Chronological History of Movies & Antitrust
Now that we have a basic understanding of the purposes of the U.S. antitrust laws and the basic antitrust concepts as they apply to the U.S. film industry, it is appropriate to review a brief history of movies and antitrust. The U.S. motion picture industry and antitrust laws have developed and evolved during the same nearly 100 year period. The following summary presentation weaves the major antitrust legislation with a chronology of antitrust actions and developments relating to the motion picture industry. 1890 Sherman Act: The "...first Congressional assault on monopolies in the marketplace...", the Sherman Act was enacted. This federal statute forbids combinations and conspiracies "...in restraint of trade or commerce." The Sherman Act proscribes such activities as collusive price-fixing, agreements not to compete, agreements to divide markets and group boycotts. It further prohibits monopolies and efforts to achieve monopolies.
1907 First Hollywood Studio: Movie companies had "...started heading for California as early as 1907, when William Selig shot a film in Santa Monica and then established a studio in Los Angeles two years later. D.W. Griffith, acting for the Biograph Company, set up another near downtown Los Angeles, and Majestic, IMP, Vitagraph, Lubin, Kalem, Balboa, and many others followed. Hollywood itself wasn't invaded until 1910 when David Horsley, president of the Staten Island-based Nestor Film Company, went west for a visit. A companion on the train suggested he look up a photographer who lived in Hollywood. Horsley did and decided to rent a lot there to make pictures. It was the first Hollywood studio."
1908 Edison Trust War: In 1908, Thomas Edison, rightfully "...concerned that too many film exhibitors were making millions from his invention of the Kinetoscope without paying royalties, decided to organize film producers into a single company, to be called the Motion Picture Patents Company...To fight the Trust, several small independent producers...made films in hole-in-the-wall studios. Others headed west." The Motion Picture Patents Company, a horizontal combination of ten film production and import companies that held most of the patents relating to film camera and projection equipment in the film industry was established and executed cross-licensing agreements among its member companies. The Motion Picture Patents Company attempted to extract certain royalties for the use of its equipment and films from exhibitors.
1910 General Films Company: The General Films Company (a film distributor) was formed by the same owners who controlled the Motion Picture Patents Company and General Films proceeded to purchase 68 of the then existing film exchanges (the local distribution firms) in an attempt to vertically integrate the U.S. film industry (production with distribution).
1912 Fox Film Civil Antitrust Action: Shortly after the formation of its own distribution arm, the General Film Company, the Edison Trust had begun actively to buy out exchanges and consolidate them. Less than two years later, through a combination of intimidation and money, it had succeeded in acquiring most of the principal exchanges. Not many exchangemen could hold out, but one of the few who could was William Fox (founder of the Fox Film Corporation) who filed a civil antitrust action of his own against the Motion Picture Patents Company and lobbied Attorney General George Wickersham in Washington to bring a federal suit as well. It just so happened that "...President Taft was locked in an electoral battle with two outspoken trustbusters..." at the time, and "...the Justice Department did file an antitrust suit...and the Independent ranks swelled."
1912 Edison Trust Antitrust Lawsuit: "On August 15, 1912, the Justice Department...filed an antitrust suit against the Motion Picture Patents Company (the Edison Trust)..." Even though the government had filed an antitrust lawsuit against the Edison Trust, until the actual trial court decision in the case, most all of the independent producers of the day, primarily the ones who moved to the West Coast to make it more difficult for the Trust to enforce its patents, were in fact operating in an extra-legal manner, (i.e., they were using the Trust's patented equipment without paying royalties).
1914 Clayton Act: Congress passed the Clayton Act in 1914. The statute attempts to prohibit certain practices if their effect "...may be substantially to lessen competition." Prohibited activities include sellers discriminating in their pricing offered to different purchases,
agreements between buyers and sellers providing exclusivity between the two, "tying contracts" requiring a buyer to purchase one product in order to get another, certain acquisitions or mergers and "interlocking directorates". Thus, the block booking practice engaged in by the major studio/distributors was specifically made illegal as of the effective date of the Clayton Act in 1914.
1914 Paramount Formed: In May of 1914 Paramount was formed as a combination of five film exchanges to distribute films for several production companies including Famous Players, Lasky and Bosworth. This created another vertically integrated entity (also production and distribution) which could compete with General Films.
1914 Federal Trade Commission: Congress established the Federal Trade Commission. The FTC was given primary responsibility for curbing unfair trade practices. It was provided with authority to order violators (corporations or individuals) to cease any unfair trade practice the commission uncovered. The FTC also shares its power to enforce the Clayton Act through civil suits with the Justice Department.
1915 Edison Trust Court Decision: "The original petition in the government's case against the Motion Picture Patents Company was filed on 15 August 1912, under the enactment of 2 July 1890, commonly known as the Sherman Act...The decision...was handed down by the lower court on 1 October 1915...the court (stated)...that a patent holder may protect itself by reasonable means against infringement and even to seek the aid of the law to enforce the exclusion of others. However...patent holders may not with impunity impose unreasonable restraints on commerce and through such restraints monopolize an industry under the guise of defending themselves against encroachment. The court decided that 'the agreements and acts of the defendants in the present case went far beyond what was necessary to protect the use of the patents or the [government-granted] monopoly which went with them..." In other words, the Edison Trust violations grew out of the company's frustration in attempting to enforce its lawful rights against the outlaw producers.
1915 Independent Producers: "By 1915, the year that the lower court decision was handed down in the government's case against the Motion Picture Patents Company, feature producers were well entrenched in the motion picture industry; and by December 1916 feature-length pictures were predominant."
1916 Famous Players-Lasky Merger: The Famous Players production company merged with Lasky to form a major studio (an example of horizontal integration).
1916 Edison Trust Case Decree: The Motion Picture Patents Company case decree "...which was filed 24 January 1916, enjoined the defendants and their officers from continuing the unlawful combination. An appeal from the district court's decision by the Patents Company was subsequently dismissed on stipulation of the parties in 1918."
