Case 1:16-cv-02475 Document 1 Filed 12/20/16 Page 1 of 29

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA
Antitrust Division
450 Fifth Street, NW, Suite 4000
Washington, DC 20530,
Plaintiff,
v.
AMC ENTERTAINMENT HOLDINGS,
INC.,
One AMC Way
11500 Ash Street
Leawood, KS 64105,

Civil Action No.:

and
CARMIKE CINEMAS, INC.,
1301 First Avenue
Columbus, GA 31901,
Defendants.

COMPLAINT
The United States of America, acting under the direction of the Attorney General of the
United States, brings this civil antitrust action to prevent the proposed acquisition by Defendant
AMC Entertainment Holdings, Inc. (“AMC”) of all of the outstanding voting securities of
Defendant Carmike Cinemas, Inc. (“Carmike”).
I. NATURE OF ACTION
1.

AMC is a significant competitor to Carmike in the exhibition of first-run

commercial movies in multiple areas around the United States, including the areas in and around
Montgomery, Alabama; Destin and Miramar Beach, Florida; Orange Park and Fleming Island,
Florida; Cumming, Georgia; Lithonia and Conyers, Georgia; Crestwood and Lansing, Illinois;
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Normal and Bloomington, Illinois; Pekin, Peoria, and Washington, Illinois; Inver Grove Heights
and Oakdale, Minnesota; Coon Rapids and Mounds View, Minnesota; Rockaway and Sparta,
New Jersey; Westfield and Cranford, New Jersey; Lawton, Oklahoma; Allentown and Center
Valley, Pennsylvania; and Madison and Fitchburg, Wisconsin (collectively, the “Local
Markets”). If AMC acquires Carmike, AMC would obtain direct control of one of its most
significant competitors in the Local Markets, likely resulting in higher ticket prices and/or a
lower quality viewing experience for moviegoers in these areas.
2.

AMC is also a founding member of National CineMedia, LLC (“NCM”) – the

nation’s largest provider of preshow services to exhibitors – and remains one of NCM’s largest
investors and exhibitors. Carmike is the largest exhibitor in the network of NCM’s main
competitor, Screenvision Exhibitions, Inc. (“Screenvision”), and is one of Screenvision’s largest
investors. NCM and Screenvision are the country’s two leading preshow cinema advertising
networks and together cover over 80% of movie theatre screens in the United States. If AMC’s
proposed acquisition of Carmike were to proceed, it would likely weaken competition between
NCM and Screenvision because they would have a significant common owner. In addition, the
proposed merger would undermine Screenvision’s ability to compete for advertisers and
exhibitors because, as explained below, Screenvision will no longer be able to rely on Carmike’s
growth to expand its network. The loss of competition in the markets for preshow services and
cinema advertising will likely result in lower preshow services revenues to exhibitors, higher
prices to cinema advertisers, and lower quality preshow services and advertising.
3.

Accordingly, AMC’s proposed acquisition of Carmike likely would substantially

lessen competition in each of the Local Markets for the exhibition of first-run, commercial
movies and in the markets for the sale of preshow services to exhibitors and the sale of cinema

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advertising to advertisers in the United States in violation of Section 7 of the Clayton Act, 15
U.S.C. § 18, and should be enjoined.
II. JURISDICTION AND VENUE
4.

This action is filed by the United States pursuant to Section 15 of the Clayton Act,

as amended, 15 U.S.C. § 25, to obtain equitable relief and to prevent a violation of Section 7 of
the Clayton Act, as amended, 15 U.S.C. § 18.
5.

The distribution and theatrical exhibition of first-run, commercial films, the

provision of preshow services to thousands of theatres across the United States, and the sale of
cinema advertising to advertisers throughout the United States are commercial activities that
substantially affect, and are in the flow of, interstate trade and commerce. Defendants’ activities
in purchasing preshow advertising and other content, equipment, services, and supplies, as well
as licensing films for exhibition, substantially affect interstate commerce.
6.

The Court has jurisdiction over the subject matter of this action pursuant to 15

U.S.C. § 25 and 28 U.S.C. §§ 1331, 1337(a), and 1345.
7.

Defendants consent to personal jurisdiction and venue in this district, and AMC

operates theatres in this district. This Court has personal jurisdiction over each Defendant, and
venue is proper under 15 U.S.C. § 22, and 28 U.S.C. § 1391(b) and (c).
III. DEFENDANTS AND THE PROPOSED ACQUISITION
8.

Defendant AMC is a Delaware corporation with its headquarters in Leawood,

Kansas. As of September 30, 2016, AMC operated approximately 388 theatres with a total of
5,295 screens located across 31 states and the District of Columbia. AMC reported
approximately $1.89 billion in U.S. box office revenues in 2015 and approximately $1.46 billion

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in U.S. box office revenues for the first nine months of 2016. Measured by number of theatres,
screens, and box office revenue, AMC is the second-largest theatre circuit in the United States.
9.

Defendant Carmike is a Delaware corporation with its headquarters in Columbus,

Georgia. As of September 30, 2016, Carmike operated approximately 271 movie theatres with a
total of 2,917 screens located across 41 states. Carmike reported approximately $490.0 million
in U.S. box office revenues in 2015, and approximately $370.8 million in U.S. box office
revenue for the first nine months of 2016. Measured by number of theatres, screens, and box
office revenue, Carmike is the fourth-largest theatre circuit in the United States.
10.

