Paramount Consent Decree Terminated

[Martin McCaffery]

Surprised this isn't up yet:

Variety

Judge Approves Ending Paramount Antitrust Consent Decrees

By Brent Lang

Antitrust rules barring studios from owning movie theaters were swept aside Friday after a federal judge approved an effort by the Justice Department to do away with the Paramount Consent Decrees.

These laws have been in effect since the golden age of movies. They were intended to break up the stranglehold that major studios such as Warner Bros., 20th Century Fox, and Paramount once maintained on the business by preventing them from owning both the means of production and distribution. Other studios, however, such as the Walt Disney Company and Lionsgate, which became distributors after the law went into effect, were not subject to the rules.

The move comes after the department proposed eliminating the regulations last fall, noting that they were anachronistic and failed to predict the complex ways that various forms of entertainment are made and distributed.


On Friday, U.S. District Judge Analisa Torres found “…that termination of the Decrees is in the public interest.”

It’s unlikely that the decision will change how business is conducted in Hollywood. Movie theaters are suffering an existential threat due to the coronavirus and entertainment companies have become increasingly dependent on television and streaming in recent years. Judge Torres noted this new landscape, writing, “as internet movie streaming services proliferate, film distributors have become less reliant on theatrical distribution. For example, some independent distributors, relying on subscription, instead of box office revenues, currently release movies to theaters with either limited theatrical runs or on the same day as internet movie streaming services. Netflix, which plans to release over fifty movies this year, ‘mostly bypasses theaters.'”

Even before the pandemic, attendance at cinemas was flat. The move to do away with the decrees was part of a larger anti-regulatory drive on the part of the Trump administration and was not a major focus of the movie studios.

Eliminating the rules will also eventually lift restrictions against “block booking” and “circuit dealing” after a two-year sunset period. Doing away with those regulations will allow studios to force theater owners to show films limited commercial prospects if they want access to their more popular franchises.

[Mitchell Dvoskin]

The consent decrees were never a law. They were an agreement between the justice department and specific studios where those studios agreed to stricter standards in return for the justice department dropping anti-trust lawsuits. A better example is United Artists, a producer, distributor, and theatre owner that was never a party to the consent decrees.

[Jim Cassedy]

Gee, it only took them 70 years to get decide to get rid of it. This sort of reminds me a bit of the "temporary" telephone tax the
US Government enacted to help fund the Spanish American War in 1898. They didn't get around to repealing it until 2006!

(I wonder how long it will take them to pass the next Coronastimulus bill?)

[Martin McCaffery]

The Consent Decrees were upheld by the Supreme Court and were therefore a threat that could be used against the non-signatories should they try to engage in the practices that the decrees eliminated. Having the DOJ remove the threat signals to the industry they are no longer interested in preventing the previously forbidden practices - not that anti-trust practices have been well policed in the industry in the last 40 years.

[Marcel Birgelen]

I think the studios have engaged in anti-trust practices for decades and especially since the advent of digital distribution, many of their "divide and conquer" practices should've been illegal. I don't know what this decision will mean for the industry at large, because many of those provisions in those decrees either weren't applicable to many of the current releases or the movie industry didn't really care anyway. But I can see how this ruling only helps to give them the idea they can do whatever they want.

Still, the world has changed dramatically over the last few months, certainly for the entire movie industry. Looking at what's happening to the movie industry at large, I'd say this ruling is the least of our problems right now... I hope that studios start to learn that preserving a theatrical window and workable relationship with the exhibition industry, is more an effort in self-preservation for the entire industry than something else...

[Harold Hallikainen]

https://arstechnica.com/tech-policy/...year-old-case/

MEGALOMEDIA —

Why movie theaters are in trouble after DOJ nixes 70-year-old case

The end of Paramount could eventually make your local theater a Disneyplex.

KATE COX - 8/11/2020, 4:30 AM

If you went to the movies in 2019, you probably saw a Disney movie. Seven of the top 10 highest-grossing films released in the United States last year were distributed by the House of Mouse, and hundreds of millions of people went to see them on thousands of screens. Some weeks it felt like the entire film industry was Disney: Captain Marveland the rest of the Avengers (Endgame) competed for your attention for a while, as Aladdin, The Lion King, and Toy Story 4 kept up a steady drumbeat of animation until Elsa dropped back onto hapless households in Frozen II. In amongst that morass, though, there were still other movies shown, many of them popular with audiences and critics alike.

But now, the rule that prevented a studio from buying up a major theater chain is gone—opening up the possibility that your local cinema could go whole hog and become a true Disneyplex before you know it.

On Friday, a federal judge agreed to the Department of Justice's petition to vacate the Paramount Consent Decrees, a landmark 1948 ruling that forbade vertical integration in the film sector and ended the Hollywood studio system. In isolation, the decision could raise some concerns. In a world where theaters are decimated thanks to a pandemic and consolidation among media firms is already rampant, the future for independent theaters looks grim.
What are the Paramount Decrees?


