[Federal Register Volume 73, Number 204 (Tuesday, October 21, 2008)]
[Notices]
[Pages 62543-62558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-23357]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Regal Cinemas, Incorporated; Response to Public
Comments on the Proposed Final Judgment
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(b)-(h), the United States hereby publishes the public comments
received on the proposed Final Judgment in United States v. Regal
Cinemas, Incorporated, Civil Action No. 1:08-cv-746, and the response
to the comments. On April 29, 2008, the United States filed a Complaint
alleging that Regal Cinema, Inc.'s acquisition of Consolidated Theatres
Holdings, GP violated Section 7 of the Clayton Act, 15 U.S.C. 18. The
proposed Final Judgment, filed on April 29, 2008, requires the combined
company to divest four movie theaters in three North Carolina
metropolitan areas. Public comment was invited within the statutory 60-
day comment period. Copies of the Complaint, proposed Final Judgment,
Competitive Impact Statement, Public Comments, the United States'
Response to the Comments, and other papers are currently available for
inspection in Suite 1010 of the Antitrust Division, Department of
Justice, 450 5th Street, NW., Washington, DC 20530, telephone: (202)
514-2481, on the Department of Justice's Web site (http://www.usdoj.gov/atr), and the Office of the Clerk of the United States
District Court for the District of the District of Columbia, 333
Constitution Avenue, NW., Washington, DC 20001. Copies of any of these
materials may be obtained upon request and payment of a copying fee.
Patricia A. Brink,
Deputy Director of Operations, Antitrust Division.
United States District Court for the District of Columbia
[Civil Action No: 1:08-cv-00746]
United States of America, Plaintiff, v. Regal Cinemas, Inc., and
Consolidated Theatres Holdings, GP, Defendants; Response of the United
States to Public Comments on the Proposed Final Judgment
Judge: Leon, Richard J.
Filed:
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h) (``APPA'' or ``Tunney Act''), the
United States hereby responds to two public comments received during
the public comment period regarding the proposed Final Judgment in this
case. One commenter argues for additional, more intrusive relief than
the relief obtained by the United States. The other argues there was no
harm from the transaction, and that the United States should not have
filed its Complaint nor required any relief whatsoever. After careful
consideration of the comments, the United States determined that the
Proposed Final Judgment remains in the public interest. The United
States will move the Court for entry of the proposed Final Judgment
after the public comments and this Response have been published in the
Federal Register, pursuant to 15 U.S.C. 16(d).
I. Procedural History
On April 29, 2008, the United States filed the Complaint in this
matter alleging that defendant Regal Cinema, Inc.'s (``Regal'')
acquisition of defendant Consolidated Theatres Holdings, GP
(``Consolidated''), if permitted to proceed, would combine the two
[[Page 62544]]
leading, and in some cases only, operators of first-run, commercial
movie theatres in parts of the metropolitan areas of Charlotte,
Raleigh, and Asheville, North Carolina. The Complaint alleged that the
likely effect of the acquisition would be to lessen competition
substantially for first-run commercial movie exhibition in violation of
Section 7 of the Clayton Act, 15 U.S.C. 18. The United States filed a
proposed Final Judgment and a Stipulation signed by the United States
and the defendants consenting to the entry of the proposed Final
Judgment after compliance with the requirements of the APPA. Pursuant
to those requirements, a Competitive Impact Statement (``CIS'') was
filed in this court on April 30, 2008; the Proposed Final Judgment and
CIS were published in the Federal Register on May 15, 2008; and a
summary of the terms of the proposed Final Judgment and CIS, together
with directions for the submission of written comments relating to the
proposed Final Judgment, were published for seven days in the
Washington Post on May 23, 2008 through May 29, 2008. The defendants
filed the statements required by 15 U.S.C. 16(g) on May 19, 2008 and
June 18, 2008, respectively.
The sixty-day comment period ended on July 28, 2008. Two comments,
described below, were received.
II. The United States' Investigation and Proposed Resolution
After Regal and Consolidated announced their plans to merge, the
United States Department of Justice (the ``Department'') conducted an
extensive investigation into the competitive effects of the proposed
transaction. As part of this investigation, the Department obtained
documents and information from the merging parties, and conducted
interviews with competitors and other individuals with knowledge of the
industry. Among the third parties the Department interviewed during its
investigation was one of the commenters, Mr. Bruner, who shared his
concerns about the competitive impact of the proposed merger in the
Charlotte area.
On the basis of its investigation and prior experience with markets
for first-run commercial movie exhibition, the Department concluded
that the proposed transaction would lessen competition for the
theatrical exhibition of first-run, commercial movies in four North
Carolina markets--Southern Charlotte, Northern and Southern Raleigh,
and Asheville.\1\ As more fully explained in the Complaint and CIS, the
proposed transaction likely would lead to higher ticket prices for
moviegoers and would reduce the newly merged entity's incentives to
maintain, upgrade, and renovate its theatres in the relevant markets,
to improve its theatres' amenities and services, and to license the
highest revenue movies, thus reducing the quality of the viewing
experience in those four areas. As alleged in the Complaint, these
outcomes are likely because, in each of the relevant markets, Regal and
Consolidated were each other's most important competitor, given the
close proximity of their theatres to one another and to moviegoers.
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\1\ The other locations where Consolidated owned a theatre that
was acquired by Regal did not present competitive problems. The
Complaint contains no allegations regarding these areas and no one
has commented on them.
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The proposed Final Judgment is designed to preserve competition in
the four markets. It requires divestitures as viable ongoing businesses
of a total of four theatres in three metropolitan areas: the Crown
Point 12 in Southern Charlotte; the Raleigh Grand 16 in Northern
Raleigh; the Town Square 10 in Southern Raleigh; and the Hollywood 14
in Asheville. Sale of these theatres will preserve existing competition
between the defendants' theatres that are or would have been each
other's most significant competitor in the theatrical exhibition of
first-run movies in Southern Charlotte, Northern and Southern Raleigh,
and Asheville.
III. Standard of Review
Upon the publication of the public comment and this Response, the
United States will have fully complied with the Tunney Act and will
move the Court for entry of the proposed Final Judgment as being ``in
the public interest.'' 15 U.S.C. 16(e), as amended. In making the
``public interest'' determination, the Court should review the proposed
Final Judgment in light of the violations charged in the complaint,
see, e.g., Mass. Sch. of Law at Andover, Inc. v. United States, 118
F.3d 776, 783 (D.C. Cir. 1997) (quoting United States v. Microsoft
Corp., 56 F.3d 1448, 1462 (D.C. Cir. 1995)), and be ``deferential to
the government's predictions as to the effect of the proposed
remedies.'' Microsoft, 56 F.3d at 1461.
The Tunney Act states that the Court shall consider in making its
public interest determination:
(A) the competitive impact of such judgment, including termination
of alleged violations, provisions for enforcement and modification,
duration of relief sought, anticipated effects of alternative remedies
actually considered, whether its terms are ambiguous, and any other
competitive considerations bearing upon the adequacy of such judgment
that the court deems necessary to a determination of whether the
consent judgment is in the public interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and individuals
alleging specific injury from the violations set forth in the complaint
including consideration of the public benefit, if any, to be derived
from a determination of the issues at trial.
15 U.S.C. 16(e). See generally United States v. SBC Commc'ns, Inc., 489
F. Supp. 2d 1, 11 (D.D.C. 2007) (concluding that the 2004 amendments to
the Tunney Act ``effected minimal changes'' to the court's scope of
review under Tunney Act, and that review is ``sharply proscribed by
precedent and the nature of Tunney Act proceedings'').\2\
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\2\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for court to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006).
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As the United States Court of Appeals for the District of Columbia
Circuit has held, under the APPA a court considers, among other things,
the relationship between the remedy secured and the specific
allegations set forth in the government's complaint, whether the decree
is sufficiently clear, whether enforcement mechanisms are sufficient,
and whether the decree may positively harm third parties. See
Microsoft, 56 F.3d at 1458-62 (D.C. Cir. 1995). With respect to the
adequacy of the relief secured by the decree, a court may not ``engage
in an unrestricted evaluation of what relief would best serve the
public.'' United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988)
(citing United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir.
1981)); see also Microsoft, 56 F.3d at 1460-62. Courts have held that:
[t]he balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
[[Page 62545]]
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted). Cf. BNS,
858 F.2d at 464 (holding that the court's ``ultimate authority under
the [APPA] is limited to approving or disapproving the consent
decree''); United States v. Gillette Co., 406 F. Supp. 713, 716 (D.
Mass. 1975) (noting that, in this way, the court is constrained to
``look at the overall picture not hypercritically, nor with a
microscope, but with an artist's reducing glass''). See generally
Microsoft, 56 F.3d at 1461 (discussing whether ``the remedies [obtained
in the decree are] so inconsonant with the allegations charged as to
fall outside of the `reaches of the public interest' ''). In making its
public interest determination, a district court ``must accord deference
to the government's predictions about the efficacy of its remedies, and
may not require that the remedies perfectly match the alleged
violations because this may only reflect underlying weakness in the
government's case or concessions made during negotiation.'' SBC
Commc'ns, 489 F. Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461
(noting the need for courts to be ``deferential to the government's
predictions as to the effect of the proposed remedies''); United States
v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003)
(noting that the court should grant ``due respect to the [United
States'] prediction as to the effect of proposed remedies, its
perception of the market structure, and its views of the nature of the
case'').
Court approval of a consent decree requires a standard more
flexible and less strict than that appropriate to court adoption of a
litigated decree following a finding of liability. ``[A] proposed
decree must be approved even if it falls short of the remedy the court
would impose on its own, as long as it falls within the range of
acceptability or is `within the reaches of public interest.' '' United
States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982)
(citations omitted) (quoting United States v. Gillette Co., 406 F.
Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom. Maryland v. United
States, 460 U.S. 1001 (1983); see also United States v. Alcan Aluminum
Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent
decree even though the court would have imposed a greater remedy). To
meet this standard, the United States ``need only provide a factual
basis for concluding that the settlements are reasonably adequate
remedies for the alleged harms.'' SBC Commc'ns, 489 F. Supp. 2d at 17.
Moreover, the district court's role under the APPA is limited to
reviewing the remedy in relationship to the violations that the United
States has alleged in its complaint, and does not authorize the Court
to ``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459. Because the ``court's
authority to review the decree depends entirely on the government's
exercising its prosecutorial discretion by bringing a case in the first
place,'' it follows that ``the court is only authorized to review the
decree itself,'' and not to ``effectively redraft the complaint'' to
inquire into other matters that the United States did not pursue. Id.
at 1459-60. As this Court recently confirmed in SBC Communications,
courts ``cannot look beyond the complaint in making the public interest
determination unless the complaint is drafted so narrowly as to make a
mockery of judicial power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.
In its 2004 amendments to the Tunney Act, Congress made clear its
intent to preserve the practical benefits of utilizing consent decrees
in antitrust enforcement, adding the unambiguous instruction
``[n]othing in this section shall be construed to require the court to
conduct an evidentiary hearing or to require the court to permit anyone
to intervene.'' 15 U.S.C. 16(e)(2). The language wrote into the statute
what the Congress that enacted the Tunney Act in 1974 intended, as
Senator Tunney then explained: ``[t]he court is nowhere compelled to go
to trial or to engage in extended proceedings which might have the
effect of vitiating the benefits of prompt and less costly settlement
through the consent decree process.'' 119 Cong. Rec. 24,598 (1973)
(statement of Senator Tunney).
IV. Summary of Public Comments and the Response of the United States
During the sixty-day comment period, the United States received two
comments: one from Robert B. Bruner, the owner of the Village Theatre
in Charlotte, North Carolina, and the other from The Voluntary Trade
Council, Inc., a Virginia non-profit corporation. Both comments are
attached in the accompanying Appendix. After reviewing both comments,
the United States continues to believe that the proposed Final Judgment
is in the public interest. The two comments received by the Department
are summarized below:
Public Comment From Mr. Bruner \3\
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\3\ Mr. Bruner made two written submissions during the comment
period. His second comment, which he describes as a Supplement,
makes largely the same points as the first comment, but provides
additional information arising out of a lawsuit he filed against
Consolidated and Regal in North Carolina state court. Mr. Bruner's
lawsuit does not allege that Regal's acquisition of Consolidated
violates the antitrust laws. Rather, Mr. Bruner's claims are based
entirely on the effect of the transaction on his contract with
Consolidated pursuant to which that company has managed certain
aspects of the Village Theatre's operation. According to Mr.
Bruner's complaint, upon acquiring Consolidated, Regal informed Mr.
Bruner that it would assign the management contract to another
theatre chain, which Mr. Bruner believes violates his agreement.
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Robert B. Bruner is the owner of the Village Theatre in Charlotte,
North Carolina, located approximately three miles west of Regal's
Stonecrest 22. The Village Theatre is a five-plex, stadium-seating
theatre located on the third floor of a mixed-use shopping center and
offers reserved seating, beer and wine, and upscale concessions. The
Village Theatre is one of the six theatres the Department alleged to
compete in the Southern Charlotte market for first-run motion picture
exhibition, and Mr. Bruner's comment is limited to this geographic
market.
Mr. Bruner's comment contends that the United States should have
sought additional relief in the Southern Charlotte market, and he
proposes in particular that appropriate relief would have included
freeing the Village Theatre from pre-existing limitations (referred to
as ``clearances'' and discussed below) on the films that distributors
were willing to license to that theatre.
Mr. Bruner first argues that divestiture of Regal's Crown Point 12
(as required by the proposed Final Judgment) will not prevent the
merger from increasing concentration in the Southern Charlotte market,
in part because the market should have been alleged to exclude his
Village Theatre and to include an additional theatre operated by
Consolidated.\4\ He submits that, had the United States alleged the
``proper'' market, additional relief of the sort he proposes would be
required to remedy sufficiently the increase in concentration from the
merger.
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\4\ For the Court's convenience, we have attached as Exhibit A a
map showing the locations of theatres in the Southern Charlotte
area.
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As explained below, Mr. Bruner's comment should be given no weight
in the context of this Tunney Act review of the remedy obtained by the
United States. Mr. Bruner acknowledges that the required divestiture of
the Crown Point 12 furthers the objective of remedying the harm to
competition in Southern Charlotte alleged in the United States'
complaint; indeed, Mr. Bruner would retain this component of the United
States' remedy. Mr. Bruner does not allege that this remedy was
[[Page 62546]]
insufficiently related to the allegations in the Complaint, or was
unclear, or that enforcement mechanisms are insufficient, or that the
relief will harm third parties. See Microsoft, 56 F.3d at 1457-58. Mr.
Bruner's argument is that the United States should have obtained
additional relief, but this assertion does not satisfy the standards
set forth in cases such as Bechtel, 648 F.2d. at 666, AT&T, 552 F.
Supp. at 151, and Alcan, 605 F. Supp. at 622, that the secured remedy
is outside ``the reaches of the public interest.'' Moreover, in
criticizing the United States' allegations regarding market definition,
Mr. Bruner is questioning the validity of the United States' Complaint,
an exercise that is beyond the scope of the Tunney Act review. See SBC
Commc'ns, 489 F. Supp. at 15; Microsoft, 56 F.3d at 1459.
When considered in light of the applicable legal standards, the
United States' remedy more than satisfies the public interest
requirements set forth in the Tunney Act.
A. Divestiture of the Crown Point 12 Adequately Restores Competition
Lost as a Result of the Merger
Mr. Bruner asserts that divestiture of the Crown Point 12 is
inadequate relief to remedy the merger's concentrating effect. Mr.
Bruner claims that divestiture of this theatre does not sufficiently
reduce the merger's concentrating effect in Southern Charlotte, and
that, even after the divestiture of the Crown Point, the Southern
Charlotte market would still be so highly concentrated that additional
relief is required. Mr. Bruner also argues that the Crown Point will
not be an effective competitor against Regal because it is located on
the eastern edge of the Southern Charlotte market, five miles from its
nearest competitor, the Arboretum 12, with no other competing theatres
to the north, south or east.
Mr. Bruner is correct that divestiture of the Crown Point would not
ensure that concentration levels in Southern Charlotte were no higher
than their pre-merger level, but that fact does not mean that the
relief obtained by the United States is inadequate. The Department
determined that the anticompetitive effects of the transaction in
Southern Charlotte would flow from the elimination of competition among
three theatres that were most vigorously competing against each other
pre-merger: Regal's Crown Point, Consolidated's Arboretum 12 (which, as
Mr. Bruner correctly points out, is five miles from the Crown Point to
the south), and Consolidated's Philips 10 (which is located
approximately seven miles from the Crown Point to the west). The
divestiture of the Crown Point to an independent viable competitor
would restore the competition among those theatres that was lost due to
the combination of Regal and Consolidated.
With respect to the sufficiency of the proposed remedy, a district
court must accord due respect to the United States's views of the
nature of the case, its perception of the market structure, and its
predictions as to the effect of proposed remedies. E.g., SBC Commc'ns,
489 F. Supp. 2d at 17 (United States is entitled to ``deference'' as to
``predictions about the efficacy of its remedies''). The United States
``need only provide a factual basis for concluding that the settlements
are reasonably adequate remedies for the alleged harms.'' Id.
Mr. Bruner places great emphasis on the concentration statistics in
making his argument that the relief obtained is inadequate. While a
merger's impact on concentration in a market is a useful indicator of
the likely potential competitive effects of a merger, it is by no means
the end of the analysis. The Department gathered and considered
considerable other evidence, much of which is not publicly available,
bearing on the likely effects of combining Regal and Consolidated
theatres in Southern Charlotte, and the effect of preserving the
independence of the Crown Point theatre via an appropriate divestiture.
The United States concluded, and subsequently alleged in the Complaint,
that the merger would cause harm by eliminating competition for
moviegoers between particular Regal and the Consolidated theatres in
Southern Charlotte, rather than by considering market-wide
concentration levels. The United States explained in its Complaint the
competitive dynamics that would be impaired by Regal's acquisition of
Consolidated. Specifically, as noted above, the Department found that
the principal competitor of both Consolidated theatres in Southern
Charlotte--the Arboretum 12 and the Phillips 10--was Regal's Crown
Point theatre, and that the Phillips 10 also competed to a lesser
degree with Regal's Stonecrest theatre. The United States alleged that,
without the merger, if these Regal or Consolidated theatres were to
increase ticket prices, and the theatres of the other firm did not
follow, the exhibitor that increased price would likely suffer
financially as a substantial number of its patrons would patronize the
other exhibitor's theatre. See Complaint, ] 34. That competition would
be lost as a result of an unremedied merger, because the newly-combined
entity could increase prices at all of its theatres, or be sure that
its other theatres would capture sales lost to the theatre that raised
prices, thus making profitable price increases that would have been
unprofitable pre-merger. Id.
The United States also found that, for various reasons, the other
theatres in Southern Charlotte would be unable to attract enough
moviegoers that were served by the Regal and Consolidated theatres to
make a post-merger price increase or reduction in quality unprofitable.
For example, as alleged in the Complaint, those other theatres are
located further away from those moviegoers, are smaller in size or have
fewer screens, or offer a lower quality viewing experience than the
Regal and Consolidated theatres. See Id. at ] 36. The relief obtained
by the United States flowed directly from this analysis of the merger's
likely effects, and that relief will prevent those effects from being
realized. Not only is Regal's Crown Point 12 the principal competitor
to Consolidated's two theaters in Southern Charlotte, it is one of the
largest theatres in the market, with 12 screens and stadium seating,
making it competitive in quality with the other theatres in the area.
