Paramount Skydance is preparing for a possible US state legal challenge over its proposed A$170 billion takeover of Warner Bros Discovery, raising fresh uncertainty around one of the biggest media deals in years.

The merger would bring Network 10, 10 Play and Paramount+ under the same global parent as HBO Max, CNN, Warner Bros Pictures, Discovery, TBS, TNT and Animal Planet.

In the US, Paramount Skydance is reportedly bracing for a lawsuit from state attorneys general, led by California and New York, seeking to block the deal on antitrust grounds.

Reports claim US state attorneys general may argue the merger would reduce competition and jobs in the entertainment sector, despite the US Department of Justice approving the transaction without conditions last week.

The DOJ’s Antitrust Division closed its investigation after finding the merger was not likely to harm competition or American consumers. It did not require divestitures, behavioural remedies or other concessions.

Paramount has argued the deal is needed to create a stronger competitor to Netflix, Amazon, Apple and Disney. It says the merger would deliver more than US$6 billion in savings.

The deal has already cleared Australia’s competition watchdog, with the ACCC finding it was unlikely to substantially lessen competition in local media, streaming or advertising markets.

The transaction is also moving through overseas reviews. The European Commission is reportedly on track to approve the deal, although Paramount may need to exit a film distribution joint venture with Universal Pictures to satisfy EU concerns.

Regulators in several other markets have already cleared the tie-up, while the UK Competition and Markets Authority is working towards an August deadline.

For Australia, the transaction remains significant because it would reshape the ownership structure behind Network 10 and Paramount+, while potentially giving the combined company control of HBO Max and Warner Bros Discovery’s factual and entertainment assets in the local market.

Hollywood unions and creative figures have warned the merger could lead to fewer jobs, fewer production opportunities and reduced choice for audiences.

Paramount is targeting a third-quarter close, although a US state lawsuit could delay completion.