The Paramount case is about vertical integration—at its most basic, the term for when a business owns multiple links up and down the supply chain.

By the late 1930s, the majority of power in Hollywood was concentrated in the hands of eight film studios, with the so-called Big Five—Paramount, MGM, Warner Brothers, 20th Century Fox, and RKO—holding the lion's share of the market. The studios not only locked actors into contracts and controlled film production and the distribution of those films, but also they bought up and founded movie theaters all over the country and thus controlled exhibition as well.

The DOJ filed suit in 1938 alleging the eight studios were violating antitrust law in two key ways. First, the DOJ said, the studios were part of an unlawful price-fixing conspiracy, and second, they were monopolizing the distribution and exhibition sectors.

A federal District Court found in 1940 that the studios were indeed in violation of the law, which ended up leading to a whole long series of other legal challenges and appeals. In the end, the US Supreme Court in 1948 ruled 7-1 in favor of the DOJ in United States v. Paramount Pictures. The agreements the studios reached with the government, called consent decrees, required the studios to divest all their stakes in movie theater chains. They also had to end the practice of block booking, in which studios would require theaters to book a whole block of content—films and shorts—if they wanted to exhibit any of that content.

The Paramount ruling—keeping theaters and production separate—was left alone to govern Hollywood operations for the next 70 years.
Why is the DOJ vacating them?


In April 2018, the Justice Department announced it would undertake a review of "legacy" consent decrees put in place during the late 19th and 20th centuries as part of an agency-wide modernization initiative.

Many of these agreements had little to no relevance any longer by the time the DOJ got to them. In 2019, for example, the DOJ vacated consent decrees having to do with competition in the horseshoe, player piano, and phonograph sectors. Paramount, however, was also on the list, and in 2018 the DOJ opened a 60-day period for public comment on the issue.

Small theaters and independent theater chains all submitted comments to the docket, the overwhelming majority of which supported keeping Paramount in place.

"Although it is still difficult to get some movies due to onerous terms, we manage," the owner of two theaters in Ohio wrote. "If all of a sudden the current rules governing distribution change, we could be in significant trouble."

"The market conditions that exist today would [still] permit anticompetitive conduct," small theater chain Cinetopia wrote. Cinetopia also alleged in its comments that anticompetitive behavior in the industry still exists and distributors were, right then in 2018, strong-arming exhibitors into disadvantageous terms. (National movie theater chain AMC, which Cinetopia was suing over alleged antitrust violations, acquired Cinetopia in 2019.)

District Judge Analisa Torres, however, did not agree with any of the comments, and on Friday she agreed to terminate the decrees "effective immediately."
Who needs theaters?


Torres' ruling (PDF) found that, basically, because we now have home video and Netflix, we don't really need to worry about competition in the movie-theater sector the way we used to.

"Multiplexes, broadcast and cable television, DVDs, and the Internet did not exist" when Paramount was decided, Torres wrote. "Subsequent-run theaters no longer exist in any meaningful way," she said, since consumers watch movies at home after their initial theatrical release, and therefore studio actions cannot hurt those theaters.

Torres is correct to note in her ruling that the exhibition business has more or less completely blown up in recent years. Internet-based streaming content platforms have dived wholeheartedly into both making and distributing content. Players including Netflix and Amazon Prime have just in the past three years taken the idea of the "direct to video" release out of the junk heap and into prestige, Oscar-winning territory.

The question then becomes: is having your film released on Netflix, Disney+, or some other streaming service interchangeable, from both the business and consumer viewpoint, as having your film released in a theater?
Theatrical distribution in 2020


The domestic box office was already, at best, in a holding pattern before 2020... and then came COVID-19. It's no secret that the pandemic has had a devastating effect on countless sectors in the US economy. Cinema, alas, is very high on the list of utterly decimated industries.

Going to the movies, of course, involves filling a closed room with as many people as the theater can fit in—a deeply suboptimal activity in the midst of a plague year. Worse: most theaters make the bulk of their revenue from food and drink sales, and you can't shove popcorn into your face and slurp your delicious red Icee with a mask on.

Every movie theater chain in the United States reported massive losses in the most recent quarter, as their doors remain locked and their screens sit dark. AMC, the nation's largest theater chain, only narrowly avoided bankruptcylast month thanks to a debt restructuring.

Films that were meant to anchor this summer blockbuster season, such as Tenet and Mulan, are either on hold indefinitely or going direct to streaming as experiments in how to generate revenue. Production on the films that would have come out in 2021, meanwhile, was halted for months and has struggled to pick back up again as the novel coronavirus disease continues to rage across the country—so the pipeline of blockbuster movies to try opening up with again next year is going to be painfully thin.