B. Criticism of the United States' Allegation of the Proper Geographic
Market for First-Run Commercial Movie Exhibition of Southern Charlotte
Is Beyond the Scope of Tunney Act Review
Much of Mr. Bruner's comment is devoted to arguments that the
allegations in the United States' complaint do not properly define the
South Charlotte market. Mr. Bruner claims that the United States
incorrectly excluded another Consolidated theatre from the market, and
improperly included his Village Theatre in the market. Mr. Bruner
asserts that these changes support a conclusion that the merger caused
an even greater increase in concentration, and thus provide further
support for his position that the relief obtained by the United States
was inadequate.
Mr. Bruner's arguments should be rejected. In essence, Mr. Bruner
is claiming that the United States should have brought a different
case--founded upon different market allegations--than the one alleged
in the Complaint. As explained by this Court, however, in a Tunney Act
proceeding, the district court should not second-guess the
prosecutorial decisions of the Department regarding the nature of the
claims brought in the first instance; ``[r]ather, the court is to
compare the complaint filed by the [United States] with the proposed
consent decree and determine whether the [proposed
[[Page 62547]]
decree] clearly and effectively addresses the anticompetitive harms
initially identified.'' United States v. Thomson Corp., 949 F. Supp.
907, 913 (D.D.C. 1996). Similarly, the Tunney Act review does not
provide for an examination of possible competitive harms the United
States did not allege. See, e.g., Microsoft, 56 F.3d at 1459 (stating
that the district judge may not ``reach beyond the complaint to
evaluate claims that the government did not make'') \5\. The reviewing
court may look beyond the scope of the complaint only when the
complaint has been ``drafted so narrowly as to make a mockery of
judicial power.'' SBC Commmc'ns, 489 F. Supp.2d at 14. That is not the
case here. The United States' decision to allege a harm in a specific
market is based on a case-by-case analysis that varies depending on the
particular circumstances of each product and geographic market. The
Complaint properly alleges the harm the transaction is likely to cause
in the relevant product and geographic markets. Because Mr. Bruner is
challenging the adequacy of the relief based on his definition of the
relevant geographic market, rather than the geographic market alleged
in the Complaint, his challenge should carry no weight.\6\
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\5\ Were a court to reject a proposed decree on the grounds that
it failed to address harm not alleged in the complaint, it would
offer the United States what the Court of Appeals for the D.C.
Circuit referred to as a ``difficult, perhaps Hobson's choice,'' in
that the United States would have to either redraft the complaint
and pursue a case it believed had no merit, or drop its case and
allow conduct it believed to be anticompetitive to go unremedied.
Microsoft, 56 F.3d at 1456.
\6\ In any case, the Department properly excluded the Park
Terrace from the relevant geographic market. Past investigations
involving competition among movie theatres revealed that moviegoers
typically will not travel more than 5 to 10 miles from their homes
to see a movie. At approximately 10 miles from Regal's Crown Point,
the Park Terrace is at the outer range. In addition, the Park
Terrace is not located near a freeway exit, increasing the travel
time. The Department's examination of the merging parties' data, as
well as interviews with market participants, confirmed that the Park
Terrace and the Crown Point draw moviegoers from very different
areas.
The Department also properly included Mr. Bruner's Village
Theatre in the market. Although that theatre may not show as many
first-run movies as other theaters as result of the clearances that
Mr. Bruner describes, it nevertheless provides some competition for
the same group of moviegoers as the Stonecrest, which is less than
three miles away.
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C. The Additional Relief Proposed by Mr. Bruner Would Be Inappropriate
Mr. Bruner argues that the United States should obtain additional
relief in the form of an order requiring his competitor, Regal, to
waive any opportunities it has for ``clearances'' of first-run movies
against the Village Theatre, which Mr. Bruner asserts will enhance the
Village Theatre's ability to compete against Regal's Stonecrest theatre
post-merger. In the motion picture industry, ``clearance'' refers to a
practice whereby a distributor (i.e., movie studios) may elect to
license only certain theatres in a geographical area to exhibit a
first-run movie during some period of time. In such a case, the
exhibitors that are licensed to show the movie are referred to as
having ``clearance'' against exhibitors that do not have such rights.
According to Mr. Bruner, several distributors have opted to license
first-run movies only to Regal's Stonecrest Theatre in the portion (or
``zone'') of the Southern Charlotte market in which the Village Theatre
is located, thus granting clearances against that theatre.
Mr. Bruner would have this Court order Regal not to avail itself of
the exclusive rights to exhibit a movie at the Stonecrest that a
distributor wishes to grant. In Mr. Bruner's view, this outcome would
assure his theatre access to every first-run movie he desires and allow
his five-plex theatre to compete better with Regal's 22-screen
Stonecrest, to the benefit of consumers. Mr. Bruner's proposal is
inappropriate for several reasons, and the United States' remedy--
divestiture of the Crown Point--is more effective in addressing the
merger's harm in Southern Charlotte.
First, it is important to recognize that the practice of
distributors granting the Stonecrest clearance against the Village
Theatre is not a result of the merger. Whatever effects those practices
have on competition in the Southern Charlotte market, they are
unrelated to this case and the United States' allegations of harm from
the transaction at issue. Thus, factoring Mr. Bruner's concern
regarding clearances into the public interest assessment here would
inappropriately construct a ``hypothetical case and then evaluate the
decree against that case,'' something the Tunney Act does not
authorize. Microsoft, 56 F.3d at 1459.
Second, Mr. Bruner's relief likely would be unworkable and
inappropriately limit the licensing freedom of third parties, since its
effectiveness would hinge on movie distributors choosing to license the
Village Theater despite Mr. Bruner's assertion that they have not made
such choices in the pre-merger world.
Finally, even if Mr. Bruner's requested relief would serve to
enhance the Village Theatre's ability to compete in the market post-
merger, such relief would inappropriately and unnecessarily involve the
Court and the Department in supervising Regal's ongoing marketplace
conduct. Mr. Bruner's proposal would limit Regal's ability to compete
with the Village Theatre for the exclusive right to show a movie at the
Stonecrest or the Arboretum by offering studios a better deal. The
Department of Justice's Antitrust Division has previously made clear
that it is unlikely to impose restrictions on a merged firm's right to
compete as part of a merger remedy. Such restrictions, even as a
transitional remedy, are strongly disfavored as they directly limit
competition in the short term, and any long-term benefits are
inherently speculative. See Antitrust Division Policy To Guide To
Merger Remedies, dated October 21, 2004 at 19. Structural remedies such
as the divestiture the Department has required in this case, are
preferred in merger cases because they are relatively clean and
certain, and generally avoid government entanglement in the market that
conduct remedies require. A carefully crafted divestiture decree is
``simple, relatively easy to administer, and sure'' to preserve
competition. United States v. E.I. du Pont de Nemours & Co., 366 U.S.
316, 331 (1961). Divestiture of an ongoing business to a new,
independent, and economically viable competitor has proved to be the
most successful remedy in maintaining competition that would have been
lost due to the merger. See California v. American Stores Co., 495 U.S.
271, 280-81 (1990) (``[I]n Government actions divestiture is the
preferred remedy for an illegal merger or acquisition.'').
Public Comment From the Voluntary Trade Council, Inc.
The Voluntary Trade Council (``VTC'') describes itself as ``a
research center dedicated to antitrust and competition regulation * * *
working in the tradition of the Austrian School of Economics * * *
offer[ing] free-market criticism of the Department of Justice, the
Federal Trade Commission and other agencies that intervene to prevent
the voluntary exchange of goods, services and ideas.'' VTC argues that
the Department should not have alleged a market for first-run movie
distribution, contends that the Department should ignore any increase
in price resulting from the transaction so long as consumers were
willing to pay higher prices, and opposes any remedies to ameliorate
the competitive harm that the United States alleges would otherwise
occur as a result of Regal's acquisition of Consolidated. VTC urges the
Court to reject the proposed Final
[[Page 62548]]
Judgment as inconsistent with the public interest.
It appears that VTC is philosophically opposed to the existence of
and enforcement of the antitrust laws in any case. See http://voluntarytrade.org. All of VTC's arguments in this case are directed
toward the United States' decision to file the Complaint alleging a
Section 7 violation, and its related decision to require that the
Defendants divest certain theatres in order to restore competition and
avoid the need to litigate this matter.\7\ As such, none of VTC's
arguments is directed to any issue relevant under the Tunney Act, i.e.,
whether, in light of the violations charged in the Complaint, the terms
of the proposed Final Judgment are inconsistent with the public
interest. Microsoft, 56 F.3d at 1462. The Court should accordingly
ignore VTC's comment.
---------------------------------------------------------------------------
\7\ The Department's conclusion that first-run, commercial movie
exhibition is a proper relevant market, see Complaint at ] 17, was
based on the application of standard antitrust principles to the
visual entertainment options available to consumers in the areas
where Regal and Consolidated operate movie theatres, as set forth in
the Department's Merger Guidelines. See Horizontal Merger
Guidelines, 57 Fed. Reg. 41,552, 41,555, Sec. 1.1 (1992). Contrary
to VTC's assertion, the mere existence of other forms of visual
entertainment would not prevent a monopolist movie exhibitor from
profitably raising prices or reducing quality relative to
competitive levels.
---------------------------------------------------------------------------
V. Conclusion
After careful consideration of the public comments, the United
States concludes that the entry of the proposed Final Judgment will
provide an effective and appropriate remedy for the antitrust
violations alleged in the Complaint and is therefore in the public
interest. Accordingly, after publication in the Federal Register
pursuant to 15 U.S.C. 16(b) and (d), the United States will move this
Court to enter the Final Judgment.
Dated: September 24, 2008.