1917 Block Booking: One of the earliest reported examples of block booking is described in Cass Warner Sperling's book Hollywood Be Thy Name--The Warner Brothers Story: "...a Mr. Zeigler of Anderson and Zeigler, an importing company, had just returned from Paris (in 1917) with several films. Sam (Warner) recalled: 'Zeigler had brought back two negatives; one was titled Redemption, and the other The Glass Coffin. He wanted $30,000 for the two prints. We looked at both pictures, liked Redemption, but didn't like The Glass Coffin. Mr. Zeigler said if we bought them, we had to take them both--and that was the beginning of 'block booking.' We succeeded in selling 50 percent of the country on Redemption, but practically nobody wanted The Glass Coffin."
1917 Coercive Activities: In 1917 "...powerful competing studios were prepared to do anything, even threaten violence and personal harm, to keep (Warner Bros.)...from breaking into the big leagues. The major studios, such as, Paramount and First National, were able to coerce the owners of Broadway movie houses into not showing the Warner feature (My Four Years in Germany)."
1917 First National: 3,500 exhibitors joined the First National Exhibitors Circuit which financed the production of independent films and built studios (vertical and horizontal integration).
1917 Edison Trust Dissolution: The Motion Picture Patents Company and General Films were dissolved as a result of the earlier judicial decisions.
1917 Paramount Acquisition: Famous Players-Lasky acquired 12 smaller production companies and Paramount (vertical and horizontal integration).
1918 FTC Injunction: An exhibitor combination formed in 1912 was partially enjoined. "Some of their more ruthless methods were enjoined by the Federal Trade Commission in
1918: threatening not to patronize producers and film exchanges that did business with certain competing exhibitors; calculatedly showing films just before competing exhibitors were planning to do so; refusing to license exhibitors unless they agreed not to rent films from competitors; and coercing certain exhibitors to pay a penalty of 10 percent of the cost of any films they booked direct."
1919 Anti-Competitive and Predatory Practices: When Mary Pickford, Charlie Chaplin and D.W. Griffith were trying to start the film distribution company United Artists originally, W.S. Hart was one of the original partners, but "...he pulled out when Adolph Zukor of (a competing distributor) Paramount offered him a deal calling for $200,000 a picture. Griffith too, would soon withdraw...Zukor encouraged Griffith's exit with a $250,000 directing deal."
1919 FTC Suit vs Paramount: "Late in 1919, now armed with (capital provided by the New York investment banking firm of Kuhn, Loeb and Company and its partner Otto Kahn, Paramount's Adolph Zukor) ...began his offensive to establish his hegemony over theaters as he had over production and distribution. Where he could, he had Paramount buy property and build his theaters; if competitors converted sites nearby, Zukor was ready with threats, intimidation, and rumor to dissuade them. In the South, his agents became known as the 'dynamite crew,' and he was excoriated in one trade paper for his 'rape of the industry'....by 1921 he had acquired or built 303 first-run theaters. He had also enraged enough people in doing so that the Federal Trade Commission launched an investigation into his business practices and filed suit against him."
1919 Another Monopolistic Combination: In 1919 Famous Players--Lasky "...adopted a policy of theater acquisition in retaliation to the First National move...the integration of First National was...from exhibitor to distributor to producer...while the Famous Players-- Lasky integration was...from producer to distributor to exhibitor...Within a very few years another 'monopolistic' combination would be giving the government antitrust agencies cause for further worry. Thus one monopolistic combination (the Edison Trust) would soon be replaced by another consisting of erstwhile independents."
1920 Loews-Metro Merger: The Loew's theatre circuit acquired Metro Pictures, a producer/distributor.
1921 FTC Complaint vs Famous Players-Lasky: The Federal Trade Commission filed an antitrust complaint on August 30, 1921 against the vertically integrated Famous Players- Lasky Corporation and "...a dozen or more related concerns on the grounds that they were dominating the industry through such things as block-booking contracts and theater control, actual or threatened." "...the...complaint against the Famous Players-Lasky (Paramount) group (also charged)...unfair practices and monopolizing of first-run theaters.
1924 MGM Merger: Metro Pictures merged with Goldwyn Pictures and Mayer Pictures (also producer/distributors) to form Metro-Goldwyn-Mayer which became the production and distribution arm of the Loews theatres.
1924 Allegations of Anti-Competitive Activities: In 1924 Sam Warner reported that Warner Bros films had been "...delayed at film processing laboratories owned by the big companies, or lost in transit." At that time, the Warner Bros. studio was not considered a major.
1925 FTC vs Theatre Circuit: The Federal Trade Commission charged a large California theatre circuit (which later became a Fox subsidiary) with coercing distributors into giving the theatre chain certain preferences.
1926 Combination in Restraint of Trade: The so-called Big Five major studio/distributors of the day, "...decided at a 'council of war' in December 1926, to oppose Warner Bros., they hired an engineer at $500,000 and spent a year and a half investigating other devices (for bringing sound to the movies). This action provided an early example of the tendency of a shared monopoly or oligopoly to resist innovation.
1927 FTC Order Against Famous-Players: "Not until July 1927 did (the FTC)...complaint (originally filed in 1921), in amended form, become a cease and desist order against restrictive practices. One practice cited was purchase or coercion of theaters in order to gain customers for Famous Players features. This charge was dropped. Another was block booking, or releasing films only in groups. On appeal, the Second Circuit Court ruled that block booking did not have monopolistic effects."
1927 Market Power and Collusion: The "...six powerful (movie industry) oligopolists... realized it was wasteful for them to let exhibitors install and use more than one (sound)
system. Simple economies of scale determined it was in the producers' best interest to collude and pressure exhibitors to adopt one system. The producers knew they could do this because of the immense amount of market power they possessed through their distribution networks and ownership of key first-run theaters."
1927 Paramount Order: Paramount was ordered to cease and desist anti-competitive practices.
1928 B&K Theatre Lawsuit: A lawsuit was filed against Paramount's Chicago theatre circuit, B&K alleging unreasonable clearances, overbuying, an exclusive first choice of films arrangement between the distributor and exhibitor and long-term exclusive contracts.
1928 California Exhibitor Suit: The Justice Department joined in the charges against the California exhibition circuit being sued by the FTC and the theatre chain accepted an FTC order in 1929 and consent decrees in 1930 and 1932. Such orders were designed to reduce the clearances demanded by the exhibitors during the first run of a movie.
1928 Oklahoma Exhibitor Coercion: A group of Oklahoma theatres accepted a consent decree requiring them to renounce an agreement among them and to stop coercing distributors into refusing to allow non-theatrical exhibitors from using the local film exchange.
