DOJ Files Motion to End Paramount Consent Decrees

As expected, the Department of Justice formally filed a motion in the District Court for the Southern District of New York to terminate the Paramount Consent Decrees, which for more than 70 years regulated how certain movie studios distribute films to movie theatres.

As part of the DOJ’s review of nearly 1,300 legacy antitrust judgments, the antitrust division Nov. 22 announced that after a thorough review, including a 60-day public comment period, it had determined that the Paramount decrees have served their original remedial purposes and no longer serve to promote or protect competition and innovation.

“The Paramount decrees long ago ended the horizontal conspiracy among movie companies in the 1930s and ‘40s and undid the effects of that conspiracy on the marketplace,” Makan Delrahim, assistant attorney general of the Justice Department’s antitrust division, said in a statement.

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The Justice Department’s motion to end the Paramount decrees would allow a two-year transition period for block-booking and circuit dealing to allow the theatre and motion picture industry to have an orderly transition to the new licensing changes.

The bulk of domestic exhibition business is currently controlled by AMC Theatres, Regal Entertainment and Cinemark Holdings.

In 1938, the federal government filed an antitrust lawsuit against several major motion picture companies alleging that those companies had engaged in an industry-wide conspiracy to control the motion picture distribution and exhibition markets.

After several years of litigation, including a 1948 Supreme Court decision in United States v. Paramount, the government and the defendants entered into a series of consent decrees, collectively called the Paramount decrees.

These decrees required the movie studios to separate their distribution operations from their exhibition businesses. They also banned various motion picture distribution practices, including block booking (bundling multiple films into one theatre license), circuit dealing (entering into one license that covered all theatres in a theatre circuit), resale price maintenance (setting minimum prices on movie tickets), and granting overbroad clearances (exclusive film licenses for specific geographic areas).

The Paramount decrees, like other legacy antitrust judgments, have no sunset provisions or termination dates. They continue to govern how the film industry conducts its business, despite significant changes to the industry, including technological innovations, new movie platforms, new competitors and business models, and shifting consumer demand.

Unlike 70 years ago, the first-run movie palaces of the 1930s and ‘40s that had one screen and showed one movie at a time have been replaced by multiplex theatres that have multiple screens showing movies from many different distributors at the same time. New technology has created many different movie platforms that did not exist when the decrees were entered into, including cable and broadcast television, DVDs, and the Internet through movie streaming and download services.

“The [government] has concluded that these decrees have served their purpose, and their continued existence may actually harm American consumers by standing in the way of innovative business models for the exhibition of America’s great creative films,” Delrahim said.

 

DOJ Looking to End 1940s-Era Theatrical Movie Distribution Rules

The Department of Justice’s antitrust division is considering ending 1940s-era legislation that prohibits studios from owning movie theaters and controlling the exhibitor release slate, among other provisions.

Known as the Paramount decrees, antitrust efforts at the time led to the 1948 U.S. Supreme Court ruling against Paramount Pictures and other major studios that ended studio ownership of theaters and made it illegal for studios to mandate theaters screen all or none of their new releases, a practice known as “block booking.”

“As the movie industry goes through more changes with technological innovation, with new streaming businesses and new business models, it is our hope that the termination of the Paramount decrees clears the way for consumer-friendly innovation,” Makan Delrahim, the DOJ’s antitrust boss, Nov. 18 told the American Bar Association confab in Washington, D.C.

Delrahim led the Justice Department’s unsuccessful appeal of AT&T’s $85 billion acquisition of Time Warner, which led to the creation of WarnerMedia.

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The DOJ, which would have to file a legal court motion to reverse the law, is seeking a two-year sunset period on several elements of the decrees, including block booking and select license agreements, according to The Wall Street Journal, which first reported the government move.

Observers contend the move could expedite consolidation among the three largest theatrical chains: AMC Theatres, Regal Entertainment and Landmark Holdings, while likely putting smaller exhibitors out of business.

The theatrical business remains under siege by over-the-top video and market domination by Disney, which continues to rule the box office through its Marvel Studios, Pixar Animation and Lucasfilm releases.

Trade group the National Association of Theater Operators suggested a reversal of existing theatrical distribution rules would enable major studios to dominate exhibitor release slates.

“If exhibitors were forced to book out the vast majority of their screens on major studio films for most of the year, this would leave little to no room for important films from smaller studios,” NATO said in a statement.

DOJ Drawn Into Comcast, Starz Carriage Dispute

With legacy pay-TV under siege from cord-cutting subscribers and high-profile alternatives such as Netflix, Amazon Prime Video, Hulu and now Apple TV+, the status quo for traditional carriage agreements has gone out the window.

