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Federal Judge Gives Greenlight To Termination Of Paramount Consent Decrees

Ted Johnson
·5-min read

A federal judge has given the green light to Justice Department to terminate the 71-year-old consent decrees that have restricted major studio control over the exhibition process.

The lifting of the decrees will clear the way for studios to once again take significant ownership of theater chains, now in dire straits because of the pandemic. But more importantly for the industry, the elimination of the decrees means that studios and exhibitors will be allowed to engage in a host of business practices that have been prohibited since the late 1940s.

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“Because changes in antitrust law and administration have diminished the importance of the Decrees’ restrictions, while still providing protections that will keep the probability of future violations low, the Court finds that termination of the Decrees is in the public interest,” wrote U.S. District Judge Analisa Torres in a ruling issued on Friday. Read it here.

Under the plan to terminate the decrees, restrictions on block booking and circuit dealing will remain in place over a two-year sunset period. Block booking is the practice in which theaters have to take a package of movies in one license. Circuit dealing is the practice of demanding a single license that covers all theaters in a circuit.

The judge agreed with the Justice Department’s opinion that the decrees, which had a major role in forcing the end of the studio system in Hollywood’s golden age, were outdated in a time of technological change. Torres wrote that “seventy years of technological innovation, new competitors and business models, and shifting consumer demand have fundamentally changed the industry.”

She also noted that some of the studios who are bound by the decrees — RKO, MGM, Warner Bros., Paramount and Fox — no longer exist. Others, like The Walt Disney Co., didn’t have their own distribution operations in place at the time yet are now major players.

“None of the internet streaming companies—Netflix, Amazon, Apple and others—that produce and distribute movies are subject to the Decrees,” she wrote. “Thus, the remaining Defendants are subject to legal constraints that do not apply to their competitors.” She wrote that distributors who were not subject to the decrees have “shown no propensity to acquire major movie theater circuits or engage in the type of collusive practices the Decrees targeted.”

She also accepted the Justice Department’s argument that existing antitrust law will be effective deterrence against anticompetitive practices.

“Antitrust laws, and their faithful enforcement, weigh in favor of the Court’s finding that there is a low likelihood of a potential future violation absent the Decrees,” she wrote. In another example, Torres noted that merger laws have changed since the decrees were put in place. A 1976 statute requires parties to larger transactions to notify federal antitrust agencies so they can conduct a review before a deal closes.

The National Association of Theater Owners warned of ending the decrees and the impact it would have on consolidation of the exhibition business, while independent theaters argued that “nothing in existing antitrust law comes close to the elegance and power of the ‘theater-by-theater on the merits’ mandate that forms the heart of the Paramount Consent Decrees. Tens of thousands of Americans have enjoyed big-screen entertainment solely because of that mandate.”

The Directors Guild of America also opposed the DOJ’s move, arguing that the changes in the business required greater antitrust oversight.

A spokesperson for NATO said in a statement, “The Paramount Decrees were a remedy fashioned for extreme, anticompetitive behavior in the movie industry. We agree with the Court that anticompetitive behavior remains anticompetitive under existing antitrust law. This decision simply shifts the mechanism for enforcement into regular, existing channels.”

Makan Delrahim, the chief of the DOJ’s Antitrust Division, said in a statement, “As the Court points out, Gone with the Wind, The Wizard of Oz, and It’s a Wonderful Life were the blockbusters when these Decrees were litigated; the movie industry and how Americans enjoy their movies have changed leaps and bounds in these intervening years. Without these restraints on the market, American ingenuity is again free to experiment with different business models that can benefit consumers.”

The decrees were the end result of more than a decade of litigation after the Justice Department in 1938 first filed suit to challenge a studio monopoly on distribution and exhibition. A Supreme Court decision in favor of the government in 1948 led to the series of consent decrees, starting with Paramount in 1949. In addition to forcing studios to divest their theater chains, the decrees restricted a host of business practices. They included not just block booking and circuit dealing but setting minimum prices on theater tickets and granting exclusive film licenses over specific geographic areas.

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