On Oct. 31, the Department of Justice antitrust division landed a major victory when a federal judge blocked Penguin Random House’s $2.175 billion bid to buy rival Simon & Schuster from Paramount Global. After legal wrangling in a trial closely monitored by Hollywood, U.S. District Judge Florence Pan found that combining two of the world’s largest book publishers would hurt competition for best-selling books. “The government has presented a compelling case that predicts substantial harm to competition as a result of the proposed merger,” Pan wrote. “The post-merger concentration of the relevant market would be concerningly high: The merged entity would have a 49% market share, more than twice that of its closest competitor.”

The ruling marks a triumph for a rejuvenated DOJ antitrust division after decades of lax enforcement — and a troubling sign for Hollywood moguls contemplating mergers. “Anybody who is looking to do sizable M&As in the media sector where you’re going to lose a player should be concerned after this,” the head of a mid-major studio, speaking under the condition of anonymity, tells The Hollywood Reporter. 

The case brought by the government contended the merger would suppress competition to acquire the publishing rights to “anticipated top selling books.” Prosecutors advanced a theory that the deal will harm authors by giving the newly merged entity “outsized influence over who and what is published and how much [they] are paid for their work.” The suit represented regulators’ bid to crack down on so-called monopsonies, a dynamic in which a buyer with outsize market power can purchase labor and goods at prices under market value. With the ruling under its belt, the government will likely be emboldened to bring more cases revolving around harm to workers, legal observers say. “They’ll be looking for potential impacts on labor markets in a way that wasn’t on the top of their mind in the past,” says Benjamin Sirota, a former prosecutor at the DOJ’s antitrust division.

Judge Pan’s analysis was straightforward: the fewer publishers there are to bid for books, the less authors will be able to demand for publishing rights. The judge concluded that advances are tied to competition in the industry, which would go from five major publishers to four if the merger was approved. “The record contains numerous examples of books that sold for unexpectedly high advances and achieved other favorable terms for their authors due to the bidding frenzy incited by competitive auctions,” the judge wrote.

The ruling over the publishing deal was issued as shares in Warner Bros. Discovery — saddled with more than $50 billion in debt left over from AT&T’s takeover in 2018 — hit an all-time low on Nov. 9 since its own merger was finalized in April, amplifying rumblings that another sale could be around the corner. While negotiations are barred until 2024, there has been industry speculation that Comcast’s Brian Roberts is looking to combine NBCUniversal with the David Zaslav-led company. (A Comcast rep did not reply for comment, while Zaslav said at a late-September staff town hall that WBD is “absolutely not for sale.”) 

Meanwhile, renewed DOJ attention on the 2010 merger approval of Ticketmaster and Live Nation — which has seen high-profile ticket snafus for acts like Taylor Swift and Bruce Springsteen — is amplifying calls from activist groups who have been calling for an unwinding of the deal. “Ticketmaster’s market power over live events is ripping off sports and music fans and undermining the vibrancy and independence of the music industry,” Sarah Miller, executive director of the American Economic Liberties Project, told THR in October. Live Nation, in a statement on its site on Friday, replied: “No serious argument can be made that Ticketmaster has the kind of market position in secondary ticketing that supports antitrust claims.”

Under Judge Pan’s reasoning to block the Simon & Schuster merger, a deal of that size would now be exceedingly difficult to pass antitrust review, experts say. There are five major film studios — Disney, Sony, Universal, Warner Bros. Discovery and Paramount — that account for the bulk of production and distribution of theatrical movies in the United States. In 2021, they dominated the domestic box office in terms of market share with 84.8 percent of the business, per Comscore data. Any merger between those companies — in which five studios become four — especially one involving Disney, which accounted for 25.5 percent of the box office last year, will likely draw regulatory scrutiny.

“A five-to-four merger sufficiently increases consolidation that [the deal is] probably going to be blocked in most circumstances, period,” notes Daniel McCuaig, a former prosecutor at the DOJ’s antitrust division. The Hollywood mid-major studio exec adds, “If you have four of the largest studios that control what gets into marketplace in a global meaningful way, that’s not healthy. Regulators should 100 percent step in.”

