for office space in Nashville.
Now, it appears Paramount will stay, and it’s possible the company was bluffing. But that the possibility of a departure even existed should be a wake-up call for our state.
I’m a former California state senator, an attorney, and a Democrat. I understand that sometimes corporations behave badly and need government litigation to correct their harmful and anticompetitive conduct.
But there’s a line between reasonable law enforcement and a toxic business climate that drives revenue and jobs out of our state.
Unfortunately, the California attorney general’s office has crossed that line.
Let’s look at the numbers: if Paramount and Warner Bros. together had left California, our state could have lost 58,000 jobs, according to a Paramount-commissioned report by the Los Angeles County Economic Development Corporation’s Institute for Applied Economics. The economic cost, meanwhile, could have been as high as $21.2 billion per year.
Then there’s the prestige that Hollywood would lose if these two legacy companies headed for the door. Paramount Pictures is a legacy entertainment company, founded in 1912 and home to such franchises as Transformers, CBS Studios, Nickelodeon Animation, and Showtime.
Warner Bros. is, well, Warner Bros. That’s its logo on the water tower above the studio lot in Burbank.
You can see why Bonta relented—and the damage may be already done. Hollywood is struggling to retain business and talent. The hit comedy series “Scrubs” spent nine years shooting in the San Fernando Valley yet the recent reboot was made in British Columbia. “American Idol” likewise just hit the trails for Georgia.
California has an incentive structure for entertainment companies, but it’s stingy compared to what other states offer these days. Even low-tax havens like Georgia are losing shoots to Canadian provinces like Manitoba and countries like the UK.
In the California Senate, I witnessed this problem firsthand. Every time I voted with my colleagues to continue the tax deductions for the entertainment industry, other jurisdictions created sweeter incentives to lure our businesses away.
It’s a remote-work world now. Modern communications technology has made it possible for Hollywood to no longer be based in Hollywood.
That means California needs to be nimbler in this highly competitive international industry. Instead, too often, these studios face uncompetitive rebates, a thicket of red tape—and litigation from the AG’s office.
The Paramount-Warner deal had already been cleared by the antitrust authorities at the Justice Department. It still faced a final judicial review—this was what Bonta was contesting—but no merger had ever been halted this late in the process by a court.
That meant Bonta gambled tens of thousands of jobs and billions of dollars on a bet he was certain to lose. How does that help the people of California who are struggling with a weak job market and rising prices?
This needs to be a teachable moment for our state. We can’t take even our most legacy companies for granted any longer.
California shouldn’t be the Wild West of capitalism, but it does need to foster a predictable business climate that doesn’t throw unwanted and unexpected obstacles in front of companies. That includes litigation.
It’s not just Paramount. Bonta is also suing Nexstar for trying to acquire Tegna, which owns TV stations here in California. He inserted himself into Hewlett Packard Enterprise’s (HPE) merger with Juniper Networks, even as HPE continues to hire Californians, and even as the federal government approved the deal to make America’s tech sector more competitive with China’s.
At every turn, Bonta claims his litigation will reap benefits for Californians. But set against the very real possibility of lost economic activity, those benefits don’t add up.
If you want to do business in California, you need to play by the rules. That much we can all agree on.
But California also needs to make sure it’s being fair to the companies that call our state home. Let’s make sure we’re good to our word going forward.
Bob Wieckowski served as a Democratic member of the California Assembly and Senate. He served on the Judiciary Committee in both houses and the chair of that committee in the Assembly.