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anti trust and theatre chains 18 Oct 2011 18:55 #37225

  • Mike
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Small Cinema's Antitrust Win: Big Implications For Large Exhibitor Chains
2 comments | September 29, 2011 | includes: CKEC, CNK, MCS, RDI, RGC


A long-running antitrust battle between a small independent movie theater owner, Flagship Theaters, and the third largest U.S. movie theater chain, Cinemark Holdings (CNK) and its Century Theatres subsidiary, (the “defendants”) has taken a turn in favor of David instead of Goliath. A recent California Court of Appeals decision could have far-reaching ramifications for the distribution and exhibition of motion pictures.
The just published opinion of the Appellate Court in Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc. reversed a lower trial court’s decision that threw out this 2006 case. This decision reignited the case and included several rulings that pose increased risk to the way large movie theater chains, such as Regal Cinemas (RGC), AMC Entertainment, Cinemark and Carmike Cinemas (CKEC), compete with independent theater operators and smaller theater exhibition chains like Reading International (RDI) and Marcus (MCS) to license and show first run movie product from the movie studios.
Should rulings in this important decision stand, the thresholds to prove improper competitive behavior, at least to obtain discovery (evidence gathering via depositions, subpoenas, etc.) and get to a trial of the facts, will have been lowered. Cinemark says they will appeal to the California Supreme Court, if necessary.
As a result of this Appellate Court ruling, executives of some of the movie industry's top distribution companies such as Warner Brothers (TWX), Paramount (VIA), Disney (DIS), Twentieth Century Fox (NWS), Sony/Columbia (SNE), Universal (CMCSA) and Lionsgate (LGF) could be called to testify about the normally behind-the-scenes deal-making between studios and theater chains. What’s also intriguing is that the court additionally ordered the unsealing of substantial documents in this case previously kept under wraps.
Why Is This important?
Antitrust laws make it illegal for a large theater chain to manipulate the cut off of movie supply to independent theaters and smaller chains by threatening to use its larger size to retaliate against movie distributors who choose to supply these "pesky" competitors. Because the larger chains have theaters in areas without any competition (possibly having driven it out earlier) movie distributors wanting the largest audiences in the aggregate are under pressure to comply with the large chain’s wishes or risk getting shut out of desirable markets.
Several U.S. Supreme Court decisions on this topic govern the distribution and exhibition of movies, leading to a general prohibition of the movie production companies owning theater exhibition chains and also requiring films be licensed on a theater by theater, film by film basis. These cases have made film licensing negotiated on a chain by chain basis, also known as “circuit dealing," illegal. (See case like United States v. Paramount Pictures (1948) 334 U.S. 131 and United States v. Griffith (1948) 334 U.S. 100.)
Case Background And Highlights Of The Court Opinion
In the original 2006 lawsuit, Flagship Theatres (the plaintiff) contends that the defendants have used the power deriving from both the enormous size of its theater circuit and its many theaters in noncompetitive markets to undermine the competitive process through which theaters bid for and obtain licenses to exhibit first-run films. According to Flagship, superior bids by its only theater, the Cinemas Palme d’Or 10-plex in Palm Desert, California (the Palme), are often rejected in favor of inferior bids by the Century’s 15-plex in Rancho Mirage (the River) as a result of the defendants’ abuse of the power of their circuit.
The lower trial court ruled that Flagship could not show an “antitrust injury” and could not show that Century had market power in “the market in which the Palme and the River compete” (California’s Coachella Valley - the Palm Springs area) and entered judgment against Flagship, throwing out its case.
Flagship appealed, arguing that the trial court erred in requiring Flagship to show actual harm to competition and limited Flagship’s discovery to defendant’s market power over suppliers just in the local market of the Coachella Valley.
The recent ruling from the California Court of Appeals agreed with Flagship in holding that:

The plaintiff need not show the market has actually become less competitive, just that Flagship was being injured by a “competition-reducing aspect or effect of the defendant’s behavior.” And ...

The circuit dealing claimants are entitled to engage in discovery concerning theater circuit and film licensing practices outside the market in which the two theaters compete. “The essence of Flagship‟s claim is that Century has used its power outside the Palme/River market to influence competition within the Palme/River market.”