And so it was that Comcast last month quietly announced it would soon end Xfinity subscriber access to Starz, the premium movie and TV service it acquired in 2016 for $4.4 billion.

The news was significant since Comcast represents about a third of Starz’ 24.4 million subscribers. Starz, which operates its own branded $8.99 monthly subscription streaming service, has been a profit vehicle for Santa Monica, Calif.-based Lionsgate.

Comcast reported it will replace Starz on Dec. 10  with Epix, the premium service owned by MGM and formerly Lionsgate, unless a new agreement can be reached. The news has contributed to a 9% drop in Lionsgate’s stock valuation — which is already down nearly 50% in the fiscal year.

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The negotiation impasse has reportedly caught the attention of the Department of Justice, which continues to have Comcast in its crosshairs ever since its acquisition of NBC Universal in 2009. Back then, regulators forced the cable giant to relinquish management input on its stake in Hulu, citing antitrust issues.

Earlier this year Comcast sold its Hulu stake to Disney after acquiring Sky satellite TV operator in the United Kingdom.

Comcast’s NBC Universal unit is readying its own SVOD service, Peacock, early next year.

The situation prompted Senators Dianne Feinstein (D-CA) and Susan Collins (R-ME) to contact Assistant Attorney General Makan Delrahim to investigate the situation. Delrahim played a significant role in the DOJ’s failed attempt to stop AT&T’s acquisition of Time Warner.

“These changes could lessen competition in the video programming market and limit choices for many thousands of consumers in Maine and millions more across the nation,” Collins wrote in a letter to Delrahim as reported by CNBC.

“I encourage both of you to seek a win-win solution and consider all options to keep Starz programming on the air,” Feinstein wrote in a separate letter.

Comcast is employing strategy out of Dish Networks’ playbook, which typically includes threats to halt access to third-party content distribution for more favorable distribution terms. Indeed, Dish currently has HBO blacked out to it subscribers.

Comcast, like Dish, contends its subs can access services such as Starz and HBO independently, thus negating what it considers to be excessive carriage fees.

“At the end of the day, this is a routine commercial negotiation that raises no conceivable antitrust concerns,” Comcast said in a statement.

Starz countered that Comcast is forcing its subs to pay more for its service.

“By unilaterally taking Starz out of its packages with no refund … Comcast is unfairly depriving them of relatable programming that reflects their cultural experience,” read a Starz statement.

Lionsgate reports third-quarter (ended Sept. 30) financial results Nov. 7.

 

DOJ Antitrust Boss: ‘You Learn More From Losing’

Following legal rebuke at the lower federal court and subsequent appeals court level regarding efforts to block AT&T’s $84 billion acquisition of Time Warner, the Department of Justice’s Makan Delrahim, head of the agency’s antitrust unit, said more was learned in defeat than in winning the litigation.

Speaking March 20 at the American Communications Association’s confab in Washington, D.C., Delrahim said legal challenges to future corporate vertical mergers — such as Sprint’s pending merger with T-Mobile — were empowered following the AT&T/Time Warner challenge.

“There are many lessons to be learned from the U.S. v. AT&T,” Delrahim said, according to a recording released by the ACA and reported by Deadline.com. “Given the standard of review that we were facing, [the outcome] wasn’t a surprise. You learn more from losing than from winning.”

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Specifically, the executive contends future legal challenges by the DOJ will be based more on structural changes rather than behavior.

Delrahim said the government’s approval of Comcast’s $30 billion acquisition of NBC Universal in 2009 revolved around behavior/consent remedies the cable giant was beholden to follow for a number of years — including silent partnership in Hulu.

Similar regulatory approach to AT&T/Time Warner wouldn’t have been worth the compromise, according to Delrahim.

“The AT&T offer will expire in less than seven years,” he said. “The new market structure [i.e. WarnerMedia] created by the transaction will remain indefinitely. If there’s harm that the arbitration offer is necessary to solve, then there’s likely to be harm in the future that will remain after the arbitration offer expires.”

Delrahim said the silver lining from the appeals court ruling was that some vertical mergers can be harmful to consumers — provided the government proves its case.

“The [appeals court] corrected many of the District Court’s misstatements and articulated a standard that is valuable,” he said.

House Democrats Investigating Whether Trump Personally Sought to Block AT&T/Time Warner Merger

The Democrat-controlled House of Representatives continues to ratchet up scrutiny of President Trump and his administration — now focusing on whether the President personally attempted to block AT&T’s $85 billion acquisition of Time Warner.

The merger, which created WarnerMedia, was officially confirmed last month by a federal appeals court denying an objection by the Department of Justice.

Jerrold Nadler (D-N.Y.), chairman of the House Judiciary Committee, and David Cicilline (D-R.I.) sent letters to Makan Delrahim, chief of the Justice Dept.’s antitrust division, and White House counsel Pat Cipollone, seeking documentation regarding possible interference by Trump.

