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Justice Department Threatens Academy With Antitrust Suit Over Netflix Feud

By Danny Vena - Apr 3, 2019 at 9:13PM

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The streaming giant just picked up a powerful ally in its ongoing dispute with the Hollywood elite.

Netflix (NFLX 1.98%) has been one of the primary catalysts in the changing media landscape. Since introducing its streaming video service more than a decade ago, there has been a mass exodus from both broadcast and cable TV as consumers have increasingly turned to streaming platforms such as Netflix,'s (AMZN 3.66%) Prime Video and Disney (DIS 3.51%)-controlled Hulu. More recently, streaming companies have made their presence known on the big screen, winning major awards for movies they have produced and competing for box office against traditional film studios.

Not everyone is celebrating the rise of streaming. The Academy of Motion Picture Arts and Sciences, which hands out the Oscars, recently proposed a rule change that would make it tougher for movies coming from the streaming services to qualify for Academy Award nominations. 

This week, the Antitrust Division of the U.S. Department of Justice sent a letter to the academy, indicating that any rule changes designed to keep out streaming services would raise antitrust concerns, providing an unexpected ally for Netflix and other streaming services. 

Gavel on an open lawbook on a desk with other books in the background.

Image source: Getty Images.

A warning volley

The academy in March said it was considering a rule change that would require movies to receive a full theatrical release while not being simultaneously released on a streaming platform to be eligible for awards consideration. Noted director Steven Spielberg even waded into the fray, saying that he would lobby other board members to adopt the more restrictive rules.  

In a letter to the academy, Makan Delrahim, the head of the Justice Department's Antitrust Division, expressed concerns that any such rule change would run afoul of U.S. antitrust regulations, according to The Hollywood Reporter. The relevant law "prohibits anticompetitive agreements among competitors," Delrahim said. "Accordingly, agreements among competitors to exclude new competitors can violate the antitrust laws when their purpose or effect is to impede competition." 

The outcome of this dispute could have huge implications for the future of streaming video and the movie industry overall. Awards such as these typically validate the quality of the films that receive them. That inspires consumers to go to theaters to see these movies or, in the case of streaming services, encourages consumers to subscribe.

At the 91st Academy Awards, Netflix made history, taking home four Oscars, tied with Disney, Fox Searchlight, and Comcast (NASDAQ: CMCSA)-owned Universal for the most wins. Alfonso Cuaron's Roma, which was in the running for best picture, ended up winning for best director, best cinematography, and best foreign-language film. Amazon had similar success in 2017, taking home a total of three statues -- two for its original movie Manchester by the Sea.

A black and white image of a woman riding in the back of an old car cradling two sleeping children.

Roma was a hit for Netflix. Image source: Netflix.

Clinging to the past

This isn't the first such dispute regarding the treatment of streaming services. In 2017, after several Netflix original movies were selected for inclusion at the Cannes Film Festival, French exhibitors protested, saying the streaming service ran contrary to a celebration of theatrical films. Early last year, the festival adopted a rule change that banned any films that didn't have a theatrical distribution in France from participating in the competition -- prompting Netflix to pull out of the competition. 

The three biggest U.S. theater chains -- AMC, Regal Cinemas, and Cinemark Holdings -- have also joined forces against Netflix, refusing to show its films because of the company's practice of releasing its movies to streaming customers on the same day they premiered in theaters. Netflix sought to increase its clout with theater owners earlier this year, when it joined The Motion Picture Association of America, Hollywood's most powerful lobbying group.

Times are changing

In the wake of the ongoing disruption of traditional media, the old guard is circling the wagons, intent on maintaining the status quo. Trying to put streaming services at a disadvantage by banning them should be viewed as a last-ditch effort to preserve the existing paradigm.

Netflix has grown its worldwide subscriber count to 139 million, Amazon has more than 100 million Prime members, and Hulu now boasts more than 25 million subscribers. With numbers like these, efforts to suppress competition will ultimately prove unsuccessful, and attempts to do so are only delaying the inevitable.

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