On March 3, 2016, AMC and Carmike executed an Agreement and Plan of

Merger, under which AMC would acquire all outstanding voting securities of Carmike for
approximately $1.2 billion. If the parties consummate the merger, AMC will be the nation’s
largest theatre exhibitor.
IV. BACKGROUND
A. Movie Theatres
11.

Viewing movies in a theatre is a popular pastime. Over 1.3 billion movie tickets

were sold in the United States and Canada in 2015, with total box office revenues reaching
approximately $11.1 billion.
12.

Companies that operate movie theatres are called “exhibitors.” Some exhibitors

own a single theatre, whereas others own a circuit of theatres within one or more regions of the
United States. AMC and Carmike are two of the largest exhibitors in the United States.
13.

Exhibitors set ticket prices for a theatre based on a number of factors, including

the age and condition of the theatre, the number and type of amenities the theatre offers (such as
the range of snacks, food and beverages offered, the size of its screens and quality of its sound

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systems, and whether it provides stadium and/or reserved seating), competitive pressures facing
the theatre (such as the price of tickets at nearby theatres, the age and condition of those theatres,
and the number and types of amenities they offer), and the population demographics and density
surrounding the theatre.
B. Preshow Services and Cinema Advertising
14.

On almost all movie screens, before the previews and feature film begin, the

audience is presented with a preshow – a video program consisting of national, regional, and
local advertisements; special content segments (e.g., a “behind the scenes” look at a new TV
show); and theatre announcements. The preshow is typically twenty to thirty minutes long and is
designed to engage moviegoers as they wait for the feature film to start.
15.

Cinema advertising networks act as intermediaries between exhibitors and

advertisers. For advertisers, the preshow is a unique opportunity to reach an attentive audience
using a large screen with the benefit of high-quality video and sound. For exhibitors, the
preshow provides a lucrative way to supplement revenue earned through ticket sales and
concessions at a time when its movie screens screens are otherwise unused.
16.

To obtain preshow services, exhibitors typically enter into long-term, exclusive

contracts with the cinema advertising networks. The contracts for the largest few exhibitors,
including AMC and Carmike, tend to be longest – approximately 30 years – whereas the
contracts for the smaller exhibitors tend to last five to ten years. Under the contracts, the
networks commit to marketing the preshow screen time to advertisers and packaging the
advertisements and other content into an entertaining video program. Exhibitors agree to display
the preshow on their movie screens. The cinema advertising networks retain a negotiated portion

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of the advertising proceeds for the services they provide, and the exhibitors retain the remaining
portion of the advertising proceeds.
17.

Cinema advertising networks sell advertising time in preshows to advertisers

seeking to market their products on a local, regional, or national basis. Generally, national
advertisers seek to purchase cinema advertising from firms that can provide access to a
nationwide network of movie screens. Thus, the cinema advertising networks work hard to enter
into contracts with exhibitors throughout the country and compete vigorously to woo exhibitors
away from each other.
18.

NCM and Screenvision are the dominant cinema advertising networks in the

United States. They compete head-to-head to win exclusive contracts with exhibitors and to
offer advertisers access to their exhibitors’ movie audiences. Together, NCM and Screenvision
serve over 80% of all movie screens in the country.
19.

NCM has a national cinema advertising network that covers about 20,500 of the

approximately 40,500 movie screens in the United States. In 2015, NCM earned approximately
$447 million in gross advertising revenue.
20.

National CineMedia, Inc. is the managing member and owner of 43.6% of NCM.

The remaining 56.4% is owned by the three largest exhibitors in the United States: AMC
(17.4%), Regal Entertainment Group (“Regal”) (19.8%), and Cinemark Holdings, Inc.
(“Cinemark”) (19.2%). Under NCM’s governing documents, post-merger, AMC ownership
would increase to approximately 26.5%.
21.

Regal, Cinemark, and AMC (the so-called “Founding Members”) exercise a

significant degree of control and influence over NCM and account for approximately 83% of its
screens. In addition to holding a majority of NCM’s equity, they have representatives on NCM’s

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Board of Directors and enjoy substantial governance rights, including approval rights over
certain NCM contracts with competing exhibitors. NCM management routinely consults with
executives of the Founding Members in making business decisions. AMC can fill two seats on
the NCM board.
22.

Screenvision has a national cinema advertising network that covers 14,300

screens in more than 2,300 theatres. Carmike is by far the largest exhibitor in Screenvision’s
network, and, as of September 30, 2016, owned approximately 19% of Screenvision through SV
Holdco, LLC, a holding company that owns and operates Screenvision. Carmike also holds a
seat on Screenvision’s board of directors and possesses certain governance rights. No other
major theatre exhibitor holds significant equity interests in Screenvision. Following the merger,
AMC plans to divest or convert Carmike’s Screenvision shares such that AMC will hold no more
than 10% of Screenvision’s voting stock.
V. RELEVANT MARKETS
A. The Exhibition of First-Run, Commercial Movies in the Local Markets
23.

The exhibition of first-run, commercial movies in the Local Markets are relevant

markets under Section 7 of the Clayton Act, 15 U.S.C. 18.
The Exhibition of First-Run, Commercial Movies Product Market
24.

Movies are a unique form of entertainment. The experience of viewing a movie

in a theatre is an inherently different experience from live entertainment (e.g., a stage production
or attending a sporting event) or viewing a movie in the home (e.g., through streaming video, on
a DVD, or via pay-per-view).
25.

Reflecting the significant differences of viewing a movie in a theatre, ticket prices

for movies generally differ from prices for other forms of entertainment. For example, typically,

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tickets for live entertainment are significantly more expensive than a movie ticket, whereas the
costs of home viewing through streaming video, a DVD rental, or pay-per-view is usually
significantly less expensive than viewing a movie in a theatre.
26.

