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Attorney General Lockyer Approves Loews-AMC Movie Theater Merger After Winning Divestiture of Two San Francisco Multiplexes

Lockyer Requires Sale to Help Contain Consumer Prices, Preserve Quality of Facilities
Thursday, December 22, 2005
Contact: (415) 703-5837

(SAN FRANCISCO) – Attorney General Bill Lockyer today announced he has approved the merger of movie theater chains Loews Cineplex Entertainment Corp. (Loews) and AMC Entertainment, Inc. (AMC), conditioned on AMC divesting two theaters in San Francisco.

“Consumers, especially those with families, have been forced to dig deeper and deeper into their pockets to go to the movies,” said Lockyer. “By reducing competition, the merger threatened to worsen that problem by hitting consumers with a double whammy: paying higher tickets to watch movies in poorly-maintained theaters. The divestiture we sought and won will help prevent those problems for movie-goers in San Francisco, the California community most affected by the merger.”

A proposed settlement containing the divestiture requirement and other conditions Lockyer imposed on the merger was filed today in U.S. District Court for the Northern District of California. The court must approve the settlement before it becomes final.

Under the settlement, AMC must sell two theaters it now owns in San Francisco: the AMC Kabuki on Post Street, which has eight screens, and the AMC Van Ness on Van Ness Avenue, which has 14 screens. The buyer must be approved by Lockyer’s office, and must operate the theaters to exhibit first-run movies. The divestiture must occur within 180 days from today, or within 60 days from the date the merger is consummated, whichever is later. If AMC fails to sell the theaters within the specified time, a trustee selected by Lockyer and appointed by the court will complete the divestiture.

Without the divestiture, the combined AMC-Loews entity would control 86.9 percent of box office revenues and 77.3 percent of the screens in San Francisco’s first-run, commercial movie theater market. Loews operates the 16-screen Metreon Theater on Fourth Street. Century Theaters (Century) plans to open a San Francisco theater in Fall 2006. But Lockyer determined Century’s entry into the market still would result in a duopoloy between Century and the combined AMC-Loews entity. That determination led Lockyer to push for the divestiture.

The merger also will increase market concentration in the Los Angeles area, specifically in Burbank and Santa Monica. In the first-run commercial movie theater market, the combined entity will control 51.3 percent of box office revenues and 41.7 percent of the screens in Burbank, and 54.4 percent of box office revenues and 45.8 percent of the screens in Santa Monica.

Lockyer , however, decided to not seek divestiture in the Los Angeles market. He cited a variety of factors, including a greater ability of new theater operators to enter the Los Angeles market and the presence of competing movie houses near the current AMC and Loews locations.

Lockyer today also filed with the same court an antitrust lawsuit that is resolved by the settlement. The complaint alleges the transaction violates the federal Clayton Act, which governs mergers. The complaint highlights the one-two punch – higher prices and lower quality – that a merger without divestiture would deliver to San Francisco consumers.

“The proposed merger would make the competitive situation in San Francisco significantly worse by further enhancing the ability of ... the newly merged AMC-Loews circuit to increase prices,” the complaint alleges. It adds that by providing the combined entity control of such a large share of the market, the merger would “reduce the incentive to maintain, upgrade and renovate theaters in San Francisco, thus reducing the quality of the viewing experience for a movie-goer.”

The District of Columbia and State of Washington today filed separate settlements requiring theater divestitures in those markets. And the U.S. Department of Justice plans to file another settlement today that calls for additional divestitures in: Boston, Massachusetts; New York City (Manhattan); Chicago, Illinois; and Dallas, Texas.

In another development related to the movie theater market, Lockyer today announced he has closed his antitrust investigation of “clearance” agreements between film distributors and theater operators. Under these arrangements, distributors agree to provide theaters exclusive rights to exhibit particular movies within a specified geographic area. Critics contend clearance agreements improperly prevent competing theaters from showing popular films.

Lockyer launched the clearance probe in 2004 after receiving complaints from Camera Cinemas about Century’s use of the practice in San Jose. While the San Jose clearance agreements ended after Lockyer initiated his investigation, additional complaints against Century surfaced from theater owners in Palm Desert and other California communities.

In ending the investigation without taking any enforcement action, Lockyer said his office had not found sufficient evidence of clear violations of antitrust laws. He said his office would continue to closely monitor the practice and take action against theater owners or film distributors who violate antitrust laws.

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