Recent Antitrust Changes To Motion Picture Industry

This week, a United States District Court approved the Department of Justice’s move to terminate the consent decrees (known as the Paramount Decrees) entered into by the government and major movie production and distribution companies nearly 70 years ago.

In 1938, the Department of Justice brought an antitrust action against several companies involved in the production and distribution of motion pictures—including Paramount, after which the decrees are named—alleging that their conduct of led to monopoly power in the distribution market for first-run motion pictures and conspiracies to fix licensing practices, including admission prices, run categories, and “clearances” for substantially all theaters located in the United States.

The consent decrees aimed at preventing film producers and distributors from using their positions to engage in anticompetitive conduct such as granting exclusive licenses based on geography or by tying multiple films into one theatrical license.  The DOJ announced their decision terminate the ParamountDecrees in November 2019.

Despite the fact that the DOJ prevailed, it was not without a fight.  The Independent Cinema Alliance (“ICA”) and the National Association of Theater Owners (“NATO”) opposed the DOJ’s efforts to eliminate the Paramount Decrees.   Among the issues they had with eliminating the consent decree, they argued why restrictions on “block booking” and “circuit dealing” should not be lifted.

Block booking refers to the practice of tying films into one theatrical license, ensuring that a distributor gets multiple movies of its own shown at a theater.  This mattered more when cinemas had only one-screen, and the practice could effectively block other distributors from having the opportunity to distribute their movies to a particular cinema.

Circuit dealing refers to a distributor’s practice of licensing films to movie theaters under common ownership all at once, rather than licensing on a theater-by-theater basis.

According to the government, the industry has undergone substantial transformation in the intervening 70 years to warrant termination of the Paramount Decrees.   Among the changes:

• Today’s films are mostly released in single theater runs; second and third run theaters do not have any appreciable presence in today’s market;
• Television broadcasts, streaming services, and DVDs have all made film distributors less reliant on theater distribution;
• Some of the largest players in the distribution space are not parties to the original consent decrees;
• Changes in antitrust law will protect the type of anticompetitive harm the DOJ initially sought to avoid; for example, the HSR Act requires parties in significant mergers to notify and permit the federal government to investigate any proposed merger.

Based on comments received from the public, the DOJ plans to add a sunset period of two years to the Paramount decrees’ block booking and circuit dealing provisions so that they may stay in place for a short period while the rest of the consent decrees are eliminated.