United States: In A World Where Advertising Is Shown In Movie Theatres…

Last Updated: November 13 2014
Article by Robert P. Davis

It used to be that when you went to the movies you would try to get there a little early to catch all the trailers. But if you got there too early there would be that awkward time in a half-lit movie theatre with the folks you were with (and maybe your cellphone) waiting for everything to start. In recent years the movie theatres have helped us out by having content on the screen all the time. Of course that content was mostly advertising, and it turns out that someone was making that content. Actually, according to a recent complaint filed by the Antitrust Division of the Department of Justice, just two firms accounted for this content on nearly 88% of all movie screens in the country: National CineMedia, which is majority owned by the three largest exhibitors in the US, and Screenvision, which is partially owned by the fourth largest exhibitor. This past spring, NCM, which is on 51% of all movie screens in the US agreed to buy Screenvision. The Department of Justice was not amused, and filed a complaint this past week to block the deal.

In merger cases, when one of the federal agencies (the other being the FTC) wants to block a deal in court they have to show that the deal may reduce competition in a relevant market. There are often complications in how the agencies have to prove the relevant market, and the competitive effect of the deal in that market, and there may be some complications here. But for the purpose of trying to keep normal people (as opposed to antitrust nerds like me) from falling asleep, we'll keep things simple – when DOJ has to prove a relevant market, that means that the agency has to prove two aspects of the market: first, the geographic market (in this case, the US), and second the product market (which is the product or service that the companies sell).

It is the latter aspect of the market definition exercise that is interesting for advertising nerds. That is because these two companies are essentially ad networks running on movie screens, rather than in browsers or on mobile devices. As such these companies essentially bring together advertisers who want to reach consumers who are cooling their heels in movie theatres and movie exhibitors, who have this nice big screen in front of a whole lot of consumers and would like to monetize that inventory. In antitrust terms, the merger could reduce competition in the market for selling ad space to advertisers, or it could reduce competition in the market to help movie theatres monetize their screens.

In this complaint, the DOJ alleged that the merger would reduce competition in both markets. In other words, the Division is alleging that the deal would not only reduce competition in the market for services to help movie theatres to monetize their screens, but also in the market for selling inventory to advertisers. This is a bit of a change from how the agencies have looked at these types of deals in the past. For example, in reviewing the Google-AdMob deal, the FTC focused its attention on a possible reduction of competition in the market to help mobile app developers monetize their inventory. Generally this is because it is thought that advertisers have lots of options, and if prices go up in movie theatres they can put their ads elsewhere.

All antitrust is fact-specific though. Presumably the Antitrust Division was guided in its view of the effect of the deal on the advertising market by the conduct of the two parties before the deal (cut-throat competition, according to the complaint) and by the companies' documents (quotes of which are sprinkled throughout the complaint). But it will be interesting to see how the market definitions develop as the case proceeds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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