Source: http://www.justice.gov/atr/cases/f232700/232712.htm
Timestamp: 2013-12-11 11:23:05
Document Index: 172263828

Matched Legal Cases: ['§ 18', '§ 25', '§ 18', '§\n22', '§ 1331', '§ 22', '§ 1391', '§ 18', '§ 1']

Complaint : U.S. v. Regal Cinemas, Inc. and Consolidated Theatres Holdings, GP
v. REGAL CINEMAS, INC.,
and	CONSOLIDATED THEATRES HOLDINGS, GP,	Defendants.
| Case: 1:08-cv-00746
Assigned To: Leon, Richard J.
Assign. Date: 4/29/2008
Filed: 04/29/2008 COMPLAINT
United States, brings this civil antitrust action to enjoin the proposed merger of Regal Cinemas,
Inc. and Consolidated Theatres, GP, and to obtain equitable relief. If the merger is permitted to
proceed, it would combine the two leading, and in some cases only, operators of first-run,
commercial movie theatres in parts of the metropolitan areas of Charlotte, Raleigh, and
Asheville, North Carolina. The merger would substantially lessen competition and tend to create
a monopoly in the theatrical exhibition of commercial, first-run movies in the above listed
markets in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. I. JURISDICTION AND VENUE
1.	This action is filed by the United States pursuant to Section 15 of the Clayton Act,
as amended, 15 U.S.C. § 25, to obtain equitable relief and to prevent a violation of Section 7 of
the Clayton Act, as amended, 15 U.S.C. § 18. 2.	One defendant operates theatres in this District; the other attracts patrons from and
advertises in this District. In addition, the distribution and exhibition of commercial, first-run
films is a commercial activity that substantially affects, and is in the flow of, interstate trade and
commerce. Defendant's activities in purchasing equipment, services, and supplies as well as
licensing films for exhibitors substantially affect interstate commerce. The Court has jurisdiction
over the subject matter of this action and jurisdiction over the parties pursuant to 15 U.S.C. §§
22, 25, and 26, and 28 U.S.C. §§ 1331, 1337(a), and 1345.
3.	Venue in this District is proper under 15 U.S.C. § 22 and 28 U.S.C. § 1391(c). In
addition, defendants have consented to venue and personal jurisdiction in this judicial district. II. DEFENDANTS AND THE PROPOSED MERGER
4.	Regal Cinemas, Inc. ("Regal") is a Tennessee corporation with its headquarters in
Knoxville. Regal operates more than 6,400 screens at approximately 540 theatres in 39 states
and the District of Columbia under the Regal, United Artists, Edwards, and Hoyts names.
5.	Consolidated Theatres Holdings, GP, is a North Carolina partnership (hereinafter
referred to as "Consolidated"). Consolidated operates 400 screens at 28 theatres in Georgia,
Maryland, North Carolina, South Carolina, Tennessee, and Virginia, with additional theatres
projected to open in the next few years, including the Biltmore Grande 15, which is scheduled to
open in Asheville, North Carolina in August 2008. 6.	On January 14, 2008, Regal and Consolidated signed a purchase and sale
agreement. The deal is structured as an asset purchase, with Regal acquiring Consolidated for
approximately $210 million. III. BACKGROUND OF THE MOVIE INDUSTRY
major source of out-of-home entertainment in the United States. Although they vary, ticket
prices for movies tend to be significantly less expensive than many other forms of out-of-home
entertainment, particularly live entertainment such as sporting events and live theatre.
8.	Viewing movies in the theatre is a very popular pastime. Over 1.4 billion movie
tickets were sold in the United States in 2007, with total box office revenue exceeding $9.7
United States. Established exhibitors include AMC, Carmike, and Cinemark, as well as Regal
and Consolidated. 10.	Exhibitors set ticket prices for each theatre based on a number of factors, including
the competitive situation facing each theatre, the age of the theatres, the prices of nearby,
comparable theatres, the population demographics and density surrounding the theatre, and the
number and type of amenities each theatre offers, such as stadium seating.