As importantly, the Appellate Court also clarified one point of law with regard to proving prohibited circuit dealing. It specifically disagreed with defendant’s contention that, in order for improper circuit dealing to be found, an agreement covering all of a circuit’s theaters was necessary. Instead the court clearly thinks even licensing agreements covering some theaters may be all that is needed to prove the illegal behavior when it stated:

“When a dominant theater circuit uses its overall size or its monopoly power in certain locations (or both) to obtain more favorable film licensing treatment in competitive locations than it otherwise could have obtained, the circuit’s conduct may have the same effects regardless of whether the resulting licensing agreements cover all of the theaters in the circuit or only some of them.”

Stay Tuned
Future proceedings are sure to have major implications for the competitive balance between large theater exhibitors vs. independent cinemas and small chains, exhibitors in general vs. studios and distributors, and certainly the movie-going consumer.
Funds I manage are long RDI, RDIB. These funds or its affiliates may buy or sell securities of this issuer at any time.
Disclosure: I am long RDI, RDIB.
Michael Hurley
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Re: anti trust and theatre chains 19 Oct 2011 02:10 #37231

  • slapintheface
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Nato respond to this???
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Re: anti trust and theatre chains 19 Oct 2011 18:44 #37236

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my point is that it takes very little to end up in court
Michael Hurley
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Re: anti trust and theatre chains 19 Oct 2011 19:19 #37237

  • muviebuf
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Anbody who has a couple of hundred dollars to pay the filing fee can FILE a lawsuit..... but whether you can win is another story.

All this ruling does is say that the lower court prematurely threw out the lawsuit without giving Flagship the right to more throughly develop its case by way of discovery and depositional testimony. It does not mean that Flagship wins or that even with that discovery and depositional testimony that Flagship will prevail.

As far as any information of the booking practices becoming public ...... any defense lawyer worth his hourly rate will fight tooth and nail to seal all of the documents and depositions claiming they are 'trade secrets'. Dont expect to see any revelations unless the case actually goes to trial and the witness have to testify in open court.

AND .... should there be any settlement it will (of course) will be accompanied by agreed upon non-disclosure provisions.

Is this a great legal system or what?
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Re: anti trust and theatre chains 20 Oct 2011 01:12 #37239

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This lawsuit has been going on for 5 years. How many theaters can wait five years + IF there is any litigation to help the small theaters.
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Re: anti trust and theatre chains 20 Oct 2011 02:36 #37240

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This has been on ongoing problem for years-- were is Nato
we know --- in the pockets of the chains!
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Re: anti trust and theatre chains 20 Oct 2011 02:37 #37241

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The only way to win this type of case is to go after the theater chains NOT the studios.
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Re: anti trust and theatre chains 20 Oct 2011 18:52 #37244

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Why doesn't someone start a NAITO (National Association of Independent Theatre Owners)?
Bob Allen
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Re: anti trust and theatre chains 21 Oct 2011 01:48 #37248

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Bob,

1) Money or lack of it

2) Hard to get Indepedents to agree on much unless it involves saving money.
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Re: anti trust and theatre chains 22 Oct 2011 23:15 #37258

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rufusjack wrote:
Bob,

1) Money or lack of it

2) Hard to get Independents to agree on much unless it involves saving money.

the reality is that even 1000 or so is a very small group. In general I am a happy NATO member but in this issue I have problems.
Michael Hurley
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Last Edit: 24 Oct 2011 17:49 by Mike.
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Re: anti trust and theatre chains 23 Oct 2011 14:32 #37266

  • AllenD
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I still can't understand a basic concept. Movie studios aren't keeping movies from small town theatres, they're just changing formats. There is no lawsuit here.
Should video stores have sued when their VHS collections became obsolete? Or records stores sued when iTunes came along?
AllenD
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Re: anti trust and theatre chains 24 Oct 2011 17:51 #37277

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should buggy whip manufacturers have sued? Good question.
Michael Hurley
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Re: anti trust and theatre chains 24 Oct 2011 20:20 #37280

  • sevstar
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There is some difference. I have seen towns and community organizations own and operate movie theatre's. But I have yet to see them do the same with video stores or record stores. Plus they are selling entertainment consumers use in their home, car, ear buds etc. Where theatre's are selling more of a get out of the house and socialize experience.
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