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Why Eliminating the Paramount Antitrust Decrees Won’t Shake Up the Movie Business

The Paramount Decrees have been the rules of the road for Hollywood since the golden age of movies, but the Justice Department’s decision to do away with directives that were hammered out decades before the rise of cable or streaming has barely registered within the entertainment industry.

That’s because they are widely seen as anachronisms — an attempt by the federal government to break up the stranglehold that studios once maintained on the business by preventing them from owning both the means of production and distribution. Under the regulations, a group of movie companies, which includes the aforementioned Paramount, as well as Universal, Warner Bros., Twentieth Century Fox, Sony and United Artists were barred from owning major theater circuits. But some of these companies, such as Sony, Paramount, and Warner Bros. still managed to make tentative steps into the exhibition space over the years, owning stakes in theater chains, obtaining waivers with minimal blowback.

“It was the letter of the law, but the spirit was not there in terms of enforcement,” says Hal Vogel, head of Vogel Capital Management. “Everyone recognized that the rules were outdated and didn’t apply to the new economy.”

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For one thing, the rules failed to include one key player, the Walt Disney Company, which was not part of the restrictions because they were not a target of the original lawsuit that brought these regulations into effect. Moreover, the entertainment landscape has changed so dramatically since the consent decrees were enacted that the companies being governed by the restrictions have changed almost beyond recognition. They are no longer family-dominated movie studios, but rather sprawling conglomerates, with interests in everything from video games to theme parks. Many of the parent companies, such as Comcast, the cable giant which owns Universal, already have a direct distribution relationship with customers. Others such as Disney or Warner Bros. are forging new and more inextricable bonds with consumers through the launch of streaming platforms such as Disney Plus or HBO Max.

“The climate is such that entities have consolidated to the point where content and technology are one and the same,” said Elsa Ramo, an attorney at Ramo Law. “I don’t think this is going to impact how content is distributed through various channels. Substantively, nothing is really going to change.”

Theatrical exhibition isn’t seen as a growth business. Attendance domestically has been essentially flat since the early aughts and the longterm future of the industry is in question given the rising popularity of Netflix and other forms of digital video.

“No studio wants to own a theater right now,” said Eric Handler, an analyst with MKM Partners. “They’re all focused on launching their SVOD and direct-to-consumer services.”

The Paramount decrees also forbade anti-competitive practices in the theater business, including “block booking” and circuit dealing. On Monday, Makan Delrahim, the head of the Justice Department’s antitrust division, announced to the American Bar Association that the bans on those practices be phased out over a two-year period. In a release outlining the results of its review, the department acknowledged that the rules put in place 70 years ago failed to anticipate the tectonic shifts in how people watch content.

“The first-run movie palaces of the 1930s and ’40s that had one screen and showed one movie at a time, today have been replaced by multiplex theaters that have multiple screens showing movies from many different distributors at the same time,” the department said. “Finally, consumers today are no longer limited to watching motion pictures in theaters. New technology has created many different distribution and viewing platforms that did not exist when the decrees were entered into.”

Insiders say that the move came as part of a larger deregulatory push by the Trump administration and was not initiated at the urging of movie studios or theater owners, though both were consulted. In the exhibition community, theater owners were clear that they wanted the ban on block booking to stay in place. If done away, that would enable studios to force theater owners to book all of their films in a group, allowing them to leverage access to their major franchises to ensure that exhibitors are forced to show films with more dubious commercial prospects. That’s not as big a deal for major chains such as AMC or Regal, which control multiplexes with multiple screens, but it would be a blow to smaller, independently owned theaters, which may only have a single screen or only a handful of screens.

Some investors may be anticipating that the elimination of the decrees could spur merger and acquisitions activity. Exhibition companies such as IMAX and AMC saw their share prices climb briefly in the wake of the news, and analysts allowed for the possibility that deals could follow the Justice Department’s decision.

“Although we would not anticipate that acquiring a theater circuit would be on the top of the strategy road maps for the major film studios — especially with the increasing focus on the growth opportunities and recurring revenue potential of streaming subscriptions — we cannot completely rule out the possibility of this driving additional industry consolidation,” Eric Wold, an analyst at B. Riley and Company, wrote in a note to investors.

But most industry observers were skeptical that things would change. They note that companies such as Disney and Comcast have recently made splashy acquisitions, acquiring the likes of 21st Century Fox and Sky, and leaving them with heavily leveraged balance sheets. At the same time, these companies are spending a great deal of money to launch streaming platforms while simultaneously getting out of licensing agreements with cable channels and other streamers so that they can offer their content on Disney Plus, HBO Max, or their other in-house digital offerings.

“Studios have less cash flowing in and more going out,” said Vogel. “Their capital is more tied up.”

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