1928 Standard Contract: "In April 1928 the Department of Justice assailed the 'Standard Exhibition Contract' which had been developed by the Motion Picture Producers and Distributors of America..."
1929 Restraint of Trade: The standard exhibition contract was struck down as a restraint of trade.
1929 Allied Injunction: "In 1929 the Allied States Association of Motion Picture Exhibitors secured an injunction against refusal of sound-equipment makers to permit interchangeability of equipment."
1929 Arbitration Clauses: "In October 1929 (District Judge Thomas B. Thacher in New York)...ruled the arbitration clauses of the (exhibitor's) uniform contract in restraint of trade, since arbitration had been imposed on all exhibitors whether or not they were represented in the negotiations..."
1930 Hostility to Innovation: "The big studios, MGM, Paramount, Universal, were playing wait and see (to determine which of the two competing sound systems would be the best). Together with First National and Producers Distributing Corporation, they concocted a moratorium called the "Big Five Agreement" whereby none of them would commit to any sound system until the winner had been decided, Warners or Fox. The studio bosses, committed to big silent productions, were hostile to innovation."
1930 Conspiracy and Predatory Practices--Once other pioneering film companies (Warners and Fox) had demonstrated the promise of sound movies in 1929 the "...major movie companies (of the day), led by Paramount, did not want to be left behind. For more than a year, a committee of experts from Paramount, MGM, First National, and United Artists met secretly to study their options...Within the framework of the Academy of Motion Picture Arts and Sciences, the major studios cooperated to resolve any remaining problems (in implementing sound) as quickly as possible. The big studios continued to prosper; smaller producers could not afford the new cost, and were either taken over by larger concerns or simply went out of business." Thus, the advent of sound was one of the first in a long series of technical innovations that the major studios used to enhance their competitive advantage.
1930 Anti-Competitive Activities--When sound was first introduced "Theatres owned by Hollywood companies received their sound installations first (through the cooperation of AT&T which supplied the technology); smaller, independently owned houses had to sign up and then wait sometimes more than a year." This appears to be another example of an anti-competitive business practice used by the major Hollywood studios to gain economic advantage over their smaller, less powerful competitors.
1930 Merger Mania: "The public's infatuation with talkies set off the greatest rush to the box office in the history of American movies...Profits for the major Hollywood companies soared (partly due to their anti-competitive practices which had put the smaller companies at a greater disadvantage with respect to showing sound movies). In 1929 merger became the order of the day. Warner Bros. took over First National; Fox (temporarily, it turned out) took control of Loew's and MGM. A year later, once the dust had cleared, there were five major players in Hollywood--Paramount, Loew's/MGM, Warner Bros., Fox, and RKO--and three minor studios--Columbia, Universal, and United Artists. The latter group, unlike their larger cousins, owned no theatres. The coming of sound had set in
place a corporate structure which would define the studio era of the 1930s and 1940s (and beyond)."
1930 Vertical Integration: Full vertical integration of production, distribution and exhibition became the standard for the major companies in the U.S. film industry. Affiliated exhibitor circuits were given preferential treatment over non-affiliated exhibitors with formula deals and advantageous clearances. Affiliated producing studios also had the stars (actors who could attract audiences) under contract.
1930 Antitrust/Reciprocal Preferences--"During the 1930s the competition for stars was controlled for the most part by major studios, who were much more willing to lend them to other major studios, who could reciprocate in kind or in cash, than to independents, who threatened their monopoly control."
1931 Loews-Fox Divestiture: "When (theatre acquisition)...moves were attacked by the Department of Justice under Section 7 of the Clayton Act, the Fox company agreed, in April 1931, to dispose of (its)...Loew's stock."
1932 B&K Decree: In 1932 the suit "...against Paramount's Chicago circuit, B&K (filed in
1928) achieved a consent decree enjoining unreasonable clearances, overbuying, exclusive first choice of films and long-term exclusive contracts." 1932 New Orleans Theatre Lawsuit: A lawsuit charging a theatre circuit with monopolizing prior runs in New Orleans was filed. It was later dismissed without action.
1932 Cleveland Distributor Lawsuit: A lawsuit that was about to be filed against distributors in Cleveland was avoided when the distributors offered exhibitors a new system of runs and clearances.
1932 Omaha Injunction: A uniform zoning and protection plan for the Omaha distributing territory was enjoined.
1934 Warner Bros. Suit: "The Clayton Act suit against Warner Bros....was finally dismissed in 1934."
1935 Grand Jury Indictment: Harry Warner "...was indicted by a federal grand jury in St. Louis on charges of conspiracy to violate the Sherman Anti-Trust Act, an offense punishable by a prison sentence of two years and a fine of $10,000. Ten other major film companies, including Paramount and RKO, and six individuals were also named...These companies and industry leaders were alleged to have 'cancelled franchises under which they agreed to furnish films and sought to coerce owners of buildings,' and in general 'conspired in the restraint of trade.' Harry (Warner) had been through all this before when several years earlier he had narrowly escaped being convicted on similar charges brought by a financier named Harry Arthur who felt he had tried to 'freeze him out by sealing up first-run movies.' With his acquittal, Harry thought the issue had been put to rest, but now, in 1935, the government was bringing suit against him. Harry had originally appealed to President Roosevelt to call off the Justice Department and not prosecute. Roosevelt refused...(during the trial) "Harry pointed out to his lawyer that one of the jurors was a 'Negro,' a man who had, no doubt, suffered through a lifetime of prejudice. 'Play up the point that I'm Jewish,' Harry told his lawyer. 'Stress the persecution that Jews have suffered in America.' When Harry's lawyer rested the defense's case, and the jury left to deliberate, Harry noticed that the black juror gave him a slight smile....The jury wasn't able to reach a verdict. Eleven had voted 'guilty' and one, the 'Negro,' had voted for acquittal. The judge declared a hung jury and the case was set for a retrial. In the interim, Harry sold Warners' interests in the movie theatres in question and the case never went to trial again."
1936 Robinson-Patman Act: Congress passed the Robinson-Patman Anti-Discrimination Act. This statute expanded the types of practices covered by the Clayton Act ban on price discrimination.
