There could be a financial benefit if the studios did not need to share box office revenues with theater chains
Plans to put an end to antitrust regulations that for decades have prevented major Hollywood studios from taking control of theatrical distribution may do little to change the ownership of movie theaters, but it could very well usher in an even bigger shift in the exhibition power dynamics.
U.S. Assistant Attorney General Makan Delrahim on Monday addressed the Department of Justice’s intention to end the more than 70-year-old restrictions, known as the Paramount consent decrees, during a conference at the American Bar Association in Washington, D.C. Under the longstanding regulations, Paramount and the other major studios at the time — MGM, Warner Bros., 20th Century Fox, RKO, Columbia Pictures, Universal and United Artists — were blocked from owning major theater chains and from other practices deemed anti-competitive.
Most experts downplayed the idea that studios would rush to acquire movie theaters if the decrees are rescinded in the coming weeks, as expected. “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,” B. Riley movie exhibition analyst Eric Wold wrote in a note to investors.
Wold said he wouldn’t completely rule out the possibility, however, since there could be an immediate financial benefit from the studios not needing to share box office revenues with the acquired theater chains, along with more control over the release windows for smaller-budget films. After a recent active wave of consolidation among studios and entertainment companies, there’s less cash to go around. And the nation’s biggest cinema chains — AMC and Regal — have already been bought out with foreign money. Wold suggested Imax could be an attractive target.
But preventing studios from outright owning movie theaters was only one part of the decrees. And some industry watchers fear that ending the regulations could give bigger studios like Disney — which with its acquisition of Fox sold more than 40% of all domestic tickets for the first eight months of this year — even more bargaining power over theaters than they already have.
The decrees, issued after the Justice Department’s antitrust division filed a 1938 lawsuit against the major studios, also outlawed the setting minimum prices for movie tickets; bundling multiple films into a single theater license (“block booking”); entering into a single license to cover all theaters in a circuit (“circuit dealing”); and granting unreasonable clearances, or exclusive rights to movies for specific geographic areas.
All of those practices would then be back in full effect after following a two-year sunset period.
Delrahim said that the advent of streaming and new technologies, as well as competitive theatrical pressures from companies like the now-defunct MoviePass, have made the Paramount decrees less important. “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,” he said.
However, some argue the Justice Department’s argument ignores why the restrictions were put in place to begin with. Derek Long, a media and cinema studies professor at the University of Illinois at Urbana-Champaign, argued on Twitter that the Justice Department is simply “throwing dust in statements” when Delrahim talked of how movie watching has changed.
Block booking — the practice of studios bundling multiple films together as a package to license to theaters — is one of the more contentious decrees. The practice would allow, for example, for a major studio to tell a theater that it has to book an entire slate of films, including potential box office duds, in order to secure rights to a blockbuster.
“By doing things this way, the studios could 1) more easily justify block booking as wholesaling 2) price individual films to their greatest advantage within the block 3) collectively gobble up exhibitors’ playing time 4) crowd out product from independent distributors,” Long wrote in a Twitter thread.
“Block booking was never really about ‘theaters,’ at least in its fundamental purpose,” he continued. “It was always about enabling a small group of firms to control the packaging, pricing, and temporal windows of film distribution for maximum profitability and minimum risk.”
Long went further, saying that using streaming as a form of distribution is virtually the ultimate form of block booking. Studios rushing to join the streaming wars are essentially giving consumers a lot of content they might deem less interesting, but selling it on the backs of premier shows, films and franchises.
“Even with the decree in place, the media distribution practices and antitrust policies of the past forty years have helped to create a market where 40% of domestic theatrical box office is going to a single distributor (and 90% of the same to just five companies — sounds familiar!),” Long wrote.
The National Association of Theater Owners, which had argued against relaxing the decrees, said this week it “will wait to review any actual motion the department may file in court before commenting further.” The Motion Pictures Association of America, which lobbies for Hollywood’s major movie studios and Netflix, had a similar response.
The Writers Guild of America, along with the theater association, also lobbied against the rules change last year. “Any action that would grant the major entertainment conglomerates more tools or assets they could use to control exhibition of theatrical films would harm competitors in theatrical distribution and production, and ultimately harm creative labor and consumer choice,” the guild said at the time. “The Paramount Consent Decrees have ongoing validity despite changes to the industry, and the DoJ must apply strict oversight and enforcement in order to protect that industry and its participants.
Brian Welk contributed to this report.