Respectfully Submitted,
Gregg I. Malawer (DC Bar No. 481685),
Anne Newton McFadden,
U.S. Department of Justice Antitrust Division, 450 5th Street, NW.,
Suite 4000, Washington, DC 20530, (202) 514-0230, Attorneys for
Plaintiff the United States.
BILLING CODE 4410-11-M
[GRAPHIC] [TIFF OMITTED] TN58AD08.000
BILLING CODE 4410-11-C
Appendix
Public Comment from Robert B. Bruner (June 26, 2008)................ A
Public Comment from Robert B. Bruner (July 22, 2008)................ B
Public Comment from Voluntary Trade Council, Inc. (July 13, 2008)... C
A
June 26, 2008
John R. Read, Chief,
Antitrust Division/Litigation III,
450 5th Street, NW., Suite 4000,
Washington, DC 20530.
This letter is a public comment to the proposed Final Judgment
regarding the merger of Regal Cinemas, Inc. (``Regal'') and
Consolidated Theatres, GP (``Consolidated'') (the ``Merger''). More
specifically it focuses on the competitive effect of the Merger in
the
[[Page 62549]]
Southern Charlotte, North Carolina, market area.
As noted below, even after the divesture of the Crown Point 12
the HHI for the Southern Charlotte market will be 5,032 points,
nearly three times the 1,800 point threshold for a highly
concentrated market set forth in the Merger Guidelines. Further, the
Merger will still cause a HHI increase of 1,281 points, more than 25
times the 50 point increase for highly concentrated markets that the
guidelines specify potentially raise significant competitive
concerns and more than 12 times the 100 point increase threshold
that the guidelines specify create a presumption of the creation or
enhancement of market power or the facilitation of its exercise.
Merger Guidelines Sec. 1.51c.
As discussed in detail below, to obtain an accurate view of the
competitive effect of the Merger in the Southern Charlotte market,
the inclusion of the Park Terrace Theatre in the market and the
exclusion of the Village Theatre in the market is required. With
these two adjustments, the Herfindahl Hirschman Index (``HHI'') will
more accurately reflect the market concentration and the competitive
effect of the Merger in Southern Charlotte. As this revised HHI
clearly shows the divestiture by Regal of the Crown Point 12 does
not eliminate the noncompetitive effects of the Merger in the
Southern Charlotte market.
Thus, additional changes to the proposed Final Judgment are
necessary to reduce the market concentration of Regal in the
Southern Charlotte market area. Because of its location, the entry
of the Village Theatre into Southern Charlotte as a true first-run
commercial movie theatre will, in reality, most likely be more
beneficial to the consumers than the divestiture of Crown Point 12.
The elimination or waiver of Regal's Stonecrest's clearance will
allow the Village Theatre to enter the first-run commercial movie
market in Southern Charlotte which will provide additional consumers
a choice of venues \1\ for first-run commercial movies in Southern
Charlotte and help to deconcentrate the market and offset the
anticompetitive effects of the Merger.\2\
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\1\ The five screen Village Theatre is Charlotte's only luxury
theatre while Regal's Stonecrest is a 22 screen multiplex.
\2\ Since these calculations were based upon the 2007 box office
revenues and since the box office revenues for the Village Theatre
should increase after the clearance is eliminated, the market share
for the Village Theatre should increase and the competitive effect
of the merger in the Southern Charlotte market will be reduced even
further than that shown on Exhibit 5.
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The Complaint
On April 29, 2008, the United States of America brought a civil
antitrust action to enjoin the proposed Merger of Regal and
Consolidated and to obtain equitable relief (the ``Compliant''). As
stated by the United States in the Complaint, the Merger would
substantially lessen competition and tend to create a monopoly in
the theatrical exhibition of first-run commercial movies \3\ in the
Southern Charlotte market area in violation of Section 7 of the
Clayton Act. Regal is the largest operator of theatres in the United
States. Consolidated is the largest operator of theatres in the
Southern Charlotte area.
---------------------------------------------------------------------------
\3\ The Complaint did not define the term first-run commercial
movies. Generally, as stated in the Complaint, art movies are
released less widely than commercial first-run movies. For purposes
of this Comment Letter, the term first-run, commercial movies will
include those movies with an initial release of more than 1,500
prints. This is the lower end of a release of what is typically a
first-run commercial movie.
---------------------------------------------------------------------------
As stated in Paragraphs 14-17 of the Complaint, tickets at
theatres exhibiting first-run commercial movies usually cost
significantly more than tickets at sub-run theatres. Art movies are
released less widely than first-run commercial movies. The relevant
product market within which to access the competitive effects of the
Merger is the exhibition of first-run commercial movies.
Paragraph 19 of the Complaint sets forth the theatres in
Southern Charlotte that the United States used in its review of the
competitive impact in this market area, including its calculation of
the HHI. As discussed below, Paragraph 19 of the Complaint wrongly
includes the five screen Village Theatre in the relevant market and
excludes the six screen Park Terrace.
Paragraph 30 of the Complaint states that the newly merged
entity would control four of the six first-run commercial theatres
in the Southern Charlotte area, with 56 out of 83 total screens and
a 75% share of the 2007 box office receipts. The market
concentration as measured by the HHI would increase 2,535 points to
6,050 points; substantially above the merger guidelines.
The Complaint also states that the Merger is likely to lead to
higher ticket prices for moviegoers (see Paragraph 34 of the
Complaint) and that the entry of a first-run commercial movie
theatre in the Southern Charlotte area is unlikely (see Paragraph 37
of the Complaint).
The Complaint states that the likely effect of the Merger would
be to lessen competition substantially for first-run commercial
motion picture exhibition in violation of Section 7 of the Clayton
Act, 15 U.S.C. Section 18.
The Proposed Final Judgment
At the same time the Complaint was filed, the United States also
filed a proposed Final Judgment stating that it will eliminate the
anticompetitive effects of the Merger. In the Southern Charlotte
market area, under the proposed Final Judgment, Regal is required to
divest its ownership of the Crown Point 12 theatre.
In the Southern Charlotte market the exhibitors of film product
are highly concentrated and the HHI for that area greatly exceeds
the merger guidelines. Even after the divestiture of assets proposed
by the United States the HHI in the Southern Charlotte market will
increase by almost 130% from the pre-merger HHI.
Comment--The Final Judgment Does Not Adequately Reduce or Eliminate the
Anticompetitive Effects of the Merger in Southern Charlotte
United States has found that the Merger would substantially
lessen competition in the Southern Charlotte market and is in
violation of Chapter 7 of the Clayton Act. See Exhibit 1.\4\ The
post-Merger HHI shows an excessive concentration of the market in
Southern Charlotte as a result of the Merger. After divesture by
Regal of the Regal Crown Point 12 Theatre the post-Merger HHI would
still be an extremely high 5,032 points, reflecting an excessive
concentration of the market after the Merger. See Exhibit 2.
---------------------------------------------------------------------------
\4\ The United States did not publish the details of their
calculation of the HHI. Therefore, the numbers shown in this Public
Comment Letter will not exactly match those of the United States;
but there are no significant variations.
---------------------------------------------------------------------------
In Paragraph 34 of its Complaint, the United States asserts that
the Merger will enable price increases by the merged firm to be
profitable because of the lack of remaining competition in the
market Paragraph 37 of the Complaint notes the unlikelihood of new
entry in Southern Charlotte to reduce the market power of the merged
firm. However, the United States' Competitive Impact Statement,
which orders the divestiture of the Crown Point 12, provides no
analysis or data as to how that action will reduce or eliminate the
substantial market concentration and anticompetitive effects of the
Merger in Southern Charlotte. It provides only a conclusionary
statement that the divestiture will ``preserve existing competition
between the defendant's theatres that are or would have been each
others' most significant competitor. * * *'' This statement is in
error with respect to the Southern Charlotte market because the
Crown Point 12 is on the periphery of the market on the far eastern
edge of the Southern Charlotte market area, approximately five miles
from its nearest competitor, the Arboretum 12 located to the west of
the Crown Point 12. There are no competing theatres to the north,
south or east.
Thus, the divestiture of the Crown Point 12 will have no real
effect on competition in the Southern Charlotte market. The merged
firm, Regal, will still have the power to raise prices and the
likelihood of new entry will remain unlikely. The HHI of over 4,577,
still an increase of, at a minimum, 1,000 to a maximum (see below)
of over 3,000 points is still overwhelmingly establishes a Section 7
violation, particularly with entry barriers admittedly very high.
Comment--Competitive Effects in the Southern Charlotte Market
The review by the United States of the competitive effects of
the Merger in the Southern Charlotte market is incomplete and
inaccurate. The determination of which theatres show first-run
commercial movies is important in assessing the competitive impact
on the Southern Charlotte market. All facts and circumstances must
be evaluated to determine the relevant market as a precondition to
finding a violation of Chapter 7 of the Clayton Act. In determining
whether a particular theatre (which may not clearly be a ``first-run
commercial theatre'') shall be considered a ``first-run commercial
theatre'', the public interest compels inclusion of theatres which
are truly first-run competitors and the exclusion of theatres which
are not.
[[Page 62550]]
Consolidated's Park Terrace Should be Included in the Relevant
Market. The United States wrongly excludes the Park Terrace Theatre
from the Southern Charlotte market. The Park Terrace Theatre,
acquired by Regal in the Merger, primarily shows first-run
commercial movies. The Park Terrace Theatre is located in the
Southern Charlotte market near the Phillips Place Theatre. It has
stadium seating and its ticket prices are the same as at other
first-run commercial theatres in the Southern Charlotte market area.
Prior to the Merger both the Park Terrace Theatre and the Phillips
Place theatre were owned by Consolidated. Because the Park Terrace 6
is in the same film zone as Phillips Place 10 (also a part of the
Merger) and, more importantly, because the Phillips Place Theatre
has only 10 screens, the Park Terrace 6 and the Phillips Place 10
share films.\5\
---------------------------------------------------------------------------
\5\ Although Phillips Place has only 10 screens, from June 1,
2006 to present it has showed 235 first-run commercial movies. This
is compared to the 325 first-run commercial movies shown on the 22
screens at the Regal's Stonecrest, its nearest competition. If
Phillips Place and Park Terrace were not sharing movies then,
because of required commitments to the film distributors to show a
film for a certain length of time (typically four to five weeks),
Phillips Place would have been able to show less than 150 films over
this time period.