1936 St. Louis Theatre Leases: Warners Bros. abandoned its lease agreements with theatres in St. Louis and gave the competing independent theatre group a multiple-year contract to show Warner Bros. pictures avoiding any further litigation in St. Louis.
1936 Interstate and Texas Consolidated Lawsuit: The government sued the Interstate and Texas Consolidated theatre circuits operating in Texas and New Mexico relating to agreements with distributors involving price fixing. The exhibitors had obtained the agreement of the distributors not to allow their movies to be exhibited by subsequent run theatres who charged admission prices too far below the first run theatres. The case went to the U.S. Supreme Court and the agreement, partly proved through use of the doctrine of "conscious parallelism" was enjoined.
1936 Origins of Paramount Case: "The (Paramount) antitrust case against the Big Five and
the Little Three had its origins in the administration of President Franklin D. Roosevelt. In Roosevelt's second term, he turned to renewed enforcement of existing antitrust laws to help bring the nation out of the Great Depression. Independent exhibitors, allied with women's groups and religious leaders who blamed the movies for all evils in society, had long complained of Hollywood's excesses of power, its domination of film exhibition. Get Hollywood out of the theatre business, they argued, return control of theatres to hometown merchants, and the evil producers would begin making good, clean family movies."
1938 Paramount Case I: A series of Justice Department antitrust actions against the eight major vertically integrated motion picture companies was initiated (Paramount Case I). The suits sought, among other things, divorcement of production and distribution from exhibition. In a press release dated July 20, 1938, announcing the filing of the first Paramount case, the Justice Department said: "Freed from producer control, it is hoped that the country will become a free, open and untrammeled market to which all producers may have access for the distribution and licensing of films based upon merit. Exhibitors likewise will have access to all available motion picture products in accordance with their respective abilities to pay for and utilize that product." "...Thurman Arnold, the head of the Antitrust Division, charged the motion picture business had become 'an industrial dictatorship...' insisting that such concentrations of power were a threat to democracy, as well as an unfair tax on the people. Arnold said, '[t]he danger in this country is the private seizure of power. It is subject to no checks and balances, it is subject to no elections every four years, it is subject to no criticism and no attacks because no one even knows about it.' He added that he was interested in 'abolishing all monopolistic practices in the motion picture industry.' By October 1940, a settlement had been reached, although few changes were made. Many theatre operations remained under the control of the big studios."
1939 Schine and Crescent Theatre Circuit Lawsuit: The Justice Department filed antitrust suits against three independent theatre circuits Schine (operating in New York, Ohio, Kentucky and Maryland), Griffith (in the Southwest) and Crescent (in the South) accusing the exhibitors of devising a plan to secure the best films, first runs and strong clearance protection in the towns where they faced competition by threatening not to show first-rate films in the towns where they did not have competition. They apparently would outbid their competition in those towns were competition existed and make up the difference by offering the distributors very low rentals in the towns were they had no competition. These actions were designed to force out the competing exhibitors.
1940 Paramount I Consent Decrees: "In November 1940 the five majors accepted a consent decree (in the first Paramount case). It did not mention divorcement (of exhibition from distribution), but contained the following provisions (1) No more than five films might be sold in a single block. (2) Exhibitors must be allowed "trade showings" of films before sales were negotiated. (3) No shorts, reissues, westerns, newsreels or the like might be forced on exhibitors as a condition of receiving features. (4) Disputes about runs and clearances, and the forcing of features by distributors, were to be subject to arbitration. (5) None of the five majors was to buy any further theaters except to protect earlier investments or 'for ordinary purposes of its business.'" Hortense Powdermaker also commented on this decree, writing in 1950, "...the real backbone of the (motion picture) monopoly has been in the control by one company of production, distribution and exhibition...Since the majors have owned the first-run theaters which provide a large part of the film rentals, they have been their own best customers. This three-way control has been investigated by the Federal Trade Commission and the Anti-Trust Division of the Department of Justice for more than twenty years...A consent decree in 1940...(restricted) rentals in the block-booking to five films at a time, the elimination of blind selling...and an agreement by the five majors not to expand their theater holdings."
1940 Final Marketing Outlet: In the feature film theatrical business exhibition is the final marketing outlet, (i.e., the retail level of the business). From 1940 to 1948 (most of the years during which the second phase of the Paramount case was being litigated) the major studio/distributors of that period produced about 62% of the films and distributed
approximately 71% of the domestic films released. The major studio/distributors gained effective indirect control of feature film production through their control of first run theatres. By monopolizing the final marketing outlet they successfully curtailed entry by independent producers. The Paramount consent decree was partly intended to weaken the market dominance of the major studio/distributors, but did not succeed in the long-term to any significant degree.
1940 B&K Consent Decree Violations: Three defendants were fined for violating the B&K consent decrees of 1932
1944 Paramount Case II Starts: Recognizing that previous actions had not solved problems in the film industry, in August of 1944, the Justice Department "...asked for a new trial. This time...the government pushed for 'divorcement'--to divorce theatre interests from the studios' production and distribution enterprises."
1944 Crescent Theatre Circuit: The Supreme Court decided in favor of the government and against the Crescent theatre circuit in the antitrust suit brought against Crescent in 1939.
1945 Paramount Case II Trial: "As the trial (in Paramount Case II) started on October 8, 1945, the motion picture companies, in their defense, insisted that strict obedience to federal antitrust laws would destroy the film industry--to which the government replied that the studios needed to petition Congress to obtain exemption from the Sherman Antitrust Act." As it turned out, the Justice Department was wrong, since the studios only had to elect a President who would appoint top Justice officials that would leave the film industry alone (see "1980"). The District Court stopped short of divestiture, but ordered certain other practices to cease. The government and the studios appealed. (Note use by the studios of the "destroy the film industry" argument.)
1946 Paramount II Continued: "A new federal decree regulating the film industry was issued in 1946. It further banned block-booking and was designed to break monopolistic practices and encourage competitive ones. It also aimed at the partial divorcement of studios from theater ownership..." Hortense Powdermaker subsequently pointed out that "...[m]onopolies seem to continue in our country in spite of all the antitrust legislation. Sometimes the laws are not fully enforced. At other times, while the forbidden practices are stopped, different devices with the same goals take their place. How far legislation can keep strongly entrenched customs, particularly profitable ones, from functioning is an interesting but difficult question to answer for any society."
