[Federal Register Volume 63, Number 211 (Monday, November 2, 1998)]
[Notices]
[Pages 58780-58785]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29223]


-----------------------------------------------------------------------

DEPARTMENT OF JUSTICE

Antitrust Division


Public Comments and Response of the United States

United States of America, State of New York and State of Illinois v. 
Sony Corporation of America, LTM Holdings, Inc. d/b/a Loews Theatres, 
Cineplex Odeon Corporation, and J.E. Seagram Corp.

    Notice is hereby given pursuant to the Antitrust Procedures and 
Penalties Act, 15 U.S.C. Sec. 16(b)-(h), that Public Comments and the 
Response of the United States have been filed with the United States 
District Court for the Southern District of New York in United States 
of America, State of New York and State of Illinois v. Sony Corporation 
of America, LTM Holdings, Inc. d/b/a Loews Theatres, Cineplex Odeon 
Corporation, and J.E. Seagram Corp., Case No. 98-CIV-2716.
    On April 16, 1998, plaintiffs United States, State of New York and 
State of Illinois filed a Complaint seeking to enjoin a proposed merger 
of LTM Holdings, Inc. (``Loews'') and Cineplex are the two largest 
exhibitors of first-run films in Manhattan and the City of Chicago. The 
Complaint alleged that the proposed merger would substantially lessen 
competition and tend to create a monopoly in the theatrical exhibition 
of first-run films in both of these markets in violation of Section 7 
of the Clayton Act, 15 U.S.C. 18.
    Public comment was invited within the statutory 60-day comment 
period. Such comments, and the responses thereto, are hereby published 
in the Federal Register and filed with the Court. Copies of the 
Complaint, Stipulation, proposed Final Judgment, Competitive Impact 
Statement, Public Comments and the Response of the United States are 
available for inspection in Room 215 of the Antitrust Division, 
Department of Justice, 325 7th Street, N.W., Washington, D.C. 20530 
(telephone: 202-514-2581) and at the office of the Clerk of the United 
States District Court for the Southern District of New York, 500 Pearl 
Street, New York, NY 10007.
    Copies of any of these materials may be obtained upon request and 
payment of a copying fee.
Constance K. Robinson,
Director of Operations, Antitrust Division

Response of the United States to Public Comments

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act, 15 U.S.C. Sec. 16(b)-(h) (the ``Tunney

[[Page 58781]]

Act''), the United States responds to the public comments received 
regarding the proposed Final Judgment in this case.

I. Background

    Plaintiffs the United States, the State of New York, and the State 
of Illinois filed a civil antitrust Complaint on April 16, 1998, 
alleging that a proposed merger of LTM Holdings, Inc. (``Loews'') and 
Cineplex Odeon Corp. (``Cineplex'') would violate Section 7 of the 
Clayton Act, 15 U.S.C. Sec. 18.
    At the same time the Complaint was filed, plaintiffs also filed a 
proposed settlement that would permit Loews to complete its merger with 
Cineplex, but would require divestitures that would preserve 
competition in the two markets where the transaction would otherwise 
raise significant competitive concerns: Manhattan and Chicago.
    The settlement consists of a Stipulation and a proposed Final 
Judgment. The proposed Final Judgment orders Loews and Cineplex to 
divest 14 theatres in Manhattan and 11 theatres in the Chicago area to 
an acquirer or acquirers acceptable to the United States. Unless the 
United States grants a time extension, the divestitures must be 
completed within one-hundred and eighty calendar days after the filing 
of the Complaint or five days after notice of the entry of the Final 
Judgment by the Court, whichever is later. The proposed Final Judgment 
also requires that, until the divestitures have been accomplished, the 
defendants must maintain and operate the theatres to be divested as 
active competitors, maintain the management, staffing, sales, and 
marketing of the theatres, and maintain the theatres in operable 
condition at current capacity configurations. Further, the proposed 
Final Judgment requires defendants to give the United States prior 
notice regarding any future motion picture theatre acquisitions in 
Manhattan or Cook County, Illinois.
    A Competitive Impact Statement (``CIS''), explaining the bases for 
both the Complaint and the proposed Final Judgment, was filed on April 
17, 1998, and subsequently published for comment, along with the 
Stipulation and proposed Final Judgment, in the Federal Register on May 
6, 1998 (63 FR 25071 through 25080), as required by the Tunney Act. 
Notice was also published in the New York Times and the Washington 
Post, as required by the Tunney Act. The CIS explains in detail the 
proposed merger, the provisions of the proposed Final Judgment, and the 
nature and purpose of this proceeding.
    The parties have stipulated that the proposed Final Judgment may be 
entered after compliance with the Tunney Act. The United States and the 
defendants have now, with the exception of publishing the comments and 
this response in the Federal Register, completed the procedures the 
Tunney Act requires before the proposed Final Judgment can be 
entered.\1\
---------------------------------------------------------------------------

