Hollywood Set to Own Theaters Again

Thursday, November 21, 2019

The Department of Justice in the United States is preparing to allow the Hollywood studios to own film theaters once again.

This decision would reverse 70 years of anti-trust law that was implemented in 1948, which is known as the Paramount decrees.

The Paramount decrees separated film distribution and exhibition, as well as outlawing block booking, which forbade exclusive licensing agreements that forced theaters to license multiple films under a single license.


The Death of Independents

The government’s decision will likely be the death knell to independent theaters, and thereby independent films on the big screen in the United States. The number of independent theaters has plummeted in this age of greater media consolidation. Only three chains, AMC, Regal, and Cinemark, control over half of the nation’s 40,000 screens.

“On both the distribution and the exhibition sides of the business, the drive toward consolidation continues unabated,” said the Independent Cinema Alliance in a submission last year. “All of that consolidated power will almost certainly squirt out as anti-competitive conduct, because they can, and almost certainly the losers will be independent cinemas,” it added.

Independent distributors have been struggling for years to secure screens to release their films on after the explosion of big-budget franchises. Likewise, small theater owners are unable to afford the predatory distribution terms that are demanded by studios to screen their blockbusters.

Unlike independent distributors, which only retain 40-45% of ticket sales, major studios have forced independent theaters to pay up 70% of ticket sales.

So far, in 2019, five films are responsible for 30% of the box office receipts, four of which were released by Disney, which is now the owner of 20th Century Fox.

“If exhibitors were forced to book out the vast majority of their screens on major studio films for most of the year, this would leave little to no room for important films from smaller studios,” the National Association of Theatre Owners argued.


Paramount Decision

Although there have been some minor exceptions and creative loopholes over the years, the Paramount decision made by the Supreme Court in 1948 propelled all eight film distributors to divest their theater operations completely.

The Paramount decision has been a bedrock of corporate antitrust law, and thus it is cited in most cases where issues of vertical integration play a prominent role in restricting fair trade.

However, for at least the last twenty years, federal regulators have allowed the media landscape in the United States to be dominated by fewer and fewer parties.


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Upside Down World

“As the movie industry goes through more changes with technological innovation, with new streaming businesses and new business models, it is our hope that the termination of the Paramount decrees clears the way for consumer-friendly innovation,” Makan Delrahim, the Justice Department’s top antitrust official, said at an American Bar Association conference in Washington, D.C. on Monday.

The only innovation that will be developed by this decision is financial innovation that allows only a handful of companies to control the dissemination of information and entertainment.

Delrahim said the division would ask a federal court in New York this week to unwind all the rules, with a two-year sunset period on sections dealing with block booking and circuit dealing, which is the process of selling licenses to an entire chain rather than by a per-theater basis.

Greater Consolidation

In March 2019, AT&T finally won its two-year anti-trust litigation against the United States Justice Department to acquire Time Warner. The case was criticized by industry insiders for trying to define anti-trust along with the standards currently used in Europe.

The three-judge panel for the D.C. Circuit Court of Appeals ruled unanimously with the trial judge’s ruling to allow the acquisition. The court held that “generic statements that vertical integration can lead to an unfair advantage over its rivals do not come close to answering the question before the court.”

The $85 billion deal was announced in November 2017 and has since been challenged by the government on the grounds that Time Warner would weld too much leverage over networks in carriage-fee negotiations with other distributors. In addition to these concerns, AT&T will nearly operate a complete vertical monopoly over content production, distribution, and transmission.

AT&T is now a leading pay-television service provider, including through its recent buyout of DirecTV and an owner of programming through Time Warner’s media portfolio. AT&T made a preliminary deal with distributors to negotiate fees in good faith for seven years, and this was seemingly enough to convince the courts that AT&T would not act in a monopolistic manner.

Monopolies are nothing new for AT&T; the company controlled the entire telephone market in the United States and Canada for the majority of the 20th Century. However, the breakup of AT&T was finally mandated in 1982.


FilmTake Away

With already so much of the media held in only a few hands, it would not be surprising if soon Comcast and AT&T or Disney and AMC gain approval for yet another largest merger in media history.

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