The Justice Department asked a court on Monday to block a planned merger of the nation’s only two large cinema on-screen advertising companies, saying consumers might face higher prices at theaters if a merger was carried out. The businesses generate hundreds of millions of dollars annually through advertisements and other programming shown before movie previews start.
The department filed a lawsuit in federal court in Manhattan against National CineMedia Inc., trying to interrupt its plans announced in May to acquire Screenvision for $375 million.
In a release, Assistant Attorney General Bill Baer of the Justice Department’s antitrust division said the merger was “a bad idea for movie theaters, advertisers and consumers.”
He called the acquisition “exactly the type of transaction the antitrust laws were designed to prohibit,” saying it would destroy the benefits of competition, risking higher prices to consumers at theaters and for advertisers who are deprived of options for the services the cinema advertising networks provide.
The government said the combined companies’ ads would appear on 88 percent of all movie screens in the United States. It said anticompetitive changes in the way the companies operate were already occurring.
Screenvision, based in New York, and National CineMedia, based in Centennial, Colo., said the merger would offer advertisers a better product with broader reach.
In a release, Kurt C. Hall, National CineMedia’s chairman and chief executive, said: “I am obviously very disappointed that the D.O.J. 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. … With a better product, we will generate more advertising revenue for our theater circuit partners.”
Travis Reid, Screenvision’s chief executive, said the merger “preserves all the desirable attributes of cinema advertising while allowing the combined company to compete more effectively on dimensions important to advertisers.”
Both Mr. Hall and Mr. Reid insisted the merger plan came amid a changing landscape in the video advertising marketplace, with Mr. Reid saying that the combination of the companies meant the new business would be more competitive in an expanding field and would ensure long-term incremental advertising revenue to theaters.
The Justice Department said in a release that the merger came after Screenvision, since late 2012, had become “a particularly aggressive competitor, increasing its efforts to steal business from N.C.M. by dramatically reducing the prices it charges advertisers and offering movie theaters a variety of attractive financial incentives.”
The lawsuit said National CineMedia, which advertises on about 20,000 of the roughly 39,000 screens nationwide and generated about $426 million advertising revenue last year, told its board in April that it was at a strategic crossroads and could either acquire Screenvision, enabling it to control selling tactics and pricing, or compete through aggressive pricing and by adding theaters. Screenvision, covering about 14,300 screens nationwide, had about $160 million in advertising revenue in 2013.
The lawsuit noted that the majority owners of National CineMedia are the three largest movie theater circuits in the United States — the Regal Entertainment Group, AMC Entertainment and Cinemark Holdings.