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Justice Department Wants To Terminate Paramount Consent Decrees

Ted Johnson

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The Justice Department will ask a federal court to eliminate the Paramount consent decrees, the 71-year-old restrictions on major distributors’ control of the exhibition pipeline.

The elimination of the decrees could alter the dynamics of the business, and perhaps lead to further consolidation. But the DOJ, which has been looking to eliminate the decrees since last year, believes that they are from an outdated time, before multiplexes, on-demand movies and streaming.

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“We have determined that the decrees, as they are, no longer serve the public interest, because the horizontal conspiracy – the original violation animating the decrees – has been stopped,” Makan Delrahim, the chief of the antitrust division, said in a speech to the American Bar Association on Monday.

He said that they DOJ would be asking a federal court to terminate the decree, except for a two-year “sunset” period on the ban on block booking and circuit dealing.

A 1948 Supreme Court decision in favor of the government compelled studios to sell their theater chains. The landmark decision led to the crumbling of the studio system, in which the seven major studios of the time held tight control over all aspects of production, distribution and exhibition.

In the wake of the ruling, Paramount, MGM, Warner Bros., 20th Century Fox and RKO to divest their exhibition chains, and the consent decrees restricted certain types of distribution practices. The decrees applied only to those studios and to Columbia Pictures, Universal and United Artists, but not to Disney, which was then not among the majors.

Delrahim argued that the decrees are out of date, and even noted that “much of our movie watching is not in theaters at all.”

“We cannot pretend that the business of film distribution and exhibition remains the same as it was 80 years ago,” he said in his speech. New streaming giants like Netflix and Amazon are not bound by the decrees.

The Antitrust Division opened a review of the decrees last year, sending a signal that it would move to terminate them.

In comments to the Justice Department, the National Association of Theater Owners argued that the decrees were “more necessary than ever” given the changes in the industry. They specifically cited the prohibition on block booking, or the selling of an entire slate of films as a unit.

“If distributors are permitted to block book, they could demand exhibitors book an entire slate on multiple screens, leaving little room for the independent and smaller distributors to finance and distribute films that consumers demand,” NATO told the DOJ. “The risks of ‘overbooking’ a film on a multiplicity of screens are exacerbated with digital distribution, as the historic high costs associated with shipping film prints are set to expire entirely in the next few years, reducing the cost of film distribution to close to zero.”

Among other things, NATO argued that the result could be less room for midrange movies as major studios seek more screens for their tentpole movies.

“Without the ability to guarantee a wide release, or even a tailored platform release, independent studios will not have the screens they require for midrange movie success, to the detriment of consumers,” NATO said last year. They also argued that eliminating the prohibition on block booking would curb experiments in variable pricing.

In a statement on Monday, NATO noted that they “submitted comments to the Department previously and we stand by those comments. We will wait to review any actual motion the Department may file in court before commenting further.”

The Motion Picture Association had no comment.

In his speech, Delrahim said that the sunset period will allow for a “period of transition,” in which studios and exhibitors can adjust their licensing proposals. He also suggested that termination of the decrees does not mean that practices like block booking are legal. He said that the Antitrust Division could still bring scrutiny to distributors’ conduct using the “rule of reason.”

“If credible evidence shows a practice harms consumer welfare, antitrust enforcers remain ready to act,” he said.

Delrahim has been looking to eliminate long-standing antitrust decrees that have no expiration dates. The DOJ is in the midst of reviewing an even older set of decrees that govern music licensing.

While theater owners are wary of the impact of lifting the consent decrees, Delrahim said that “changes over the course of more than half a century” have made it unlikely that the studios “can reinstate their cartel.”

“Evolution in antitrust law has further made blanket prohibitions of certain vertical restraints inappropriate,” he said.

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