4 ways a new Justice Department repeal may radically reshape moviegoing

With a Friday ruling in favor of the Trump administration, the final nail in the coffin in United States v. Paramount has been placed. After reviewing the request by the Department of Justice, Judge Analisa Torres ruled to end all consent decrees created out of the 1948 Supreme Court ruling that limited the distribution and exhibition practices of film studios. While companies under the consent decree had to apply for exceptions from the Department of Justice and get approval from the federal judiciary, today’s ruling ends such procedure. She ruled according to three key changes: that the market for film distribution had dramatically changed since the 1940s, that companies like MGM (which only makes a handful of films a year) were subject to the Decree while others like Disney were not, and the changing procedures of antitrust law under the Hart-Scott-Rodino Act of 1976 and other focused on “consumer welfare” standards developed by economics in the 1970s would be applicable to any further merging, all making the Decree essentially obsolete already.

What is to say next is unknown, however Torres’ two year limitation before block booking and circuit dealing suggests that studios may find ways to return to those practices, especially given their newfound power over theaters currently with the COVID-19 pandemic. What we do know is that studios will have more consolidation power than ever, and though the main battle will take place on streaming, movie theaters may seem quite different in a few years, if they survive.

Here’s how the situation looked when we first published this analysis in November 2019, after the Justice Department first announced its intentions:

---

Over the course of the last decade, it seems as if every major media company has attempted to disrupt the film industry in some way, from mergers to streaming services to changing rules around film festivals and industry awards. But this week, President Trump’s Justice Department may succeed in shifting the industry much more significantly, by changing legal precedents that have shaped the movie-going experience since World War II.

On Monday, Nov. 20, 2019, Assistant Attorney General Makan Delrahim announced an unexpected policy change for the Justice Department’s antitrust division: a reversal of the Paramount Decree of 1948. This decision comes on the heels of broader public concerns surrounding monopolies, after the merger of AT&T and Time Warner, and of Disney and 21st Century Fox. It also follows the now-constant beating of the drums for the government to break up massive companies like Amazon, Google, and Facebook. Delrahim’s decision on the Paramount Decree reflects part of a larger department policy to review hundreds of legal orders that some refer to as “horse and buggy” policies — ones so old that they no longer actually apply to the businesses they regulate.

Comparing his choice to Martin Scorsese’s famed quote about cinema being what is inside and outside of the frame, Delrahim declared, “Antitrust enforcers, however, were not cast to decide in perpetuity what’s in and what’s out with respect to innovation in an industry.”

The decision, which the DOJ will bring to federal courts for a review, would allow companies in the movie business to not just buy movie theaters, but to use them in unexpected ways that could compound current concerns surrounding competition and market share in the industry. Your theatrical viewing options may already seem dominated by too few companies making the same type of movie. And this could make the problem worse.

The story of the Paramount Decree goes back to the 1930s, when five Hollywood studios (Paramount, Warner Bros, Metro-Goldwyn-Mayer, 20th Century Fox, and RKO Radio Theaters) made and distributed movies, including playing them in theaters they operated themselves. After a decade-long investigation, the Supreme Court declared in United States v. Paramount (1948) that eight companies (the five majors, plus Universal, Columbia, and United Artists) held an unfair monopoly over the motion-picture industry that went against the nation’s antitrust laws.

Following the court’s decision, the DOJ and the companies signed a settlement agreement known as the Paramount Decree. The conditions forced the companies to sell their theaters, banned “block booking” (selling films in a package to force theaters to play less-desirable titles), and limited the role of clearances that privileged certain theaters over others. Though smaller studios such as Disney weren’t part of the decision, they still abided by the laws set forth by the case.

Legal scholars and historians debate whether United States v. Paramount successfully ended the monopoly on the movie industry, but the companies reshaped the business through the 1950s and 1960s by dramatically reducing the number of films they made. Instead, they focused on major blockbusters, which made room for the growth of an independently financed movie market, which allowed competition. Since the Reagan Administration’s loosening of antitrust regulations in the 1980s, that competition has weakened, as mergers between television networks and film production companies once again consolidated power.

The end of the Paramount Decree arrives at a time when streaming is the dominant viewing mode, though changes to theatrical exhibition will affect all modes of viewing. If and when the repeal happens, studios could engage in a number of previously banned practices to increase their market hold again. What does that mean for the moviegoer? Here are four possible scenarios, based on the trends of the past and present.

---

1. Disney may get into the movie-theater business

Given the event-level bonanza for each of Disney’s films, and a near-monopoly on the theatrical model, few people would be surprised if the company finally opened a chain of theaters. The company currently owns the El Capitan Hollywood, which exclusively plays its family-friendly entertainment. (Since you can see any Disney film in most theaters for the same price, this isn’t an antitrust issue.) But there’s a logic to Disney building theaters or purchasing venues in cities across America and turning them into exclusive Disney ventures.

What remains unknown is whether Disney would begin to use this leverage to create a clearance policy where the studio could privilege its own theaters over others of the same caliber. There’s a world where, to see a new Star Wars or Pixar in the first week or two of release, a moviegoer would be forced to visit a Disney-owned theater. The company (and its stockholders) enjoy seeing those saturated box-office weekend numbers, but the theaters could even play titles exclusive to the Disney Plus streaming service. Because the profit-share with a theater venue would be negligible, Disney could feature streaming exclusives such as the final episode of The Mandalorian a week ahead of their release on the home-viewing platform. And Time Warner could do the same for both its films and HBO Max titles.