    \1\ The United States will publish the comments and this 
response promptly in the Federal Register. It will provide the Court 
with a certificate of compliance with the requirements of the Tunney 
Act and file a motion for entry of the Final Judgment once 
publication takes place.
---------------------------------------------------------------------------

    The United States received three comments, copies of which are 
attached hereto. One comment, from a resident of Manhattan, suggests 
that the United States should have required additional theatres be 
divested in Manhattan. (See Tab A.)
    The second comment, from a labor organization, opposes the 
settlement on the grounds that the United States should also have 
required divestitures in the Washington, D.C. area. This commenter also 
raises a concern about vertical integration as a result of the merger, 
noting that Sony Pictures and Universal Studios will have a significant 
ownership interest in the merged company. (See Tab B.)
    The third comment, from the New York City Human Rights Commission, 
takes no position on the merits of the settlement but rather places on 
the record the agency's belief that many of the Cineplex Odeon theatres 
being divested in Manhattan are not adequately accessible to disabled 
individuals and should be brought into compliance with applicable laws 
before being sold. (See Tab C.)
    This response addresses the antitrust issues that are raised in the 
public comments.\2\
---------------------------------------------------------------------------

    \2\ Because the New York City Civil Rights Commission does not 
raise any antitrust issues in its comment, we will not respond 
except to state that the United States does not believe that the 
approval process should be delayed. The fact that the Commission's 
comment is of record should help to assure that the theatres to be 
divested are brought into compliance with applicable laws, either by 
the present owner or by a new owner. We understand that the 
Commission's investigation is ongoing.
---------------------------------------------------------------------------

II. Response to Comments

A. The Proposed Divestitures Solve the Anticompetitive Problems Alleged 
in the Complaint

    The Complaint alleges that Loews and Cineplex are the two largest 
exhibitors of first-run films in Manhattan and the City of Chicago. 
They compete against each other both to attract movie-goers and to 
secure first-run films from distributors.
    The Complaint further alleges that movie-goers do not want to 
travel far from their homes to attend movies, particularly in urban 
areas. Thus, geographic markets for first-run movies are generally 
local. From the standpoint of distributors, it is vitally important 
that their newly released movies be released in Manhattan and Chicago. 
In addition to the large populations in these markets, both cities are 
home to influential critics whose review of a movie can substantially 
affect the movie's performance nationwide. The Complaint also alleges 
that entry into the market for first-run film exhibition in New York 
and Chicago is particularly difficult, time-consuming and expensive, 
making new entry unlikely to significantly reduce the market strength 
of the combined firm.
    As previously stated, the proposed Final Judgment requires 
substantial divestiture of theatres in both the New York and Chicago 
markets. In Manhattan, Loews and Cineplex together account for about 
67% of the box office revenues for theatres showing first-run movies. 
Under the proposed Final Judgment, Loews and Cineplex have agreed to 
divest all but one of the Cineplex first-run theatres being acquired 
through the merger. Given that one Cineplex theatre is not being 
divested (the Coronet, which has two screens and had about $1.5 million 
in box office revenue last year), defendants have agreed to divest the 
Loews 34th Street Showplace (which has 3 screens and had over $2 
million in box office revenue last year). Thus, defendants have agreed 
to divestiture that for all practical purposes restore the status quo 
ante. They have agreed to divest 13 Cineplex theatres and one Loews 
theatre in Manhattan.
    In the city of Chicago, Cineplex and Loews together account for 
about 77% of the box office revenues for theatres showing first-run 
movies. Without the divestitures, the merger would have resulted in the 
leading firm (Cineplex) adding 5 first-run Loews theatres with 26 
screens representing about $13 million in box office revenue in 1997. 
Under the settlement, Loews and Cineplex will divest 9 theatres with 37 
screens in the city, including all of the downtown first-run Cineplex 
theatres except the McClurg Court. The theatres they are selling 
represent slightly over $13 million in box office revenue in 1997. In 
addition to the theatres in the city, defendants have agreed to divest 
two suburban theatres close to the city limits: The Old Orchard Quad in 
Skokie, just north of the city limits, and the River Run in Lansing, 
just south of the city limits. These theatres represent 12 additional 
screens and almost $5 million in 1997 box office revenues. In

[[Page 58782]]

total, defendants have agreed to divest 11 theatres in Chicago and its 
immediate vicinity, including 8 Cineplex theatres and 3 Loews theatres.
    The United States received no public comments questioning the 
adequacy of the divestitures in Chicago. The United States received 
only one comment from an individual questioning the adequacy of the 
divestitures in Manhattan.