Viewing a movie at home differs from viewing a movie in a theatre in many

ways. For example, the size of the screens differ, the sophistication of the sound systems differ,
and, unlike at home, in the theatre, one has the social experience of viewing a movie with other
patrons.
27.

In addition, the most popular newly released or “first-run” movies are not

available for home viewing at the time they are released in theatres. Movies are considered to be
in their “first-run” during the four to five weeks following initial release in a given locality. If
successful, a movie may be exhibited at other theatres after the first-run as part of a second or
subsequent run (often called a “sub-run” or “second-run”).
28.

Moviegoers generally do not regard sub-run movies as an adequate substitute for

first-run movies. Reflecting the significant difference between viewing a newly released, firstrun movie and an older sub-run movie, tickets at theatres exhibiting first-run movies usually cost
significantly more than tickets at sub-run theatres.
29.

Art movies and foreign-language movies are also not reasonable substitutes for

commercial, first-run movies. Art movies, which include documentaries, are sometimes referred
to as independent films. Although art and foreign-language movies appeal to some viewers of
commercial movies, art and foreign-language movies tend to have more narrow appeal and
typically attract an older audience than commercial movies. Exhibitors consider the operation of
theatres that predominantly exhibit art and foreign-language movies to be distinct from the
operation of theatres that predominantly exhibit commercial movies.

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30.

A hypothetical monopolist controlling the exhibition of all first-run, commercial

movies in a relevant geographic market would profitably impose at least a small but significant
and non-transitory increase (SSNIP) in ticket prices. Thus, the exhibition of first-run,
commercial movies is a relevant product market and line of commerce under Section 7 of the
Clayton Act in which to assess the competitive effects of this acquisition.
Relevant Geographic Markets for the Exhibition of First-Run, Commercial Movies
31.

Moviegoers typically are not willing to travel very far from their home to attend a

movie. As a result, geographic markets for the exhibition of first-run, commercial movies are
relatively local. Each of the following areas is a relevant geographic market and section of the
country for purposes of Section 7 of the Clayton Act.
Area In and Around Montgomery, Alabama
32.

AMC and Carmike account for all of the first-run, commercial movie box office

revenue in and around Montgomery, Alabama. The only theatres that predominantly show firstrun commercial movies in this area are the Carmike Chantilly 13 BigD, the Carmike Promenade
12, and the AMC Festival Plaza 16. No other predominately first-run, commercial movie theatre
is in the vicinity of the AMC and Carmike theatres.
33.

Moviegoers who reside in and around Montgomery, Alabama are unlikely to

travel significant distances out of that area to attend a first-run, commercial movie. A small but
significant increase in the price of tickets by a hypothetical monopolist of first-run, commercial
movie theatres in this area would likely not cause a sufficient number of moviegoers to travel out
of that area to make the increase unprofitable. The area in and around Montgomery, Alabama
constitutes a relevant geographic market in which to assess the competitive effects of this
acquisition.

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Area In and Around Destin and Miramar Beach, Florida
34.

AMC and Carmike account for all of the first-run, commercial movie box office

revenue in and around Destin and Miramar Beach, Florida. The only theatres that predominantly
show first-run commercial movies in this area are the AMC Destin Commons 14 and the
Carmike Boulevard 10 BigD. No other predominantly first-run, commercial movie theatre is in
the vicinity of the AMC and Carmike theatres.
35.

Moviegoers who reside in and around Destin and Miramar Beach, Florida are

unlikely to travel significant distances out of that area to attend a first-run, commercial movie. A
small but significant increase in the price of tickets by a hypothetical monopolist of first-run,
commercial movie theatres in this area would likely not cause a sufficient number of moviegoers
to travel out of that area to make the increase unprofitable. The area in and around Destin and
Miramar Beach, Florida constitutes a relevant geographic market in which to assess the
competitive effects of this acquisition.
Area In and Around Orange Park and Fleming Island, Florida
36.

AMC and Carmike account for the majority of the first-run, commercial movie

box office revenue in and around Orange Park and Fleming Island, Florida. The only theatres
that predominantly show first-run commercial movies in this area are the Carmike Fleming
Island 12, the AMC Orange Park 24, and the EPIC Theater at Oakleaf. Other than the EPIC
Theater, no other first-run, commercial movie theatre is in the vicinity of the Carmike and AMC
theatres.
37.

Moviegoers who reside in and around Orange Park and Fleming Island, Florida

are unlikely to travel significant distances out of that area to attend a first-run, commercial
movie. A small but significant increase in the price of tickets by a hypothetical monopolist of

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first-run, commercial movie theatres in this area would likely not cause a sufficient number of
moviegoers to travel out of that area to make the increase unprofitable. The area in and around
Orange Park and Fleming Island, Florida constitutes a relevant geographic market in which to
assess the competitive effects of this acquisition.
Area In and Around Cumming, Georgia
38.

AMC and Carmike account for the majority of the first-run, commercial movie

box office revenue in and around Cumming, Georgia. The only theatres that predominantly
show first-run commercial movies in this area are the Carmike Movies 400 12, the AMC Avenue
Forsyth 12, and the Regal Avalon 12. Other than the Regal Avalon 12, no other predominantly
first-run, commercial movie theatre is in the vicinity of the Carmike and AMC theatres.
39.