IV. RELEVANT MARKET A. Product Market
11.	Movies are a unique form of entertainment. The experience of viewing a movie in a
theatre is an inherently different experience from live entertainment (e.g., a stage production), a
sporting event, or viewing a movie in the home (e.g., on a DVD or via pay-per view). 12.	Typically, viewing a movie at home lacks several characteristics of viewing a movie
in a theatre, including the size of screen, the sophistication of sound systems, and the social
experience of viewing a movie with other patrons. Additionally, the most popular, newly
released or "first-run" movies are not available for home viewing. Movies are considered to be
in their "first-run" during the four to five weeks following initial release in a given locality. If
successful, a movie may be exhibited at other theatres after the first-run as part of a second or
subsequent run (often called a sub-run). 13.	Reflecting the significant differences of viewing a movie in a theatre, ticket prices
for movies are generally very different from prices for other forms of entertainment: live
entertainment is typically significantly more expensive than a movie ticket, whereas renting a
DVD for home viewing is usually significantly cheaper than viewing a movie in a theatre. Going
to the movies is a different experience from other forms of entertainment, and a small but
significant post-acquisition increase in ticket prices, or reduction in discounts, for first-run
commercial movies would not cause a sufficient number of customers to shift to other forms of
entertainment to make such a price increase unprofitable.
14.	Reflecting the significant difference between viewing a newly-released, first-run
movie and an older sub-run movie, tickets at theatres exhibiting first-run movies usually cost
significantly more than tickets at sub-run theatres. Movies exhibited at sub-run theatres are no
longer new releases, and moviegoers generally do not regard sub-run movies as an adequate
substitute for first-run movies and a small but significant post-acquisition increase in ticket
prices, or reduction in discounts, for first-run commercial movies would not cause a sufficient
number of customers to switch to theatres exhibiting sub-run movies to make such a price
increase unprofitable.
15.	Art movies and foreign language movies are also not substitutes for commercial,
first-run movies. Although art and foreign language movies appeal to some viewers of
commercial movies, potential audience and demand conditions are quite distinct. For example,
art movies tend to appeal more universally to mature audiences and art movie patrons tend to
purchase fewer concessions. Exhibitors consider art theatre operations as distinct from the
operations of theatres that exhibit commercial movies. Theatres that primarily exhibit art movies
often contain auditoriums with fewer seats than theatres that primarily play commercial movies. Typically, art movies are released less widely than commercial movies. A small but significant
post-acquisition increase in ticket prices, or reduction in discounts, for first-run commercial
movies would not cause a sufficient number of customers to switch to theatres exhibiting art
movies to make such a price increase unprofitable. 16.	Similarly, foreign language movies do not widely appeal to U.S. audiences. As a
result, moviegoers do not regard foreign language movies as adequate substitutes for first-run,
commercial movies. A small but significant post-acquisition increase in ticket prices, or
reduction in discounts, for first-run movies would not cause a sufficient number of customers to
switch to theatres exhibiting foreign language movies to make such a price increase unprofitable. 17.	The relevant product market within which to assess the competitive effects of this
merger is the exhibition of first-run, commercial movies. B. Geographic Markets
18.	Data show that moviegoers typically are not willing to travel very far from their
homes to attend a movie. As a result, geographic markets for the exhibition of first-run,
commercial movies are relatively local. Charlotte, North Carolina Area
19.	Regal and Consolidated account for the vast majority of first-run movie tickets sold
in southern Charlotte, North Carolina ("Southern Charlotte"), an area which encompasses
Consolidated's Philips 10 theatre, Consolidated's Arboretum 12, Regal's Crown Point 12 and
Regal's Stonecrest 22 theatre. In this area, the only other theatres showing first-run, commercial
movies are an independent five-plex stadium theatre and the AMC Carolina Pavilion 22, a
stadium theatre.
20.	Moviegoers who reside in Southern Charlotte are reluctant to travel significant
distances out of that area to attend a movie except in unusual circumstances. A small but
significant increase in the price of movie tickets in Southern Charlotte would not cause a
sufficient number of moviegoers to travel out of Southern Charlotte to make the increase
unprofitable. Southern Charlotte constitutes a relevant geographic market in which to assess the
competitive effects of this merger. Raleigh, North Carolina Area	21.	Regal and Consolidated account for the vast majority of first-run movie tickets sold in
Northern Raleigh, North Carolina ("Northern Raleigh"), which encompasses Regal's Brier Creek
14, Regal's North Hills 14, and Consolidated's Raleigh Grand. The only other theatres showing
first-run, commercial movies in the Northern Raleigh area are the sloped-floor, six screen Six
Forks and the 15-screen Carmike theatre with stadium seating.
