United States: Movies May Be A Proper Antitrust Product Submarket

Can Spanish-language media content constitute a proper antitrust product submarket for purposes of a Sherman Act claim? A federal district court in Houston appears to be the first to address the issue and has signaled that, at least at the motion to dismiss stage, the answer may be sí, se puede. With 13.1% of U.S. residents speaking Spanish at home as of 2014, media companies with merger plans or business arrangements relating to Spanish-speaking consumers should pay close attention.

In 2015, a Spanish-language movie theater in Houston named Viva Cinema filed an antitrust suit against AMC Entertainment Holdings Inc. accusing it of conspiring with several movie studios to anti-competitively preclude Viva from licensing newly-released Hollywood films. Viva Cinemas Theatres and Entertainment LLC v. AMC Entertainment Holdings, Inc.

Viva opened the doors to its eight-screen movie theater in 2013, catering to what it alleged was an underserved market in the area: a large Hispanic community in Houston with no access to theaters where they could view newly-released Hollywood films dubbed in Spanish or with Spanish subtitles. These films, according to Viva, were their own antitrust product market—First Run Spanish Language Films.

AMC allegedly threatened the movie studios by leveraging market power in the area. According to Viva, AMC told the studios that AMC would not show any first run film if the distributor licensed that film in Spanish to Viva. Viva alleges that AMC thereby entered into agreements with each of the studio that violated Section 1 of the Sherman Act. As a result of the alleged anti-competitive conduct, Viva claimed, it was unable to license any First Run Spanish Language Films and was forced to shut down within six months.

The issue before the court on AMC's motion to dismiss was whether Viva had properly alleged a relevant antitrust product market sufficient to allege a complaint under the Sherman Act. AMC argued that Viva had not alleged sufficient factual allegations to establish it as a proper submarket consisting of First Run Spanish Language Films.

As the Court explained, in ascertaining the relevant product market, "courts consider the extent to which the seller's product is 'interchangeable in use' and the degree of 'cross-elasticity of demand between the product itself and substitutes for it.'" AMC argued that the substantial overlap in people who can watch both Spanish language films as well as films in English undermined the existence of the alleged First Run Spanish Language Films submarket. The court disagreed.

This was not the first time this issue had been raised by parties. In 2003, the DOJ had taken a similar position as the one taken by Viva here. The DOJ challenged a merger between two large broadcasters of Spanish-language television and radio programming in the United States. The DOJ took the position that local national advertisers in certain geographic markets place a high value on using Spanish-language radio to reach their targeted audience, and that therefore the provision of advertising time on Spanish-language radio stations to these advertisers was a relevant product market. The issue was never ruled on.

Here, Viva had alleged that 7% of Houston's population speaks only Spanish. Based on that allegation, the court rejected AMC's argument that English films are a legitimate market substitute for these customers. The Court held that "these allegations of a portion of the population that is concerned solely with First Run Spanish Language films are sufficient" to allege a Sherman Act claim. The Court explained, "Viva does concede that there were people capable of seeing movies in both English and Spanish, however, this does nothing to address the 7% (assuming that is the correct number) that cannot observe a movie without dubbing or subtitles."

This case appears to be the first time a federal district court has ruled directly on the issue. But, as media content continues to be tailored to Spanish-speaking consumers, this issue will likely come up in future antitrust cases and merger reviews by federal antitrust agencies. According to the U.S. Census Bureau, 39.3 million U.S. residents age 5 and older (or 13.1% of the population) speak Spanish at home. Consequently, this ruling is instructive for media companies considering acquisitions or business arrangements concerning Spanish-speaking consumers in the United States. They will want to pay close attention to how these issues develop.

Court Finds Spanish-Language Movies May Be A Proper Antitrust Product Submarket

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