Moviegoers who reside in and around Cumming, Georgia are unlikely to travel

significant distances out of that area to attend a first-run, commercial movie. A small but
significant increase in the price of tickets by a hypothetical monopolist of first-run, commercial
movie theatres in this area would likely not cause a sufficient number of moviegoers to travel out
of that area to make the increase unprofitable. The area in and around Cumming, Georgia
constitutes a relevant geographic market in which to assess the competitive effects of this
acquisition.
Area In and Around Lithonia and Conyers, Georgia
40.

AMC and Carmike account for all of the first-run, commercial movie box office

revenue in and around Lithonia and Conyers, Georgia. The only theatres that predominantly
show first-run commercial movies in this area are the Carmike Conyers Crossing 16 and the
AMC Stonecrest Mall 16. No other predominately first-run, commercial movie theatre is in the
vicinity of the AMC and Carmike theatres.

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41.

Moviegoers who reside in and around Lithonia and Conyers, Georgia are unlikely

to travel significant distances out of that area to attend a first-run, commercial movie. A small
but significant increase in the price of tickets by a hypothetical monopolist of first-run,
commercial movie theatres in this area would likely not cause a sufficient number of moviegoers
to travel out of that area to make the increase unprofitable. The area in and around Lithonia and
Conyers, Georgia constitutes a relevant geographic market in which to assess the competitive
effects of this acquisition.
Area In and Around Crestwood and Lansing, Illinois
42.

AMC and Carmike account for the majority of the first-run, commercial movie

box office revenue in and around Crestwood and Lansing, Illinois. The only theatres that
predominantly show first-run commercial movies in this area are the Carmike Digiplex Lansing
8, the AMC Crestwood 18, the AMC Schererville 12, the AMC Schererville 16, the Marcus
Country Club Hills Cinema, the Marcus Chicago Heights Cinema, the Studio Movie Grill
Chatham, and the Hoosier Theater. Other than the Marcus Country Club Hills Cinema, the
Marcus Chicago Heights Cinema, the Studio Movie Grill Chatham, and the Hoosier Theater, no
other predominantly first-run, commercial movie theatre is in the vicinity of the Carmike and
AMC theatres.
43.

Moviegoers who reside in and around Crestwood and Lansing, Illinois are

unlikely to travel significant distances out of that area to attend a first-run, commercial movie. A
small but significant increase in the price of tickets by a hypothetical monopolist of first-run,
commercial movie theatres in this area would likely not cause a sufficient number of moviegoers
to travel out of that area to make the increase unprofitable. The area in and around Crestwood

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and Lansing, Illinois constitutes a relevant geographic market in which to assess the competitive
effects of this acquisition.
Area In and Around Normal and Bloomington, Illinois
44.

AMC and Carmike account for the majority of the first-run, commercial movie

box office revenue in and around Normal and Bloomington, Illinois. The only theatres that
predominantly show first-run commercial movies in this area are the Carmike Ovation 10, the
AMC Normal 14, and the Wehrenberg Bloomington Galaxy 14 Cinema. Other than the
Wehrenberg Bloomington Galaxy 14 Cinema, no other predominantly first-run, commercial
movie theatre is in the vicinity of the AMC and Carmike theatres.
45.

Moviegoers who reside in and around Normal and Bloomington, Illinois are

unlikely to travel significant distances out of that area to attend a first-run, commercial movie. A
small but significant increase in the price of tickets by a hypothetical monopolist of first-run,
commercial movie theatres in this area would likely not cause a sufficient number of moviegoers
to travel out of that area to make the increase unprofitable. The area in and around Normal and
Bloomington, Illinois constitutes a relevant geographic market in which to assess the competitive
effects of this acquisition.
Area In and Around Pekin, Peoria, and Washington, Illinois
46.

AMC and Carmike account for the majority of the first-run, commercial movie

box office revenue in and around Pekin, Peoria, and Washington, Illinois. The only theatres that
predominantly show first-run commercial movies in this area are the Carmike Sunnyland 10, the
Carmike Grand Prairie 18, the AMC Pekin 14, the Goodrich Willow Knolls 14, the Morton
Cinema, and the Landmark Cinemas. Other than the Goodrich Willow Knolls, the Morton

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Cinema, and the Landmark Cinemas, no predominantly first-run, commercial movie theatre is in
the vicinity of the AMC and Carmike theatres.
47.

Moviegoers who reside in and around Pekin, Peoria, and Washington, Illinois are

unlikely to travel significant distances out of that area to attend a first-run, commercial movie. A
small but significant increase in the price of tickets by a hypothetical monopolist of first-run,
commercial movie theatres in this area would likely not cause a sufficient number of moviegoers
to travel out of that area to make the increase unprofitable. The area in and around Pekin, Peoria,
and Washington, Illinois constitutes a relevant geographic market in which to assess the
competitive effects of this acquisition.
Area In and Around Inver Grove Heights and Oakdale, Minnesota
48.

AMC and Carmike account for nearly a majority of the first-run, commercial

movie box office revenue in and around Inver Grove Heights and Oakdale, Minnesota. The only
theatres that predominantly show first-run commercial movies in this area are the AMC Inver
Grove 16, the Carmike Oakdale 20, the Woodbury 10, and the Marcus Oakdale 17. Other than
the Woodbury 10 and the Marcus Oakdale 17, no other predominantly first-run, commercial
movie theatre is in the vicinity of the Carmike and AMC theatres.
49.