22.	Moviegoers who reside in Northern Raleigh are reluctant to travel significant
distances out of their area to attend a movie except in unusual circumstances. A small but
significant increase in the price of movie tickets in either Northern Raleigh would not cause
sufficient number of moviegoers to travel out of Northern Raleigh to make the increase
unprofitable. Northern Raleigh constitutes a relevant geographic market in which to assess the
competitive effects of this merger. 23.	Regal and Consolidated account for all of the first-run movie tickets sold in the
suburb of Garner to the south of Raleigh, North Carolina ("Southern Raleigh"), which
encompasses Regal's Garner Towne Square 10 and Consolidated's White Oak 14. There are no
other theatres showing first-run, commercial movies in Southern Raleigh. 24.	Moviegoers who reside in Southern Raleigh are reluctant to travel significant
significant increase in the price of movie tickets in either Southern Raleigh would not cause
sufficient number of moviegoers to travel out of Southern Raleigh to make the increase
unprofitable. Southern Raleigh constitutes a relevant geographic market in which to assess the
competitive effects of this merger. Asheville, North Carolina Area	25.	After the completion of Consolidated's Biltmore Grande 15 around August 2008,
Regal and Consolidated will likely account for the vast majority of first-run movie tickets sold in
Asheville, North Carolina area ("Asheville"), which encompasses the area around Regal's
Hollywood 14 and the developing site of Consolidated's Biltmore Grande 15. There are only two
other non-Regal theatres showing first-run, commercial movies in Asheville – – a Carmike theatre
with 10 screens and a Fine Arts theatre with two screens.
26.	Moviegoers in Asheville are reluctant to travel significant distances out of that area to
attend a movie except in unusual circumstances. A small but significant increase in the price of
movie tickets in Asheville would not cause a sufficient number of moviegoers to travel out of
Asheville to make the increase unprofitable. Asheville constitutes a relevant geographic market in
which to assess the competitive effects of this merger. 27.	The exhibition of first-run, commercial movies in Southern Charlotte, Northern
Raleigh, Southern Raleigh and Asheville each constitutes a relevant market (i.e., a line of
commerce and a section of the country) within the meaning of Section 7 of the Clayton Act, 15
U.S.C. § 18. V. COMPETITIVE EFFECTS
28.	Exhibitors compete on multiple dimensions to attract moviegoers to their theatres
compete to offer the most sophisticated sound systems, best picture clarity, nicest seats with best
views, and cleanest floors and lobbies for moviegoers. And, to gain market share, exhibitors seek
to license the first-run movies that are likely to attract the largest numbers of moviegoers. Exhibitors also compete on price, knowing that if they charge too much (or do not offer sufficient
discounted tickets for matinees, seniors, children, etc.), moviegoers will begin to frequent their
29.	In the geographic markets of Southern Charlotte, Northern and Southern Raleigh, and
Asheville, Regal and Consolidated compete head-to-head for moviegoers. These geographic
markets are very concentrated and in each market, Regal and Consolidated are the other's most
significant competitor given their close proximity to one another and to local moviegoers, and from
the perspective of such moviegoers, the relative inferiority in terms of location, size or quality of
other theatres in the geographic markets. Their rivalry spurs each to improve the quality of the
viewing experience and keeps prices in check.
30. In Southern Charlotte, the proposed merger would give the newly merged entity control of four of the six first-run, commercial theatres in that area, with 56 out of 83 total screens and a 75% share of 2007 box office revenues, which totaled approximately $17.1 million. Using a measure of market concentration called the Herfindahl-Hirschman Index ("HHI"), explained in Appendix A, the merger would yield a post-merger HHI of approximately 6,058, representing an increase of roughly 2,535 points. 31.	In Northern Raleigh, the proposed merger would give the newly merged entity control
of three of the five first-run, commercial theatres in that area, with 44 of 65 total screens and 79%
of 2007 box office revenues, which totaled approximately $11.6 million. The merger would yield
a post-merger HHI of roughly 6,523, representing an increase of around 2,315 points.
32.	In Southern Raleigh, the proposed merger would give the newly merged entity control
of the only two theatres in this area. Therefore, the market share of the combined entity would be
100% of screens and 100% of 2007 box office revenues, which totaled $3.5 million. The merger
would yield the highest post-merger HHI number possible – 10,000, representing an increase of
3,167 points.
33.	In Asheville, after the completion of the Biltmore Grand 15, the proposed merger
would give the newly merged entity control of four of the six first-run, commercial theatres with 41
of 53 total screens. As measured by total screens only (since Consolidated does not yet have box
office revenues in Asheville), the combined entity would have a market share of approximately
77% in Asheville. The merger would yield a post-merger HHI of roughly 6,355, representing an
increase of 2,777 points.
