MCN Commentary & Analysis

Why You Should Be Afraid Of The End Of The Paramount Decree

If you believe the theatrical film business is in serious trouble, the Trump Administration may have created a key opportunity for the paranoid fears of so many to come true. Assistant Attorney General Makan Delrahim announced in a speech to the American Bar Association’s 2019 Antitrust Fall Forum that Trump’s Justice Department was prepared to clear out the Paramount Consent Decree of 1948.

The primary purpose of the Paramount Decree was to get the major studios out of the exhibition business. Besides divesting themselves of ownership, it also blocked predatory distribution practices.

“Block booking” is the practice of one studio blocking out entire theaters. Back then, that meant that meant one distributor could block a single screen from playing anyone else’s movies against the threat of not getting the major releases from that distributor. If you read a wide swathe of media, you have seen Disney accused of doing this in recent years (although that is factually untrue).

“Circuit dealing” is the practice of booking an entire chain, which, similar to block booking, threatens to allow the power of access to be held without restraint by a handful of distributors and, in this era, less than a handful of dominant exhibition chains.

The argument by Justice is that the Paramount Decree is now outdated and somehow, in its imagination, inhibiting innovation is content distribution.

I would argue that this is true, but not in its entirety. There are elements of the Paramount Decree that, in the modern market, are too inhibiting to studios and distributors. But only to a degree.

The innovation that Justice claims it worries about being inhibited is already happening. In fact, this innovation is exactly the area at which Justice’s anti-trust division should be looking. They should be seriously considering addition limitations on the wild wild west that is the streaming business. The entire industry is shifting to a system that gives more control to the funding organizations and less to the people creating the work, both in theatrical and in post-theatrical (streaming, etc).

But this Trump Justice Department is all about removing any restrictions, no matter how important to the industries involved or the health and happiness of the majority of the American public.

The media, which occasionally raises its head toward these issues, has a tendency to scream about how Disney is bending the rules that the Paramount Decree set into law in 1948. And Disney has been the most aggressive studio regarding exhibition in the recent years, driven by the power of their commercial success.

But there is this small detail… Disney is not a signatory to the Paramount Decree. They had only had six hits by 1948. So they are legally free to do as they wish, not that a studio has had Paramount held seriously over their heads anytime in recent decades. It is the foundation of things work and the biggest battles have been managed privately.

And this bit of reality… the job of the people running all the major studios is to maximize profits, not to make the world of cinema better for everyone. I don’t consider that a sin. It is just a reality.

AMC has been experimenting with upscale screening rooms in their multiplexes, whether Dolby Cinema or IMAX or Prime rooms that feature reclining seats, etcetera. What keeps Disney from pushing out seventeen movies a year—as opposed to their current annual output of between eight and thirteen films —to a chain like AMC and demanding 52-week-a-year control of, say, the Dolby Cinema space in every AMC? Those rooms are pre-booked to near-capacity every weekend, because people love the experience and AMC keeps the newest movies in those rooms.

Disney could be trying to force that issue right now. But the agreement that has been in place since 1948 has won the day so far.

The Trump Administration wants to give the other four major studios the chance to engage in that kind of destructive behavior.

Chain exhibitors developed a system of “accordioning” in multiplexes: on opening weekend, when a big film is coming, that film can end up occupying as much as half of a multiplex’s screens for four days or a week or ten days, etcetera. As there is less demand for tickets, the theater can bring the accordion back in, as needed to maximize the venue’s ticket selling opportunity. Of course, distributors with expected blockbusters have made this a part of their negotiation with chains. Broadly, it works.

Removing the Paramount Decree opens the door for abuses of this system. Whether it’s a Star Wars movie or Jurassic World or Spider-Man or Transformers or Batman, without the Decree, a distributor could demand longer runs, controlling more screens (and thus, a wider range of play times), for longer periods of time.

Who suffers? The exhibitor has more distributor-controlled screens beyond the point where it makes economic sense. Other distributors have less opportunity to either show their film more broadly in a given multiplex, or to be in any screens at all. The movie consumer has less choice when they want to go to their local venue.

“To be clear, terminating the Paramount decrees does not mean that the practices addressed in them are now considered per se lawful under the antitrust laws,” Delrahim counters. “They are not insulated from antitrust scrutiny. Rather, consistent with modern antitrust law, the Division will review the vertical practices initially prohibited by the Paramount decrees using the rule of reason. If credible evidence shows a practice harms consumer welfare, antitrust enforcers remain ready to act.”

But anyone in the film business knows that if you are suing, you are losing. Is any chain or any individual theater that is not under immediate threat of being closed ever going to sue one of the five major distributors over a practice that harms consumer welfare? Of course not. It would be the end of the relationship with that distributor, while the distributor that can best take advantage are the most powerful.

Delrahim also offers, “Changes over the course of more than half a century also have made it unlikely that the remaining defendants can reinstate their cartel.”

This is perhaps the most damning statement in his speech. Changes in the course of the last 70 years have put the studios in a better position to reinstate their cartel more than ever. Aside from Paramount, the other four surviving major theatrical distributors are owned by multinational conglomerates that do not rely on their theatrical business as their primary revenue source. Even Disney’s leading theatrical is dwarfed by other Disney divisions such as ABC, cable operations and theme parks.

Meanwhile, the exhibition business, which splintered in many directions after the Paramount Decree has consolidated dramatically. America has four chains that own almost half the total screens in the country. AMC (8,218 screens), Cinemark (4,566), Regal (7,308), and Marcus (1,098).

There are eight chains of between 300 and 501 screens, ten between 200 and 299 screens, twenty between 100 and 199, twenty-four between 50 and 99, and twenty-nine between 2 and 49.

Twelve exhibitors in total ,with more than 300 screens each, control the vast majority of America’s movie theater screens, including three that are massively dominant.

No anti-trust protections = easy pickings.

The idea that theaters will be dominated exclusively by the mega-movies that lead the worldwide box office has not proven to be true in the marketplace. But killing off, rather than adjusting, the Paramount Decree, is a clear step towards that unpleasant idea.

The five remaining theatrical majors already have enormous power, simply because they dominate content distribution with bigger budgets and higher marketing spends. By giving them more power, the U.S. Justice Department will take protections away that encourage innovation in this unique market and the inclusion of an already struggling independent film market.

In time, this opens the door to a severe narrowing of theatrical cinema as we know it.

“As Henry Ford once famously remarked, ‘if I had asked people what they wanted, they would have said faster horses.’” Delrahim writes. “In this case, antitrust enforcers can see the cars; it thus makes little sense to enforce the law as if we rode horses.”

But Delrahim has it impossibly wrong. The “cars” are not being inhibited by the Paramount Decree. In fact, the Decree has nothing at all to do with the “cars.” Over a billion movie theater tickets were sold to consumers in America last year. Theatrical is not obsolete. And while there are some tweaks to the Paramount Decree that could ease the space for distributor studios a bit, like racism, the need for protections for the exhibition environment is not over because some guy at Trump’s Justice Department decides so.

The theatrical business for movies is robust and strong and there is no reason for it to go anywhere other than up. But even a robust business can be killed, like a moron Trump child shooting a rhino that has been boxed in to make it easy for morons in need of an ego boost.

Why You Should Be Afraid Of The End Of The Paramount DecreeWhy You Should Be Afraid Of The End Of The Paramount DecreeBe afraid.

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