The Department of Justice is moving forward with a plan to end a rule that has been around since 1948, which prevents studios from owning movie theaters. But the main fear within the industry isn’t that studios will begin gobbling up theater chains, it’s that the shady tactics that birthed this set of regulations decades ago — that are also prevented by these rules — could return when they are removed.
The Supreme Court ruling in 1948, which became known as the “Paramount Decrees” (as Paramount Studios was the lead plaintiff), prevented the then-eight major Hollywood studios from owning theaters where their movies played. It also banned certain practices that limited where and how films were shown — a main one being “block booking,” in which studios required theaters to play several of their movies (oftentimes lousy films with one or two good ones sprinkled in) or get no titles at all.
The studios signed a decree and erased their monopoly. It led to the industry flourishing and expanding to what it is today.
But the DOJ’s antitrust division believes the Paramount Decrees are out of date and has moved to end them.
“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,” said Makan Delrahim, the department’s top antitrust official, on Monday at an American Bar Association conference in Washington, D.C., according to multiplereports.
Delrahim’s department opened its review of the regulation in August 2018 and now plans to seek court approval to terminate the decrees with a two-year “sunset period” for the parts that address block booking. Delrahim also said in his speech that going forward “if credible evidence shows a practice harms consumer welfare, antitrust enforcers remain ready to act.”
To some in the industry, the loss of the decrees isn’t a big deal. Since the 1980s, when the Reagan administration pared down regulations in the areas of film and TV after the drastic change in the media industry, studios eventually went back to owning stakes in theaters. Paramount Pictures and Warner Bros. owned the Mann Theater chain in 2000 after the company went bankrupt, and the El Capitain Theatre in Los Angeles is owned by Disney. (Disney wasn’t part of the decrees as it wasn’t a major studio back in the late 1940s, and Netflix, which has been rumored in the past to be looking to buy a theater, didn’t even exist yet.)
But some smaller chains and owners of single-screen art houses are concerned about heavy-handed business tactics that could come back with the loss of the decrees.
Along with block booking, another practice that could start up again with the loss of the decrees is “circuit dealing,” in which theaters are granted exclusive access to movies in a specific geographical area. And the “splits” (the ticket sales divided between studio and theater), which are already largely in favor to studios, could increase more.
This all could mean mom-and-pop theaters, which compete with the huge chains, getting squeezed.
“A potential risk of these restrictions disappearing is that the multi-national circuits like AMC could attempt to leverage their size in order to get exclusive rights or to block smaller independent circuits who directly compete with them from getting access to certain films,” Michael Barstow, executive vice president of Main Street Theatres, which operates 48 screens out of Nebraska and Iowa, told Business Insider. “If that were to happen and choices are taken away from the consumer, innovation in our industry could stall. That result would directly contradict the stated intentions of the DOJ. In our industry, it is often the independent operators that are driving innovations such as subscriptions or alternative pricing models because it is the only way we can compete.”
There’s also the potential that it could affect films from independent distributors.
“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, the largest trade organization in the exhibition space, argued to the DOJ, according to The Wall Street Journal.
The DOJ’s attempt to end the decrees is similar to the loosening of some regulations that happened in the 1980s. But many in the industry are asking, “Why now, and why for movies?”
“I haven’t yet heard an in-depth policy argument for this change,” Ross Melnick, associate professor at UC Santa Barbara’s film and media studies department, told Business Insider. “So the question is, do studios feel they need to have more flexibility to compete against streaming companies? Is it that streaming companies have been flirting with theater ownership, so therefore they want a level playing field? All those things would be helpful to be spelled out in whatever policies or legal changes might happen so we can better understand the intention of this change.”