34.	Today, were Regal or Consolidated to increase ticket prices in any of the four
geographic markets at issue and the other were not to follow, the exhibitor that increased price
would likely suffer financially as a substantial number of its patrons would patronize the other
exhibitor. After the merger, the newly combined entity would re-capture such losses, making price
increases profitable that would have been unprofitable pre-merger. Thus, the merger is likely to
lead to higher ticket prices for moviegoers, which could take the form of a higher adult evening
ticket price or reduced discounting, e.g., for matinees, children, seniors, and students. 35.	The proposed merger would also eliminate competition between Regal and
Consolidated over the quality of the viewing experience in each of the geographic markets at issue. If no longer required to compete, Regal and Consolidated would have reduced incentives to
maintain, upgrade, and renovate their theatres in the relevant markets, to improve those theatres'
amenities and services, and to license the highest revenue movies, thus reducing the quality of the
viewing experience for a moviegoer. 36.	The presence of the other theatres offering first-run, commercial movies in certain
of the relevant geographic markets would be insufficient to replace the competition lost due to the
merger, and thus render unprofitable post-merger increases in ticket prices or decreases in quality
by the newly merged entity. For various reasons, the other theatres in the relevant geographic
markets offer less attractive options for the moviegoers that are served by the Regal and
Consolidated theatres. For example, they are located further away from these moviegoers than are
the Regal and Consolidated theatres, they are a relatively smaller size or have fewer screens than
the Regal and Consolidated theatres, or they offer a lower quality viewing experience than do the
Regal and Consolidated theatres.
37.	The entry of a first run, commercial movie theatre is unlikely in all of the relevant
markets. Exhibitors are reluctant to locate new theatres near existing theatres unless the population
density and demographics makes new entry viable or the existing theatres do not have stadium
seating. That is not the case here. Over the next two years, the demand for more movie theatres in
the areas at issue is not likely to support entry of a new theatre. And all of these markets have or
will soon have theatres with stadium seating. Thus, no new first-run, commercial theatres with the
capability to reduce significantly the newly merged entity's market power are likely to open within
the next two years in Southern Charlotte, Northern Raleigh, Southern Raleigh, or Asheville in
response to an increase in movie ticket prices or a decline in theatre quality.
38.	The United States hereby reincorporates paragraphs 1 through 37.
39.	The effect of the proposed merger would be to lessen competition substantially in
Southern Charlotte, Northern Raleigh, Southern Raleigh and Asheville in violation of Section 7 of
the Clayton Act, 15 U.S.C. 18.
40. The transaction would likely have the following effects, among others: (a) prices for first-run, commercial movie tickets would likely increase to levels above those that would prevail absent the merger, and (b) quality of theatres and the theatre viewing experience in the geographic area would likely decrease absent the merger. VIII. REQUESTED RELIEF
41.	The plaintiffs request: (a) adjudication that the proposed merger would violate
proposed merger and to prevent the defendants from entering into or carrying out any agreement,
understanding or plan, the effect of which would be to combine the businesses or assets of
defendants; (c) an award of the plaintiff of its costs in this action; and (d) such other relief as is
proper. DATED: April 29, 2008
_______________/s/________________ DAVID L. MEYER	(DC Bar No. 414420)	Acting Assistant Attorney General
Antitrust Division _______________/s/________________ PATRICIA A. BRINK	Deputy Director of Operations
_______________/s/________________ JOHN R. READ Chief, Litigation III	_______________/s/________________ NINA B. HALE Assistant Chief, Litigation III	_______________/s/________________
GREGG I. MALAWER
(DC Bar No. 481685)
JENNIFER WAMSLEY (DC Bar No. 486540)
ANNE NEWTON MCFADDEN
Attorneys for the United States	United States Department of Justice	Antitrust Division	450 5th Street, N.W.	Suite 4000	Washington, DC 20530
CALCULATIONS FOR MARKET "HHI" means the Herfindahl-Hirschman Index, a commonly accepted measure of market
shares of thirty, thirty, twenty and twenty percent, the HHI is 2600 (302 + 302 + 202 + 202 = 2600).
The HHI takes into account the relative size and distribution of the firms in a market and
between those firms increases. Markets in which the HHI is between 1000 and 1800 points are considered to be moderately
concentrated, and those in which the HHI is in excess of 1800 points are considered to be
concentrated. Transactions that increase the HHI by more than 100 points in concentrated markets
presumptively raise antitrust concerns under the Merger Guidelines. See Merger Guidelines § 1.51.