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[Tabita Knezevic]

The Strategic Organizing Center (SOC) is a democratic union federation representing more than 4 million workers in four affiliated unions: the Service Employees International Union, the International Brotherhood of Teamsters, the Communications Workers of America and the United Farmworkers. The SOC, formerly known as Change to Win, has engaged the Federal Trade Commission (FTC) on a number of issues in the past. Most recently the SOC and our affiliates submitted a petition on February 27, 2020, requesting the Commission to conduct a 6(b) investigation of a range of questionable practices by Amazon, and a supplemental letter on July 20, 2021 regarding troubling practices by Amazon during the COVID pandemic.

Allowing the MGM merger would exacerbate the trend towards vertical integration and create additional opportunities for Amazon to leverage its power in the SVOD and related markets in ways that will harm film makers, consumers and other stakeholders.

In an industry in which growing concentration and vertical integration present specific dangers to consumers and producers, Amazon is not just another competitor. Unlike its SVOD rivals, Amazon is dominant in several other distinct markets including e-commerce, streaming devices, and cloud computing. Amazon has a long track record of leveraging its market dominance to gain share in vertically-adjacent markets including, as detailed below, in the SVOD market specifically.

In 2011, Amazon added Prime Video, an SVOD service, as a benefit to Prime membership. This gave Prime members ad-free access to 5,000 movies and TV titles in 2011. Today, Prime members have access to over 20,000 titles through this service.[3]

Because Amazon is leveraging its e-commerce power in the SVOD market, and may be engaging in predatory pricing by operating Prime Video at a loss, Amazon should not be permitted to merge with MGM and further enhance its market power in the SVOD market.

If Amazon is permitted to complete the acquisition, the Commission should require Amazon to decouple the Prime delivery service from the Prime Video service and price its Prime Video membership to reflect its true cost.

Amazon is already a market leader in streaming devices and cloud computing services used by SVOD consumers and competitors alike and has not hesitated to unfairly wield its dominance in these markets over SVOD competitors.

The market leveraging described above indicates that the SVOD market is no exception to how Amazon pursues and utilizes power in the markets where it operates. Accordingly, the acquisition of MGM should be blocked, but if it is permitted to proceed, Amazon should be required to engage SVOD rivals in a neutral way, with respect to both the streaming device and cloud computing markets, in order to prevent Amazon from leveraging its power in these markets to gain further share in the SVOD market.

As elucidated further below, this presents dangers similar to those regulators sought to eliminate in the past, including risks for competition in film production, distribution and exhibition, and consumer choice.

In 2019, there were 201 billion streaming views just in the U.S., 200 times more than the 1 billion theater admissions recorded at the North American theatrical box office market.[23] The US digital at-home market was also worth almost twice the entire North American box office in 2019.[24]

In addition to offering an increasingly vital exhibition space for content, the SVOD market is dominated by a small number of large players. Although there are more than 135 online services providing movies and television shows to US consumers, the top five streaming services in the US collectively accounted for 72 percent of the entire market at the end of 2020.[29] Each of these market leaders, including Amazon, is increasingly vertically-integrated. These SVOD services thus distribute content that, increasingly, their studios either produce or have acquired exclusive rights to stream.

In this unregulated market, large and vertically-integrated SVOD firms may amplify their power through exclusive control over film content and the imposition of expansive contracts on new content providers, which may endanger consumer choice in the streaming video market.

Another, growing problem in the vertically-integrated SVOD market is the ability of dominant SVOD firms to impose expansive contract terms on content providers, which reduce the channels through which content will ultimately be available.