---------------------------------------------------------------------------
Most films start their run at Phillips Place and conclude the
required run (usually four to five weeks) at Park Terrace. See
Paragraph 12 of the Complaint. This relationship is critical. Since
Phillips Place has only 10 screens sharing films with Park Terrace
allows Phillips Place to exhibit more first-run commercial movies
than it otherwise could show. This arrangement allows the film
distributors to license more first-run commercial movies to Phillips
Place/Park Terrace. Without the ability to ``move over'' films from
Phillips Place to Park Terrace a substantial portion of the Southern
Charlotte market would be deprived of many of the best first-run
commercial movies. The first-run movies at the Park Terrace Theatre
that are ``moved over'' from Phillips Place are still being shown on
their first run at other first-run commercial theatres in Southern
Charlotte.\6\ Thus, Phillips Place 10 and Park Terrace 6 should be
treated, for purposes of determining the competitive effect of the
Merger in the Southern Charlotte market, as the Phillips Place/Park
Terrace 16. Since the Park Terrace is a theatre that is being
acquired by Regal in the Merger, its inclusion in the relevant
market will result in a more accurate picture of the competitive
effect of the Merger in the Southern Charlotte market.
---------------------------------------------------------------------------
\6\ For example, on June 26, 2008 all six movies exhibited at
Park Terrace were also on their first-run at the AMC Carolina
Pavilion, four of the six were on their first-run at Regal's
Stonecrest.
---------------------------------------------------------------------------
Village Theatre Should be Excluded from the Relevant Market. The
United States wrongly includes the Village Theatre from the Southern
Charlotte market.
Background. The independently owned Village Theatre is a two
year old five-plex stadium theatre with state of the art projectors
and sound systems. The Village Theatre is the only luxury theatre in
Southern Charlotte (and probably the entire Carolinas). It offers an
array of amenities for the moviegoers, including valet parking,
gourmet desserts, wine and beer, and luxury reserved seating. The
Village Theatre has been voted the Critics' Choice award as the best
theatre in Charlotte. It is a showcase venue and had hosted numerous
world premieres of non-commercial movies. Numerous restaurants are
in the theatre building and fronting plaza, all with the option of
outdoor seating. The Village Theatre is the centerpiece of a $75mm
mixed-use shopping center.
Regal's Stonecrest Theatre is in a competitive film zone \7\
with the Arboretum Theatre \8\ and the Village Theatre. The distance
from Regal's Stonecrest to Arboretum is less than three miles (as
the crow flies) and from Regal's Stonecrest to the Village Theatre
is approximately 2.6 miles (as the crow flies).\9\ The Arboretum was
in operation before Regal's Stonecrest was built. Upon Regal's
Stonecrest's opening, there was an agreement between Regal's
Stonecrest and the Arboretum that there would be no clearance given
to either theatre in that film zone and that each theatre would show
the same movies on a ``day-and-date'' basis.\10\ Even though the
Village Theatre has only five screens compared to the 22 screens at
Regal's Stonecrest, since the Village Theatre opened in March 2006
(much after the opening of Regal's Stonecrest), Regal's Stonecrest
has invoked clearance against the Village Theatre on every first-run
commercial movie shown at Regal's Stonecrest while continuing to not
invoke clearance against the bigger competitor--the 12 screen
Arboretum Theatre.
---------------------------------------------------------------------------
\7\ The industry standard for a film zone is a five mile radius
around the theatre in question. The only exceptions to the five mile
standard are urban areas that are densely populated like New York
City.
\8\ Prior to the Merger, the Arboretum Theatre was a
Consolidated theatre; Regal acquired ownership of the Arboretum
Theatre as part of the Merger.
\9\ Competitive zones are calculated upon mileage ``as the crow
flies'' and not based upon road driving distance between the two
theatres because the purpose of a competitive zone is to effect upon
the moviegoers within that area.
\10\ The term ``day and date'' refers to the right of two or
more theatres located within the same film zone to exhibit the same
movie at the same time. In that case there can be no clearance.
---------------------------------------------------------------------------
The Village Theatre is the most centrally located of all the
first-run commercial movie theatres in the Southern Charlotte area.
It has the ability to become an attractive option for customers
desiring to see first-run commercial movies in this market.
Exclude the Village Theatre. Village Theatre has desired to
exhibit first-run commercial movies since it opened but because it
is in a competitive or split zone with Regal's Stonecrest and there
has been no allocation of product between the Village Theatre and
Regal's Stonecrest, Regal's Stonecrest has invoked the benefits of
clearance to prevent the Village Theatre from showing virtually all
first-run commercial movies.
Thus, Regal's Stonecrest's use of clearance has effectively kept
the Village Theatre from being a first-run commercial movie theatre.
Since June 1, 2006 the Village Theatre has shown only three first-
run commercial movies while Regal's Stonecrest has shown over 300
first-run commercial movies. For example, for the summer of 2008 the
Village Theatre has not been able to obtain Indiana Jones, Get
Smart, The Hulk, Ironman, Sex and the City, Hancock or any other
first-run commercial movie. Therefore, for purposes of determining
the competitive effect of the proposed Merger, Village Theatre
cannot be considered as a first-run commercial movie theatre and it
should not be included in the relevant market or the calculation of
the HHI. As discussed below, the Village Theatre should only be
included in the calculation of HHI if the clearance of Regal's
Stonecrest is eliminated so that the Village Theatre can show first-
run commercial movies on a ``day and date'' basis with the Regal's
Stonecrest Theatre.
Impact on Market Concentration in the Southern Charlotte Market
Area. Based on the facts above, the Park Terrace Theatre should have
been included in the review of the competitive impact on market
concentration in the Southern Charlotte market area and the Village
Theatre should have been excluded. Exhibits 3 and 4 set forth the
revised figures for the competitive effect of the Merger with the
inclusion of the Park Terrace Theatre and the exclusion of the
Village Theatre. Exhibits 3 and 4 show a major increase in the
market concentration from that set forth in Paragraph 30 of the
Complaint. The benchmark for determining the competitive effects of
the Merger on the Southern Charlotte market is the HHI before the
Merger. After giving effect to these changes (before the divestiture
of Crown Point 12), after the Merger, Regal would control five of
the six first-run, commercial theatres in the Southern Charlotte
market area (instead of four of six as shown in the Complaint), with
62 out of 84 total screens (instead of 56 of 83 as shown in the
Complaint), and a 78% share of the 2007 box office receipts (instead
of 75% as shown in the Complaint). The market concentration as
measured by the HHI would increase 2,867 points to 6,618 points as
compared to the increase of 2,535 points to 6,050 points as set
forth in Paragraph 30 of the Complaint, a substantial additional
increase in the Regal's actual post-Merger market concentration.
Exhibit 6 is a summary of the Competitive Effects of the Merger
on the Southern Charlotte market. As discussed above, Paragraph 30
of the Complaint erroneously included the Village Theatre and
excluded the Park Terrace Theatre. Exhibits 3 and 4 accurately
reflect the competitive effects before the Merger, after the Merger
and after the divestiture of Crown Point 12 by including the Park
Terrace Theatre and excluding the Village Theatre.
Comment--New Entry Into the Southern Charlotte Market
The entry of an additional first-run commercial movie theatre in
the Southern Charlotte market is beneficial from a competitive
effects point of view because the new entry will obtain a share of
the market, thereby reducing Regal's market concentration. More
importantly it will give moviegoers in Southern Charlotte another
[[Page 62551]]
real choice of venues \11\ for viewing first-run commercial movies
in a market in which, as the United States states in Paragraph 37 of
its Complaint, the entry of an additional first-run commercial movie
theatre in Southern Charlotte is very unlikely.
---------------------------------------------------------------------------
\11\ The five screen Village Theatre is Charlotte's only luxury
theatre while Regal's Stonecrest is a 22 screen multiplex.
---------------------------------------------------------------------------
However, there is an opportunity to have a new entry exhibiting
first-run commercial movies in the Southern Charlotte market. With
the elimination of clearance between Regal's Stonecrest and the
Village Theatre,\12\ the Village Theatre would enter the Southern
Charlotte market as an additional first-run commercial movie
theatre. The entry of the Village Theatre as an additional first-run
commercial movie theatre in the Southern Charlotte market benefits
competition because the Village Theatre will obtain a share of the
market and thereby reduce Regal's market concentration. The impact
of this action on the market is shown on Exhibit 5. It will benefit
consumers by giving them an additional choice of venues for first-
run commercial movies in a heavily concentrated market. Eliminating
clearance is a more effective way to increase competition and give
moviegoers a choice of venues than divesting the Crown Point 12.
---------------------------------------------------------------------------
\12\ See Appendix A for a discussion of clearance as it relates
to the Village Theatre.
---------------------------------------------------------------------------
Comment--Conclusion
The Competitive Impact Statement filed by the United States in
United States v. Regal Cinemas, Inc. and Consolidated Theatres
Holdings, GP is in error with respect to the Southern Charlotte
first-run commercial movie market. It wrongly asserts that the
divestiture of the Regal Crown Point 12 will preserve existing
competition between the merging entities and eliminate the
anticompetitive effects of the Merger. In point of fact, the
divestiture will have little effect on the extremely concentrated
market because of the location of the Crown Point 12 on the
periphery of the market. Further, the divestiture will not begin to
overcome the presumption contained in the Merger Guidelines which
follows from the very substantial increase in the HHI in a highly
concentrated market like Southern Charlotte.
