Sen. Elizabeth Warren (D-MA) added her name to the chorus of lawmakers calling on government regulators to carefully scrutinize Amazon’s proposed acquisition of MGM, as she is calling on the Federal Trade Commission to take an “all-encompassing” approach to its review.
In a letter to FTC Chairwoman Lina Khan, first published by The Verge, Warren wrote that the FTC has taken a “narrow view” of such vertical transactions, “primarily focusing on price effects in the relevant product or service markets.” That is line with how other government entities have reviewed mergers, and a reason why Amazon’s purchase of Whole Foods pretty much sailed through in 2017.
But Warren thinks that the FTC should take a broader view of the impact of the merger. She argued in her letter that Section 7 of the Clayton Antitrust Act of 1914 prohibits any acquisition whose effect “may be substantially to lessen competition, or to tend to create a monopoly” in “any line of commerce or in any activity affecting commerce.”
“I urge you to use the FTC’s broad authority under this law to assess the possible anticompetitive effects this deal will have on streaming services and entertainment products in addition to the broader impacts that this transaction may have on workers, small businesses, and competition overall as Amazon—which is already the dominant e-commerce firm—accelerates its aggressive monopolistic behavior,” she wrote.
Other lawmakers have also called on regulators to pay close attention to the transaction, albeit stopping short of saying that it should be rejected outright.
Yet Amazon’s argument for the merger is likely to put substantial focus on the size of MGM: It had 1% of the total box office gross in North America in 2020, a fraction of that of major studios. The $8.45 billion deal is much smaller than other transactions that got the greenlight, like The Walt Disney Co.’s acquisition of Fox assets in 2018, which was a horizontal merger that traditionally raises more red flags for regulators than vertical ones. Viacom and CBS re-emerged in 2019 with little turbulence. And the government’s challenge to AT&T’s acquisition of Time Warner, a vertical merger, was soundly defeated in court.
But the environment for M&A has shifted considerably even since then, particularly ones that involve major tech giants. Last week, the House Judiciary Committee advanced a series of bills to bolster antitrust laws aimed at big tech, albeit the legislation may not be making it to the House floor anytime soon.
Warren argued that Amazon’s purchase of MGM stands to alter the competitive landscape. She noted that MGM holds the rights to around 4,000 films and 17,000 hours of television that would provide content for Amazon Prime Video, its streaming service.
“The problem is that this streaming service is only available to paid subscribers of Amazon Prime—a bundled service that includes streaming content in addition to exclusive deals and fast delivery on various products sold through Amazon’s online market platform and Whole Foods Market,” Warren wrote. “Amazon’s streaming competitors are already at a disadvantage because of Amazon’s broad range of services that are tied to its streaming service through an annual $119 Prime membership ‘whose value proposition is to help you buy more products.'”
Warren touched on what has been a vexxing problem when it comes to scrutiny of such vertical mergers, one that Khan identified in her Yale Law Journal article Amazon’s Antitrust Paradox.
Warren wrote, “Amazon’s tactic to operate at a financial loss and use low prices to lure in customers and capture the market has worked before, and the FTC must determine whether this vertical acquisition is truly an entertainment strategy or merely another step towards unfettered monopolization. MGM is reportedly valued at $6.5 billion in equity, yet its acquisition by Amazon is valued at $8.45 billion—the second largest acquisition in Amazon’s history. This acquisition presents an important opportunity to ensure that the FTC approaches vertical transactions involving tech platforms with the proper dosage of antitrust scrutiny.”