Moviegoers who reside in and around Inver Grove Heights and Oakdale,

Minnesota are unlikely to travel significant distances out of that area to attend a first-run,
commercial movie. A small but significant increase in the price of tickets by a hypothetical
monopolist of first-run, commercial movie theatres in this area would likely not cause a
sufficient number of moviegoers to travel out of that area to make the increase unprofitable. The
area in and around Inver Grove Heights and Oakdale, Minnesota constitutes a relevant
geographic market in which to assess the competitive effects of this acquisition.

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Area In and Around Coon Rapids and Mounds View, Minnesota
50.

AMC and Carmike account for the majority of the first-run, commercial movie

box office revenue in and around Coon Rapids and Mounds View, Minnesota. The only theatres
that predominantly show first-run commercial movies in this area are the AMC Coon Rapids 16,
the AMC Arbor Lakes, the Carmike Wynnsong 15, the Andover 10, the Regal Brooklyn Center
20, and the Mann Champlin. Other than the Andover 10, the Regal Brooklyn Center 20, and the
Mann Champlin, no other predominantly first-run, commercial movie theatre is in the vicinity of
the Carmike and AMC theatres.
51.

Moviegoers who reside in and around Coon Rapids and Mounds View, Minnesota

are unlikely to travel significant distances out of that area to attend a first-run, commercial
movie. A small but significant increase in the price of tickets by a hypothetical monopolist of
first-run, commercial movie theatres in this area would likely not cause a sufficient number of
moviegoers to travel out of that area to make the increase unprofitable. The area in and around
Coon Rapids and Mounds View, Minnesota constitutes a relevant geographic market in which to
assess the competitive effects of this acquisition.
Area In and Around Rockaway and Sparta, New Jersey
52.

AMC and Carmike account for all of the first-run, commercial movie box office

revenue in and around Rockaway and Sparta, New Jersey. The only theatres that predominantly
show first-run commercial movies in this area are the Carmike Digiplex Sparta 3 and the AMC
Rockaway 16. No other predominantly first-run, commercial movie theatre is in the vicinity of
the Carmike and AMC theatres.
53.

Moviegoers who reside in and around Rockaway and Sparta, New Jersey are

unlikely to travel significant distances out of that area to attend a first-run, commercial movie. A

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small but significant increase in the price of tickets by a hypothetical monopolist of first-run,
commercial movie theatres in this area would likely not cause a sufficient number of moviegoers
to travel out of that area to make the increase unprofitable. The area in and around Rockaway
and Sparta, New Jersey constitutes a relevant geographic market in which to assess the
competitive effects of this acquisition.
Area In and Around Westfield and Cranford, New Jersey
54.

AMC and Carmike account for the majority of the first-run, commercial movie

box office revenue in and around Westfield and Cranford, New Jersey. Carmike operates two
first-run, commercial movie theatres in the area: the Digiplex Rialto Westfield and the Digiplex
Cranford 5. AMC operates five theaters in the area: the Mountainside 10, the Aviation 12, the
Jersey Gardens 20, the Menlo Park 12, and the Essex Green 9. While there are several other
first-run, commercial movie theatres operating in the vicinity of the AMC and Carmike theatres
in the area, AMC and Carmike are first and fourth, respectively, in term of the number of screens
and box office revenue.
55.

Moviegoers who reside in and around Westfield and Cranford, New Jersey are

unlikely to travel significant distances out of that area to attend a first-run, commercial movie. A
small but significant increase in the price of tickets by a hypothetical monopolist of first-run,
commercial movie theatres in this area would likely not cause a sufficient number of moviegoers
to travel out of that area to make the increase unprofitable. The area in and around Westfield and
Cranford, New Jersey constitutes a relevant geographic market in which to assess the
competitive effects of this acquisition.

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Area In and Around Lawton, Oklahoma
56.

AMC and Carmike account for all of the first-run, commercial movie box office

revenue in and around Lawton, Oklahoma. The only theatres that predominantly show first-run
commercial movies in this area are the Carmike Patriot 13 and the AMC Lawton 12. No other
predominately first-run, commercial movie theatre is in the vicinity of the Carmike and AMC
theatres.
57.

Moviegoers who reside in and around Lawton, Oklahoma are unlikely to travel

significant distances out of that area to attend a first-run, commercial movie. A small but
significant increase in the price of tickets by a hypothetical monopolist of first-run, commercial
movie theatres in this area would likely not cause a sufficient number of moviegoers to travel out
of that area to make the increase unprofitable. The area in and around Lawton, Oklahoma
constitutes a relevant geographic market in which to assess the competitive effects of this
acquisition.
Area In and Around Allentown and Center Valley, Pennsylvania
58.

AMC and Carmike account for all of the first-run, commercial movie box office

revenue in and around Allentown and Center Valley, Pennsylvania. The only theatres that
predominantly show first-run commercial movies in this area are the Carmike Promenade 16
IMAX, the Carmike Promenade 16, and the AMC Tilghman Square 8. No other predominately
first-run, commercial movie theatre is in the vicinity of the Carmike and AMC theatres.
59.

Moviegoers who reside in and around Allentown and Center Valley, Pennsylvania

are unlikely to travel significant distances out of that area to attend a first-run, commercial
movie. A small but significant increase in the price of tickets by a hypothetical monopolist of
first-run, commercial movie theatres in this area would likely not cause a sufficient number of

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moviegoers to travel out of that area to make the increase unprofitable. The area in and around
Allentown and Center Valley, Pennsylvania constitutes a relevant geographic market in which to
assess the competitive effects of this acquisition.
Area In and Around Madison and Fitchburg, Wisconsin
60.