The Competitive Impact Statement also wrongly excludes the six
screen Park Terrace Theatre and includes the five screen Village
Theatre in the Southern Charlotte market, rendering the market
definition inaccurate and less concentrated than actually is the
case. The post-Merger HHI is actually about 6,618 points if the
market is correctly defined and remains at an alarming 5,032 points
even after the divesture of the Crown Point 12.
Although the United States asserts that new entry for a first-
run commercial movie theatre is unlikely there is one potential new
entrant, the independently owned five screen Village Theatre,
waiting in the wings in a prime location in the Southern Charlotte
market. As shown on Exhibit 5, this new entry will have a positive
effect on the post-Merger market concentration of Regal.
The United States should therefore act to assure a more
competitive market and provide additional consumer choice by
enabling the Village Theatre to become a viable first-run commercial
movie venue in Southern Charlotte. To do so, clearance for first-run
commercial movies that Regal's 22 screen Stonecrest exercises
against the Village Theatre in Regal's Stonecrest's film zone must
be eliminated. The elimination or waiver of Regal's Stonecrest's
clearance will permit the Village Theatre to enter the first-run
commercial movie market in Southern Charlotte, will provide
additional consumer choice of venues \13\ for first-run commercial
movies in Southern Charlotte, will eliminate Regal's unreasonable
restraint of trade, and will help to deconcentrate the market and
offset the anticompetitive effects of the Merger.\14\
---------------------------------------------------------------------------
\13\ The five screen Village Theatre is Charlotte's only luxury
theatre while Regal's Stonecrest is a 22 screen multiplex.
\14\ Since these calculations were based upon the 2007 box
office revenues and since the box office revenues for the Village
Theatre should increase after the clearance is eliminated, the
market share for the Village Theatre should increase and the
competitive effect of the merger in the Southern Charlotte market
will be reduced even further than that shown on Exhibit 5.
---------------------------------------------------------------------------
The Final Judgment should therefore be amended to enhance
consumer choice and allow entry of the Village Theatre into the
Southern Charlotte first-run commercial movie market by eliminating
the exercise of clearance by Regal's Stonecrest Theatre.
Sincerely submitted,
Robert B. Bruner,
14825 John J. Delaney Dr.,
Suite 240,
Charlotte, North Carolina 28277,
704/369-5001.
Appendix A--Clearance as It Relates to the Village Theatre
Clearance in General. ``Clearance'' refers to an agreement
between a theatre and a film distributor that a particular film will
not be played simultaneously for a particular period of time at two
different theatres located the same film zone. See United States v.
Paramount Pictures, 334 U.S. 131, 145 (1948). Clearance agreements
are allowed in the film exhibition industry for the legitimate
business purpose of ensuring that a particular theatre's income from
a film will not be greatly diminished because the film is also being
shown at a nearby competing theatre. See id. If clearances are
reasonable, they are considered allowable restraints of trade. See
id. at 146. Clearances between theatres not in substantial
competition are per se unreasonable. See id. at 145-46.
Thus, clearance is a reasonable restraint of trade only when
each of the following factors are met: (1) The clearance is used for
the legitimate business purpose of ensuring the exhibitor that its
income from a film will not be greatly diminished because the film
is also being shown at a nearby competing theatre, and (2) the
theatres which are subjected to clearance are in substantial
competition. As discussed below, the clearance between Regal's
Stonecrest and the Village Theatre does not satisfy either
condition.
Regal's Stonecrest and the Village Theater are not in
Substantial Competition. As stated above, there should be no
clearance between theatres not in substantial competition.\15\
United States v. Paramount, 334 U.S. 131 at 145-46.
---------------------------------------------------------------------------
\15\ The use of clearance presumes that there is an allocation
of first-run commercial movies between all of the theatres within
the same film zone. Clearly, if one theatre is able to obtain the
entire film product, there is no need for that theatre to have
clearance to protect against another theatre's showing of the film
simultaneously in the same zone. As amply demonstrated above, in the
instant case, the Village Theatre has no allocation of product, and
Regal's Stonecrest has no need for clearance against the Village
Theatre.
---------------------------------------------------------------------------
The Village Theatre cannot be considered a first-run commercial
movie theatre, since it has shown only three first-run commercial
movies since June 1, 2006 as compared to Regal's Stonecrest's
showing of 300-plus first-run commercial movies in the same period.
Thus, Regal's Stonecrest and the Village Theatre are not in
substantial competition, and the use of clearance by Regal's
Stonecrest against the Village Theatre is an unreasonable restraint
of trade and should be prohibited.
Regal's Stonecrest's invocation of clearance against the Village
Theatre is not for a proper business purpose. As stated above, even
if Regal's Stonecrest and the Village Theatre were determined to be
in substantial competition, clearance can be reasonable only if it
is necessary to ensure the exhibitor's expected income will not be
greatly diminished because the film is also being shown
simultaneously or soon thereafter at a nearby competing theatre. See
United States v. Paramount Pictures, 334 U.S. 131 at 145. Regal's
Stonecrest's invocation of clearance against the Village Theatre is
unjustified. See Theee Movies of Tarzana v. Pacific Theatres Inc.,
828 12d 1395, 1399 (9th Cir. 1987).
First, the Village Theatre has only five screens while Regal's
Stonecrest has 22 screens. Having only five screens will reduce the
number of first-run commercial movies that the Village Theatre will
be able to exhibit at any one time. With 22 screens, Regal's
Stonecrest has the ability to exhibit practically every first-run
commercial movie that is available. This summer Regal's Stonecrest
has shown some of the blockbuster movies (which are the most popular
and thus the most profitable) on up to six screens. Obviously, with
only five screens the Village Theatre cannot show a movie on six
screens. Given the requirements of the film distributors that films
show for a four to five week run, the Village Theatre does not have
the capacity to greatly diminish the expected income at Regal's
Stonecrest. See Paragraph 12 of the Complaint.
Second, Regal's Stonecrest's voluntary waiver of clearance
against the Arboretum, a theatre with over twice the number of
screens as the Village Theatre, demonstrates that Regal's Stonecrest
does not need clearance in its film zone to ensure that it's
expected income will not be greatly diminished. See Id.
Third, Regal's Stonecrest's use of clearance discriminatorily
against the Village Theatre while waiving it as to the Arboretum
thus
[[Page 62552]]
operates to deprive movie consumers of choice, injures the Village
Theatre and unreasonably restricts competition between the theatres
in the zone. Id.; U.S. v. Paramount Pictures, 66 F. Supp. 323, 346
(S.D.N.Y. 1946), opinion issued, 70 F. Supp. 53 (S.D.N.Y. 1946) and
judgment aff'd in part, rev'd in part on other grounds, 334 U.S.
131, 68 S. Ct. 915, 92 L. Ed. 1260 (1948). Therefore, the use of
clearance by Regal's Stonecrest against the Village Theatre is an
unreasonable restraint of trade and should be prohibited.
The Clearance between Regal's Stonecrest and the Village Theatre
is an Unreasonable Restraint of Trade. The clearance between Regal's
Stonecrest and the Village Theatre cannot be justified on the
grounds that the theatres are in substantial competition and that
clearance is being used to assure Regal's Stonecrest that a
distributor will not license a competitor to show a movie at the
same time or so soon thereafter that the Regal's Stonecrest's
expected income will be greatly diminished. See Theee Movies of
Tarzana, 828 F.2d 1395 at 1399.
Regal's Stonecrest and the Village Theatre are not in
substantial competition because the Village Theatre cannot be
considered a first-run commercial move theatre. Moreover, clearance
is not necessary to ensure Regal's Stonecrest's expected income will
not be greatly diminished. See Id. This is obviously true because
the Village Theatre has only five screens compared to the 22 at
Regal's Stonecrest. Also, Regal's Stonecrest has voluntarily waived
clearance against another theatre, the Arboretum Theatre, in the
same film zone with which it is substantially competitive, and the
invocation of clearance against the Village Theatre operates
primarily to injure the Village Theatre and overly restrict
competition between theatres in the zone.\16\ Id. The clearance is,
therefore, an unreasonable restraint of trade. See United States v.
Paramount, 334 U.S. 131 at 145-46; see Theee Movies of Tarzana, 828
F.2d 1395 at 1399.
---------------------------------------------------------------------------
\16\ Even if Regal's Stonecrest and the Village Theatre were in
substantial competition and Regal's Stonecrest had demonstrated a
need to protect against diminution of its income, as opposed to
demonstrating the opposite by waiving clearance against the
Arboretum, the clearance Regal's Stonecrest is invoking against the
Village Theatre is unduly extended as to duration. See United States
v. Paramount, 334 U.S. 131 at 145-46. The common duration of
dearance is generally fourteen days. See, e.g., Westway Theatre v.
Twentieth Century-Fox Film Corporation, 30 F.Supp. 830, 836 D.C. MD.
1940. (fourteen-day period for clearance was not uncommon in
duration and did not, under the particular facts of the case,
constitute an unreasonable restraint of trade).
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B
Sent: Tuesday, July 22, 2008 12:01 PM
To: Malawer, Gregg
Cc: Wamsley, Jennifer
Subject: Regal--Consolidated Merger
July 22, 2008
Delivery Via E-mail & Overnight
John R. Read, Chief,
[[Page 62556]]
Antitrust Division/Litigation III,
450 5th Street, NW., Suite 4000,
Washington, DC 20530.
This letter is Supplement 1 to my letter dated June 26,
2008 (the ``Comment Letter'') commenting on the proposed Final
Judgment regarding the merger of Regal Cinemas, Inc. (``Regal'') and
Consolidated Theatres, GP (``Consolidated'') (the ``Merger''). The
Comment Letter and this Supplement 1 focus on the
competitive effect of the Merger in the Southern Charlotte, North
Carolina, market area. For purposes of this Supplement 1
all terms used herein shall have the same meanings as used in the
Comment Letter.
