On Amazon-MGM

Why didn't the Federal Trade Commission challenge the Amazon acquisition of MGM Studios? And is this merger a big deal?

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Last week, Amazon closed on its $8.5 billion acquisition of the MGM studio.

The e-commerce giant surprised Hollywood on Thursday by announcing the completion of its $8.5 billion acquisition of MGM, an iconic Hollywood brand whose presence in the modern entertainment industry has diminished over time and numerous changes in ownership since the mid-1980s.

The Federal Trade Commission had suggested it might object to Amazon’s purchase of MGM, raising the prospect of a long fight. On the heels of Thursday’s closing announcement, the FTC still raised the threat of a future challenge to the combination.

Federal Trade Commission Chair Lina Khan is known as an Amazon skeptic, so it raised some eyebrows that the FTC didn’t challenge the deal before it closed. Leah Nylen at Politico, for instance, pronounced the failure to challenge the deal a “major setback for the antitrust agenda of FTC Chair Lina Khan.” Is it? And if so, why didn’t Khan try to stop the merger?

The answer is pretty simple. Lina Khan doesn't have the votes to challenge the acquisition. The Federal Trade Commission is a commission of five members, and bringing a case requires a majority vote. Right now, the FTC has just four seated commissioners. The nominee for the fifth slot, Alvaro Bedoya, is being held up in the Senate because he said mean things about Republicans on Twitter, but he should be confirmed in the next month.

Until Bedoya is confirmed, Khan has to get a Republican commissioner’s vote to bring a case. GOP commissioners Christine Wilson and Noah Phillips tend to adopt pro-monopoly positions on big tech, and it’s unlikely they would vote to stop the Amazon-MGM merger. So that’s the story about why Khan didn’t bring a challenge before the deal closed.

How much does it matter? There are certainly problems with the merger, but MGM is a small studio and Amazon Studios itself isn't that important. What does matter is Amazon's Prime program, which is the illegal scheme at the heart of this acquisition. So if the FTC investigated this merger as a way of getting to the core problems with Amazon, great. If they move to take on the broader structural issues with Amazon and ignore the MGM merger, fine. The only risk is if the FTC doesn’t do anything with Amazon at all, and I don’t think that’s likely.

What the closing of the deal means in practical terms is that Amazon will begin operationally combining MGM with Amazon Studios. But legally, very little has changed. The government could still block the combination, though it will have to undo a consummated deal rather than be able to keep the two firms at arms length while a trial moves forward.

If you want to go much more in-depth on this merger, the Entertainment Strategy Guy at the Ankler has a great piece on Hollywood and antitrust.