Justice Department to End 1940s Antitrust Rules Governing Film Distribution

“With new streaming businesses and new business models, it is our hope that the termination of the Paramount Decrees clears the way for consumer-friendly innovation,” DOJ’s Makan Delrahim says Monday

Getty Images

The Department of Justice is moving to end what’s commonly known in Hollywood as the Paramount Consent Decrees, antitrust rules from the 1940s that changed Old Hollywood and disrupted what was then known as the studio system.

The Department of Justice’s Makan Delrahim, who leads the department’s antitrust division, announced in a conference at the American Bar Association on Monday that it would plan to end the decrees, along with a two-year sunset period for the practices known as “block booking” and “circuit dealing.”

“With new streaming businesses and new business models, it is our hope that the termination of the Paramount decrees clears the way for consumer-friendly innovation,” Delrahim said.

In his statements, Delrahim argued that the decrees have outlived their usefulness as the film industry has changed considerably.

Block booking is the practice of bundling multiple films into a single license for a theater to purchase. To get a big, blockbuster A-picture, theaters would also have to agree to exhibit smaller films from the same studio. Further, circuit dealing was the practice of entering into a single license that would cover all theaters within a specific region and give certain geographic areas exclusive rights over a film or films. Studios finally could no longer set minimum ticket prices for movie tickets.

In August 2018, the Department of Justice unexpectedly indicated that it was considering revising or ending the Paramount decrees established in the United States v. Paramount Pictures case. At that time the DOJ opened a public comment period in which organizations such as the National Association of Theater Owners, the Writers Guild of America and more filed statements explaining why they felt the decrees still held value in the modern film industry.

“NATO submitted comments to the Department previously and we stand by those comments. We will wait to review any actual motion the Department may file in court before commenting further,” NATO said in a statement to TheWrap in response to Delrahim’s speech. “If exhibitors were forced to book out the vast majority of their screens on major studio films for most of the year, this would leave little to no room for important films from smaller studios,” NATO argued in its public comments.

Delrahim cited the impact of streaming technology and MoviePass as reasons as to how the movie industry has dramatically changed since the 1940s and that the “horizontal conspiracy” that originally prompted the decrees has been stopped, with no studio owning a significant number of theaters or a theater chain.

“These changes illustrate that markets can evolve, and no one can predict with certainty from where and in what form innovation will appear,” Delrahim said. “Once innovation has occurred, however, it would be a mistake for antitrust enforcers to limit the potential for consumer-enhancing innovation. We cannot pretend that the business of film distribution and exhibition remains the same as it was 80 years ago.”

The Department of Justice will next act to petition the Southern District of New York where the decrees reside to vacate the decrees. But it will also recommend a sunset period for the practices of block booking and circuit dealing as a ways of allowing theaters and studios to adjust to the changes. It further clarified that lifting the decrees does not mean that such practices would suddenly be legal or insulated from antitrust scrutiny.

“This is a more appropriate role for the Antitrust Division. As filmmaker Martin Scorsese says, ‘Cinema is a matter of what’s in the frame and what’s out.’ Antitrust enforcers, however, were not cast to decide in perpetuity what’s in and what’s out with respect to innovation in an industry. Our role is instead to weigh evidence-based arguments to enforce the antitrust laws – not to act as directors in the marketplace,” Delrahim said.

Read Delrahim’s full speech here.