In the past, content producers or distributors tended to negotiate a series of non-exclusive distribution deals with a range of exhibition channels from PayTV providers to broadcasters, educational establishments, and SVOD services themselves. Together these deals were more lucrative for producers than a single contract giving all rights to one exhibition channel.[41] With more power, however, dominant SVOD services have been able to condition access to their exhibition channel increasingly on exclusive deals with producers and distributers referred to variously as all-rights[42] or worldwide[43] rights deals. As their names suggest, these types of deals afford a wider range of exhibition rights to SVOD providers and thus often preclude producers from distributing their content, or even in some cases subsequent derivative content (e.g., sequels), via alternative exhibition channels. These deals prevent producers from realizing any of the associated economic gains of more equitable contracts that allow for multi-channel distribution.

Market leaders including Amazon and Netflix are increasingly insistent on restrictive content licensing exclusivity in their dealings with content providers.[46] The willingness of content producers and distributers to accept SVOD deals that restrict alternative distribution indicates that SVOD services have increasingly asymmetrical power in this relationship.

PVD had previously been a useful and lucrative distribution channel for independent documentary makers in particular. Amazon did not provide any reason for its sudden change in policy. However, some industry insiders believe the move may be the result of liabilities associated with politically sensitive or controversial independent content.[62] Another view is that Amazon leveraged the investment of the independent film community as an initial strategy to develop its brand in the film and TV space, and that independent voices no longer serve a purpose now that this has been achieved.[63]

While it is not clear why Amazon shut down independent producer and distributor access to its PVD platform, the effect is obvious: Cutting off this channel has severely impacted the ability of certain producers and distributors to finance and distribute films, and in particular has cut off one of the few avenues of access for more controversial independent films. This development may be a telling indication that Amazon is unlikely to ensure the presence of truly commercially and politically independent voices within the increasingly important exhibition space it controls.

However, the best course would be to prevent Amazon from gaining an additional foothold in the SVOD market from which to expand its power over this important area of economic and cultural significance for our country.

[50]See, e.g., EU says Amazon breached antitrust rules, opens second investigation into its e-commerce business, CNBC (Nov. 10, 2020), available at -hits-amazon-with-antitrust-charges-for-distorting-competition.html.

Every year, the Harvard Graduate Business Club organises a business case competition for teams across the world, the Harvard Global Case Competition. The teams are asked to answer a high-level business question, using industry, company and financial analyses over a period of three weeks. At the end, the teams submit a Slide Deck of approximately 100 slides. This year, they asked:

My team and I participated not only because it is an exciting project, competing with some of the most brilliant minds across the world, but also because we believe Analytics can provide a different perspective in an area usually built around standard financial analyses. In particular, by using advanced machine learning techniques, we were able to give a different perspective to answer the question of whether Amazon should buy Netflix, reinforcing the standard financial due diligence.

Netflix holds the largest market share, sitting in a unique spot, leading both in terms of Content and Affordability. Other players, such as YouTube, highlight how the streaming market is not a clear-cut sector, having players sitting in between of video platforms, TV and media in general.

Out of all these competitors, Netflix and Amazon Prime Video hold the two spots for market share, having a similar approach to streaming, having a moderately priced subscription that users pay on a monthly basis and focusing content mostly on TV-series and movies.

Specifically, Amazon hosts the entire tech stack of Netflix on its Amazon Web Services platform. Amazon would end up cutting a significant client and buy a tech stack it already owns. Both Netflix and Amazon also invest heavily in recommendation system algorithms like matrix completion. Amazon is not second to Netflix in terms of recommending products.

In addition, the companies have competitive cultures that appear to work for their respective employees. Though similar, they are also different and their combined cultures may bring out the worst in each other to create a toxic environment, driving their greatest assets: their people.

Another extremely important aspect is that if Amazon were to acquire Netflix, they would have a combined control of 55% of the market share, compared to 15% by Hulu. The merged entity would be 266% larger than its next largest competitor. This level of market share would give the merged entity extreme levels of control over the market. The FTC could not not object to a merger of this scale.

We find that in nearly every respect the overall quality of both libraries is identical for both original and leased content. In particular, we see that the quality is almost identical when considering movies, TV-series and original content, with only small variations and the distribution of quality content is the same.

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