Competition enforcers are already taking notice of declining compensation to filmmakers, actors and crewmembers as a result of consolidation. “We’ve heard concerns that a handful of companies may now again be controlling the bulk of the entertainment supply chain from content creation to distribution,” said Federal Trade Commission chair Lina Khan in April during a listening forum over revisions to merger guidelines, in a nod to anticompetitive conduct by studios that led to the Paramount Decrees. “We’ve heard concerns that this type of consolidation and integration can enable firms to exert market power over creators and workers alike and a potentially limit the diversity of content reaching consumers.”

Adam Conover, writer and board member of the Writers Guild, said in the forum that his show Adam Ruins Everything was killed by AT&T’s acquisition of Time Warner in 2018 when truTV’s parent company forced the network to cut costs. He stressed that a handful of companies “now control the production and distribution of almost all entertainment content available to the American public,” allowing them to “more easily hold down our wages and set onerous terms for our employment.” After Disney acquired 21st Century Fox in 2019, he said that they pushed Hollywood into ending backend participation and trapping actors in exclusive contracts preventing them from pursuing other work.

Former DOJ prosecutor Sirota says the government could challenge future media mergers by advancing cases revolving around potential harm to labor. “If someone is bidding for my services and I can get three different bids all competing against each other, I’ll get a better rate if there are three people bidding for me instead of two,” he says. “It’s a simple concept for a judge to get behind.” 

Taking into account market share and monopsony concerns, studios and distributors outside of the five majors make attractive acquisition targets. Take Lionsgate, which has faced sale speculation for years. The Jon Feltheimer-led company is aiming to separate its studio business from its Starz pay TV and streaming service. If any of the five major studios are in the market to acquire a competitor, a smaller target such as Lionsgate could make the most sense — as far as antitrust concerns — because such a merger would likely not lead to the company gaining an outsize market share and overly contracting the landscape of competition. Universal, for example, accounted for 15.6 percent of the domestic box office in 2021. By acquiring Lionsgate, which had 2.3 percent, the company would still have two competitors ahead of it in terms of theatrical market share for the year. (Antitrust analysis is not confined to a studio’s performance in a single year, but the figures reflect that the deal is less likely to raise red flags than a merger between top competitors, like Disney and Paramount.)

In March, Amazon closed its $8.5 billion purchase of MGM in a deal that was not challenged by the FTC. While the ecommerce company is a global retail juggernaut, Amazon is not as big of a player in Hollywood yet and MGM does not have a distribution platform that could anticompetitively boost Amazon Prime Video’s popularity among streaming platforms. Considering regulators didn’t sue to block the deal, the tech giants have a road map toward expanding their reach in the entertainment industry since they have little market share but troves of cash to rapidly grow it through acquisitions, legal experts say.

Alex Alben, a UCLA professor of privacy, cybersecurity and internet law, says that tech’s entrance into Hollywood has boosted competition. “You have new market entrants, like Apple and Amazon, competing for consumers,” he says. “You have price competition on the streaming side, and you have a lot more content being offered than ever before.” Alben notes that regulators would face an uphill battle arguing that a deal — like, say, Apple buying a studio the size of Lionsgate in a merger mirroring Amazon buying MGM — violates antitrust law. Unlike Penguin Random House and Simon & Schuster, which are both considered major players in the publishing industry, Apple is not looked at as a powerhouse in the entertainment industry when it comes to production.

That’s not to say tech giants will be off the hook for Hollywood buys, especially in this regulatory environment. “The era of lax enforcement is over,” proclaimed DOJ antitrust chief Jonathan Kanter in April. “And the new era of vigorous and effective antitrust law enforcement has begun.”

A version of this story first appeared in the Nov. 21 issue of The Hollywood Reporter magazine. Click here to subscribe.