Rush To Judgement: The Dismantling Of The Paramount Decree

The foundation on which the modern motion picture exhibition industry appears to have a deep shift. The Department of Justice recently opened a review of the Paramount Consent Decrees that for over seventy years have regulated how certain movie studios distribute films to movie theaters.

When the Supreme Court reviewed anti-
competitive activity in the entertainment industry in the late 1930s, the major studios controlled almost all aspect of movie making. The court exhibited great alarm at how the majors were keeping independents out of the business. The justices reviewed practices such as “block-booking” (bundling multiple films into one theater license) and over reaching “clearances” (exclusive film licenses for specific geographic areas) and came down hard on such practices in a decision that would ultimately lead to the settlement known as the Paramount Consent Decrees.

In 1938, the Department of Justice filed an antitrust lawsuit alleging that eight major motion picture companies had conspired to control the motion picture industry through their ownership of film distribution and exhibition. The eight original defendants were Paramount Pictures, Inc., Twentieth Century-Fox Corporation, Loew’s Incorporated (now Metro-Goldwyn-Mayer (“MGM”)), Radio-Keith-Orpheum (dissolved in 1959), Warner Brothers Pictures, Columbia Pictures Corporation, Universal Corporation, and United Artists Corporation. After a trial, the district court found that the defendants had engaged in a wide-spread conspiracy to illegally fix motion picture prices and monopolize both the film distribution and movie theater markets. On appeal, the Supreme Court sustained those findings.

In 1948 the Paramount Decree was placed into law. The studios were forced to divest themselves from most of their physical theaters, and refrain from price fixing and practices of monopolization.

Now, the Department of Justice under the current administration is undertaking a legal review of the Paramount Decree. This decree by the Department of Justice, was a very clear moment in this country’s financial history in which the Department of Justice came to the the right conclusion that that vertical integration of this business threatened both artists and consumers, completely within the scope of the Sherman Act. The Sherman Act is an act passed in 1890 which law which protects trade and commerce against unlawful restraints and monopolies It’s unbelievable and unfathomable to think that the Department of Justice is considering getting rid of it when the evidence the Department of Justice puts forward for its irrelevance is actually clear evidence of its success.

In August of this year, the Department of Justice issued this statement “The Paramount Decrees have been on the books with no sunset provisions since 1949. Much has changed in the motion picture industry since that time,” said Makan Delrahim, Assistant Attorney General for the Justice Department’s Antitrust Division. “It is high time that these and other legacy judgments are examined to determine whether they still serve to protect competition. Today, we take an important step forward in the process of reviewing the Paramount Decrees.”

The Paramount Decree does not stand alone as a piece of anti-trust law that are under review. The Department of Justice is in the middle of an almost fanatical effort to review nearly 1,300 judgments, some of which date back about a century, which deal with anti-trust. The Department of Justice claims they are considering changes in industry conditions, changes in economics, and changes in law to determine whether these decrees are necessary to protect competition and consumers. They are claiming that some of them are harmful to competition. The Department of Justice has walked into Federal District Court in the the District of Columbia and has had 19 of these laws struck down and reversed.

Law that is shaped and similar to the Paramount Decree , based on a 1926 judgment that dealt with the anti-trust action, U.S. v. American Amusement Ticket Manufacturers Association. This judgment alleged that a trade association was used by the ticketing industry to allocate markets, fix prices, and exchange industry information. The 1926 judgment prohibited the defendants from continuing such behavior. The original judgment and the modification did not include termination dates. In August of this year the D.C. District Court granted the motion to terminate this ruling and 18 others. Kind of sounds like the MPAA.

Based on Mr.Delrahim comments when announcing the Paramount Decree review and his focus on the lack of a sunset provision in the Decree, I feel that the die has been cast within the Department of Justice and that the Paramount Decree, unless an intense intervention occurs, will see itself brought forth to the D.C. District of Columbia and find itself no longer law.

I personally have little concern if the Studios and their parent companies take over the major exhibition chains. I believe that the media conglomerates are so big, brittle, and unwieldy that theater ownership might make them more empathetic to the needs and the challenges of the theater operator. What does concern me is the moves I see by the studios to re-invoke clearances , block booking and re-sale price controls. I believe strongly that all these measure will be re-introduced. We see Mowgli being restricted to IMAX theaters, We see the machinations of the major chains to look at windows for exhibition solely within their circuit and we see the Studios anxiously looking to fix admittance pricing.

All this week I have been receiving copies of filing submitted to the DOJ on behalf of theater owners and industry players. They have all evoked a deep passion for the tradition and importance of this business of motion picture exhibition. A former theater owner in Chicago shared stories of time and time again when he had to go to the courts to resolve issues with the studios or large exhibitors in regards to competitive issues. In all situations the Paramount Decree was utilized as a basis and precedent of have a judgment land in his favor.

The most indepth and thorough filing was put forward by the Independent Cinema Alliance and their tenacious counsel Kendrick Macdowell. It was thoughtful, thorough, and well laid out. What is interesting in the brief put forward by the ICA, which as a whole is a solid impact statement, is the areas of law and business practice in which the independent theaters are most vulnerable.

Woven into the filing by the ICA is evidence that community as well as diverse content and awareness of distinct market is the key for maintaining and growing the independent theater business. I strongly suggest everyone reads the filing.

In this matter, I think the Justice Department has already prepared its briefing to the District Court, they know the nature of our law is precedent and the current administration has no intent in making sure the base tenets of free enterprise are to be maintained. I think the media behemoths do not want a level playing field, they want to own the field. Lately big media have being tripping and falling on their own swords. I would think that large media would welcome a base of rules and discipline to regulate business, but they do not.

The removal of the Paramount Decree will in the short term be deeply regrettable as well as short sighted. Often in nature the bigger something becomes it also increases the amount of risk to itself. When the Paramount Decree is removed, the major exhibitors are going to find themselves increasingly in peril…..but I strongly suspect that the independent will be changed and that re-definition might be the salvation of movie going. Interesting times.