The Downside of Studios Owning Movie Theaters Again

The United States Department of Justice is seeking to abolish a 71-year ruling that’s prevented movie studios from monopolizing the entire motion picture industry.

Known as the Paramount Consent Decrees, this legislation, which took effect in 1948, ended the Hollywood studio system and ensured that there was some separation between the production and distribution of movies and their exhibition. However, the current chief of the Justice Department’s antitrust division, Makan Delrahim, believes that a lot has changed in that time — such as the introduction of streaming services — and the ruling is obsolete in the modern age.

Understandably, there are some concerns about a return to this system. That said, there’s a lot to unpack here, so before we get into the potential ramifications of this decision being reversed, let’s explore the history behind the ruling.

At first, movie studios bought their own theaters out of necessity. In 1917, most of the largest theater chains formed a pact to exert influence over buying and booking films into theaters. As such, exhibitors were able to bargain as a group, which essentially forced studios to pay increased fees to have their films shown.

By owning their own exhibition outlets, studios no longer had to worry about the uncertainty of negotiations with other theaters, and the costs of showing their movies were reduced significantly. However, with this newfound leeway, the studios embraced their privileges, resulting in monopolistic practices and other questionable activities.

By 1930, the movie industry was dominated by five vertically integrated companies: Paramount, Warner Bros., Metro-Goldwyn-Mayer, RKO Pictures, and Fox. Each studio owned circuits of theaters around the world, and by 1945, they had acquired 17 percent of venues in the United States. This percentage seems small, but the studios primarily focused on obtaining first-run theaters in large metropolitan areas.

That said, these companies still regularly cooperated by showing each other’s movies in their theaters. Universal, Columbia, and United Artists also produced and distributed their own movies back then, but they did not own their own theaters. However, they still aligned with the other studios to dominate the market.

Studio-produced films were initially released to their own theaters and made their way to other venues later on. This enabled the major studios in question to collect 70 percent of national box office receipts and control most of the first-run exhibitions, which ultimately hurt independent theaters.

The studios also hurt independent theaters in other ways. For example, they set unreasonable clearance dates, which prevented theaters that weren’t owned by the studio from showing movies too early. By the time their movies made their way to independent venues, the relevant studios had already maximized the profits.

These studios also exploited unaffiliated theaters by making them purchase movies in blocks. This practice only applied to venues not associated with the major studios and meant that independent exhibitors were essentially forced to buy and show multiple movies even if they only wanted to showcase one of them.

In another example of corruption, studios demanded that other theaters charged high admission fees for audiences to see their movies. In their own theaters, however, admission prices were significantly lower. So, either audiences could visit studio-owned properties and pay less to see their movies — allowing the respective studio to retain all of the concessions — or they could pay extra elsewhere. Either way, the studio won because they got paid.

Understandably, independent theater owners grew tired of these anti-competitive practices and the Department of Justice filed a suit in 1938. The antitrust case — which became known as The United States vs. Paramount Pictures, Inc. — accused the five major studios of hurting trade by controlling the production, distribution, and exhibition of movies.

The case eventually reached the Supreme Court in 1948, which resulted in studios being forced to part ways with their exhibition chains. According to the Supreme Court’s decision, vertical integration was illegal when implemented to monopolize or control a market place, which is exactly what the five major studios were guilty of doing until then.

In the 1980s, the Supreme Court relaxed their ruling and allowed studios to own their own theaters again — provided that they requested permission from the federal court beforehand and their practices didn’t prevent other exhibitors from competing. For example, in 1986, Paramount and Warner Bros. paired up and acquired 119 theaters, which they consolidated into one individual chain called CinAmerica Theaters.

Since then, it’s been common for studios to own theaters again. The current laws are confusing, but they have maintained a free market that’s allowed theaters of all varieties to compete, while preventing studios from monopolizing and fully controlling the creation, distribution, and exhibition of their movies all over again.

As noted by Variety, the argument against keeping the current decree in place proposes that studios will have no interest in buying theaters because they’re focused on other direct-to-consumer platforms. The purpose of these companies launching their own streaming services is so they no longer need to rely on licensing agreements with any other entity, so they won’t be interested in forging more integration pacts and create monopolies with other studios.

At the same time, as long as the option is there, then the possibility cannot be ruled out, either. Of course, studios don’t need to align with their counterparts to swallow up theaters and use them to dominate the market. Theoretically, Netflix, Disney, etc could buy the most popular theater chains and only play movies that are exclusive to them. Disney wants to own everything, and it’s hard to imagine the company not taking advantage of this ruling being overturned.

More than anything, independent theaters would suffer all over again. They’d either have to sell out to a conglomerate because they can no longer survive, or potentially submit to a studio’s unreasonable demands in order to show their films. At the end of the day, they’ll once again have less freedom to compete and that’s just bad news for smaller businesses.

The main concern for modern independent theater owners pertaining to the possibility of this decree being reversed is that block booking could make a comeback. As noted by the National Association of Theater Owners in the Financial Times, “If distributors can engage in block booking, exhibitors may be forced to pack their screens with global tentpoles at the expense of targeted programming.”

By removing the possibility of “targeted programming,” theaters will have less varied options on the movies they can show. While this can include any type of movie, independent films and documentaries will likely suffer the most. A24 will probably survive, but companies with a similar approach to emboldening original voices will struggle to make a dent in the mainstream. Sure, there’s always streaming, but movies deserve to be seen on the big screen.

There’s an argument to be made that a true free market place needs rules in place that keep massive conglomerates in check. If studios have the power to dominate every aspect of the motion picture process once again, there’s no telling how detrimental that could be in the grand scheme of things.