(Bloomberg) -- The largest publicly traded cinema chains rose Tuesday after the U.S. Justice Department said it will ask a court to terminate a 70-year-old antitrust settlement that barred Hollywood studios from owning theaters or trying to force movie houses to play films they didn’t want.
The agreements, known as the Paramount Pictures consent decrees, no longer serve the public interest, Makan Delrahim, the head of the department’s antitrust division, said in a speech in Washington Monday.
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. Delrahim said new entertainment services like Netflix have made the old rules irrelevant.
“As the movie industry goes through more changes, with technological innovation, with new streaming businesses and new business models, it is our hope that the termination of the Paramount decrees clears the way for consumer-friendly innovation,” Delrahim said.
Shares of theater chains bounced back from intraday declines Monday following the remarks, and the gains persisted into Tuesday. AMC Entertainment Holdings Inc., the largest exhibitor, rose as much as 6.9% to $9.05 in New York trading. Cinemark Holdings Inc. gained as much as 1.5% and Imax Corp. was up as much as 4.7%.
The move suggests some investors think the Justice Department’s action makes a takeover of a chain more likely.
But theater operators have already gone through a consolidation on their own amid stagnant box-office sales. And major studios are now focused on the fast-growing streaming business by offering their own services to keep up with changing entertainment habits.
“I don’t know if it makes sense for a major studio to buy a top chain,” said Amine Bensaid, an analyst at Bloomberg Intelligence. “Yes, it would help with margins (as they don’t have to share about half of sales with theaters), but as the world continues to shift towards streaming, top studios are probably already thinking about moving some of their smaller productions directly to streaming.”
The Paramount decrees were created in a world before TV was widespread, when theaters were a more significant part of America’s entertainment landscape.
The 1948 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, chains including AMC, Cinemark and Regal are the biggest theater operators.
The move is part of a broader effort by the Justice Department to review antitrust settlements to determine whether they have become outdated. The government has said the vast majority no longer protect competition in the various markets where they apply.
Among the key provisions of the Paramount consent decrees is a prohibition on selling films in groups, a practice that allowed 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.
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