Jerry Nadler

The inquiry is in response to a New Yorker story that claimed Trump personally wanted to kill the merger largely due to his dislike for Turner-owned CNN and its reporting of his administration.

“Even the appearance of White House interference in antitrust law matters undermines public trust in the Department of Justice’s integrity and tarnishes meritorious enforcement by the antitrust division,” Nadler and Cicilline wrote. “The fact of actual interference would constitute a serious abuse of power.”

David Cicilline

Delrahim has said he was never pressured by Trump to pursue antitrust litigation.

“I have never been instructed by the White House on this or any other transaction under review by the antitrust division,” Delrahim said on Nov. 8, 2017, prior to filing the lawsuit.

AT&T originally sought to investigate Trump’s influence — a request denied by federal judge Richard Leon in the original antitrust trial. CEO Randall Stephenson called Trump’s possible interference the “elephant in the room.”

Makan Delrahim

Presidential Candidate Warren Seeks to Regulate Big Tech, Gets Indirect Support from Sky Boss

Sen. Elizabeth Warren (D-Mass.), who is running for president in the 2020 election, wants to break up the mega tech companies such as Google, Amazon, Facebook and Apple — citing antitrust issues.

Specifically, Warren would classify the tech companies with annual global revenue above $25 billion as “platform utilities,” thereby forcing them to split up business units within their corporate structures.

The lawmaker would also look to unwind what she called “anti-competitive” mergers such as Amazon’s acquisition of Whole Foods and Zappos; Facebook’s acquisition of WhatsApp and Instagram, and Google purchase of Waze, Nest and DoubleClick.

Indeed, Warren claims nearly 50% of all e-commerce is generated by Amazon, while 70% of Web traffic migrates through sites owned and operated by Google and Facebook.

The senator, in a March 8 post, argued that the federal government’s lawsuit in the 1990s against Microsoft regarding its (then) dominance in Web browsing paved the way for the emergence of companies such as Google and Facebook.

“Aren’t we all glad that now we have the option of using Google instead of being stuck with Bing?” Warren wrote. “The story demonstrates why promoting competition is so important: it allows new, groundbreaking companies to grow and thrive — which pushes everyone in the marketplace to offer better products and services.”

Notably, at an investor confab in London, Jeremy Darroch, group CEO at Comcast-owned European satellite TV operator Sky, questioned the U.K. government’s lack of oversight on big tech.

Jeremy Darroch

“My first instinct in these situations is always to look for self-regulation,” Darroch told the Deloitte Enders Media and Telecoms Conference 2019. “But there are times when that approach won’t work. And I am pleased that the government, and indeed politicians of all persuasion have come together to recognize this is one of those times.”

Darroch contends that as big tech’s reach permeates into all aspects of society, their approach to rules and practices will be self-serving and not necessarily to the betterment of the individual.

He said traditional broadcasters and pay-TV operators must adhere to regulation on content, while video delivered through YouTube and Facebook is given a free pass.

“This is in part because we are in an entirely different world to the one tech platforms were born into,” Darroch said. “Where policy makers once saw their role as fanning the flames of growth for these businesses, they now recognize that they need to apply the same framework to this sector as they do every other.”

Report: Trump Personally Sought to Block AT&T/Time Warner Merger

Despite claims to the contrary, President Trump wanted to block AT&T’s $85 billion acquisition of Time Warner — largely for political reasons, according to a report by The New Yorker.

According to the publication, which cited a “well-informed source,” Trump in 2017 called on former economic advisor Gary Cohn and then-chief-of-staff John Kelly to personally ensure that the Justice Department filed a lawsuit against the merger — which it did in November, citing antitrust concerns.

Trump, on the 2016 campaign trail, had said the merger would be bad for the country. According to the New Yorker, Trump’s decision was largely due to his dislike for Time Warner’s CNN news division, which he often called “fake news” in response to critical reports of his administration.

“The President does not understand the nuances of antitrust law or policy,” a former unnamed official told the publication. “But he wanted to bring down the hammer.”

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When a U.S. federal court judge ruled in favor of AT&T, the DOJ filed an appeal, which was rejected last week by an appeals court. The merger resulted in the creation of WarnerMedia, which includes Warner Bros., HBO and Turner.

The intervention by the Justice Department raised eyebrows at the time as it represented the agency’s first since it successfully blocked AT&T’s $39 billion acquisition of T-Mobile in 2011.

Indeed, The New Yorker stated Trump had no objection to 21st Century Fox’s $71.3 billion asset sale to The Walt Disney Co. by longtime supporter Rupert Murdoch, whose Fox News business remains an influential media asset to the President.

