Exclusive agreements between large movie theater chains and film studios that are effectively used to prevent independent rivals from showing certain films have caught the watchful eye of the Department of Justice’s Antitrust Division, with investigators now requesting information about the increasingly popular tactic from two of the nation’s largest cinema operators, AMC Entertainment and Regal Entertainment.
The Wall Street Journal reports that both AMC and Regal received formal inquiries from antitrust investigators seeking information regarding so-called clearance agreements.
The two revealed they had recently received Civil Investigative Demands from the DOJ seeking documents and answers concerning “potentially anticompetitive conduct” through filings with the Securities and Exchange Commission.
Shortly after receiving the requests for information from the DOJ, AMC and Regal received a similar inquiry regarding possible violations of antitrust laws through use of clearance agreements from the office of the attorney general of Ohio.
The agreements, most common among large chains, limit the number of theaters allowed to screen certain movies in some locations, essentially keeping potential blockbuster films out of smaller competitors’ reach.
All three major U.S. theater chains – AMC, Regal and Cinemark – have previously said that clearance agreements are a long-established industry practice that only affect a small number of locations. Additionally, they say the requests are only approved at the discretion of movie studios.
However, those opposed to the practice maintain that the contracts allow larger chains to flex their muscle and exert their substantial market power in order to drive new, smaller competitors out of the industry.
In addition to information about the clearance agreements, the DOJ is reportedly looking into certain joint ventures that AMC participates in.
“We do not believe the company has violated federal or state antitrust laws and are cooperating with the relevant governmental authorities,” AMC said in the SEC notice.
A previous filing from Regal detailed how the company was asked by the DOJ to “preserve all documents and information since January 1, 2011 relating to movie clearances or communications or cooperation” between the company an its rivals, AMC and Cinemark.
“We do not believe that any DOJ or state attorney general investigation of movie clearances or any communications or cooperation involving the company and AMC or Cinemark will produce evidence that the company has engaged in any anticompetitive conduct in volition of federal or state antitrust or competition laws,” Regal told investors in its filing.
According to the WSJ, the government’s scrutiny over clearance agreements began after a separate investigation into the proposed merger between two in-theater advertising companies, Screenvision LLC and National CineMeida Inc. – which counts Regal, AMC and Cinemark as majority owners.
That deal was eventually scrapped, but not before investigators saw a connection between an uptick in clearance agreements and the rise in theater construction.
U.S. Scrutinizes Conduct of Movie Theaters [The Wall Street Journal]