AMC and Carmike account for the majority of the first-run, commercial movie

box office revenue in and around Madison and Fitchburg, Wisconsin. The only theatres that
predominantly show first-run commercial movies in this area are the Carmike Sundance Madison
6, the AMC Fitchburg 18, and the Marcus Point Cinema 15. Other than the Marcus Point
Cinema 15, no predominately first-run, commercial movie theatre is in the vicinity of the AMC
and Carmike theatres.
61.

Moviegoers who reside in and around Madison and Fitchburg, Wisconsin are

unlikely to travel significant distances out of that area to attend a first-run, commercial movie. A
small but significant increase in the price of tickets by a hypothetical monopolist of first-run,
commercial movie theatres in this area would likely not cause a sufficient number of moviegoers
to travel out of that area to make the increase unprofitable. The area in and around Madison and
Fitchburg, Wisconsin constitutes a relevant geographic market in which to assess the competitive
effects of this acquisition.
B. Preshow Services and Cinema Advertising in the United States
62.

Preshow services sold to exhibitors and cinema advertising sold to advertisers in

the United States are relevant markets under Section 7 of the Clayton Act, 15 U.S.C. § 18.

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Preshow Services and Cinema Advertising Product Markets
i. Preshow Services
63.

Preshow services consist of the packaging of advertisements and content into a

preshow delivered to exhibitors, enabling them to earn revenue from the use of their screens
before the feature film. The price charged to exhibitors for preshow services is the portion of
advertising revenue retained by the network.
64.

The sale of preshow services to exhibitors constitutes a relevant product market

and line of commerce under Section 7 of the Clayton Act. There are no reasonable substitutes
for preshow services. Exhibitors cannot easily replace the preshow services that they buy from
cinema advertising networks because individual exhibitors generally lack sufficient screens and
geographic reach to secure national advertising. Nor can exhibitors sufficiently replace national
advertising in preshows with local and regional advertising because local and regional
advertising generates far less revenue than national advertising. Because there are no reasonable
substitutes for preshow services, a hypothetical monopolist of all such services could profitably
impose a SSNIP. Thus, the market for preshow services is a relevant product market in which to
assess the competitive effects of this acquisition.
ii. Cinema Advertising
65.

Cinema advertising is the on-screen advertising incorporated in the preshow. The

sale of cinema advertising to advertisers is a relevant product market and line of commerce under
Section 7 of the Clayton Act. Cinema advertising has important attributes that differentiate it
from other forms of video advertising. For example, the preshow is projected on a large screen
with high-quality video and sound in a darkened auditorium. In contrast to TV and other video
advertising platforms, the audience cannot avoid the advertisements by fast forwarding through

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them, clicking past them, or changing a channel. The preshow also allows for long-form
advertisements typically not available on TV, and it reaches a weekend audience and light TV
viewers who are otherwise difficult to reach.
66.

Many advertisers value the combination of attributes afforded by cinema

advertising, and few would switch to other forms of video advertising in response to a SSNIP of
cinema advertising. A hypothetical monopolist over all cinema advertising would profitably
impose a SSNIP and, thus, the market for cinema advertising is a relevant product market in
which to assess the competitive effects of this acquisition.
Relevant Geographic Market for Preshow Services and Cinema Advertising
67.

NCM and Screenvision compete with each other throughout the United States.

Exhibitors and advertisers in the United States would not switch to cinema advertising networks
located outside of the United States in the event of a SSNIP in the United States. Accordingly,
the United States is a relevant geographic market for preshow services sold to exhibitors and for
cinema advertising sold to advertisers within the meaning of Section 7 of the Clayton Act.
VI. COMPETITIVE EFFECTS
A. Exhibition of First-Run, Commercial Movies in the Local Markets
68.

Exhibitors compete to attract moviegoers to their theatres over the theatres of their

rivals. They do that by competing on price, knowing that if they charge too much (or do not
offer sufficient discounted tickets for matinees, seniors, students, or children) moviegoers will
begin to frequent their rivals’ theatres. Exhibitors also compete by seeking to license the firstrun movies that are likely to attract the largest numbers of moviegoers. In addition, exhibitors
compete over the quality of the viewing experience by offering moviegoers the most
sophisticated sound systems, largest screens, best picture clarity, best seating (including stadium,

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reserved, and recliner seating), and the broadest variety and highest quality snacks, food, and
drinks at concession stands or cafés in the lobby or served to moviegoers at their seats.
69.

AMC and Carmike currently compete for moviegoers in the Local Markets.

These markets are highly concentrated, and in each market, AMC and Carmike are significant
competitors, given their close proximity. Their rivalry spurs each to improve the quality of its
theatres and keeps ticket prices in check.
70.

In each of the Local Markets, AMC’s acquisition of Carmike will lead to

significant increases in concentration and eliminate existing competition between AMC and
Carmike.
71.

Market concentration is often a useful indicator of the level of competitive vigor

in a market and the likely competitive effects of a merger. The more concentrated a market, and
the more a transaction would increase that concentration, the more likely it is that the transaction
would result in reduced competition, harming consumers. Market concentration commonly is
measured by the Herfindahl-Hirschman Index (“HHI”), as discussed in Appendix A. Markets in
which the HHI exceeds 2,500 points are considered highly concentrated, and transactions that
increase the HHI by more than 200 points in highly concentrated markets are presumed likely to
enhance market power.
72.

All of the Local Markets are highly concentrated and will experience significant

HHI increases as a result of the transaction. In each of the Local Markets, the proposed
acquisition would give AMC control of at least half, and sometimes all, of the first-run,
commercial movie theatre screens and between 48% and 100% of the annual box office
revenues. In each of the Local Markets, the acquisition would yield post-acquisition HHIs of
between 3,800 and 10,000, representing increases in the range of 600 to 5,000 points.