B. Response to Comment of Frances J. Elfenbein

    Frances J. Elfenbein, a resident of Manhattan, notes that Loews 
currently has under construction two large multiplex theatres in 
Manhattan. The commenter states that almost as many screens are being 
added through this new construction as are being divested, and 
concludes that the divestiture of 14 theatres will not be sufficient to 
``curb the monopolistic power'' of the company post-merger.
    In response, the United States notes that the comment does not 
address the sufficiency of the settlement as a remedy to the 
anticompetitive effects flowing from the merger. The commenter does not 
suggest that, following the required divestitures, the merger with 
Cineplex will add to Loews' market share. This is in keeping with the 
facts, given that Loews is divesting as much as it is acquiring through 
the merger. The commenter does not articulate any other anticompetitive 
consequences of the merger.
    Section 7 of the Clayton Act prohibits mergers and acquisitions the 
effect of which is to substantially lessen competition or tend to 
create a monopoly. Section 7 does not prohibit growth through internal 
expansion. Such growth generally increases consumer choice and is 
procompetitive. (Parenthetically, we note that Loews' decision to 
construct these new theatres predates, and was unaffected by, the 
merger. Cineplex had no plans to construct new theatres in Manhattan.)
    If the United States had filed suit to block the merger under 
Section 7, and had prevailed, Loews would still have a high percentage 
of the screens in Manhattan and would have been free to continue its 
construction of new theatres. Thus, from the perspective of Manhattan 
movie-goers, the settlement achieves substantially the same result as a 
successful trial on the merits.
    As discussed more fully below, the Court's function in analyzing 
the proposed Final Judgment ``is not to determine whether the resulting 
array of rights and liabilities is one that will best serve society, 
but only to confirm that the resulting settlement is within the reaches 
of the public interest.'' United States v. Western Elec. Co., 993 F.2d 
1572, 1576 (D.C. Cir. 1993) (emphasis in original, internal quotation 
and citation omitted). The United States submits that this standard is 
easily met with respect to the Manhattan divestitures.

C. Response to Comment of the Hotel Employees and Restaurant Employees 
International Union

    The Hotel and Restaurant Employees International Union praises the 
settlement as serving the interests of movie-going consumers in 
Manhattan and Chicago but argues that the United States also should 
have required divestitures in the Washington, D.C. area. The Union 
expresses the further concern that Sony Pictures' and Universal 
Studios' significant ownership interest in Loews Cineplex 
Entertainment, the merged company, will harm independent exhibitors and 
potentially lead to a loss of choice for consumers. For these reasons, 
the Union urges the Court to reject the settlement, and replace it with 
a different one.\3\
---------------------------------------------------------------------------

    \3\ The Union, it should be noted, offers it comments on behalf 
of its members as movie-going consumers, not because it represents 
employees of Loews or Cineplex.
---------------------------------------------------------------------------

    As noted below, the critical portion of the Union's comment in 
inapposite--in essence, it suggests that the government should have 
brought a different case (i.e. a case alleging a Clayton Act violation 
in the Washington, D.C. geographic market). Such a criticism is not the 
type contemplated in a Tunney Act proceeding. United States v. 
Microsoft Corp., 56 F.3d 1448, 1459 (D.C. Cir. 1995).\4\
---------------------------------------------------------------------------

    \4\ The United States examined the effects of the merger on 
competition in the Washington, D.C. area and in Houston. The United 
States concluded that there were substantial factual and legal 
reasons not to bring a case charging a violation in these geographic 
areas. In addition, the United States also considered and determined 
not to allege that the change in ownership structure will result in 
vertical foreclosre. In any event, the divestitutres in Manhattan 
and Chicago will assure that competiting distributors have outlets 
for their movies in the markets of concern. Moreover, any future 
violation by Sony Pictures or Universal Studios of the Paramount 
decrees is not an issue before the Court in this proceeding. These 
decrees prevent distributors bound by the decrees from improperly 
favoring affiliated circuits. The 1938 Paramount litigation involved 
a conspiracy among the eight leading motion picture distributors 
who, among other things, used their market power to fix admission 
prices for the exhibition of first-run motion pictures in local 
theatres. The Paramount decrees which grew out of the litigation 
generally require that movies be licensed on a nondiscriminatory 
theatre-by-theatre basis. Both Sony Pictures (as a successor to 
Columbia Pictures) and Universal Studios are bound by the Paramount  
decrees. See United States v. Loew's Inc., 1950-51 Trade Cas. (CCH) 
Sec. 62,573 at pp. 63,681-82 (S.D.N.Y. 1050).
---------------------------------------------------------------------------

