The European Commission on Wednesday gave conditional clearance to Paramount Skydance’s $110 billion acquisition of Warner Bros. Discovery, removing a significant regulatory obstacle even as the transaction remains frozen by a US federal court. The approval, which requires Paramount to unwind a long-standing film distribution partnership with Universal Pictures in the European Economic Area, shifts the deal’s centre of gravity back to a California courtroom where a coalition of 12 states is seeking to block it on antitrust grounds.

Brussels concluded that the combined entity would not stifle competition in film production, citing the presence of rivals from Disney and Sony to smaller studios such as A24 and Lionsgate. However, regulators identified a high concentration risk in theatrical distribution. Paramount and Universal currently co-distribute their films through the joint venture United International Pictures (UIP); adding Warner’s catalogue would have given the merged group excessive leverage over cinema operators. To address this, Paramount must divest its UIP stake within 13 months of closing and is barred from entering any co-distribution agreement with Universal in the EEA for a decade. An independent trustee will monitor compliance.

Viewed from Washington, the EU decision contrasts with the fragmented US posture. The Department of Justice cleared the merger in June without conditions, but a lawsuit filed by California and 11 other states argues the tie-up would “extinguish competition” in Hollywood, harm theatre owners and raise streaming prices. On Monday, District Judge Araceli Martínez-Olguín issued a 14-day temporary restraining order, noting the states had raised “serious questions” about the deal’s legality. A hearing on 3 August will determine whether to extend the freeze with a preliminary injunction, a step that could delay the merger for months. Paramount has called the states’ claims meritless, pointing to the EU’s finding that ample studio competition remains.

The delay carries a mounting financial cost. If the transaction is not completed by 30 September, Paramount must pay Warner shareholders a ticking fee of roughly $7 million per day, with a $7 billion termination fee due should regulatory hurdles ultimately scupper the deal. In London, the Competition and Markets Authority is conducting its own probe and has set a preliminary deadline of 7 August, while the culture secretary has raised public-interest concerns about media plurality. The merger, which would unite HBO, CNN, Warner Bros. studios and the Paramount+ streaming service under one roof, has also drawn opposition from the Writers Guild of America and more than a thousand industry professionals.

With clearances already secured from Australia, China, Saudi Arabia and several other jurisdictions, the immediate fate of the deal now hinges on the California court’s next move and the UK regulator’s findings. The 3 August hearing in Oakland and the CMA’s early-August deadline are the next factual milestones that will determine whether the transaction can proceed or faces a protracted legal battle.