U.S. Eyes the End of the Film Distribution System That Rules Hollywood

(Bloomberg) -- U.S. antitrust officials are considering terminating a 70-year-old Hollywood settlement that governs how films are distributed around the country, potentially upending negotiations among movie studios and major theater chains over blockbuster releases.

The Justice Department said Thursday that the agreements, known as the Paramount Pictures consent decrees, may no longer be effective given that they have been around since the late 1940s. The settlements stem from a 1948 Supreme Court case that dismantled the old Hollywood system in which film studios also owned the theaters where their pictures were shown.

“The Paramount decrees have been on the books with no sunset provisions since 1949,” Makan Delrahim, the head of the department antitrust division, said in a statement. “It is high time that these and other legacy judgments are examined to determine whether they still serve to protect competition."

The move is part of a broader effort by the Justice Department to review more than 1,000 legacy antitrust settlements to determine whether they have become outdated. The government has said that the vast majority no longer protect competition in the various markets where they apply.

Delrahim had signaled his displeasure about the Paramount settlement at a public forum in April, saying it probably prevented smaller films from getting wider distribution.

Among the key provisions of the consent decrees is a prohibition on selling films in packages, a practice that allowed the studios to force less desirable films on theaters by linking them to more popular releases. The restrictions also prohibit the setting of minimum prices on movie tickets and granting exclusive film licenses for specific geographic areas.

The Paramount decrees were created in a world before television or home entertainment, when theaters were a more significant part of America’s entertainment landscape. The 1948 Supreme Court decision effectively crushed the Hollywood movie system as it operated at the time, when major studios controlled production and distribution from start to the end. They had exclusive contracts with actors and directors and owned theaters which showed only their movies.

Today, Viacom Inc. owns Paramount, which has struggled to compete for moviegoers’ attention in recent years against studios like Walt Disney Co. The box office is dominated by expensive movies based on franchise properties like comic books. Studios are making fewer movies, with each one a bigger bet.

The box office has also become more concentrated with Disney grabbing a market share of 35 percent so far this year. The concentration would increase if Disney completes its planned $71.3 billion acquisition of 21st Century Fox Inc.’s entertainment assets. Paramount’s market share in the year to date is just under 6 percent, according to Box Office Mojo.

Major studios have moved away from releasing smaller independent films in theaters, unless they believe they have the chance to win an Oscar, which requires a small release in theaters to qualify. Instead these films have been bought by the new crop of digital distributors, such as Netflix Inc. and Amazon.com Inc.

Studios and theaters split ticket revenue, and in the case of big movies, some studios, such as Disney, can secure as much as 60 percent of ticket sales. The theater industry has come under pressure in the past year from new subscription services like MoviePass, which have offered unlimited theater access for less than $10 a month. The average U.S. ticket price is just over $9. That has forced big chain like AMC Entertainment Holdings Inc. to offer discounts to moviegoers.

The consent decrees were years in the making, starting with a Federal Trade Commission investigation in 1921 to end what it saw as monopolization of theaters. The FTC sued the forerunner to Paramount Pictures, the Famous Players-Lasky Corp., along with nine other studios. The fight was delayed by the Great Depression, when the movie business was struggling.

Independent film producers like Charlie Chaplin, Mary Pickford and Orson Welles fought alongside the government to free up the market further and renew the case, which ultimately led to the 1948 ruling.

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