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The DOJ’s Proposal to Terminate The Paramount Decrees to be Decided Next Week


In November, the Justice Department filed a motion to terminate the Paramount Consent Decrees, the court-mandated restrictions put in place in 1948 that forced major studios to sell off their exhibition chains. The decrees were a significant factor in ending the so-called studio system era of Hollywood’s golden age.


While the government’s Antitrust Division sees the consent decrees as long outdated, exhibitors and other industry groups warn that removing them will open the door to a host of business practices that will ultimately favor large-scale tentpoles over mid-level and independent movies.


In a letter to the judge (U.S. District Judge Analisa Torres), the Independent Cinema Alliance says that “nothing in existing antitrust law comes close to the elegance and power of the ‘theater-by-theater on the merits’ mandate that forms the heart of the Paramount Consent Decrees. Tens of thousands of Americans have enjoyed big-screen entertainment solely because of that mandate. The loss of that umbrella protection is another sea change in a stable industry that warrants careful scrutiny, as it has worked for decades, and for good and powerful reasons.”


The decrees prohibit a host of business practices, including such things as the practice of “block booking,” in which theaters have to take a package of movies in one license, and “circuit dealing,” or demanding a single license that covers all theaters in a circuit.


Under the DOJ’s plans, there would be a two-year sunset period on ending the ban on block booking “to allow the theater and motion picture industry to have an orderly transition to the new licensing changes.”


Source: Deadline


Let's take this from the beginning: Block Booking, Blockbusters, and B-Titles

Here's a refresher on what's going on.


In the early days of cinema, film studios began acquiring movie theaters to control the cost and distribution of their films. By 1930, distribution was dominated by five vertically integrated companies (Paramount, Metro-Goldwyn-Mayer, Warner Bros., 20th Century Fox, and RKO Pictures). Not only did these companies produce and distribute motion pictures, but they also owned many of the theaters that presented their movies to the public.


By itself, that's not inherently terrible. Capitalism, right? But the issue had to do with something called "block booking." Block booking is the controversial movie studio practice of selling films in packages on an all-or-nothing basis. For example, if a movie theater wanted one of Paramount Picture's A-titles, they would be forced to buy several mediocre B-titles. This created a guaranteed market for even the "meh" studio films. Adolph Zukor, one of the three founders of Paramount Pictures, is credited with starting the practice.


In some extreme cases, a single block of movies could determine a movie theater's playbill for an entire year. This made it extremely difficult for independents to get their films into theaters when exhibitors were forced to purchase a block of movies, several of them which were never seen.


Meanwhile, the studios made Gentlemen's agreements with each other, where first-run theaters could pick the best films from each other without being forced to buy a grab bag of B-titles. This was utterly devastating to small theater owners who had to compete with the studio-owned chains that were exempt from block booking.


Block booking was finally outlawed by the U.S. Supreme Court in 1948 in the case of United States v. Paramount Pictures, Inc., sometimes also referred to as "The Hollywood Antitrust Case of 1948", the "Paramount Case" or the "Paramount Decree."


The Paramount Decree required studios to eliminate block booking and release their ownership of movie theater chains.


The case is presently being explored by the Department of Justice, who's asking whether the Decrees still serve a useful purpose in a movie industry that's seen extensive change over 70 years.


So what's next?

There's no doubt that the industry has gone through a massive change. However, the Decrees may be more critical now than ever before. Consider the consolidation that's happened at the studio level and the concentration of films coming from now just five major studios (Disney, Warner Bros., Universal, Sony, and Paramount).


Take a look at the domestic market share of each of the big give studios in 2019 per the Observer,

  1. Disney: 41.6% (this includes Fox's studio business)

  2. Warner Bros: 13.2%

  3. Universal: 12.9%

  4. Sony: 10.6%

  5. Paramount: 5%

In other words, approximately 83% of the market was controlled by five distributors this year. The consolidation is not only happening among the studios, but it's occurring at the exhibition level, with three dominant players (AMC, Regal, and Cinemark).


The consolidation of the industry, at both the distribution and exhibition level, will only increase the anticompetitive impact for which the Decrees were initially designed to prevent. Block booking will only further tilt the balance in favor of the five major studios.


Smaller, independent theaters need access to a variety of movies and the ability to select which ones they will exhibit in theaters. They also need a sufficient number of available screens (i.e., screens that are not monopolized by major studios, either by demanding longer runs and more screens for blockbusters or by block booking.) If theaters are forced to reserve the majority of their screens for major studio films, this will leave barely any room for movies from smaller studios. With block booking, we may have never been shown recent documentaries that received mainstream success, such as "Won't You Be My Neighbor?" ($22.6 million), "RBG" ($14 million), and "Three Identical Strangers" ($12 million).


The limited amount of available theater screens could mean that movies, especially from smaller studios, could go straight to streaming services; however, filmmakers such as Martin Scorsese, Christopher Nolan, and Sofia Coppla, prefer their movies to be enjoyed in the theaters. In addition, smaller studios who go the route of traditional distribution benefit from legitimacy and ticket sales.


The prohibition of block booking has allowed theaters to show both major studio content and more targeted fare on their screens. This has continued the availability of high-quality and diverse content in the home that we all as consumers want. Notably, success in streaming correlates with success in the theatrical market. Often, the highest-grossing movies in theaters are also the highest-grossing in the home.


And as consumers demand low-cost streaming options, the economic importance of box office success can not be emphasized enough.


U.S. District Judge Analisa Torres will decide whether to approve the DOJ’s motion sometime around January 21, 2020.

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