Justice Department Files Motion To Terminate Paramount Consent Decrees

Ted Johnson

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The Justice Department filed a motion Friday in a New York federal court to terminate the Paramount consent decrees, the 71-year-old rules that have restricted studio distributors’ control over exhibition.

If a judge approves the motion, it would clear the way for studios to once again take significant ownership of theater chains. But more importantly to exhibitors is the impact that it would have on a host of business practices that have been prohibited since the late 1940s.

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The decrees prohibit 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 such a practice “to allow the theatre and motion picture industry to have an orderly transition to the new licensing changes.”

“The Paramount decrees long ago ended the horizontal conspiracy among movie companies in the 1930s and ‘40s and undid the effects of that conspiracy on the marketplace,” said Makan Delrahim, the chief of the Justice Department’s Antitrust Division, in a statement. “The Division has concluded that these decrees have served their purpose, and their continued existence may actually harm American consumers by standing in the way of innovative business models for the exhibition of America’s great creative films.”

Delrahim announced on Monday that the DOJ would move to terminate the decrees, put in place in 1948 after nearly a decade of litigation. The government’s lawsuit against the major studios led to a landmark Supreme Court decision that forced major studios to sell off their theater chains and signaled the “studio era” in the Golden Age of Hollywood.

Paramount, Fox, Universal, Columbia, Warner Bros., MGM and United Artists were bound by the decrees, as well as another studio, RKO, that no longer exists. Through the years, other studios, like The Walt Disney Co., have been wary entering the exhibition business, in part because of the fear of an antitrust challenge.

“There is no reason to believe that [studios] would or could re-establish the industry-wide horizontal conspiracy or cartel that was the basis for the original enforcement action by the United States and the resulting Decrees,” the Justice Department said in its motion.

“Such a conspiracy or cartel is particularly unlikely and improbable today because of the technological and marketplace changes that have transformed the movie industry over the last seventy years. Additionally, since the motion picture industry has always remained fully subject to the antitrust laws, any recurrence of the anti-competitive collusion that the Decrees enjoined would be prohibited under existing law.”

The DOJ argued in the motion that it would “make no economic sense” for the studios to “collude to once again limit their film distribution to a select group of theatres.”

Rather, they argued that the decrees make no sense given the tremendous changes in the marketplace — exacerbated by the emergence of Netflix and Amazon, and their experimentation with the releasing of movies in theaters and on streaming platforms on the same day, or within just a couple of weeks.

“Once their single theatrical run ends, films are distributed to various non-theatrical aftermarkets that did not exist in the 1940s – internet streaming, internet downloads, pay and broadcast television, and DVDs,” the DOJ said in the brief. “The Paramount Decrees do not apply to any of these aftermarkets. Movie distributors can and do earn significant revenues from these post-theatrical markets, and these markets have become more important.”

The DOJ also argued that some of the business practices that were prohibited in the consent decrees actually may be beneficial, given the changes in the marketplace. For example, a film distributor may set minimum ticket prices in its theatrical licenses, eliminating price competition between theaters showing the same movie at the same time.

“Eliminating that competition would encourage those theatres to invest in better and more innovative consumer services – better seating, sound and projection systems, more amenities, and lower popcorn and soda prices – and more promotional efforts,” the DOJ said in the brief.

The DOJ also said that existing antitrust laws are sufficient to police future anti-competitive practices.

“Unlike the Decrees, the antitrust laws do not dictate or impose a specific distribution model, or require distributors to bid or license their products to every customer or even to the highest bidder,” the DOJ said. “Absent the Decrees, some existing movie theatres or movie distributors may thrive, while others may not.”

The Justice Department’s Antitrust Division first signaled its interest in moving to terminate the decrees last year, when it launched a public comment period. One of Delrahim’s initiatives has been to modify or end so-called “legacy judgments,” or those with no termination date, that dictate certain types of business conduct. Also under review are the DOJ’s consent decrees over music licensing.

A spokesman for the National Association of Theatre Owners had no immediate comment. In its filing last year, it argued that the decrees were “more necessary than ever” because of changes in the industry, particularly the prohibition on block booking.

The DOJ received 82 comments as part of its review, but the studios did not chime in, either through the Motion Picture Association or on their own.

 

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