II. The Legal Standard Governing the Court's Public Interest 
Determination

    Once the United States moves for entry of the proposed Final 
Judgment, the Tunney Act directs the Court to determine whether entry 
of the proposed Final Judgment ``is in the public interest.'' 15 U.S.C. 
Sec. 16(e). In making that determination, ``the court's function is not 
to determine whether the resulting array of rights and liabilities is 
one that will best serve society, but only to confirm that the 
resulting settlement is within the reaches of the public interest.'' 
United States v. Western Elec. Co., 993 F.2d 1572, 1576 (D.C. Cir.) 
cert. denied, 510 U.S. 984 (1993) (emphasis in original, internal 
quotation and citation omitted).\5\ The Court should evaluate the 
relief set forth in the proposed Final Judgment and should enter the 
Judgment if it falls within the government's ``rather broad discretion 
to settle with the defendant within the reaches of the public 
interest.'' United States v. Microsoft Corp., 56 F.3d 1448, (D.C. Cir. 
1995); accord United States v. Associated Milk Producers, Inc., 534 
F.2d 113. 117-18 (8th Cir.) cert. denied, 429 U.S. 940 (1976). The 
Court is not ``to make de novo determination of facts and issues.'' 
Western Elec., 993 F.2d at 1577. Rather, ``[t]he balancing of competing 
social and political interests affected by a proposed antitrust decree 
must be left, in the first instance, to the discretion of the Attorney 
General.'' Id. (internal quotation and citation omitted throughout). In 
particular, the Court must defer to the United States' assessment of 
likely competitive consequences, which it may reject ``only if it has 
exceptional confidence that adverse antitrust consequences will 
result--perhaps akin to the confidence that would justify a court in 
overturning the predictive judgments of an administrative agency.'' 
Id.\6\
---------------------------------------------------------------------------

    \5\ The Western Electric decision concerned a consensual 
modification of an existing antitrust decree. The Court of Appeals 
assumed that the Tunney Act was applicable.
    \6\ The Tunney Act does not give a Court authority to impose 
different terms upon the parties. See, e.q., United States v. 
American Tel. & Tel. Co., 552 F. Supp. 131, 153 n.95 (D.D.C. 1982), 
aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983) 
(Mem); accord, H.R. Rep. No. 1463, 93rd Cong., 2d Sess. 8 (1974). Of 
course the Court can condition the entry of a decree to the parties' 
agreement to a different bargain, but if the parties do not agree to 
such terms, the Court's only choices are to enter the decree the 
parties proposed or to leave the parties to litigate.
---------------------------------------------------------------------------

    The Court may not reject a decree simply ``because a third party 
claims it could be better treated.'' Microsoft, 56 F.3d at 1461 n.9. 
The Tunney Act does not empower the Court to reject the remedies in the 
proposed Final

[[Page 58783]]

Judgment based on the belief that ``other remedies were preferable.'' 
Id. at 1460. As Judge Green has observed:

    If courts acting under the Tunney Act disapproved proposed 
consent decrees merely because they did not contain the exact relief 
which the courts would have imposed after a finding of liability, 
defendants would have no incentive to consent to judgment and this 
element of compromise would be destroyed. The consent decree would 
thus as a practical matter be eliminated as an antitrust enforcement 
tool, despite Congress' directive that it be preserved.

United States v. American Tel. & Tel. Co., 552 F. Supp. 131, 151 
(D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 
(1983) (Mem.).
    Moreover, the entry of a governmental antitrust decree forecloses 
no private party from seeking and obtaining appropriate antitrust 
remedies. Defendants will remain liable for any illegal acts, and any 
private party may challenge such conduct if and when appropriate. The 
single issue before the Court here is whether entry of this particular 
proposed Final Judgment, agreed to by the parties as settlement of this 
case, is in the public interest.
    As pointed out above, the Tunney Act does not contemplate judicial 
reevaluation of the wisdom of the government's determination of which 
violations to allege in the Complaint. The government's decision not to 
bring a particular case on the facts and law before it at a particular 
time, like any other decision not to prosecute, ``involves a 
complicated balancing of a number of factors which are peculiarly 
within [the government's] expertise.'' Heckler v. Chaney, 470 U.S. 821, 
831 (1985). Thus, the Court should not look beyond the Complaint ``to 
evaluate claims that the government did not make and to inquire as to 
why they were not made.'' Microsoft, 56 F.3d at 1459 (emphasis in 
original).
    The government has wide discretion within the reaches of the public 
interest to resolve potential litigation. E.g., Western Elec. Co., 993 
F.2d at 1577; AT&T, 552 F. Supp. at 151. The Supreme Court has 
recognized that a government antitrust consent decree amounts to an 
agreement between the parties to settle their disputes and differences, 
United States v. ITT Continental Baking Co., 420 U.S. 223, 235-38 
(1975), and ``normally embodies a compromise; in exchange for the 
saving of cost and elimination of risk, the parties each give up 
something they might have won had they proceeded with the litigation,'' 
United States v. Armour & Co., 402 U.S. 673, 681 (1971). This judgment 
has the virtue of bringing the public certain benefits and protection 
without the uncertainty and expense of protracted litigation. Armour, 
402 U.S. at 681.