2. Netflix and Amazon could consume the indie world

As streaming (and the data companies harvest from viewing habits) commands an even tighter hold on audience attention, the role of theater ownership could prove unprofitable. Streaming companies are more likely to return to another tactic banned by the Paramount decision: block booking. During the 1930s, movie companies actually only owned around 17 percent of the theaters (though 70 percent of major metropolitan venues). Whenever they sold movies to independently owned theaters and theater chains, they did so in “blocks.” To play a blockbuster film starring Cary Grant and Bette Davis, theaters might have to buy up a dozen other films of lower star caliber and quality. Through this process, each studio could often produce and release more than 100 titles a year and guarantee their financial success, regardless of whether the movies were any good.

Block booking could empower services like Netflix in the battles it’s already having with theater chains. If independent theaters such as Landmark want to play The Irishman, for example, they might have to agree to play Tall Girl, a cheaper, nichier film, for a week-long run. Or they might need to agree to an entire slate of films. For venues that rarely rely on blockbusters, and that only play most films for about two weeks, block booking practices could easily sap up a large percentage of their annual screen time. These practices could easily let distributors rely less on the box-office profits of any individual film, not to mention turn certain indie and arthouse theaters into exclusive shops for Netflix, Amazon, and likely Apple.

3. We could see less choice and fewer voices

When sizing up the major studios in the 1930s, the DOJ investigated one important question: was there fair competition in the industry? Because small independent films had almost no access to the theatrical market, and all theaters had no choice but to bow to the majors and whatever prices they set, the government decided this had little benefit for the consumer.

The end of the Paramount Decision could have a cultural effect on choice, as theaters may be forced to further limit their options. For example, A24’s success through crossover hits between arthouse theaters and the major exhibition chains will become less likely. A24 might be able to continue to get films like Moonlight, Midsommar, or Lady Bird into arthouse theaters, but would find it difficult to get space in the multiplex that was once amenable to booking smaller films next to a Disney or Paramount blockbuster.

A24 will survive, but the market changes will make it more difficult for new companies to find similar space in the theatrical market. It will be more and more likely that new indies can only make it into theaters through established companies, if not the giants of Netflix and Amazon. Currently, a lot of these artists are turning to streaming services to reach audiences, but if streaming companies start taking over theaters as well, indies will find they’re dealing with the same gatekeepers on all platforms. While the growing success of many arthouse theaters has in many ways depended on prioritizing community involvement and creative programming, their options may become limited. Depending on larger companies to help discover new talent seems anathemic to the successes of films like Parasite (Neon), Tangerine (Magnolia), or Brawl in Cell Block 99 (Cinestate).

4. Creatives could take action against the studios

With the true disruption of streaming services, more and more companies in Hollywood are reconsidering how individual writers, directors, and stars are paid for their work. In the 1950s, as television disrupted the industry, guilds fought hard to create a new bargaining agreement in which creatives were paid less up front, but more in profit participation, i.e. in box-office returns and future deals. With companies like Netflix and Disney acting skittish about sharing their streaming viewership numbers (and the data necessary to broker profit participation deals), these companies are returning to an up-front payment system, and other companies are likely to follow.

The friction will spark: the Writers Guild of America’s contract with the studios expires in May 2020, and the Screen Actors Guild and Directors Guild of America ends only a month later. A reversal of the Paramount Decrees would only pile on to existing, tumultuous industry changes; right now, the WGA is also litigating an antitrust lawsuit brought by the talent agencies. Because studios can decide on a whim whether films will play in theaters or on streaming platforms without impacting profit sharing, labor concerns over fair employment practices and compensation could result in a multi-guild strike throughout Hollywood.

These strikes could rattle the industry in an unprecedented way that would dwarf the 2006 WGA Strike, which stalled or cancelled numerous productions. Any hiatus of production in the industry could dramatically affect the number of films and streaming shows available in the years to come. Moreover, these strikes could become a political football in the 2020 presidential election, given how they relate to corporate power and unions, issues that have become major talking points in the current Democratic Primary. And not to be outdone, President Trump’s constant lambasting of Hollywood and his insistence in being part of the conversation would likely play a role.

---

These possibilities are, of course, speculative. It’s certainly possible the courts will hold the Decree in place, or selectively continue the ban on aspects like block booking. Or, as industry insiders suggest, the focus on streaming might keep companies’ hands tied. Or they might prefer not to make large investments in theaters, if they see them as an outdated mode of viewing. But if the history of not just the movie industry, but American corporations in general, has taught us anything, it’s that there’s no reason for these large corporations to shy away from exploiting any hint of new freedoms to profit and shut other companies out of the market. The ethos will always be: “If we don’t take advantage, someone else will.”

---

Peter Labuza is a film historian and PhD Candidate in Cinema and Media Studies at the University of Southern California currently writing a monograph on the history of the entertainment law firms in Hollywood. He also hosts The Cinephiliacs podcast.