Twelve states challenged Paramount’s takeover of Warner Bros. Discovery on Monday, filing a lawsuit that argues the $81 billion mega merger would “extinguish competition” in Hollywood and threaten jobs across the industry.

The deal already cleared federal regulators, but now faces a challenge from a coalition of 12 states.

California is among the states suing to block Paramount from buying Warner Bros. Discovery in a Hollywood mega-merger that would unite some of the nation's largest movie studios…