Amazon’s Huge Acquisition of MGM Faces Intense Government Scrutiny

June 1, 2021 by Tom Ramstack
(Photo via Wikimedia Commons)

WASHINGTON — Amazon.com, Inc.’s, $8.45 billion deal announced Wednesday to purchase MGM sets it up to become a major player in the film and television industries but also to face a new round of antitrust allegations by federal regulators.

MGM, founded in 1924, is one of the world’s oldest film production companies. In recent years, the Beverly Hills, Calif.-based company has struggled to avoid bankruptcy, making it ripe for Amazon’s takeover and plans to merge it into the company’s Amazon Studios and Amazon Prime Video divisions.

“The real financial value behind this deal is the treasure trove of [intellectual property] in the deep catalog that we plan to reimagine and develop together with MGM’s talented team,” Mike Hopkins, senior vice president of Prime Video and Amazon Studios, said about the films and television shows MGM owns. “It’s very exciting and provides so many opportunities for high-quality storytelling.”

The greater controversy for government regulators is the way the purchase becomes another step in extending Amazon’s business empire far beyond online retail sales.

Starting in 1994 as an online bookseller, Amazon’s recent acquisitions have included Whole Foods Markets, Inc. grocery stores in 2017 for $13.7 billion, sports broadcaster YES Network for $3.47 billion in 2019 and home video security company Ring Inc. for $1 billion in 2019.

Within hours after the MGM deal was announced, Republican Sen. Josh Hawley of Missouri sent a Tweet that called Amazon a “monopoly platform” and added, “This sale should not go through.”

Democratic Sen. Amy Klobuchar of Minnesota, who chairs the Senate’s antitrust subcommittee, demanded “a thorough investigation to ensure that this deal won’t risk harming competition.”

Amazon announced the MGM acquisition one day after Washington, D.C.’s attorney general filed an antitrust lawsuit against the giant accusing it of pressuring third party sellers to inflate consumer prices.

Sellers who use Amazon’s platform must sign agreements which penalize them if they offer their goods at lower prices elsewhere, including their own websites, according to the lawsuit.

The lawsuit is nothing new for the retailer that controls more than half of U.S. online sales. Amazon Chief Executive Jeff Bezos has been compelled recently to answer other antitrust allegations by congressional committees, the Justice Department and the Federal Trade Commission.

However, Amazon is not unique in the congressional and Justice Department inquiries.

Facebook and Google are responding to questions from antitrust authorities about when big tech is too big.

A 450-page congressional report released in October found major competition problems in the digital economy and called for reforms to rein in the dominance of some Internet-based companies.

Google and Facebook together have been hit with five enforcement actions by the Justice Department, the Federal Trade Commission or state attorneys general.

The FTC continues to investigate whether Amazon uses data about third-party sellers to decide which products it will develop under its own brand at discounted prices, usually in competition with the sellers.

The Washington, D.C. lawsuit accuses Amazon of deceit when it says, “Far from enabling consumers to obtain the best products at the lowest prices, Amazon instead causes prices across the entire online retail sales market to be artificially inflated, both for products sold on Amazon’s online retail sales platform and on its competitors’ online retail sales platforms.”

As a result, the third-party sellers are forced to incorporate Amazon’s fees and costs into their product prices when selling on Amazon and any other online retail sales market, the lawsuit says.

“Through this anticompetitive restraint, Amazon suppressed competition from other online retail sales platforms, such as eBay, Walmart and even the [third party sellers’] own websites,” the lawsuit says.

The lawsuit seeks a court order to prevent Amazon from continuing the Business Solutions Agreements that require the pricing floors. The order could include mandatory divestitures if the attorney general’s request for relief is granted.

Other remedies it seeks are a corporate monitor to oversee Amazon’s compliance with court orders and unspecified monetary damages in amounts to be determined during the lawsuit.

In addition to the District of Columbia, the attorneys general from California, Connecticut, New York and Pennsylvania also say they are checking into potential unfair trade practices by Amazon.

The D.C. attorney general’s lawsuit is filed as District of Columbia v. Amazon.com Inc. in the Superior Court of the District of Columbia.

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