III. Conclusion

    After careful consideration of these comments, the United States 
concludes that entry of the proposed Final Judgment will provide an 
effective and appropriate remedy for the antitrust violations alleged 
in the Complaint and is in the public interest. In the two important 
markets where the merger would have made it more likely that ticket 
prices would increase, rental fees paid to distributors would decrease, 
and theatre quality would decline (New York and Chicago), the 
divestitures will fully restore the status quo ante. The United States 
will therefore move the Court to enter the proposed Final Judgment 
after the public comments and this response have been published in the 
Federal Register, at 15 U.S.C. Sec. 16(d) requires.

    Dated: October 14, 1998.

      Respectfully submitted,
Allen P. Grunes,
(AG 4775) U.S. Department of Justice, Antitrust Division, 1401 H 
Street, N.W.; Suite 4000, Washington, D.C. 20530, (202) 307-0001, 
Attorney for Plaintiff the United States.

Certificate of Service

    I, Allen P. Grunes, hereby certify that on October 14, 1998, I 
caused the foregoing document to be served on defendants by having a 
copy mailed, first-class, postage prepaid, to:

Ira S. Sacks, Fried, Frank, Harris, Shriver & Jacobson, One New York 
Plaza, New York, NY 10004, (212) 859-8000
Attorney for defendants Sony Corporation of America and LTM Holdings, 
Inc.

Alan J. Weinschel, Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New 
York, NY 10153, (212) 310-8000
Attorney for defendant Cineplex Odeon Corporation

Kenneth R. Logan, Simpson Thacher & Bartlett, 425 Lexington Avenue, New 
York, NY 10017, (212) 455-2000
Attorney for defendant J. E. Seagram Corp.
Allen P. Grunes
Department of Justice
Merger Task Force, Antitrust Division, 1401 H Street, Suite 4000, 
Washington, DC 230530,
Attention: Craig W. Conrath, Chief
May 1, 1998.
    Dear Mr. Conrath: The proposed final judgment of the United 
States District Court in the Southern District of New York requiring 
that SONY/LOEWS/CINEPLEX et al (the merged) divest themselves of 14 
theaters (36 screens) in Manhattan is no cause for joy.
    The court is requiring the divestiture to ensure competition, 
prevent price gouging and price fixing, and to encourage fairer 
distribution of first-run movies.
    Give me a break.
    LOEWS is currently building a 13 screen multiplex as part of the 
E-Walk development at 8th avenue and 42nd street. It is also in the 
process of destroying my residential neighborhood with a 15 screen 
multiplex on 2nd avenue between 30th and 32nd streets.
    The divestiture will close 14 theaters for a total of 36 
screens. The constructions will create 28 screens. The 55 screens 
that LOEWS will be left with after divesting will grow to 85 when 
the new multiplexes are added. Do you really think the loss of 8 
screens is going to curb the monopolistic power the merged entity 
will have in the market, I don't. No wonder they were so agreeable.

      Cordially,
Frances J. Elfenbein

Comments

    The Hotel Employees and Restaurant Employees International Union, 
which represents nearly 300,000 individuals, many of whom are avid 
moviegoers, first opposed this merger in March 1998 with a letter to 
antitrust officials. Shortly thereafter, we met with Justice Department 
staff and we spoke to staff of several State Attorneys General, 
meanwhile encouraging other interested parties to do the same. Our 
opposition to this merger is grounded in our firm belief that the 
merger is not in the best interests of American consumers. As we have 
stated previously, we do not represent, nor have we recently 
represented, workers at the merging entities, Cineplex Odeon and Loews 
Theatres.
    In our opinion, the proposed settlement between the U.S. Department 
of Justice and the merging entities known as Loews Cineplex (hereafter 
referred to as ``the company'') serves the interests of moviegoing 
consumers in Manhattan and Chicago well. However, on behalf of our 
moviegoing members throughout the United States, we remain concerned 
that the settlement does not address very high concentration levels in 
other markets. In addition, we find the inter-connectedness of leading 
movie producers, distributors and exhibitors--which is greatly 
increased as a result of this merger--very disturbing.

