Justice Dept. Reviewing Movie Licensing Restrictions on the Books for Decades

The Paramount Decrees have regulated how certain movie studios distribute films to movie theaters since the Supreme Court’s famous 1948 decision, but not much longer?
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The Trump Administration's deregulatory push has now hit Hollywood as the U.S. Department of Justice on Thursday announced it would be opening up a review of the famous "Paramount Consent Decrees," otherwise known as various restrictions on the way that major film studios distribute films to movie theaters.

The Paramount Consent Decrees were born nearly three-quarters of a century ago when the Justice Department pursued a huge antitrust case against Paramount Pictures, MGM, Warner Bros., 20th Century Fox, RKO Pictures and a few smaller studios. At the time, the studios controlled almost everything about filmmaking — locking up talent to long-range contracts and owning theater chains that made it very tough for independents to compete. The antitrust lawsuit went up to the U.S. Supreme Court, which in 1948 issued a landmark decision forcing studios to divest themselves of ownership of movie theaters. 

Although the ramifications of that decision were significant — eroding the grip that studios held over talent, contributing to new distribution practices and eventually driving studios to focus on big-budget blockbusters — the Paramount Consent Decrees have been very misunderstood. While the Supreme Court felt divestment was a proper remedy, it also ruled "we see no reason to place a ban on this type of ownership, at least so long as theater ownership by the five majors is not prohibited."

The case was remanded to a district court for further inquiry, and after a few years of more fighting, each of the studios settled, which resulted in the Paramount Consent Decrees that exist today. Contrary to popular misconception, there's no rule barring big movie studios from owning movie exhibition houses.

The Justice Dept.'s announcement, though, spells out some of the restrictions in place:

"For example, the decrees ban various motion picture distribution practices, including block booking (bundling multiple films into one theater license), circuit dealing (entering into one license that covered all theaters in a theater circuit), resale price maintenance (setting minimum prices on movie tickets), and granting overbroad clearances (exclusive film licenses for specific geographic areas)."

Makan Delrahim, the head of the Justice Dept.'s antitrust division, remarks, "The Paramount Decrees have been on the books with no sunset provisions since 1949. Much has changed in the motion picture industry since that time."

What's mentioned is that now cities have more movie theaters and more screens and that consumers no longer are limited to watching movies in theaters. There's also a nod to new technology, and while no specific company is mentioned, obviously upstarts like Netflix are now both producing and distributing content.

The announcement to review the Paramount Consent Decrees is part of a much wider re-examination of stipulated settlements where companies have agreed to modify behavior in order to escape antitrust litigation. Another example of a consent decree on the book for decades that is now being reconsidered is the 1940s deals made by the government with ASCAP and BMI, the organizations that license public performance rights of songwriters and publishers. Under the ASCAP consent decree, blanket licenses must be offered to those performing songs (stadiums, restaurants, etc.) who request it. If licensing rates can't be agreed upon, rates are set by a federal judge. The music industry has been fighting for years to get out from these rules by saying they are outdated in the digital age. 

Delrahim has been extremely skeptical about behavioral remedies to illegal restraints on competition. As the government's lawsuit over the merger between AT&T and Time Warner showed, he prefers structural remedies such as forced divestments or blocked mergers. Otherwise, the government regulates by negotiation.

Should the government decide to rip up the consent decrees, it would likely need a judge's permission. The decision would also have ramifications elsewhere. For example, there's been a series of antitrust lawsuits in the past few years targeting distributor-exhibitor "clearance" pacts.