The U.S. Department of Justice has turned its spotlight on AMC Entertainment, Inc. in the government’s antitrust probe of the nation’s movie theater industry. In an 8-K filed Monday with the Securities and Exchange Commission, AMC announced that it has received a civil subpoena from the DOJ seeking information and documents relating to AMC’s involvement in joint ventures and film clearances. The Ohio Attorney General’s office issued a similar subpoena to AMC seeking to investigate potential violations by the company of Ohio’s antitrust laws.
The DOJ’s antitrust probe came to light in mid-May after United Artists Theatre Circuit Inc., a subsidiary of Regal Entertainment Group, announced in its own SEC filing that the DOJ is investigating potential Sherman Act violations by Regal, AMC, and Cinemark Holdings Inc., which together make up the nation’s three largest movie theater chains. The companies are suspected of cooperating to suppress competition in the market for pre-film advertising. Although the precise nature of the suspected conspiracy is unclear, the DOJ’s information requests indicate that it centers around the three companies’ joint ownership of National CineMedia Inc., a company that packages pre-film advertisements and shares the revenue with the theaters that show them. Just last November, the DOJ sued to block a merger between National CineMedia and its largest competitor, Screenvision LLC, claiming that the merger would have created a monopoly in the market for movie advertising. The companies called off the merger in March, but now it appears that National CineMedia’s antitrust woes are far from over.
In addition to investigating alleged cooperation between Regal, AMC, and Cinemark through National CineMedia, the DOJ is also seeking information and documents regarding the exclusive rights given to theaters to exhibit films in specified geographic areas, commonly known as film clearances. Because film clearances naturally involve the exclusion of competitors from showing a particular film, they can be a hotbed for antitrust violations. Indeed, AMC is currently defending itself against a Sherman Act suit filed by a competing theater chain in the Atlanta, Georgia market. In that suit, the plaintiffs is claiming that AMC engaged in unlawful exclusive dealing by using its dominant market position to strong-arm movie distributors into denying its competitors access to first-run film releases. A Georgia federal judge denied AMC’s motion to dismiss the suit in March.
If pursued, the DOJ’s probe could be the biggest antitrust hit taken by the movie theater industry since the United States Supreme Court’s landmark decision in United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948). That decision held that the old-Hollywood system of movie studios owning their own theater chains was anticompetitive and forced the separation of the motion picture production and exhibition industries. The crux of the harm in that case was the exclusion of movies from being offered in second-tier theaters, a theory similar to the harm that seems to have prompted DOJ’s interest here. Stay tuned!