The U.S. Justice Department Wants to Strike Down a Major Movie Advertising Merger

Antitrust lawsuit claims this union is bad for everyone

If this were a preshow at the movies, it would be time to get more popcorn.

According to the AP's Big Story, the U.S. Justice Department has filed an antitrust lawsuit to halt the cinema advertising behemoth National CineMedia Inc.'s acquisition of its nearest rival, Screenvision LLC. The complaint said the proposed merger would come at the expense of movie theaters, advertisers and audiences.

The $375 million cash-and-stock deal was announced in May at about the same time National CineMedia unveiled a number of initiatives aimed at expanding its reach beyond the big screen. Those ideas included partnerships with independent content creators and more integration with mobile apps.

In a prepared statement, NCM CEO Kurt Hall reacted to the lawsuit: "I am obviously very disappointed that the DOJ did not see the benefits of the new combined company to our advertising clients and their agencies and our exhibitor partners. We look forward to demonstrating those benefits. Combining NCM and Screenvision will enable us to offer advertisers a better product with the broader reach, ubiquitous geographic coverage, more advertising impressions, enhanced targeting capability, and lower costs that advertising clients and their agencies seek. With a better product we will generate more advertising revenue for our theatre circuit partners. Advertisers, exhibitors and shareholders all will benefit from this combination which will better enable NCM 2.0 to compete in the increasingly competitive video advertising marketplace."

In a recent press release regarding NCM's third-quarter results, Hall spoke of "a tough Q2 and Q3," during which NCM saw its revenue decline by 20 percent from the year before. Hall outlined his hopes for a turnaround, driven by more TV upfront commitments and the proposed merger with Screenvision, which he said “will further enhance our ability to deliver what media planners want to buy."

But the Justice Department disagrees.

"This merger to monopoly is exactly the type of transaction the antitrust laws were designed to prohibit," said assistant attorney general William Baer in a statement on the case. The DOJ alleges that advertisers would have fewer options if a combined NCM-Screenvision controlled 88 percent of movie-screen real estate in the U.S.

The same statement noted that NCM earned about $426 million in revenue from advertising in 2013, while Screenvision took in about $160 million. Combined, that represents even more than the $600 million in revenue generated by the movie advertising industry annually, per the Cinema Ad Council.

Following the announcement of the federal suit, NCM's stock took a substantial hit.