Brazil Approves Disney/20th Century Fox Merger

Brazil regulators have approved The Walt Disney Co.’s $71.3 billion acquisition of 20th Century Fox Film and related businesses — paving the way for consummation of the Hollywood mega-merger first announced in December 2017.

The slow-moving antitrust hurdle represented one of the last challenges to Disney’s merger with Rupert Murdoch’s 21st Century Fox entertainment division.

Brazilian authorities sought and achieved Disney’s divesture of Fox Sports channel in the South American country. Disney also owns ESPN Brazil channel. Fox Sports owns rights to key soccer competitions in the region.

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A similar situation exists in the U.S. where the Justice Department ruled Disney has to sell off its stake in 22 regional Fox Sports channels since it owns ESPN.

European Union officials ordered Disney sell its European — not U.S. — stake in A&E Networks.

“Currently, there is only one big-screen rival capable of competing with these channels,” Brazil’s Administrative Council for Economic Defense said in a statement as reported by the Los Angeles Times. The agency said separating Fox Sports from Disney “aims to eliminate competitive concerns in the pay-TV sports channel market.”

DOJ Wants Fast-Tracked AT&T-Time Warner Appeals Process

The Trump Administration really doesn’t want a merger between AT&T and Time Warner, whose assets include Warner Bros., Turner (TBT, TNT, CNN) and HBO.

On July 18, the government requested the U.S Court of Appeals for the District of Columbia speed up the process by mandating an October deadline for all legal briefs, with oral arguments to follow. Such a schedule could reportedly see a decision by early 2019.

The DOJ (and AT&T) contend that a drawn-out appeals process “will make it increasingly difficult to unwind the merger,” should the government win.

Indeed, former Time Warner CEO Jeff Bewkes has stepped down and John Martin, CEO of Turner, was let go, among other personnel changes.

The Justice Department earlier this month filed the appeal seeking to overturn U.S. District Judge Richard Leon’s ruling that found the government hadn’t proved its antitrust claims in the $85 billion merger.

The antitrust case marked the first time in 40 years that the government had sought to challenge a vertical merger between two non-competing companies. The DOJ typically might intervene in horizontal mergers between competitive rivals.

Regardless, the government believes Leon didn’t understand the economic ramifications of a combined AT&T/Time Warner when negotiating with pay-TV operators. It contends AT&T could demand higher carriage fees for CNN, TNT and TBS while leveraging satellite-based DirecTV and online TV platform DirecTV Now as competitive threats.

Leon disagreed, ruling pay-TV operators could survive without Turner programming, alleged restrictions to HBO access and thwarting third-party over-the-top video services.

“We are disappointed with the [judge’s] decision,” Makan Delrahim, Trump’s appointed antitrust boss at the DOJ, said in a June 12 statement. “We continue to believe that the pay-TV market will be less competitive and less innovative as a result of the proposed merger between AT&T and Time Warner.”

Some observers contend the DOJ’s opposition to the merger is largely political as Trump in the 2016 election campaign and thereafter has often criticized CNN (and other media outlets critical of his administration) as peddlers of “fake news”.

Indeed, AT&T CEO Randall Stephenson rejected initial government demands calling for the divestiture of select Time Warner assets, including CNN.

 

 

AT&T Planning $15 Online TV Service

On the witness stand defending his company’s $85.4 billion acquisition of Time Warner as pro consumer, AT&T CEO Randall Stephenson took the opportunity to announce the pending roll out of a $15 monthly online TV service.

Dubbed “AT&T Watch,” the platform would be the cheapest online TV service on the market — $5 less than Dish Network’s Sling TV. It will be marketed as a cheaper version of $35 DirecTV Now with fewer channel selections and no access to live sports, among other restrictions.

The Justice Department last year filed an antitrust lawsuit against the merger, claiming the deal would be bad for consumers. AT&T and Time Warner say the merger helps them stay competitive in the rapidly changing home entertainment market driven by over-the-top video.

AT&T currently offers DirecTV Now at reduced rates, including HBO, in select markets. Sprint Wireless and T-Mobile include free Hulu and Netflix, respectively.

Stephenson said “Watch” would be available free to wireless subscribers – underscoring the probability the platform would be ad-supported and geared toward mobile users.

The platform was hinted at during a pretrial brief.

“The merger will enable AT&T to transform the mobile video marketplace by combining Time Warner’s content assets with its wireless platform to develop new and more valuable services especially for mobile video devices,” AT&T wrote in the brief, as reported by CNN Money. “For example: AT&T would launch a new service with Turner and a small number of popular cable networks, which would be made available for free to AT&T’s wireless customers on unlimited plans and for a nominal price to anyone else.”