High Concentration Despite Divestitures

    Upon completion of the merger, the company controls about 9% of the 
overall film exhibition market in the U.S., and enjoys very high market 
share in several crucial urban markets,

[[Page 58784]]

including New York and Chicago (in spite of the divestitures), the 
Washington, DC metropolitan area, and Houston, Texas.
    In the Maryland suburbs of Washington, DC, Loews Cineplex controls 
over 49% of the screens in an already ``highly concentrated'' market. 
The increase in the Herfindahl-Hirschmann Index (HHI), a measure of 
market concentration, is over 1,056 points--more than 10 times the 
increase that the Justice Department deems ``likely to create or 
enhance market power or facilitate its exercise.'' \1\
---------------------------------------------------------------------------

    \1\ Department of Justice and Federal Trade Commission 
Horizontal Merger Guidelines. April 2, 1992.
---------------------------------------------------------------------------

    In the District of Columbia proper, Cineplex Odeon already 
controlled over 81% of all movie screens before the merger. And in the 
Virginia suburbs of Washington, the company now controls nearly 29% of 
all screens, pushing the classification of this market from 
``moderately concentrated'' to ``highly concentrated,'' as per 
guidelines set by the Justice Department and Federal Trade Commission. 
Each of these cases is a glaring example of extreme market 
concentration, and each is completely ignored in the proposed 
settlement.

Vertical Integration Neglected in Settlement

    The issue of vertical integration in the movie industry also 
remains unmitigated by the proposed settlement. In an era of increasing 
corporate control and homogeneity of entertainment products available 
to the American public, this is especially troubling. For example, the 
much-hyped recent Sony picture ``Godzilla'' opened on 7,000 screens, or 
more than one out of every five movie screens in the U.S.
    To refer to movies as mere ``entertainment products'' does not 
fully account for their true social value. The industry itself would be 
the first to admit that movies occupy a truly mythic place in the 
American psyche. Movies have the power to inspire and educate, 
entertain and inform. Is it right that control of these cultural 
products should be concentrated in the hands of a few giant 
corporations? We think not. Yet this merger represents another nail 
driven into the coffin of cultural diversity.
    This merger could create a real life Godzilla, an enormous beast 
which will be virtually unstoppable if it is allowed to be born. Sony 
Pictures and Universal Pictures together distributed over 30% of all 
commercially released films in North America last year. Together, the 
parents of these companies and their affiliates own over 86% of Loews 
Cineplex's outstanding stock. Loews Cineplex will have approximately 
2,700 screens in 22 states, making it the third largest exhibitor in 
the nation.
    In addition, issues of vertical integration impact another 
criterion for determining whether a merger may be anti-competitive, in 
that vertically integrated companies are in a better position to exert 
market power against exhibitors through higher rental fees and stricter 
payment terms.

Barriers to Entry May Worsen, Preventing New Competition

    Vertical integration also could have the effect of raising the 
barriers to entry that a potential competitor would face. After all, 
size does matter when it comes to leveraging a favorable contract with 
a distributor, or negotiating advertising rates in a local newspaper. 
Anecdotal evidence in the form of conversations with independent 
exhibitors indicates that small, local operations are an endangered 
species that are disappearing rapidly. And in the context of such 
extreme market concentration, the hope of starting up new theatre is 
just a pipe dream.
    Barriers to entry are indeed significant in the movie industry. The 
trends in new theater construction are towards bigger multiplexes, with 
20-30 screens per site, digital sound systems, and more spacious 
stadium seating, meaning fewer seats per theater. All of these mean 
that in order to compete, a theater must be well-stocked with capital-
intensive amenities. In addition, the trend in film distribution is 
towards higher fees, as evidenced by Sony's headline-grabbing demand 
for an 80% cut of first-week ``Godzilla'' receipts from exhibitors 
(distributors' normal take is 60-70%).
    We are attaching an e-mail letter we received in support of our 
efforts to block this merger. The writer is the daughter of a recently 
deceased independent exhibitor. In the letter, the writer makes the 
point that behemoth multinational corporations are not as sensitive to 
the needs and concerns of local markets as small independent businesses 
can be. Unfortunately, the reality of diminishing competition and 
consumer choice is rarely reflected in the narratives that the movie 
industry thrusts upon us. This merger, if it is not significantly 
altered, is a stark illustration of the fact that in life, Godzilla 
often wins.
    We would like to commend Justice Department staff for their 
willingness to listen to our concerns, and for taking decisive action 
in two markets. We strongly recommend that in cases such as this one, 
antitrust officials take a pro-active role in educating consumers about 
the potential effect of high market concentration on prices and 
selection. Since a study of the correlation between prices/selection 
and market concentration could easily be based on public information, 
it would not be a breach of the confidentiality to which these 
officials are pledged. Rather, it would provide consumers the tools and 
information needed to fully understand the potential implications of 
major corporate mergers.
    As consolidation continues in this industry, we believe that the 
effects of increasing market concentration will begin to take their 
toll on the quality and cost of the consumer's movie going experience. 
While the proposed settlement may stave off higher ticket prices and 
decreased selection in two cities for the time being, we suspect that 
the greater good of American moviegoers has not been fully served. 
Therefore, we urge the court to reject the proposed settlement in favor 
of one which would impose more extensive divestitures, especially in 
the Washington, D.C.-area market, and would address the increasing 
problem of vertical integration in the motion picture industry.