1946 Theatre Gets Treble Damages Because of Reciprocal Preferences: The Supreme Court approved a lower court decision awarding an independent Chicago theatre (Jackson Park) treble damages because of inequitable runs and clearances imposed by Paramount in favor of its affiliated B&K theatres. The court said that the licensing of Paramount's feature films in its own theatres first was not necessarily illegal, but that the Paramount/B&K scheme involved preferences granted to the other major studio/distributors for runs in Paramount affiliated theatres in return for reciprocal preferences in theatres controlled by the other major studio/distributors elsewhere in the country. Certain of the major studio/distributors were apparently engaged in a series of reciprocal preferences with each other to the detriment of independent producers, distributors and exhibitors.
1946 Statistics--"The movie industry during its peak year of 1946 recorded nearly 100 million admissions per week; by 1956, weekly attendance had dropped to 46 million. Feature film production fell from nearly 500 movies a year to 254 in 1955."
1948 Studio Market Share--"Releases of the national distributors bring in much larger gross receipts than the others, and in 1948...93 percent of domestic film rentals were accounted for by the eleven national distributors."
1948 Paramount Consent Decree of 1948--This is the popular name for the final judgments handed down by the U.S. District Court for the Southern District of New York, with respect to each studio/distributor or motion picture related defendant (Loew's, Paramount, Columbia Pictures, United Artists, Universal, American Theatres, Warner Bros., 20th Century Fox and RKO) in the U.S. v. Paramount Pictures case (Paramount II). "After a long series of hearings, appeals, and cross-appeals on several judicial levels, the Supreme Court, in May of 1948, handed down a landmark decision (in the government's ongoing antitrust case against Paramount and the other major studios) declaring the majors guilty of monopolistic practices in restraint of trade." A separate judgment was issued for each
of the nine defendants, and although similar, the judgments were not identical. Generally, the decrees prohibited certain trade practices (e.g., block booking, discriminatory pricing, unreasonable clearances, the fixing of admission prices), and with respect to some of the defendants, but not all, the decrees mandated that the defendants divest themselves of all motion-picture theatre holdings and prohibited the acquisition of theatres in the future. The decrees sought to put an end to so-called vertical integration, through which the motion-picture companies produced, distributed, and exhibited their film products to the public. The intention was to afford competitive theatres an equal opportunity to license motion pictures for commercial presentation.
1948 Block Booking Prohibited--The practice of block booking was addressed by the Paramount Consent decree. Block booking is the film distribution practice of tying together one or more motion pictures for licensing within a market, (i.e., a distributor will accept a theatre's bid on a desirable film or films contingent on the exhibitor's promise that it will also exhibit a less desirable film). The major distributors (at that time) were forbidden by the Paramount Consent decree from employing the practice. The basic premise of this decree was to prohibit block booking, (i.e., that motion pictures must be licensed picture by picture, theatre by theatre, so as to give all exhibitors equal opportunities to show a given film). Block booking also has a tendency to prevent independent producer access to certain theatres.
1948 Divestiture: The Supreme Court (in effect) ordered divestiture in the 2nd Paramount Case. Under the jurisdiction of the Southern District Court of New York, the major studios agreed to divest themselves from their ownership interests in theatre chains and entered (during the next several years) into consent decrees relating to certain prohibited business practices.
1948 Schine and Griffith Theatre Circuits: The Supreme Court decided in favor of the government and against the Schine and Griffith theatre circuits in the antitrust suits originally brought against the two exhibitors in 1939.
1948 Paramount II on Appeal: "On appeal by both parties, the Supreme Court voted 8-0 to uphold the general verdict of the trial court (in the 2nd Paramount case). The opinion, delivered by Justice Douglas on the same day in May 1948 as his Schine and Griffith
opinions, reviewed the whole series of restraints and found them to evidence "a marked proclivity for unlawful conduct" on the part of the defendants."
1948 Anti-Competitive Activities re Television--In the late 1940s and early '50s, Harry Warner "...joined with the heads of the other major studios, such as MGM, Twentieth Century Fox, Paramount, Universal, Columbia and RKO, in behaving as though television had to be a passing fad...The major studio bosses had an unwritten law: 'They would not sell their high-grade productions to television, even if the movies turned to dust in the film cans while locked in studio vaults." This episode involving television represents another example of the major film studios hostility toward innovation.
1949 Studio Conspiracy to Increase Film Rentals: "Some exhibitors attributed the reduction of (studio) output (of films) to a producer conspiracy to increase the rental on films by curtailing the supply. As early as 1947 and 1949 the same thought had occurred to writers who noticed the decrease in releases since 1943. No proof of this hypothesis has emerged, however, and...the smaller producers also decreased their output."
1950 Celler-Kefauver Act: Congress passed the Celler-Kefauver Act. This statute expanded the scope of the anti-merger section of the Clayton Act. It established that mergers between companies that were not competitors might still violate the U.S. antitrust laws if the effect of such a merger "...may be substantially to lessen competition."
1950 FTC Reorganized: A Presidential Executive Order reorganizing the Federal Trade Commission was issued. The order gave the FTC's chairman more authority.
1950 More Anti-Competitive Activities re Television: "Television was a dirty word to Jack Warner, and he refused to even allow a TV set to appear in a film scene, even after they had become common pieces of furniture."
1951 Competition With Television and Innovation--"In a classic case of product differentiation, Hollywood looked to new film technologies (color, wide screen effects and 3-D) to tempt patrons back to the theatres. That is, the American film industry would seek to make films which looked very different from the black and white video images
television sets were broadcasting into homes throughout the United States. The first of the so-called new film technologies were inventions which had been long available to the movie studios but had not been required for profit making during...the 1930s and
1952 Arbitration Negotiations: Exhibitor representatives walked out of negotiations with distributors relating to the establishment of an arbitration system to handle disputes over film availabilities, runs and clearances because the distributors refused to include rentals among the list of topics to be arbitrated. A trend toward increased distributor rentals had emerged following the Paramount consent decrees.
1952 Loews Signs Consent Decree: The Loews Theatre chain became the last of the Paramount Case II defendants to accept a version of the consent decrees.
1952 Exhibitor Indictments: Two exhibitors in Terre Haute, Indiana were indicted for pooling their theatre operations and profits. Both eventually signed consent decrees.