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73.

Today, were one of Defendants’ theatres to increase unilaterally ticket prices in

each of Local Markets, the exhibitor that increased price would likely suffer financially as a
substantial number of its customers would patronize the other exhibitor. The acquisition would
eliminate this pricing constraint. Thus, the acquisition is likely to lead to higher ticket prices for
moviegoers, which could take the form of a higher adult evening ticket price or reduced
discounting for matinees, children, seniors, or students.
74.

The proposed acquisition likely would also reduce competition between AMC and

Carmike over the quality of the viewing experience at the theatres in the Local Markets. If no
longer motivated to compete, AMC and Carmike would have reduced incentives to maintain,
upgrade, and renovate their theatres, to improve the theatres’ amenities and services, or to license
the most popular movies, thus reducing the quality of the viewing experience for moviegoers in
the Local Markets.
75.

For all of these reasons, AMC’s acquisition of Carmike likely will result in a

substantial lessening of competition in each of the Local Markets.
B. Preshow Services and Cinema Advertising in the United States
76.

The proposed transaction also would likely substantially lessen competition in the

markets for the sale of preshow services to exhibitors and the sale of cinema advertising to
advertisers in the United States.
AMC’s Simultaneous Ownership of Equity Interests in NCM and Screenvision Will
Likely Substantially Lessen Competition
77.

As a significant owner of equity interests in both NCM and Screenvision post-

merger, AMC would have an incentive to reduce the head-to-head competition between NCM
and Screenvision. AMC will not benefit from strong competition between NCM and

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Screenvision post-merger because the competition will lower the profits AMC earns from NCM
and Screenvision through its ownership interest.
78.

In light of this incentive, AMC will likely use its influence and governance rights

in both companies to ensure that NCM and Screenvision compete less aggressively to sign
contracts with exhibitors and advertisers at the expense of the other network. AMC will also
have the ability to use its access to confidential, nonpublic, and trade secret information from
NCM and Screenvision to facilitate collusion by passing that competitively sensitive information
between NCM and Screenvision.
79.

The lessening of competition between NCM and Screenvision will likely result in

lower payments to exhibitors and/or lower quality preshows for exhibitors. Given that NCM and
Screenvision control over 80% of screens in the United States, it would be difficult for exhibitors
to substitute to other, smaller networks.
80.

Additionally, as a result of this lessening of competition, advertisers will no

longer benefit from the lower prices that have resulted from the competition between NCM and
Screenvision. Advertisers do not have choices other than these two networks to reach a broad
number of viewers of their cinema advertising.
The Merger Will Likely Substantially Lessen Competition in Both Markets Because It
Will Likely Weaken Screenvision’s Ability to Compete
81.

The loss of an independent Carmike also likely would weaken Screenvision’s

ability to remain a robust, competitive check on NCM, the only other significant competitor in
the preshow services and cinema advertising markets. Scale is an important element of
competition for advertisers and, in turn, for exhibitors. Carmike is Screenvision’s largest
exhibitor, and Screenvision touts the Carmike theatre network’s current, broad scale when
competing to execute deals with advertisers and exhibitors.
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82.

Screenvision also relies on Carmike’s expansion plans to maintain and possibly

expand the scale of its network of screens. Under Carmike’s contract with Screenvision, all
newly-acquired or -built Carmike theatres that have a preshow are automatically assigned to the
Screenvision network. As a result, Carmike has fueled much of Screenvision’s growth in recent
years through its acquisitions of existing theatres and new theatre builds. This growth is
important to maintaining scale since exhibitors, including Carmike, periodically close theaters
that are no longer economically viable. Additionally, Screenvision’s scale is at risk as the
industry consolidates and more of the exhibitors with which it had previously contracted migrate
to the contracts between NCM and its Founding Members: AMC, Regal, and Cinemark.
83.

NCM’s Founding Members and Carmike are the only exhibitors that have made

significant acquisitions as the exhibitor industry has been consolidating. These exhibitors have
long-term exclusive contracts with either NCM or Screenvision. If AMC acquires Carmike, the
AMC/NCM exclusive arrangement will be expanded to Carmike and all of the merged firm’s
future theatre acquisitions and new builds will affiliate with NCM. Screenvision will lose access
to its only substantial source of theatre acquisitions and the number of independent exhibitors
unencumbered by long-term exclusive dealing arrangements for which Screenvision can compete
will shrink even more as industry consolidation continues. Screenvision will only be able to rely
on the other, smaller exhibitors for theatre acquisitions or new builds to maintain its network
scale. These exhibitors will be unable to replace the growth that Carmike would have likely
provided in the absence of the merger.
84.

Competition will be lessened in the preshow services and cinema advertising

markets because the merger will weaken one of the only two competitors. In the preshow
services market, because NCM and Screenvision closely monitor each other and battle for

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market share, the competition between them provides tangible benefits for exhibitors with
respect to price and quality of preshows. The proposed merger would likely substantially lessen
the competition between NCM and Screenvision that has yielded these benefits, potentially
forcing exhibitors to raise prices to consumers or forgo theatre improvements to offset the
resulting reduction in revenue that they earn from preshows.
85.