[Harold Hallikainen]

The return of vertical integration


In the absence of Paramount, Torres added, "there would still exist industry oversight because a merger between any major movie distributor and one of the large national theater circuits" would require premerger review and approval, "thereby providing the antitrust agencies with notice and opportunity to evaluate the competitive effects of the transaction."

The Federal Trade Commission and DOJ are required to sign off on any merger or acquisition valued at more than $94 million, and it is indeed difficult to imagine a major theater chain selling for less than that. Chinese conglomerate Dalian Wanda spent about $2.6 billion to buy AMC theaters in 2012. But regulators in the past decade have proved time and again that they're super-cool with vertical integration in the media sector.

Our latest wave of vertical integration arguably kicked off when Comcast—a cable and broadband Internet firm—acquired TV and film giant NBCUniversal.

Critics argued that the deal would give Comcast both the ability and the incentive to give its own media properties an edge over competitors in myriad ways. The easiest example to point to is in cable distribution: pay-TV companies pay networks a small monthly fee per subscriber. Money Comcast pays to carry NBC networks stays inside the company to some degree, where money it pays to Disney, Discovery, ViacomCBS, or any other content company does not.

Once Comcast cleared the path, others were free to follow: AT&T announced in 2016 it would purchase media company Time Warner Inc. for a cool $80 billion. The DOJ did sue to block that transaction on antitrust grounds, but a federal judge ruled in AT&T's favor in 2018, allowing the companies to seal the deal.

Critics had similar concerns about the AT&T deal as they did the Comcast deal—and AT&T made sure to justify them when it pulled WarnerMedia content from Netflix to reserve for its own streaming service, despite promising it wouldn't.

All of which brings us to the 10-ton mouse in the room.
The Walt Disney Co.


A moment of perspective: by 1930, 95 percent of all US film production was controlled by eight studios, which among them managed to take in more than 45 percent of all box-office revenue.

Our position is now even starker: fewer than a half-dozen companies control the vast majority of our film and television landscape, as this chart from Recode shows, and the dominance is incredibly pronounced in film distribution.

In 2019, Warner Bros., now an AT&T subsidiary, accounted for a little less than 14 percent of the US box office. Comcast's Universal came in right behind it, with 13.4 percent of the box office, and Sony's studios also managed to grab a solid 11.7 percent of the totals—all respectable. But The Walt Disney Co. alone blew everyone else out of the water, bringing in almost 40 percent of all 2019 US box office revenue.

Disney was already a content juggernaut, but its $71 billion acquisition of Fox's film and TV assets made it not just a behemoth but a titan with a tight fist and the ability widely to dictate terms.

When Star Wars: Episode VII came to theaters in 2017, Disney demanded an unheard of 65-percent share of all ticket sales. It also demanded every theater exhibiting the film reserve its largest screen exclusively for the movie for at least four weeks, full stop.

Exhibitors felt they couldn't really say no. "They're in the most powerful position any studio has ever been in, maybe since MGM in the 1930s," one buyer told The Wall Street Journal at the time.

The Fox acquisition also gave Disney leverage to affect independent art house theaters—the "subsequent-run theaters" Torres' ruling denied the existence of—which often book showings of classic films. Fox's archival library goes straight back to the dawn of the US film industry, but those films began falling into the infamous "Disney vault" in late 2019, as Vulture reported in depth. Those small theaters began losing access to license classic Fox films for distribution, with rules that felt draconian and unevenly applied.

Those showings of classic films, such as The Fly, The Day the Earth Stood Still, or even Alien, Vulture reported, bring in a great deal of the cash that independent venues use to cover their expenses, which in turn allows them to run new, overlooked, or experimental exhibit works from "international filmmakers, documentary filmmakers, and filmmakers of color who are going to lose access to these venues" if the repertory library isn't subsidizing their showing anymore.
And the future?


So here we sit in 2020, with a new reality ahead of us. No law now bars any film studios from owning a movie theater, and they're free to bring back block-booking in 2022, after Paramount finishes a two-year "sunset period." Meanwhile, runaway consolidation has led to nearly all wide-released theatrical film being controlled by a tiny handful of studios, and small- and medium-sized theater chains are probably going to start collapsing under the weight of COVID-19 in the next year.

It seems increasingly likely, then, that a massive media company that wants to pocket as much money as possible from its film releases could easily decide that acquiring screens outright is a way to make more money. Disney also has experience in live-action entertainment and knows how to sell concessions, and it has access to most of the biggest new releases every year plus an enormous back library of beloved films. A deal, in the long run, seems to make a distressing amount of sense.

That said, neither Disney nor any other media company is likely equipped to pounce on any major acquisitions in the coming days and weeks. Disney took a $4.3 billion loss last quarter, as the pandemic shuttered movie theaters and amusement parks, and the rest of this year isn't looking much better.