On July 9, 2008, in the case styled as Village Theatre, LLC, v.
Consolidated Theatres Management, LLC, et al., Civil Action No. 008-
CVS-11031, currently pending in the General Court of Justice,
Superior Court Division, Mecklenburg County, North Carolina, Regal
filed a Motion to Dismiss, Answer and Counterclaims, in which they
declared as follows:
``The [Village] Theatre has been operated as an independent art
film theatre since its March 2006 opening date.''
Therefore, Regal admits that the Village Theatre, as it operates
today, should not be treated as a ``first-run commercial movie
theatre'' in the Southern Charlotte market.
This allegation is in direct conflict with the Department of
Justice's proposed Final Judgment, which is predicated in part upon
the fact that the Village Theatre was a ``first-run commercial movie
theatre''. Since this is not the case then the relevant market is
incorrectly defined in the proposed Final Judgment.
From an anti-trust point of view, the Merger remains highly
suspect. The Merger was determined by the United States to be
illegal and in violation of Section 7 of the Clayton Act. As stated
in the Comment Letter and as shown in the Exhibits to the Comment
Letter, the exclusion of the Village Theatre as a first-run
commercial movie theatre further increases the market concentration
of Regal's Stonecrest Theatre in the Southern Charlotte market.
Without the inclusion of the Village Theatre as a ``first-run
commercial movie theatre'', the post-Merger market concentration of
Regal in the Southern Charlotte area (even after the sale of the
Crown Point 12 Theatre and irrespective of the treatment of the Park
Terrace Theatre) will be excessively high. The United States should
impose requirements on Regal necessary to reduce its market
concentration in the Southern Charlotte market to as close to the
pre-Merger level as is possible.
The most obvious, and simplest, pro-competitive, pro-consumer
solution is to require Regal's Stonecrest Theatre to waive clearance
against the Village Theatre. This is obvious and simple because
Regal's Stonecrest Theatre has for years voluntarily waived
clearance with respect to the Arboretum Theatre which is also in the
Regal's Stonecrest Theatre film zone. Regal's Stonecrest Theatre's
voluntary waiver of clearance against the Arboretum Theatre
demonstrates that Regal's Stonecrest Theatre does not need clearance
in this film zone. Since Regal's Stonecrest Theatre has already
waived clearance against the 12-screen Arboretum Theatre it is not
too burdensome to require the waiver of clearance in the same film
zone against the much smaller five-screen Village Theatre. This
small action will greatly increase consumer choice and increase
competition.
Clearance must be removed so that the Village Theatre can be
considered a ``first-run commercial movie theatre'' and, thus,
reduce Regal's market concentration in the Southern Charlotte area.
Requiring Regal to waive clearance with the five screen Village
Theatre simply authenticates the proposed Final Judgment, greatly
enhances consumer choice, and is necessary given the excessively
high post-Merger market concentration of Regal.
Sincerely submitted,
Robert B. Bruner,
14825 John J. Delaney Dr., Suite 240-17, Charlotte, North Carolina
28277, 704-369-5001.
C
United States District Court for the District of Columbia
Case 1:08-cv-00746
United States of America, Plaintiff, v. Regal Cinemas, Inc., and
Consolidated Theatres Holdings, GP, Defendants; Public Comments of the
Voluntary Trade Council, Inc.
Before: Judge Richard J. Leon
Filed: July 13, 2008.
The Voluntary Trade Council, Inc., a Virginia non-profit
corporation, respectfully files the following public comments regarding
the Proposed Final Judgment in the above-captioned case.
Introduction and Interest of Commenter
On April 29, 2008, the Antitrust Division of the United States
Department of Justice (the Division) filed with the Court a Complaint
against Regal Cinemas, Inc. (Regal) and Consolidated Theatres Holdings,
GP (Consolidated), alleging Regal's contract to purchase Consolidated
was illegal under 15 U.S.C. 18, commonly known as the Clayton Act.
Regal and Consolidated did not contest the Division's Complaint,
and they acceded to the Division's demand to sell certain assets in
order to allow their merger to proceed. Accordingly, on May 15, 2008,
the Division published a notice in the Federal Register containing a
proposed Final Judgment and supporting documents. Under 15 U.S.C. 16,
the proposed Final Judgment is subject to a 60-day public comment
period, and the Court is required to review any comments received,
along with the Division's response, before deciding whether entry of
the Proposed Final Judgment is in the ``public interest.''
The Voluntary Trade Council, Inc.\1\ (VTC), is a research center
dedicated to antitrust and competition regulation. Working in the
tradition of the Austrian School of economics, VTC offers free-market
criticism of the Department of Justice, the Federal Trade Commission
and other agencies that intervene to prevent the voluntary exchange of
goods, services and ideas. In the past six years, VTC has filed public
comments in dozens of DOJ antitrust cases, providing independent
economic and legal analysis.\2\
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\1\ Formerly known as Citizens for Voluntary Trade.
\2\ For a compilation of VTC's public comments, see http://www.voluntarytrade.org/joomla15/index.php/docs/cat_view/12-voluntary-trade-council-documents/23-public-comments.
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Summary
The Division claims it was necessary to intervene in Regal's
acquisition of Consolidated in order to preserve competition in the
market for the ``theatrical distribution of feature length motion
picture films'' in the Charlotte, Raleigh and Asheville areas of North
Carolina. The Division alleges a voluntary combination of Regal and
Consolidated's movie theaters in these markets would ``eliminate
competition'' and likely lead to higher ticket prices and ``reduced
incentives to maintain, upgrade, and renovate their theaters.'' To
remedy these hypothetical harms, the proposed Final Judgment requires
Regal and Consolidated to sell four movie theaters located in the three
areas to a buyer approved by the Division.
The Division's claims of consumer harm are not supported by the
facts or economic principles. The Complaint presents a false and
misleading analysis of the marketplace and relies heavily on an
irrelevant mathematical formula to justify the violation of Regal and
Consolidated's property rights. The ``public interest'' in this case is
best served by rejecting the Division's meritless intervention. The
Court should not enter the Proposed Final Judgment.
Argument
``Movies are a unique form of entertainment,'' according to the
Division's complaint.\3\ Beyond this unremarkable insight, the
Division's attempt to define a ``relevant market'' presents a work of
economic fiction that is comparable to the fantastic movies of Steven
Spielberg (or even his ``non-union Mexican equivalent'' \4\). The
Division misrepresents the nature of
[[Page 62557]]
consumer time preference, confuses products with methods of
distribution and wastes an inordinate amount of energy on ``special
effects'' in the form of a useless mathematical formula. In short,
there is no economic substance to the Division's complaint--and thus no
rational basis for seeking the relief contained in the proposed Final
Judgment.
---------------------------------------------------------------------------
\3\ Complaint para. 11.
\4\ With apologies to Al Jean, Mike Reiss and Ken Keeler.
---------------------------------------------------------------------------
A. Method of Distribution Is Not a Distinct Product
Thomas A. Lambert, an associate professor at the University of
Missouri School of Law, responding to the Federal Trade Commission's
lawsuit against the merger of Whole Foods Market, Inc. and Wild Oats
Markets, Inc. (which this court rejected \5\), said, ``defining markets
to consist of specific types of distribution channels, rather than
groups of products and services, opens the door to finding narrow
`markets' (and thus market power) everywhere.'' \6\ The essence of
marketing, Lambert writes, is when sellers ``distinguish their products
or services by offering them differently than their competitors.'' \7\
---------------------------------------------------------------------------
\5\ Federal Trade Commission v. Whole Food Market, Inc., Civil
Action No. 07-1021 (D.D.C. Aug. 16, 2007).
\6\ Thom Lambert, ``Ignoring the Lessons of Von's Grocery: Some
Thoughts on the FTC's Opposition to the Whole Foods/Wild Oats
Merger,'' eSapience Center for Competition Policy June 2007).
\7\ Id.
---------------------------------------------------------------------------
The Division repeats the FTC's Whole Foods error in this case by
improperly defining a method of distribution as a distinct product
market. Regal and Consolidated do not manufacture the product--motion
pictures--but rather provide distinct venues for their distribution.
Like Whole Foods, Regal and Consolidated offer a place where sellers
(movie producers) and buyers (movie consumers) meet to engage in
voluntary exchange. But the distinctiveness of the venue should not be
confused with the nature of the products themselves.
A motion picture can be distributed through several channels:
First-run theatrical exhibition, sub-run theatrical exhibition,
television (including over-the-air broadcast, basic cable, pay and
premium cable, and satellite), and direct sales and rentals (VHS, DVD,
Blu-Ray, iTunes). A theatrical producer can utilize one, several or all
of these channels depending on the nature of the motion picture and its
expected audience. Many films begin their journey to the consumer in
first-run theatres like those operated by Regal and Consolidated.
Others are marketed directly to the consumer, such as the Walt Disney
Company's practice of straight-to-video sequels of its classic animated
films. However a particular film is marketed to the consumer, the
product is the film and not the method of distribution.
The Division argues there's a ``significant difference between
viewing a newly-released, first-run movie and an older sub-run movie,''
because first-run theatres usually charge higher ticket prices. Sub-run
theatres show films that ``are no longer new releases, and moviegoers
generally do not regard sub-movies as an adequate substitute for first-
run movies * * *'' It's not clear what ``moviegoers'' the Division
interviewed or surveyed to reach this conclusion. Without any empirical
data or deductive arguments, the Division simply concludes there are
wholly distinct markets for ``first-run'' and ``sub-run'' moviegoers,
and never the two shall meet. This argument is just plain wrong.
What distinguishes one movie-distribution channel from another is
consumers' aggregate time preference. Many consumers will pay a premium
to see a ``first-run'' movie when it is first released, while others
may wait and spend less to view the film in a ``sub-run'' theatre; and
others will wait even longer and spend even less to view the film on
home video.
