Disney logo adorns a container of movie theater popcorn.
Enlarge / The House of Mouse is the shadow lurking in the future of movie theaters.

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 Marvel and 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 bankruptcy last 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.



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