11:08am PT by Eriq Gardner
Justice Department Suing to Stop Merger of Two Biggest In-Theater Advertising Companies
The Department of Justice doesn't like the message it's getting from the proposed merger of in-theater advertising companies National CineMedia and Screenvision and has announced that it is filing a federal lawsuit in New York to block the $375 million deal.
NCM reaches almost 20,000 movie screens across the United States, and the public company is primarily controlled by AMC Entertainment, Cinemark Holdings and Regal Entertainment Group. In May, NCM announced that it would be acquiring Screenvision, which reaches more than 14,000 screens. Together, the two companies serve 88 percent of all movie theater screens in the United States through long-term, exclusive contracts, according to the DOJ.
“The proposed combination of NCM and Screenvision is a bad deal for movie theaters, advertisers and consumers," says Bill Baer, assistant attorney general at the Justice Department’s Antitrust Division. "This merger to monopoly is exactly the type of transaction the antitrust laws were designed to prohibit. If this deal is allowed to proceed, the benefits of competition will be lost, depriving theaters and advertisers of options for cinema advertising network services and risking higher prices to moviegoers."
The DOJ says the two companies have been engaged in intense competition with each other for advertisers and movie theaters, and that the merger was intended to put an end to aggressive pricing. One NCM executive is quoted as saying, "“We need to buy [Screenvision] before either us or [Screenvision] does a stupid deal.”
NCM is also said to have viewed Screenvision’s “new strategy of undercutting [NCM’s] pricing by 50 percent (or more) [as] a direct threat to [NCM’s] business model.”
The two companies aren't happy about the lawsuit. The trading of NCM's stock was halted on Monday just as the company was to give guidance on its fourth financial quarter.
"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," says NCM chairman and CEO Kurt Hall. "We look forward to demonstrating those benefits. Combining NCM and Screenvision will enable us to offer advertisers a better product with the broader reach, ubiquitous geographic coverage, more advertising impressions, enhanced targeting capability, and lower costs that advertising clients and their agencies seek. With a better product we will generate more advertising revenue for our theater circuit partners."
“The merger preserves all the desirable attributes of cinema advertising while allowing the combined company to compete more effectively on dimensions important to advertisers," says Screenvision CEO Travis Reid. "Together, NCM and Screenvision will be more competitive in the expanding video advertising marketplace and provide long-term incremental advertising revenue to our theater partners.”