1953 Senate Hearings: The Senate Small Business Committee's Monopoly subcommittee held hearings on film exhibitor problems and complaints concluding with recommendations that the Justice Department enforce the antitrust laws more vigorously in the film industry and that the industry establish its own system for arbitrating disputes between exhibitors and distributors.
1953 Treble Damage Lawsuits: A flood of treble damage antitrust lawsuits filed by exhibitors against the Paramount case defendants reached a peak with total claims estimated at $600 million. The Paramount consent decrees were used as evidence against the distributors in such cases although most of these lawsuits were settled for a small percentage of the claimed damages.
1954 Crest Case: The Supreme Court established two important antitrust law principles in favor of the defendant major studio/distributors in the so-called Crest case: (1) that parallel behavior which could have an individual business explanation and lacked supporting evidence would not be accepted as establishing a conspiracy and (2) the relevance of the Paramount decisions to events occurring after 1948 would not be considered significant. Following the Crest decision, most of the exhibitor antitrust lawsuits still pending against the major studio/distributors were dropped or settled.
1956 More Senate Hearings: The Senate Small Business Committee's Monopoly subcommittee (made up of mostly different members) again held hearings and concluded by suggesting recommendations generally considered anti-exhibitor.
1956 False Box Office Reports: Some exhibitors "...who found their profits squeezed out of existence between high (distributor) rentals and disappointing receipts (would)...falsify their box office reports..."
1957 MCA Packaging: The U.S. Justice Department "...became interested in possible litigation against leading talent agency) MCA....the focus of (government antitrust attorney Leonard Posner's investigation)...was the 'tie-in' device by which a producer was forced to take an entire package rather than selected individuals. 'If scripts are copyrighted (as they probably are),' Posner wrote, 'the tie-in' may well be a 'per se' violation of the antitrust laws...Even assuming that monopoly is not involved, the restraints may be unreasonable."'
1958 MCA Purchase of Universal: "On December 16, 1958, MCA (the talent agency) and Revue Productions purchased the run-down 367-acre backlot of Universal Pictures...Soon after the contract was signed, Universal received a glut of MCA-represented clients for its motion pictures."
1959 FBI Investigation of MCA: On January 8, 1959, the Justice Department finally authorized a full-field FBI investigation of MCA saying: "MCA may be restraining trade (a) by refusing to book its artists in productions competing with those under MCA control, (b) by compelling producers to hire writers and directors in order to obtain [acting] talent (i.e., packaging), (c) by compelling producers to hire talent in order to obtain scripts, writers or directors, (d) by obtaining representation of talent through predatory practices, (e) by refusing to book talent at terms satisfactory to the talent but not to MCA (which practice may be accomplished by failing or omitting to inform talent of offers), or (f) by monopolizing the talent agency and the booking business."
1961 FTC Reorganization: Another Presidential Executive Order was issued to reorganize the Federal Trade Commission. This order permitted delegation of FTC authority from its central office to divisional FTC offices.
1961 Kennedy Attack on Antitrust Violators and Organized Crime--"John F. Kennedy was inaugurated as president of the United States in January 1961 and had already
appointed his brother, Robert F. Kennedy, as attorney general. Under Kennedy, the U.S. Justice Department pledged that among its top priorities would be prosecutions of the nation's top Mafia leaders, their associates, and antitrust violators."
1961 MCA Probe: After several abortive attempts to investigate MCA for antitrust violations, the federal government--upon the election of John Kennedy as president and the appointment of Robert Kennedy as attorney general--began a concentrated probe into MCA's business affairs...charges...included restraint of trade, conspiracy...to monopolize talent and film program productions, extortion, discrimination, blacklisting, and the use of predatory business practices..."
1961 Grand Jury Investigation of MCA and Consent Decree: "...on August, 25 (1961), Attorney General Robert Kennedy authorized a federal grand jury to be convened in the Southern District of New York to investigate the numerous charges against MCA." The request for authorization stated '...MCA's power has created fear of retaliation, including the 'blacklist' of talent and the boycotting of producers from access to 'name' talent. The alleged existence of boycotts, blacklists, predatory practices, and per se violations (such as 'tie-ins') may provide a basis for a criminal suit, and thus makes desirable the empaneling of a grand jury." "...after lengthy negotiations between attorneys for the Justice Department...and MCA, a consent decree was issued and the case was considered closed."
1962 Block Booking Violations by "Paramount" Defendants: Block-booking was again found to be a violation of the Sherman Antitrust Act when six distributors, some of whom were already subject to the Paramount consent decrees were held to have illegally block- booked feature films to television stations. Block booking is considered a form of illegal tying arrangement.
1962 Antitrust Civil Process Act: Congress passed the Antitrust Civil Process Act. It provided the Justice Department with the authority to compel businesses to turn over their records for use in civil antitrust investigations.
1962 MCA Sale of Talent Agency: The federal government "...was notified that MCA would 'dispose' of its talent agency on July 18, 1962...MCA assured the government that its talent agency would be 'transferred to various present employees of MCA who, upon the transfer being accomplished, will no longer be employed by or connected with MCA in any capacity'...the government...(filed) a complaint (on July 13)...approved by Attorney General Robert Kennedy, in federal court, and charging that MCA and its subsidiaries had violated the Sherman Antitrust Act. Named as co-conspirators were the Screen Actors Guild for its July 1952 and June 1954 blanket waivers granted to MCA, and the Writers Guild of America, West...for its April 1953 MCA waiver. At the same time, the Justice Department filed for and received a ten-day temporary restraining order against MCA, in an attempt to prevent MCA from selling off its talent agency to its former employees on July 18."
1962 MCA Settlement Order: On July 23, 1962 MCA finally signed a settlement order stating that "...MCA would completely dissolve its talent agency without selling it or receiving anything for it. Further, MCA was forced to surrender all of its guild or labor union contracts and licenses regarding its talent agency throughout the world..." On the other hand, "MCA...was not required to admit any civil or criminal guilt."