Movies, meanwhile, have found success on the small screen, leaving studios to wonder how much they need theatrical distribution, exactly. For any movie other than a wham-bam action-packed blockbuster, the answer might be: we don't.

In short: if you want to watch any films other than the latest Pixar, Marvel, or Star Wars adventure... perhaps you should get used to the first run being in your own home theater.

[Scott Norwood]

I'm kind of in favor of having distributors own cinemas, since they would probably actually care about the exhibition side of the business if they did. On the other hand, block booking is evil, even if it did happen not-so-secretly over the last few decades.

[Frank Cox]

I doubt it. What do you think your chances would be to book Big Blockbuster Part 14¾ if there's a company-owned theatre within some vast number of miles of your location.

[Martin Brooks]

The consent decrees were never a law. They were an agreement between the justice department and specific studios where those studios agreed to stricter standards in return for the justice department dropping anti-trust lawsuits. A better example is United Artists, a producer, distributor, and theatre owner that was never a party to the consent decrees.

I'm not sure that's accurate. UA theaters were spun off Into a separate corporation: UATC (United Artists Theater Corporation). That was really no different than Loews spinning off MGM, although that was the reverse.

[Harold Hallikainen]

SEPTEMBER 03, 2020 9:54am PT by Eriq Gardner
Cinemark Reverses $3.75M Antitrust Loss on Appeal

https://www.hollywoodreporter.com/th...loss-on-appeal

A trial win for a Bryan Cranston-owned movie theater is wiped out with a California appellate court taking a long look at the relationship between film studios and exhibitors.Just a month ago, the Paramount Consent Decrees officially terminated. If the end to decades-old rules that governed the relationship between film studios and movie theaters wasn't enough proof of a new day in the exhibition business, now comes a California appeals court wiping out a $3.75 million judgment against Cinemark for using its nationwide footprint to score exclusive first-run movies to the detriment of one independent theater.

On the losing end of the latest appellate decision is Flagship Theatres of Palm Desert, which was owned by an investment group that included Breaking Bad star Bryan Cranston. Flagship operated the Cinemas Palme d'Or in Palm Desert, Calif., before it closed in 2016, or more precisely, before that theater was taken oven by new management. The Cinemas Palme d'Or competed with another theater two miles away called Century at the River, which was acquired in 2006 by Cinemark.

Flagship sued in 2007, and in a marathon case that was previously revived by an appeals court, the plaintiff alleged that Century's owner leveraged its power as the owner of numerous theaters across the country to pressure distributors into granting The River clearances over the Palme, and Century’s practice of negotiating multi-theater licensing agreements exerted pressure on distributors to shun the Palme.

The case went to trial, and the jury found that while the defendants hardly had a monopoly, the multi-theater agreements caused harm to competition in the relevant geographic and product market by decreasing output of films. The jury awarded Flagship $1.25 million in damages, which was automatically trebled to $3.75 million, pursuant to the Cartwright Act, California's antitrust law.

California's Second Appellate District reverses.

In the opinion, Justice Frances Rothschild takes a review that goes all the way back to United States v. Paramount Pictures, the 1948 Supreme Court case that examined vertically integrated film distributors. Rothschild also notes how the U.S. Department of Justice recently and successfully ended the Paramount Consent Decrees, which had resulted from the Supreme Court's decision and included bans on certain kinds of circuit dealing. Like the federal judge who agreed to termination, Rothschild notes changes in the structure of the entertainment industry that arguably make the old rules outdated, and in any event, he says Paramount Pictures is not dispositive.

In tackling so-called vertical restraints, Rothschild ultimately comes to the conclusion that film licensing circuit dealing —agreements that cover multiple theaters — can't be deemed per se illegal.

" Certainly, as the Supreme Court recognized many years ago, such agreements hold the potential to block new market entrants, or stunt the ability of smaller theaters to serve as viable competitive threats to their larger counterparts," states the opinion. "These consequences might ultimately harm consumers by increasing prices, reducing product quality, and/or reducing output to an extent that outweighs any countervailing procompetitive benefits of the agreements. But the fact that such agreements might so harm competition does not mean they always will."

Given this, the opinion then adds that those who assert violation of the Cartwright Act " must prove not only that a theater-circuit owner entered into film licensing agreements covering more than one of its theaters, but that such agreements caused net harm to competition, as determined by the balancing of anti and procompetitive effects under the rule of reason."

And in this case, reviewing the evidence, the California appeals court concludes there wasn't enough to sustain a jury verdict favoring Flagship.

Rothschild writes that the record shows a newcomer "entered the market immediately following the Palme’s closure, apparently unaffected by the theoretical barriers Flagship posits. Nor is there any evidence in the record suggesting that the Tristone [the newcomer] has been unable to expand because of barriers created by Century’s licensing agreements."

Here's the full opinion.