US sues to prevent merger of movie ad companies

AP News
Posted: Nov 03, 2014 5:28 PM

NEW YORK (AP) — The Justice Department asked a court Monday to block a planned merger of the nation's only two large cinema on-screen advertising companies, saying consumers might face higher prices at theaters if a merger is carried out. The businesses generate hundreds of millions of dollars annually through advertisements and other programming shown before movie previews start.

The department filed a lawsuit in Manhattan federal court against National CineMedia Inc., trying to interrupt its plans announced in May to acquire Screenvision LLC for $375 million.

In a release, Assistant Attorney General Bill Baer of the Justice Department's Antitrust Division said the merger was "a bad idea for movie theaters, advertisers and consumers."

He called the acquisition "exactly the type of transaction the antitrust laws were designed to prohibit," saying it would destroy the benefits of competition, risking higher prices to consumers at theaters and for advertisers who are deprived of options for the services the cinema advertising networks provide.

The government said the combined companies' ads would appear on 88 percent of all U.S. movie screens. It said anti-competitive changes in the way the companies operate were already occurring.

Manhattan-based Screenvision and Centennial, Colorado-based National CineMedia said the merger will offer advertisers a better product with broader reach.

In a release, Kurt Hall, NCM chairman and chief executive officer, said: "I am obviously very disappointed that the DOJ did not see the benefits of the new combined company to our advertising clients and their agencies and our exhibitor partners. We look forward to demonstrating those benefits. ... With a better product we will generate more advertising revenue for our theatre circuit partners."

Travis Reid, Screenvision's chief executive officer, said the merger "preserves all the desirable attributes of cinema advertising while allowing the combined company to compete more effectively on dimensions important to advertisers."

Both Hall and Reid insisted that the merger came amid a changing landscape in the video advertising marketplace, with Reid saying that the combination of the companies meant the new business will be more competitive in an expanding field and ensure long-term incremental advertising revenue to theaters.

The Justice Department said in a release that the merger came after Screenvision since late 2012 had become "a particularly aggressive competitor, increasing its efforts to steal business from NCM by dramatically reducing the prices it charges advertisers and offering movie theaters a variety of attractive financial incentives."

The lawsuit said NCM, which advertises on about 20,000 of the roughly 39,000 screens nationwide and generated about $426 million advertising revenue last year, told its board in April that it was at a strategic crossroads and could either acquire Screenvision, enabling it to control selling tactics and pricing, or compete through aggressive pricing and by adding theaters. Screenvision, covering about 14,300 screens nationwide, had about $160 million in advertising revenue in 2013.

The lawsuit noted that the majority owners of NCM are the three largest movie theater circuits in the United States — Regal Entertainment Group, AMC Entertainment Inc. and Cinemark Holdings Inc.