1963 Erosion of Distributor/Exhibitor Divorcement: Official divorcement of exhibition from film production and distribution in the U.S. marketplace first began to erode. The U.S. District Court of the Southern District of New York, partly on the recommendation of the federal government, permitted National General Corporation (an exhibitor previously enjoined from engaging in production and distribution) to produce and distribute motion pictures on a small scale. The decision was at least partly based on a perceived product shortage in the marketplace and was granted on condition that National General compete for its own pictures theatre by theatre, solely upon the merits and without discrimination in favor of affiliated theatres, including theatres operated by National, consistent with the terms of the Paramount Consent decrees.
1968 Prohibited MCA Merger: "Under Lyndon Johnson, the Justice Department delayed MCA's proposed merger with Westinghouse in 1968 on antitrust grounds; the two companies finally dropped their plans.
1969 National General Theatre: The National General theatre circuit (formerly National Theatres which had been divorced from Fox as part of the Paramount consent decree)
sought to extend the District Court's permission to engage in film production and distribution. The Court reaffirmed the general principle of distributor-exhibitor divorcement but allowed National General to continue producing and distributing its movies subject to two new prohibitions: (1) National General could not show a preference for exhibiting its movies in its own theatres and (2) it had to keep records explaining why its films were played in its own theatres instead of a competing theatre and why its pictures played there instead of a feature of a competing distributor.
1969 National General Modification: National General sought another modification of its previous court order, this time, permitting it to purchase a portion of the corporate shares of First Artists Production Company and to obtain the worldwide distribution rights to nine films to be delivered by First Artists. The Court granted National General's motion.
1972 Distributor Market Share: The structure of distribution in the industry in the early 1970s resembled that of the years preceding the Paramount decision. Some of the names have changed, but the top ten distributors got about 95 percent of gross receipts in 1972, the same percentage as the top eight in the earlier period. The top three in 1972 received more than half of the total.
1975 Discriminatory Blind Bidding: The Justice Department sent an advisory letter to film distributors saying it would not tolerate discriminatory blind bidding, and stating further that it "...is discriminatory to screen (i.e., preview a movie for exhibitors) for some of the bidding or negotiating exhibitors in a given local market and not for others.
1976 Hart-Scott-Rodino Act: In a continuing effort to further strengthen U.S. antitrust laws, Congress passed the Hart-Scott-Rodino Act. This statute expanded the 1962 Antitrust Civil Process Act by providing the Justice Department with the authority to issue civil investigative demands to third parties (others besides the company being investigated), including competitors of companies under investigation and to compel oral testimony and answers to written questions. This law also imposed a notice requirement on certain large companies contemplating a merger. Such notice must be provided to the Justice Department and the Federal Trade Commission 30 days in advance of such a merger. This statute also authorized state attorneys general to bring treble damage lawsuits in federal court on behalf of state citizens injured by violations of the Sherman Act.
1977 Harkins Lawsuit: Phoenix-based Harkins Amusement Enterprises filed suit against 8 major distributors and several exhibitors in 1977 alleging illegal product-splitting, blind bidding, illusory advances and guarantees, circuit-wide deals, block-booking, bid-rigging, moveovers, illegal clearances and shared monopoly. Harkins sought $3 million in damages. Seven of the major studio/distributors were granted a summary motion for dismissal eight years later, leaving only Buena Vista as the sole distributor defendant since it did not join in the summary motion. Exhibitor defendants were United Artists Communications, Mace Theaters, (an Arizona circuit) and American Multi-Cinema.
1977 Paul Newman v Universal: Sometime in the late '70s, Paul Newman sued Universal relating to the movie The Sting (released in 1973) alleging violation of antitrust laws. The court dismissed the suit saying a profit participant does not have standing to sue on antitrust issues.
1977 Exhibitor Product Splitting Agreements: The Justice Department announced that all "split agreements" by exhibitors with or without the consent of the distributors violate the antitrust laws. Pursuant to such agreements, a group of exhibitors in a local market would agree to allocate available films in release in an equitable manner as between them (i.e., as between the exhibitors).
1978 Studio Market Share--The major movie producer-distributors continued to clearly dominate the theatrical movie industry. Collectively, these companies accounted for 89.1 percent of the domestic rentals in 1978.
1978 Secret Information Exchanges: The black books (of United Artist's CEO Andy Albeck) contained columns of figures earned by each picture released by each major company. They were exchanged on a monthly courtesy basis by the several chief executive officers of the competing major studio/distributor and were privileged and confidential: bottom- line numbers, picture by picture, month by month, dollar by dollar.
1978 Theatre Owner Sues Major Distributors: A film exhibitor in the Omaha area (Admiral Theatre) brought an antitrust action against other exhibitors who had entered into a split
arrangement, and against distributors including Universal, Paramount, Warner Bros., Columbia, Allied Artists and 20th Century-Fox. The court held that the motion picture theatre owner who claimed the violation of the Sherman Act on the part of film distributors and other theatrical owners was not required to directly prove the fact of an agreement among the distributors, or between the distributors and other theatre owners. The court said that evidence from which an agreement could be inferred was sufficient. Evenso, defendants were able to obtain a directed verdict because the evidence did not establish that the distributors had participated in a conspiracy to violate the antitrust laws and the plaintiff did not show any injuries resulting from the defendant exhibitors' agreement.
1979 Cable Consortium Injunction: "Toward the end of the Carter administration...(a) new cable television network, named Premier--a consortium of Hollywood studios, including MCA-Universal, Twentieth Century-Fox, Columbia Pictures, and Paramount--was closed...after an injunction was filed against it by the Carter Justice Department, less than four months after the joint venture was announced...antitrust Division attorneys charged that the project was 'anti-competitive' and that it would be engaging in price-fixing and group boycotting. Premier had promised subscribers that it would offer motion pictures from its participating studios at least nine months before the same films would be offered to Home Box Office...or Showtime...which were taking in twenty to thirty percent of the pay-TV subscription fees for distribution while the studios were getting only about twenty percent versus the forty-five percent they received from the (theatrical) box office. The studios stood to make an additional $450 million a year in the long term had Premier gone into operation. Those companies involved in Premier lost over $20 million as a result of the antitrust action while profits in cable television had jumped from $192 million in 1978 to $400 million in 1979."
1979 Campaign Contributions: Federal Election Commission campaign contribution records indicate significant amounts of campaign contributions were made by the MPAA Political Action Committee, the PACs of individual MPAA member companies, their high level individual executives and the spouses of the such executives to the successful presidential campaign effort of film industry friend Ronald Reagan.
