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DOJ Will Review 70-Year-Old Consent Decrees That Regulate How Studios, Exhibitors Do Business

WASHINGTON — The Justice Department said it will review consent decrees which for almost 70 years have regulated how major movie studios distribute films to exhibitors.

If the review leads to significant changes to the consent decree, it could alter the dynamics of the business and perhaps lead to consolidation. It will examine whether the longtime prohibition on studio distributors owning movie theaters is still necessary to protect competition.

The DOJ’s Antitrust Division is opening up a 30-day review period for public comment, with a deadline of Sept. 4.

A landmark 1948 Supreme Court decision in favor of the government forced major studios to sell their theater chains, a decision that has had a huge influence on the legal interpretation of antitrust concerns when it comes to vertical media mergers. It led to the demise of the so-called studio system, in which the seven major studios of the time held tight control over all aspects of production, distribution, and exhibition.

Since that ruling, consent decrees, known as the Paramount decrees, have governed the way that studios do business with exhibitors. They include restrictions on “block booking,” or bundling multiple movies into one theater license. The decrees also set limits on other practices, such as circuit dealing and setting minimum pricing, and the practice of giving exclusive film licenses for certain geographic areas.

The DOJ said the review will determine “whether they still serve the American public and are still effective in protecting competition in the motion picture industry.”

The review is part of the Justice Department’s Antitrust Division initiative to terminate long-standing antitrust judgment, including many that have no termination date.

“The Paramount Decrees have been on the books with no sunset provisions since 1949. Much has changed in the motion picture industry since that time,” Makan Delrahim, the DOJ’s antitrust chief, 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 DOJ said a review is needed given the huge changes in the business since the 1930s and ’40s, when consumers still went to single-screen neighborhood theaters and movie palaces. By the 1970s, single-screen cinemas gave way to multiplexes. The past few years have seen increasing experimentation with day-and-date releases of movies in theaters and on streaming platforms.

Spokesmen for the MPAA and the National Association of Theater Owners had no immediate comment.

Schuyler (Sky) Moore, partner at Greenberg Glusker in Los Angeles, said removing the consent decrees would be significant for major studios, as “they have been hanging over everyone’s head for a long time” and have created a sense of uncertainty of whether they apply to certain types of distribution and exhibition.

He said they are anachronistic, particularly as Netflix and Amazon disrupt traditional models, and studios look to more direct-to-consumer streaming options. The Walt Disney Co., for instance, is creating its own streaming service.

“What it does is say to them, ‘Vertical integration is not a problem.’ Studios can now own direct-to-consumer [platforms] without fear of antitrust attacks,” Moore said.

A common misperception is that the decrees apply to all distributors. In fact, they cover only the studios who were defendants in the 1948 case: Paramount, MGM, Universal, Columbia Pictures (Sony), 20th Century Fox, United Artists and Warner Bros.

As part of the review, the Justice Department set up a series of questions, including:

Do the Paramount Decrees continue to serve important competitive purposes today?  Why or why not?

Individually, or collectively, are the decree provisions relating to (1) movie distributors owning movie theaters; (2) block booking; (3) circuit dealing; (4) resale price maintenance; and (5) overbroad clearances necessary to protect competition? Are any of these provisions ineffective in protecting competition or inefficient? Do any of these provisions inhibit competition or cause anticompetitive effects?

What, if any, modifications to the Paramount Decrees would enhance competition and efficiency? What legal justifications would support such modifications, if any?

What effect, if any, would the termination of the Paramount Decrees have on the distribution and exhibition of motion pictures?

Have changes to the motion picture industry since the 1940s, including but not limited to, digital production and distribution, multiplex theaters, new distribution and movie viewing platforms render any of the Consent Decree provisions unnecessary?

Are existing antitrust laws, including, the precedent of United States vs. Paramount, and its progeny, sufficient or insufficient to protect competition in the motion picture industry?

(Pictured: Makan Delrahim)

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