Paramount has reached a settlement with a group of state attorneys general, according to people familiar with the matter, an agreement that clears the way for an $81 billion merger with Warner Bros. Discovery poised to reshape Hollywood.

As part of the agreement, the company behind hits like "The Godfather," "Top Gun," "South Park" and "Yellowstone" will avoid having to sell cable channels, the people said. The final terms of the deal couldn't immediately be learned.

Settling the suit effectively removes the most serious remaining hurdle to the deal closing. The question of whether Paramount would be able to close its transaction has hung over the media and entertainment industry since Chief Executive David Ellison won a fraught bidding war against Netflix to buy Warner Bros. in February.

Paramount's Warner deal would bring two of the movie business' oldest studios, two major streaming services in Paramount+ and HBO Max and dozens of television networks under one owner. It would also give Ellison, the son of Oracle billionaire Larry Ellison, a vast entertainment empire that includes franchises such as Harry Potter, DC superheroes and "Game of Thrones," as well as cable networks like CNN and Cartoon Network.

A dozen Democrat-led states including New York and Colorado sued in July to block the deal on antitrust grounds. The attorneys general, led by California Attorney General Rob Bonta, argued that the combination of Paramount and Warner would create too much concentration in the markets for theatrical films and television channels.

The Writers Guild of America sued too, saying that the combination of the legacy media companies would kill jobs and career opportunities for Hollywood screenwriters at a time when the film and television production economy is already under pressure.

The looming deal and the legal fight over it has been a source of controversy in Hollywood. Many creatives, including movie stars, signed an April open letter opposing the deal, saying it would further imperil an already diminished media and entertainment industry. Throughout the weekend, opponents of the deal, including actor Mark Ruffalo, voiced concern about a pending settlement, urging Bonta to hold the line.

There was mounting political and industry pressure to settle. California Gov. Gavin Newsom, Los Angeles Mayor Karen Bass, gubernatorial candidate Xavier Becerra, the major movie theater chains and some Hollywood labor unions urged the parties to resolve their issues.

The coalition of states and Paramount spent the weekend in advanced settlement negotiations discussing a wide range of concessions including an investment in production, selling cable channels and creating a board to ensure that CNN retains editorial independence, The Wall Street Journal reported.

Settling the suit before it heads to trial could help Paramount avoid racking up costly "ticking fees," which it offered to win the deal and must begin paying if the deal doesn't close by Oct. 1.

Still, the combined company is set to emerge with nearly $80 billion in debt-a substantial burden already expected to weigh on its investments in the business.

Ellison has spent the last year fighting for the deal, which cleared a number of other hurdles.

The U.K. government approved the deal in August, following the European Commission, the U.S. Justice Department and regulatory bodies in other countries. The Federal Communications Commission on Thursday cleared the way for three Gulf funds to take a significant indirect ownership stake in the combined company.

The company had warned it was prepared to move out of California if it couldn't reach a deal with the states, with a potential relocation starting as soon as Oct. 1. Tennessee was seen as the likely potential destination for Paramount.

Bonta had called such talk an "attempt to blackmail the regulators who are daring to enforce the law."

California, long the entertainment capital of the U.S., has suffered job losses as a result of increasingly frugal Hollywood studios and streamers opting to shoot TV shows and movies in other states and countries offering generous tax incentives.