The problem, which the Division fails to acknowledge, is that time
preference varies from product to product--that is, from movie to
movie. Some films perform poorly in first-run theatres only to enjoy
greater success in later distribution channels (hence the phenomenon of
``cult'' films). Other films enjoy overwhelming first-run success and
spawn one or more sequels, such as the James Bond, Star Trek and Star
Wars films. In the case of these movie franchises, time preference is
such that moviegoers will purchase tickets well in advance of these
films' release. In other cases, an unknown film may start out with
modest sales and gather momentum as ``word of mouth'' spreads.
First-run theatres clearly compete against other distribution
channels by persuading consumers that their entertainment demand is
best satisfied by paying a premium to see a particular movie now rather
than paying less to see it in another distribution channel later. To
that end, first-run theatres always have an incentive to improve the
quality of their product regardless of the number of first-run theatres
in a given geographical area. The Division itself makes a big deal
about movie theaters having ``stadium seating''--which was an
innovation developed in response to competition from other distribution
channels such as home video and pay per view cable.
Similarly, movie producers are now promoting 3D projection as the
future of first-run exhibition. Jeffrey Katzenberg, CEO of DreamWorks
Animation, recently announced that his studio's future films will be
exclusively in 3D. Disney and its subsidiary Pixar Animation Studios
also plan to release (and re-release) future films in 3D. (And the same
weekend as this comment was filed, Walden Media released a 3D version
of ``Journey to the Center of the Earth''.) Kevin Maney explains in the
July 2008 issue of Portfolio that,
Studios are latching onto 3-D for much the same reason that Bob
Dole took Viagra. Most of Hollywood's businesses are making money--
for all Katzenberg's complaining, DreamWorks' first-quarter profit
was up 69 percent--but the sector that makes Hollywood feel best
about itself, theatrical showings, is deflating, in large part
because the difference between seeing a movie in your local
multiplex and on a 52-inch high-definition TV in your family room is
not that vast.
The Motion Picture Association of America claims that 2007 was a
good year for the cinema business, with U.S. box office revenue up 5
percent to $9.6 billion. But that's unsupportable spin. The jump can
be almost entirely attributed to a bump in ticket prices. The number
of tickets sold in the U.S. stayed flat from 2006 to 2007, at 1.5
billion. (In 1950, while TV was taking off, US. theaters sold 3
billion tickets a year--and the population was half what it is
today.) Meanwhile, 379 screens were added between 2006 and 2007. Do
the math and movies are doing worse than ever in theaters.\8\
(Emphasis added)
---------------------------------------------------------------------------
\8\ Kevin Meaney, ``The 3-D Dilemma,'' available at http://www.portfolio.com/culture-lifestyle/culture-inc/arts/2008/06/16/Hollywoods-3-D-Cinema-Dreams.
The Division incorrectly believes that intra-theater competition
between Regal and Consolidated drive innovation and hold ticket prices
down. That's not the case, and the Court should not accept the
Division's ``market definition'' at face value.
B. The Division's Market Definition Improperly Excluded Other Types of
Motion Pictures and Entertainment
The Division argues, ``The experience of viewing a movie in a
theatre is an inherently different experience from live entertainment
(e.g., a stage production), a sporting event, or viewing a movie in the
home (e.g., on a DVD or via pay-per-view),'' \9\ But the question isn't
whether these are different experiences; it's whether they are
competing experiences that
[[Page 62558]]
individuals consider when allocating scarce time and money towards
entertainment. The Division treats consumers as a monolith that
considers only first-run movie theaters to the exclusion of all other
forms of entertainment. This approach insults consumers by reducing
them to a reactionary mob and has no empirical or deductive foundation.
---------------------------------------------------------------------------
\9\ Complaint para. 11.
---------------------------------------------------------------------------
In the Division's perfect economic world, no consumer ever asks,
``Should I go to a movie tonight or stay home and watch the football
game?'' Nor does anyone think, ``I really don't want to see that chick
flick with my wife and her friends, so I'll shoot pool with the guys.''
Perfect consumers behave in unison--like background characters in an
animated film--and in direct, negative response to short-term price
increases.
The Division goes to great lengths to explain why ``moviegoers do
not regard'' art and foreign language movies ``as adequate substitutes
for first-run commercial movies,'' thus justifying their exclusion from
the market definition. Again, the Division misses the point. Every
consumer has individual preferences. Sure, many consumers don't watch
art and foreign films. But other consumers never watch animated films.
Or war films. Or ``chick flicks.'' Or films featuring Mike Myers. And
it's unlikely that any moviegoer anytime, anywhere has said, ``Honey, I
want to see a first-run commercial movie tonight, and nothing else will
suffice!''
The Division's attempted market definition also ignores the cross-
competition that occurs within the entertainment industry. ``First-run
commercial movies'' are not a closed system. Many popular commercial
films are derived from other entertainment sources. In 2008 alone,
several number-one U.S. box office films were derived from non-film
sources: Hellboy II, The Incredible Hulk and Iron Man were based on
popular comic books; Sex and the City was based on a long-running
premium cable series (which itself was based on a compilation of
popular newspaper columns); and Horton Hears a Who! and The Chronicles
of Narnia: Prince Caspian were based on popular books.\10\ Demand for
non-film entertainment drives demand for motion pictures, and vice
versa. And once again, the number of first-run theatres in a given
geographic area is irrelevant to the market's competitiveness.
---------------------------------------------------------------------------
\10\ See ``Box office number-one films of 2008 (USA),'' http://en.wikipedia.org/wiki/Box_office_number-one_films_of_2008_
(USA).
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C. The Herfindahl Index Proves Nothing Aside From the Division's
Ability To Perform Basic Multiplication
Relying on its misleading market definition, the Division offers a
lengthy series of random numbers purportedly representing the
``Herfindahl-Hirschman Index'' (HHI), which the Division claims is a
``measure of market concentration.'' \11\ For example, in part of
Charlotte, North Carolina, the Division alleges the Regal Consolidated
merger would ``yield a post-merger HHI of approximately 6,058,
representing an increase of roughly 2,535 points.'' \12\ The
implication is that a higher HHI indicates a greater likelihood of
post-merger consumer ``injury'' in the form of higher prices. But even
assuming that the HHI figures given in the complaint are valid, this
alone does not prove the existence of ``market power'' or justify the
Division's proposed Final Judgment. As economics professor Dominick T.
Armentano has explained, there is no economic merit to the HHI:
---------------------------------------------------------------------------
\11\ Complaint para. 30.
\12\ Id.
Although the general public has the impression that there must
be some good reason for the antitrust authorities' choice of
particular limits in the Herfindahl Index of market concentration,
those limits are completely arbitrary. No one--and certainly not the
antitrust authorities--can ever know whether a merger of firms that
creates, say, a 36-percent market share, or one that raises the
Herfindahl Index by 150 points, can create sufficient economic power
to reduce market output and raise market price. No one knows, or can
know, whether monopoly power begins at a 36 percent market share or
a 36.74-percent market share. Neither economic theory nor empirical
evidence can justify any merger guideline or prohibition.\13\
---------------------------------------------------------------------------
\13\ Dominick T. Armentano Antitrust: The Case for Repeal, at
85-86 (2d ed., Ludwig von Mises Institute 1999).
---------------------------------------------------------------------------
D. Consumers Were Never in Danger of the Type of ``Injury'' Alleged in
the Complaint
Ultimately, the Division's complaint rests on the ridiculous
proposition that consumers would have been injured by higher post-
merger prices but for the redistribution of property mandated in the
proposed Final Judgment. The Division's argument is that ``[o]ver the
next two years, the demand for more movie theatres in [the identified
geographic areas] is not likely to support entry of a new theatre,''
and without additional theaters there would be ``an increase in movie
ticket prices or a decline in theatre quality.'' \14\ The decline in
quality issue has already been addressed and dismissed above. As for a
hypothetical increase in ticket prices, it's unclear how this would
``injure'' consumers who are willing to pay. There's no question of
fraud: Ticket prices are generally posted and well known to the
customer before purchase. Nor has the Division explained how
``competitive'' ticket prices should be determined outside of, well,
the competitive process of the market. The Division simply draws an
arbitrary line where pre-merger prices are assumed to be
``competitive'' and any hypothetical future increase--regardless of
cause--is ``anticompetitive.'' By this reasoning, the most logical
course of action would be for the Division to simply fix ticket prices,
which of course would violate Section 1 of the Sherman Act.
---------------------------------------------------------------------------
\14\ Complant para. 37.
---------------------------------------------------------------------------
The Division's real concern, which it states, is that it fears
consumers won't immediately respond to an increase in ticket prices by
reducing demand sufficiently to make the increase ``unprofitable.'' But
that has nothing to do with consumer injury. Consumers are not legally
obligated to adjust their spending habits to accommodate the Division's
mathematical models. Nor should sellers be punished because there's
insufficient demand to support the number of competing sellers that the
Division deems ideal. Ultimately, real markets don't function according
to the whims of government lawyers.
Conclusion
The proposed Final Judgment is built on a series of false,
misleading and laughably nonsensical arguments. Just as the ``movie
palaces'' of the 1930s gave way to the multiplexes of the late 20th
century, which in turn yielded to the ``stadium seating'' megaplexes at
issue in this case, the subset of the entertainment industry dedicated
to first-run theatrical exhibition continually evolves to satisfy
shifting consumer demand. This process works best with a minimum of
government intervention, especially from unqualified mid-level Justice
Department attorneys. The Court can best serve the public interest by
rejecting the proposed Final Judgment and ordering the Division to
spend less time pretending they're movie theatre executives and more
time * * * well, going to the movies.
Dated: July 13, 2008.
Respectfully Submitted,
S.M. Oliva,
President, The Voluntary Trade Council, Inc., Post Office Box
100073, Arlington, Virginia 22210, (703) 740-8309,
[email protected].
[FR Doc. E8-23357 Filed 10-20-08; 8:45 am]
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