National CineMedia and Screenvision Respond To Justice Department Action
Gail Chiasson, North American Editor
National CineMedia Inc., Centennial, Colorado, and Screenvision LLC, New York, today defended their proposed merger in response to the complaint filed by the U.S. Department of Justice seeking to block their combination.
The Department of Justice had filed a civil antitrust lawsuit earlier today seeking to block NCM’s $375 million acquisition of Screenvision, saying that the acquisition would combine the only two significant cinema advertising networks in the US, eliminating competition that has substantially benefited movie theaters, advertisers and, ultimately, movie goers.
NCM announced that it will be changing the time of its third quarter 2014 earnings release to after the market close today, Monday, Nov. 3, 2014, to be followed by a conference call at 5:00 p.m. EST. The earnings release and conference call were previously scheduled for after the market close tomorrow, November 4, 2014. The Company decided to move up its scheduled call in order to address the previously announced lawsuit by the Department of Justice seeking to block the Company’s proposed merger with Screenvision.
NCM also has just filed the following statement with the US Securities and Exchannge Commission: “Despite the support for our proposed merger with Screenvision from both the advertising community and many of our and Screenvision’s theatre affiliates, the Antitrust Division of the U.S. Department of Justice has filed a lawsuit seeking to block the merger. We believe that the DOJ is wrong in its assessment….This legal process could take another four to six months during which time NCM and Screenvision will continue to operate as two independent companies.”
Kurt Hall, NCM Chairman and CEO said, “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.”
Travis Reid, Screenvision CEO, also defended the companies’ plans, saying, “The merger preserves all the desirable attributes of cinema advertising while allowing the combined company to compete more effectively on dimensions important to advertisers. Together, NCM and Screenvision will be more competitive in the expanding video advertising marketplace and provide long term incremental advertising revenue to our theater partners.”
In addition to all the benefits for advertisers, the companies said that, as a result of the merger, more than $30 million of annual recurring operating expense synergies will be realized through the elimination of duplicative functions and operating costs. These operating expense savings will be reinvested into upgrading the network equipment within theatres and creating new systems like CATO (NCM’s planned “Cinema Audience Targeting Optimizer”), to make their cinema advertising product even more attractive to advertisers.
Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division, said, “The proposed combination of NCM and Screenvision is a bad deal for movie theaters, advertisers and consumers. This merger to monopoly is exactly the type of transaction the antitrust laws were designed to prohibit. 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.”
The Department of Justice move also said: The three largest movie theater circuits in the US – Regal Entertainment Group, AMC Entertainment Inc. and Cinemark Holdings Inc. – together are the majority owners of NCM. It alleges that these three circuits exercise significant control and influence over NCM’s actions, including the right to block NCM from entering into contracts with independent movie theaters that contain upfront payments exceeding $1 million. Such payments have been an important area of competition between NCM and Screenvision.
The theatre companies had claimed that advertisers place a premium value on reach and that the merger will increase the number of theatre attendees reached by approximately 60%, allowing NCM 2.0 to offer a greater number of the advertising impressions that will be more competitive with cable and broadcast TV networks and online and mobile video advertising platforms.
They also said that advertisers value ubiquitous audience coverage, and that NCM’s and Screenvision’s current ability to compete for the budgets of national brands, most notably QSRs, Retailers and CPG brands who have businesses with national distribution, is limited. A merger would allow them to go after these advertisers who want national coverage.
They also said that, without the merger, neither NCM nor Screenvision alone has a large enough base of attendance (advertising impressions) to target specific audience groups as well as other media. They claim that an increase in advertising impressions resulting from the merger will provide enough advertising impressions to enable them to create targeted buys across the nearly 80 age and gender demographic groups currently sold on a guaranteed basis by TV networks and to provide the psychographic and other more precise targeting provided by Internet and mobile advertising platforms.
They also said that this would mean lower costs for advertisers. They said that advertisers want a single network that provides consistency across all impressions purchased, makes it less difficult to compare performance with other media acquired for a specific campaign, and improves efficiency of media buying process.
The Justice Department noted that, over the past two years, competition between NCM and Screenvision intensified as Screenvision became a particularly aggressive competitor, increasing its efforts to steal business from NCM by dramatically reducing the prices it charges advertisers and offering movie theaters a variety of attractive financial incentives. The complaint contains statements from NCM’s and Screenvision’s executives describing the competition between the two companies and the motivations to end that competition by entering into the transaction. Among them were that NCM viewed Screenvision’s ‘new strategy of undercutting NCM’s pricing by 50% (or more) as a direct threat to NCM’s business model and a very unusual strategy in a duopoly.
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