Subj: Re: Sony/Cineplex Odeon Merger
Date: 98-04-21 11:17:15 EDT
From: [email protected] (beverly jennison)
To: LN[email protected] (LNegstad)

    Dear Mr. Negstad: It would be fine with me if you included my 
letter, or any of the information from it. I'm sure that it is an 
accurate reflection of what my father would have said, and I know 
that he would have wanted to weigh in on this issue.
    Thank you for your interest in the movie industry.
Beverly Petersen Jennison,
Silver Spring, Md.

Subj: Sony/Cineplex Odeon Merger
Date: 98-04-20 11:32:36 EDT
From: [email protected] (beverly jennison)
To: L[email protected]

    Mr. Negstad: You recently sent a letter to my father, Paul 
Petersen, of the Clairidge Triple Cinema in Montclair N.J. regarding 
the proposed Sony/Cineplex merger. My father passed away in late 
March, but because he was such a strong advocate of independent 
theatre exhibitors, my mother asked that I send you a short reply to 
your letter. My father worked over 50 years in the movie industry, 
and for much of that time, he was an independent exhibitor. (His 
other experience involved working for independents and for small 
local chains.) He very much objected to the merger of large 
organizations, because they essentially forced out the little 
operators. In fact, as President of the National Association of 
Theatre Owners (N.J.), he worked very hard to ensure

[[Page 58785]]

that distributors of pictures would recognize the independents, and 
funnel top films their way. At one point in his career, he sued 
several of the large distributors because they refused to exhibit in 
independent theatres, seeking out the chains instead. That matter 
was settled prior to the trial with the large distributors, afraid 
of the antitrust noises that my father was making, settling with him 
so that the independents would get access to the top films.
    Unfortunately, the belief that my father had that independent 
exhibitors would be more receptive to the public sentiment in their 
communities is not shared by the larger chains. My father, and 
others like him, felt that their businesses were a part of the 
community, and that they not only had to be responsive in what they 
showed, but they had to be responsible to the community for the 
content of the pictures. In addition, my father and other 
independents have closer ties to the community, and always tried to 
provide support in the community for fundraisers, etc. The big 
chains simply do not do this.
    I saw in the Washington Post over the weekend that the merger 
had been okayed by the Justice Department, and so I guess that it's 
too late to do much else about this particular merger. However, I 
felt that I should respond to your letter on my father's behalf, as 
I am sure he would have if he were still alive. Good luck to you in 
your endeavors.
Beverly Petersen Jennison,
13408 Bingham Court, Silver Spring, Md. 20906, [email protected], 301-
871-7949.

June 12, 1998.
Allen P. Grunes,
United States Department of Justice, Anti-Trust Division, 1401 H 
Street, N.W., Suite 4000, Washington, D.C. 20530
Re: United States of America et al v. Sony Corporation et al 98 Civ. 
2716

    Dear Mr. Grunes: The New York City Commission on Human Rights 
(``Commission'') is the principal local civil rights law enforcement 
agency in New York City committed to ensuring that people with 
disabilities have access to and enjoy the facilities of New York 
City's movie theaters. The Commission has an interest in insuring 
that all theaters in New York City--including those covered by the 
above Final Judgement and Consent Decree--are accessible to disabled 
persons. We submit these comments accordingly and for the record.
    Under New York City's Human Rights law, owners and operators of 
places of public accommodation may not ``refuse, withhold from or 
deny'' to a disabled person ``any of the accommodations, advantages, 
facilities or privileges thereof.'' \1\ ``Reasonable Accommodation'' 
to the needs of persons with disabilities is required to be made 
when such accommodation ``shall not cause undue hardship in the 
covered entity's business.'' (Administrative Code, Title 8, Chapter 
1, Secs. 8-107.4(a), 8-107.15(a), 8-102.18).
---------------------------------------------------------------------------

