Paramount/WBD Merger Could Disrupt Tax Incentive Programs

A new study by media industry academics indicates that a potential merger between Paramount (PSKY) and Warner Bros. Discovery (WBD) could fundamentally alter the system of local and state tax incentive programs for film and television production. The study warns that a successful merger would lead to an increase in productions outside Hollywood, emphasizing that the combined entity would significantly strengthen its bargaining power over incentive systems.

Authored by Peter Johnson and Cale Epps, the report argues that a Paramount-Warner Bros. merger would enhance the combined studio's leverage within the existing incentive system, weaken public bargaining power, and intensify interstate and international subsidy competition. This could lead to a reduction in production activities in mid-tier markets and increase instability for local workers, vendors, and infrastructures. The merged company would gain the ability to push for changes such as higher subsidy rates, lower budget minimums, and reduced local employment thresholds.

One of the potential consequences of the merger is that a larger company would be more likely to use its market size to threaten to move production to more financially lucrative states. This threat could be leveraged to extract more favorable conditions from state legislatures. For instance, Paramount's efforts in 2023 to persuade Republicans in Texas to provide financially favorable changes to the state's production laws serve as an example of this dynamic. New York State awarded Warner Bros. and Paramount a combined $330 million in tax credits from Q4 2024 to Q3 2025.

This development could further intensify interstate and international subsidy competition, potentially leading to reduced production in mid-tier markets and creating uncertainty for local labor and infrastructure. Analysts suggest the merger would negatively impact local production ecosystems and film/media tax programs. While some studies project the merger could generally generate $20 billion in economic activity and support over 90,000 jobs, this new report specifically focuses on the adverse interactions with incentive systems. Conversely, a report from the Los Angeles County Department of Economic Opportunity estimated potential job losses of approximately 6,000, with 2,495 of those in Los Angeles County alone, as a result of the merger.

U.S. states have spent tens of billions of dollars in recent years to attract major Hollywood productions, with ongoing debate about the effectiveness of these incentives. The merger could further destabilize this already fragile public bargain. Consolidation also has the potential to harm rural production incentives and university workforce pipelines. Although the Justice Department provisionally approved the merger, several state Attorneys General have yet to give their approval, and California, along with 11 other states, has filed a lawsuit to block the merger.

Looking ahead, it is anticipated that the merger could lead studios to concentrate production in fewer states and engage in global tax arbitrage. States with less competitive incentive programs and hyper-local programs, particularly in rural areas, could be hit hardest by the effects of consolidation. The outcome of state lawsuits and regulatory approval processes will be critical for the merger's finalization and its long-term impact on the entertainment industry's geographical distribution and tax incentive landscape.