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From Antitrust Law Daily, December 20, 2016

AMC must divest movie theatres to complete Carmike acquisition

To complete its $1.2 billion acquisition of Carmike Cinemas, AMC Entertainment Holdings will have to divest theatres in 15 local markets, sell most of its holdings and relinquish all of its governance rights in National Cinemedia LLC (NCM), and transfer 24 theatres with a total of 384 screens to the network of Screenvision LLC, the Department of Justice Antitrust Division announced today.

The Antitrust Division filed a civil antitrust lawsuit, in the U.S. District Court for the District of Columbia, to block the proposed acquisition. At the same time, the agency filed a proposed settlement that, if approved by the court, would resolve the competitive harm that was alleged in the suit. Without the required divestitures and other relief, the Antitrust Division explained, the merger would result in higher prices and lower quality theatre amenities for moviegoers, as well as weakened competition in the markets for pre-show services and theatre advertising, in areas where Screenvision is NCM’s only meaningful rival.

"Moviegoers across the United States have benefitted from head-to-head competition between AMC and Carmike that has kept ticket prices in check and delivered a higher quality movie experience," said Acting Assistant Attorney General Renata Hesse of the Department of Justice’s Antitrust Division. "Today’s settlement will ensure that movie theatre competition is preserved in 15 local markets where AMC and Carmike currently compete. In addition, by requiring AMC to reduce its equity stake in NCM, terminate its participation in NCM’s business, and transfer screens to Screenvision, the settlement will promote continued vigorous competition between the two leading cinema advertising networks—competition that the division fought to protect when it blocked the NCM-Screenvision merger."

According to the department’s complaint, AMC and Carmike compete to attract moviegoers in local markets across the United States by providing affordable ticket prices and a superior viewing experience. Because AMC and Carmike are each other’s most significant competitor in 15 local markets across the country, the complaint alleges that the proposed acquisition would likely reduce price competition and the quality of the moviegoer’s experience in each of those local markets. To eliminate the merger’s likely harm in those markets, the proposed settlement requires AMC to divest AMC or Carmike movie theatres in all 15 local markets to buyers approved by the United States.

The Department’s complaint also alleges that AMC’s acquisition of Carmike would lessen competition in the pre-show services and cinema advertising markets, where NCM and Screenvision together serve over 80 percent of U.S. movie screens and compete to win exclusive contracts to provide pre-show services to exhibitors. As a major owner of both NCM and Screenvision post-merger, AMC would have an incentive to reduce the head-to-head competition between NCM and Screenvision, resulting in less aggressive competition to gain exhibitors and advertisers at the expense of the other, the complaint alleged. In addition, the merger would eliminate Carmike—currently Screenvision’s largest and most important exhibitor—as a source of future Screenvision growth because all future AMC new builds and theatre acquisitions will affiliate with NCM under the terms of AMC’s NCM contract.

Under the terms of the proposed settlement, AMC must divest the majority of its equity interest in NCM, so that it owns no more than 4.99 percent of the company; relinquish all of its NCM governance rights; and transfer 24 theatres comprising 384 screens to the Screenvision network. The department said that those measures would ensure that movie exhibitors and advertisers continue to enjoy the benefits of vigorous competition between NCM and Screenvision in the pre-show services and theatre advertising markets. The Antitrust Division filed a lawsuit to block the proposed merger of NCM and Screenvision in 2014, and NCM and Screenvision subsequently abandoned their transaction.

The proposed settlement also requires AMC to establish firewalls to ensure that it does not obtain NCM’s, Screenvision’s, or other movie exhibitors’ competitively sensitive information, or become a conduit for the flow of that type of information between NCM and Screenvision.

Companies: AMC Entertainment Holdings Inc.; Carmike Cinemas Inc.; National Cinemedia LLC; Screenvision LLC

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