In the cinema advertising market, the resulting lessening of competition from the

proposed acquisition would negatively impact advertisers, who pay NCM and Screenvision to
place their ads in the movie preshows. Currently, advertisers benefit from competition between
NCM and Screenvision for the placement of their ads. The proposed merger would likely
substantially lessen the competition between NCM and Screenvision that has yielded these
benefits, likely forcing advertisers to pay higher prices or accept lower quality placement of their
advertising in the movie pre-shows.
VII. ENTRY
86.

Sufficient, timely entry that would deter or counteract the anticompetitive effects

in the relevant markets alleged above is unlikely. Exhibitors are reluctant to locate new, firstrun, commercial theatres near existing, first-run, commercial theatres unless the population
density, demographics, or the quality of existing theatres makes new entry viable. Timely entry
of new, first-run, commercial movie theatres in the areas in and around the Local Markets would
be unlikely to defeat a price increase by the merged firm.
87.

Additionally, the entry barriers associated with developing a cinema advertising

network are high, and thus new entry or expansion by existing competitors is unlikely to prevent
or remedy the proposed merger’s likely anticompetitive effects in the preshow services and
cinema advertising markets. Barriers to entry and expansion include the time and cost of

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developing a network of screens to achieve sufficient scale. NCM’s and Screenvision’s lock-up
of almost all of the exhibitors in the United States through staggered long-term contracts makes
entry a long process. This adds to the already high cost of building the infrastructure necessary
to develop and attract national advertisers. It also increases the length of time an entrant must
sustain losses before its scale is large enough to sell advertising at long-term profitable rates.
88.

Exhibitors generally cannot supply preshow services themselves to replace the

likely substantial lessening of competition in the preshow services market. Individual exhibitors
or groups of small exhibitors whose contracts with NCM or Screenvision are expiring are
unlikely to be able to establish cost-effective sales forces, attract national advertisers, or
otherwise develop a sufficient infrastructure to reasonably replace lost competition.
VIII. VIOLATION ALLEGED
89.

Plaintiff hereby reincorporates paragraphs 1 through 88.

90.

The likely effect of AMC’s proposed acquisition of Carmike would be to

substantially lessen competition in each of the relevant markets identified above in violation of
Section 7 of the Clayton Act, 15 U.S.C. § 18.
91.

Unless enjoined, the proposed transaction would likely have the following effects,

among others:
(a) the prices of tickets at first-run, commercial movie theatres in the areas in and
around the Local Markets would likely increase above levels that would
prevail absent the acquisition;
(b) the quality of first-run, commercial theatres and the viewing experience at
those theatres in the Local Markets would likely decrease below levels that
would prevail absent the acquisition;

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(c) the quality of and revenues from preshow services provided to exhibitors
would likely decrease below levels that would prevail absent the acquisition;
and
(d) the cost to place ads in theatre preshows to advertisers will likely increase to
levels above, and the quality of advertising will decrease to levels below,
those that would prevail absent the acquisition.
IX. REQUESTED RELIEF
92.

Plaintiff requests that:
(a) AMC’s proposed acquisition of Carmike be adjudged to violate Section 7 of
the Clayton Act, 15 U.S.C. § 18;
(b) Defendants be permanently enjoined from and restrained from carrying out
the proposed acquisition or any other transaction that would combine the two
companies;
(c) Plaintiff be awarded its costs of this action; and
(d) Plaintiff be awarded such other reliefs as the Court may deem just and proper.

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?Dated: 

FOR PLAINTIFF UNITED STATES OF

 

 

 

AMERICA

Renata B. Hesse (DC. Bar #466107) Gregg I. Malgwer (DC. Bar #481685)

Acting Assistant Attorney General Miriam R. Vishio (D.C. Bar #482282)
Mona SK. Haar (D.C. Bar #98789)

Justin M. Dempsey (DC. Bar #425976)

7M  Trial Attorneys, Litigation 

Jonathan B. Sallet 

Deputy Assistant Attorney General US. Department of Justice

Antitrust Division

450 5th Street, NW, Suite 4000
Washington, DC 20530

Patricia A. Brink Fax: (202) 514?73 08
Director of Civil Enforcement Telephone: Gregg Malawer (202) 616?5 943
7 Email: gregg.rnalawer@usdoj.gov
 4/ Telephone: Miriam Vishio (202) 598-8091
5? E-mail: miriarn.vishio@usdoj .gov

 

Owen M. Kendler

Acting Chief, Litigation Ill
Yvette F. Tailov

Lisa A. Scanlon

Assistant Chiefs, Litigation 

28

 

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APPENDIX A
Herfindahl-Hirschman Index
The term “HHI” means the Herfindahl-Hirschman Index, a commonly accepted measure
of market concentration. The HHI is calculated by squaring the market share of each firm
competing in the relevant market and then summing the resulting numbers. For example, for a
market consisting of four firms with shares of 30, 30, 20, and 20 percent, the HHI is 2,600 (302
+ 302 + 202 + 202 = 2,600). The HHI takes into account the relative size distribution of the
firms in a market. It approaches zero when a market is occupied by a large number of firms of
relatively equal size, and reaches its maximum of 10,000 points when a market is controlled by a
single firm. The HHI increases both as the number of firms in the market decreases and as the
disparity in size between those firms increases.
Markets in which the HHI is between 1,500 and 2,500 points are considered to be
moderately concentrated, and markets in which the HHI is in excess of 2,500 points are
considered to be highly concentrated. See U.S. Department of Justice & Federal Trade
Commission, Horizontal Merger Guidelines §5.3 (2010) (“Guidelines”). Transactions that
increase the HHI by more than 200 points in highly concentrated markets presumptively raise
antitrust concerns under the Guidelines. Id.

29