A Review of the Paramount Pictures Antitrust Case (1948)

Seventy-years ago, after World War II but prior to the jump in television set ownership, going to the movies was the most popular form of entertainment for Americans.   In 1948, 3,352 million people went to the movies (compared to 1,225 million in 2017).  What they saw and where they watched it were controlled by five vertically-integrated major studios and three smaller ones.  The stranglehold by these firms included control of movie creation by signing actors and directors to non-compete contracts and control of exhibition by owning first-run theaters or contractually obligating independent theaters to purchase blocks of movies (good and bad ones) without the ability to view them ahead of time (blind bidding).  Antitrust action was brought against the 8 studios.  In a case brought to it on appeal, the Supreme Court ruled in United States v. Paramount Pictures (1948) that vertically integrated studios must divest their theaters and stop their anticompetitive and monopoly trade practices. 

While most of these studios still exist today in one form or the other, a lot has changed, including the rise and subsequent disruption of the television industry by technology that allows consumers to watch video content whenever and wherever they want.  Nearly 50% of theaters are owned by just five firms (Regal Entertainment, AMC, Cinemark, Carmike, and Cineplex) that operate multiple screens at each location. Content creation is now for multiple platforms--the box office, the TV set, and electronic devices connected to the internet.  

But, while there are new market participants with deep pockets creating content for the small screens (e.g. Netflix, Amazon), the box office is still dominated by a handful of media conglomerates.  Between 1995-2018, the top 5 studios accounted for more than ¾ of domestic box office receipts.  Some part of each of these firms was a defendant in the 1948 case.  (The other three defendants were RKO, MGM, and United Artist.)  While movie attendance is down relative to 1948, how a film does at the box office matters greatly to today’s vertically-integrated giants’ successes with downstream distribution, licensing deals, and merchandising sales.  

Studio	1995-2018 Market Share of Domestic Box Office**
Walt Disney/20th Century Fox*	27.79
AT&T (Warner Brothers/New Line)	15.12
Sony/Columbia Pictures	12.10
Comcast (Universal)	11.45
Viacom (Paramount)	10.69
* pending acquisition; **US, Can, Guam, PR Source: Statista	77.15

In early August as part of its initiative to terminate or modify legacy antitrust judgments that no longer serve to protect competition, the Department of Justice launched a review of the Paramount consent decrees.  As part of its review, it requested interested parties to submit comments on the following issues by October 4^th:

• Do the Paramount Decrees continue to serve important competitive purposes today?
• Individually, or collectively, are the decree provisions relating to (1) movie distributors owning movie theatres; (2) block booking; (3) circuit dealing; (4) resale price maintenance; and (5) overbroad clearances necessary to protect competition? Are any of these provisions ineffective in protecting competition or inefficient? Do any of these provisions inhibit competition or cause anticompetitive effects?
• What, if any, modifications to the Paramount Decrees would enhance competition and efficiency? What legal justifications would support such modifications, if any?
• What effect, if any, would the termination of the Paramount Decrees have on the distribution and exhibition of motion pictures?
• Have changes to the motion picture industry since the 1940s, including but not limited to, digital production and distribution, multiplex theatres, new distribution and movie viewing platforms render any of the Consent Decree provisions unnecessary?
• Are existing antitrust laws, including, the precedent of United States v. Paramount, and its progeny, sufficient or insufficient to protect competition in the motion picture industry?

Source: https://www.justice.gov/atr/paramount-decree-review

I would argue that the provisions of the consent decree that prevent studios from owning theaters (for the most part) and prohibit anticompetitive vertical restraints (e.g. block booking and circuit dealing) should remain in place.  There are no pro-competitive justifications to remove them.  The media giants are bigger and more vertically-integrated than ever.  They have tremendous market power.  Regulators should be on the lookout for anticompetitive behavior (e.g. foreclosure, bundling, exclusive dealings) across all content delivery platforms.  In fact, the Paramount case provisions matter more today, not less.