    \1\ It shall be an unlawful discriminary practice for any 
person, being the owner, lessee, proprietor, manager, 
superintendent, agent or employee of any place or provider of public 
accommodation because of the . . . disability . . . of any person 
directly or indirectly, to refuse, withhold from or deny to such 
person any of the accommodations, advantages, facilities or 
privileges thereof. . . .  [New York City Human Rights Law, 
Administrative Code, Title 8, Chapter 1, Sec. 8-107.4(a)].
---------------------------------------------------------------------------

    In the past few years, the Commission has received complaints 
about inaccessible movie theaters. Most of these theaters are in 
Manhattan and most were owned and operated by Cineplex Odeon. In 
response to these complaints, we initiated an informal survey of 
Cineplex Odeon's movie theaters in Manhattan to ascertain whether 
the theaters were in compliance with the local and federal laws.\2\ 
In November 1996, we contacted Cineplex Odeon and informed them 
about the complaints.\3\
---------------------------------------------------------------------------

    \2\ In New York City, theaters must comply with the federal 
ADAAG Standards and the Local Law 58 of the New York City Building 
Code. Local Law Number 58 of 1987 was enacted to amend New York 
City's Administrative Code in relation to providing facilities for 
people having physical disabilities. (Administrative Code, Title 27, 
Chapter 1, Sec. 27-123.1 et seq.). Incorporated into the New York 
City Building Code, Local Law 58's provisions apply to buildings 
constructed, altered or changed in occupancy or use since September 
1, 1987. Where there are differences between ADAAG and ANSI, the 
Commission will adopt the stricter of the two standards. ANSI 
generally requires a greater number of wheelchair spaces and 
dispersal of those spaces for all auditoriums, regardless of 
capacity.
    \3\ We have since been working with attorneys from the 
Department of Justice (United States Attorney's Office, Southern 
District of New York) in an effort to co-ordinate federal and local 
law enforcement efforts regarding movie theater companies in New 
York City.
---------------------------------------------------------------------------

    In December 1996, the New York City Council published a study 
which confirmed that many of the city's existing movie theaters were 
not accessible to the disabled.\4\ It was apparent to us that this 
was an industry-wide issue. We subsequently contacted all the major 
movie theater companies operating in New York City, including Sony 
Loews.
---------------------------------------------------------------------------

    \4\ See Admit Some: An Examination of Movie Theater 
Accessibility in New York City for Persons Who Are Disabled, a 
report and survey published by the Council of the City of New York, 
Committee on Consumer Affairs in co-operation with students from 
Columbia University's School of International and Public Affairs/
Graduate Program in Public Policy and Administration (December 
1996).
---------------------------------------------------------------------------

    As a result of the recent merger between Cineplex Odeon and Sony 
Loews, we are aware that the newly formed corporation--Loews 
Cineplex--must divest itself of most of the former Cineplex Odeon 
Theaters in Manhattan. The theaters being divested are all sites for 
first-run movies in Manhattan. Moviegoers, as mentioned in the 
federal complaint, ``do not want to travel far from their homes to 
attend a movie, particularly in urban areas.'' Moreover, moviegoers 
expect to view first-run movies in top quality facilities. Disabled 
moviegoers are no exception. However, we believe that these theaters 
are not in full compliance with all applicable codes. The 
accessibility issues include, but are not limited to, the following:
    1. Inadequate number of wheelchair seats;
    2. Inadequate number of companion seats;
    3. Inadequate or improper wheelchair seat dispersal;
    4. Barriers to access (no ramps, lifts, elevators);
    5. Excessive door pressure;
    6. Inaccessible or improperly designed bathrooms;
    7. Inaccessible or improperly designed service counters;
    8. Inaccessible or improperly designed amenities (e.g. public 
telephones, drinking fountains, etc.);
    9. Lack of hand rails;
    10. Improperly designed ticket counters.
    We understand there is a time frame during which Loews Cineplex 
is to divest itself of most of the Manhattan theaters previously 
owned by Cineplex Odeon. We recommend that prior to the sale of 
these theaters to a third party, Loews Cineplex be required to 
allocate the necessary resources to bring the theaters into full 
compliance with the applicable local and federal codes and civil 
rights laws. It would be an unfortunate and unintended effect of the 
above consent decree if these theaters--which as a group are highly 
visible first-run theaters--are not given the priority and attention 
they deserve.

      Very truly yours,
Randolph Wills,
Deputy Commissioner, Law Enforcement Bureau.

    By:
Rockwell J. Chin,
Supervising Attorney, Law Enforcement Bureau, (212) 306-7455 (tel), 
(212) 306-7514 (fax).

[FR Doc. 98-29223 Filed 10-30-98; 8:45 am]
BILLING CODE 4410-11-M