U.S. Scrutinizes Conduct of Movie Theaters
AMC, Regal say Justice Department has asked for information in investigation
By
Erich Schwartzel
Updated June 1, 2015 7:37 p.m. ET
Regal Entertainment Group and AMC Entertainment Holdings Inc., the nation’s two largest movie theater chains, have received formal inquiries from the Justice Department’s Antitrust Division, signaling growing government scrutiny of a tactic large theater operators commonly use to keep movies out of competing locations.
AMC, which has faced the most backlash in the exhibition industry over the practices, told investors the Justice Department wants information “in connection with an investigation,” according to an AMC notice filed with the Securities and Exchange Commission on Monday, into “potentially anticompetitive conduct” at the company.
Regal made a similar disclosure on Monday.
That conduct includes the use of “clearances,” which are agreements that theater chains sometimes strike with studios in order to gain the exclusive right to play a given title in a particular market. The Justice Department is also looking into AMC’s participation into certain joint ventures, the notice said.
“We do not believe the Company has violated federal or state antitrust laws and are cooperating with the relevant governmental authorities,” AMC said in the notice. An AMC spokesman declined to comment further. AMC shares closed down 3.2%, or 91 cents, at $28 on Monday. Regal shares closed at $20.90, off six cents; it announced the notice after the market close.
The Justice Department’s civil investigative demands, received by AMC and Regal on May 28, give it subpoena power and request documents and answers to certain questions. AMC and Regal soon after received additional civil investigative demands from the office of the attorney general of Ohio, which has a “similar inquiry” under that state’s antitrust laws, AMC’s notice said.
Regal disclosed in an earnings report last month that it had been asked by Justice to “preserve all documents and information since January 1, 2011 relating to movie clearances or communications or cooperation” between the company and its chief rivals, AMC and Cinemark Holdings Inc.
“We do not believe that any DOJ or state attorney general investigation of movie clearances or any communications or cooperation involving the Company and AMC or Cinemark will produce evidence that the Company has engaged in any anticompetitive conduct in violation of Federal or state antitrust or competition laws,” the company said.
The exclusivity agreements known as clearance have emerged in the past year as a majorly divisive issue among theater-chain operators.
AMC began requesting the agreements more recently than its chief rivals, Regal and Cinemark, but it has faced the most pushback and legal action over the practice.
The government’s interest in clearance practices appears to have grown from a separate DOJ investigation into the proposed merger of National CineMedia Inc. and Screenvision LLC, two major in-theater advertising companies. Justice filed a lawsuit last November seeking to block the deal, and the companies scrapped it in March. Regal, AMC and Cinemark are majority owners of National CineMedia.
The uptick in clearance requests has coincided with a rise in theater construction, and opponents to the practice say it allows larger chains to wield significant market power and drive new competitors out of business.
Regal, AMC and Cinemark have said it is up to the studios to grant the requests, which are part of a long-established industry practice that affects a small percentage of locations.
http://www.wsj.com/articles/justice-department-investigates-theater-clearance-practices-at-amc-1433171433
