Seventy Years Later, It’s Curtains For Paramount Decrees

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Many of us will remember 2020 as the year that the theatrical exhibition business irrevocably changed. Our last blog covered the landmark agreement between Universal Pictures and AMC, the world’s largest theater chain, to reduce the theatrical exhibition window from three months to just over three weeks. Now a New York federal judge has granted a motion by the Department of Justice to terminate the Paramount Consent Decrees—antitrust rules that have governed the relationship of studios and theater owners since 1949.

Background

Following an adverse Supreme Court decision in 1948, the studios consented to divest their theaters, which they then owned. The Consent Decrees also prohibited the studios from certain business practices. These included block booking, under which theaters were required to license a package including less desirable movies in order to get the ones they wanted, and circuit dealing, in which studios demanded a single license to cover all of the theaters in a chain. The ban on both of these will expire after a sunset period.

Rationale

The District Judge, Analisa Torres, agreed with the Justice Department’s arguments that the original rationale for the Decrees had no place in a time of technological change. She noted that “seventy years of technological innovation, new competitors and business models, and shifting consumer demand have fundamentally changed the industry.” Many of the studios that were subject to the original Decrees no longer exist as independent entities, while new entities such as Netflix and Amazon are potential major competitors not subject to the Decrees.

As for continued antitrust concerns, the judge was confident that existing antitrust law would be sufficient to address them. “Antitrust laws, and their faithful enforcement, weigh in favor of the Court’s finding that there is a low likelihood of a potential future violation absent the Decrees.”

Objections

Theater owners were not as sanguine as the court. The National Association of Theater Owners and a spokesperson for independent theaters both issued statements warning of the threat to competition from vertical integration of distribution and exhibition of theatrical features. The Directors Guild of America also weighed in on the subject on behalf of the creative community. The DGA expressed concern that the opportunities for independent cinema in the marketplace, already under threat, would become more imperiled still.

What’s Next?

There may be at least one bright spot for consumers in this ruling. More than one theater chain is presently in or near bankruptcy. A studio buyout could keep local movie houses open, though possibly limited to showing only product in which its owner has an interest.

It’s likely that the changes in the theatrical exhibition model as a result of the termination of the Decrees will take some time to play out, but changes there will certainly be. We can look to the television business for a historical precedent. The Financial Interest and Syndication Rules promulgated by the FCC in 1970 prohibited networks from owning a stake in their programming or in syndication revenues. When those rules were eliminated in 1993, the networks and major studios quickly merged into vertically integrated entities. The result was a radical shift in the television business. Something similar is happening here.

We are not going to see a quite a return to pre-Decrees practices in these days of multiplexes and online streamers, but the elimination of the Decrees combined with the inevitable end of the 90-day theatrical window will shift bargaining power decisively in favor of the major studios. It remains to be seen what they will do with that leverage.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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