(CN) - The proposed $375 million merger of leading cinema advertisers will eliminate important competition, a Monday federal lawsuit by the Justice Department alleges.
At issue is National CineMedia Inc.'s acquisition of Screenvision LLC, with the U.S. government seeking to preserve their existing head-to-head competition.
Cinema advertising networks are intermediaries between movie theaters and advertisers. The networks create "pre-shows" - 20- to 30-minute-long programs combining advertisements with special content - which movie theaters play prior to the start of each movie. The cinema advertising networks and movie theaters share the advertising revenue based on the specific financial terms of each theater's contract.
Antitrust regulators say National CineMedia and Screenvision together serve 88 percent of all U.S. movie-theater screens through long-term, exclusive contracts.
Because there are only so many movie theaters to whom they can sell their services, however, competition between the two companies has allegedly become fierce.
Screenvision has become a particularly aggressive competitor, dramatically reducing the prices it charges advertisers and offering movie theaters a variety of attractive financial incentives to poach National CineMedia's business, regulators says.
By April 2014, National CineMedia allegedly arrived at what it called a "Strategy Decision Crossroads": it could either acquire Screenvision or it could compete through more aggressive pricing and adding theaters to its network.
Ultimately, National CineMedia's board of directors chose to buy out its competitor, the agency says.
The complaint alleges that, by eliminating competition, the merger likely will result in advertisers paying more for cinema advertising and movie theaters receiving less revenue.
Revenue earned through preshow advertisements provides movie theaters with an important source of income, according to eh complaint. Reduced advertising revenues will likely cause movie theaters to raise ticket or concession prices or forego theater upkeep and improvements.
Assistant Attorney General Bill Baer called the proposed combination of NCM and Screenvision "a bad deal for movie theaters, advertisers and consumers."
"If this deal is allowed to proceed, the benefits of competition will be lost, depriving theaters and advertisers of options for cinema advertising network services and risking higher prices to movie goers," he said in a statement.
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