1979 Loew's Consent Decree: Loew's Theatres filed a petition with the U.S. District Court asking that the consent decree it signed in 1952 be vacated so that it could once again produce and distribute motion pictures. Although denying Loew's motion to vacate its decree, the theatre chain was permitted to re-enter production and distribution provided that it agreed not to exhibit in its theatres any films which it produced or distributed or in which it had a financial interest. Loews also had to agree to license its films theatre by theatre on the merits and without discrimination and not to engage in reciprocal preference arrangements with other theatre chains.
1980 TriStar Case: Loews' Theatres petitioned the judge who had been supervising the implementation of the Paramount consent decrees for slightly more than three decades for relief which would allow Loew's to enter the motion picture distribution business in addition to its activities as an exhibitor. The motion was granted subject to several conditions including (1) Loew's could not could not exhibit any films it distributed or any films in which it had a financial interest and (2) as a distributor, Loews's had to abide by the same conduct restrictions imposed by the original Paramount decree.
1980 Friend of Hollywood Elected President--The most powerful group of companies in the motion picture business, the MPAA, finally realized a long-term goal with the installation of its friend, Ronald Reagan, in the U.S. Presidency during the decade of the 1980s. Reagan did not disappoint the MPAA when he adopted a policy of relaxed federal antitrust law enforcement for the entertainment industry. That policy change made it possible for some of the MPAA companies to re-enter the exhibition arena, become even more vertically integrated than they had been since the 1940's and regain the additional clout in the market place that would allow them to exert even greater control over the exhibition, distribution and production of feature films, generally at the expense of the independent producers and independent distributors.
1980 Virginia Exhibitor Sues Major Distributors: An independent motion picture exhibitor (Wilder Enterprises of Virginia) brought an antitrust action based on allegations that the
defendants (Allied Artists, Avco Embassy, Buena Vista, Columbia, Paramount, 20th Century Fox, United Artists, Universal, Warner Bros., MGM, General Cinema Corp. and others) deprived the exhibitor of first-run films and caused its theaters to close by entering into an agreement to allocate first-run films in violation of the Sherman Act. The court held that the elements necessary for recovery under the first section of the Sherman Act are an agreement, conspiracy or combination among defendants in restraint of trade, injury to plaintiff's business and property as a direct result and damages that are capable of (reasonable ascertainment and are not speculative. The district court held that there was sufficient proof against three of the exhibitors and six of the distributors to warrant submission of the case to the jury. And, on appeal, the case was affirmed in part and remanded for retrial in the district court.
1980 History of Paramount Cases: Judge Edmund Palmieri, the Southern District of New York district judge who had administered the Paramount consent decrees for some thirty years wrote a history of the Paramount cases saying that since the "...original Paramount decrees, the motion picture industry has changed considerably..." He then went on to describe such changes in the industry by reference to both technology and the emergence of new companies that are not affected by the original decrees.
1980 FTC Reauthorized: Congress reauthorized the existence and authority of the Federal Trade Commission, and in doing so, barred the FTC from regulating trade groups that set product and industry standards, or from petitioning the patent office to cancel a trademark on the grounds that it had become the common name of an item. In that same 1980 reauthorization, Congress also attempted to give itself the power to curb certain FTC operations by allowing a legislative veto of agency regulations. This provision was held unconstitutional by the Supreme Court in 1983.
1980 MCA Finally Moves Into Pay Television: "MCA finally broke into the pay-television market by investing in the USA Network...but then the Reagan Justice Department stopped an effort by MCA (with Paramount) to buy into a merger between Showtime and the Movie Channel, the second and third largest cable networks."
1981 Justice Department Changes Policy Under Reagan Appointee: President Reagan's first antitrust chief in the Justice Department (William Baxter) announced that he had no "...concerns about vertical mergers..." He subsequently declared that "...vertical mergers are never anti-competitive." He
added that in merger enforcement, "...an industry trend toward concentration is not a factor that will be considered."
1981 Vacating Paramount Decrees: The Reagan Justice Department initiated an investigation into the possibility of vacating the Paramount consent decrees.
1981 Pro-Active Justice Department: The Justice Department sent letters to certain motion picture companies inviting them to commence Paramount decree-related litigation, but none of the companies applied to lift or amend the decrees in response to such letters.
1982 FTC Policy Changes: President Reagan's first appointment to the Chairmanship of the Federal Trade Commission (James C. Miller, III) told Congress that "...vertical mergers generally do not involve the elimination of direct competitors, and, as a consequence, they are generally far less troublesome than horizontal mergers and their anti-competitive effects are difficult to analyze or predict." As a result of the change in policy partly brought about by the Reagan appointees, certain of the major studio/distributors reembarked on a strategy of vertical integration and merger.
1982 Merger Guidelines: The Justice Department adopts merger guidelines which were subsequently revised in 1984 (see below).
1984 Vertical Integration Issues: Following the issuance of the Justice Department merger guidelines and the TriStar Case, questions relating to whether film industry companies are vertically integrated at the distributor/exhibitor levels, and if so, whether such integration makes it more difficult for other companies to compete at those levels of
the industry without being vertically integrated have been pivotal to the analysis regarding the anti-competitive effects of vertical mergers in the U.S. film industry.
1984 Merger Guidelines Revised --The Justice Department revises its merger guidelines saying although mergers sometimes harm competition, "...mergers generally play an important role in a free enterprise economy..." A Justice Department statement issued on June 14 said: "While challenging competitively harmful mergers, the department seeks to
avoid unnecessary interference with that larger universe of mergers that are either competitively beneficial or neutral..." The guidelines provided a six-part analytical framework for use as a guide in analyzing the competitive effects of a proposed vertical merger in the motion picture business. The guidelines are supposedly based on the Justice Department's analysis of Clayton Act cases. The guidelines ask: (1) Does the contemplated merger significantly foreclose other competitors (e.g., exhibitors) from access to motion pictures or access on competitive terms? (2) Does the proposed merger significantly foreclose other competitors (e.g., distributors) from access to theatres or a substantial portion of theatres? (3) If actual competitors are not likely to be foreclosed from access to motion pictures on competitive terms, does the proposed action nonetheless effectively force actual or potential competitors to enter or continue in the distribution or exhibition business on a vertically integrated basis? (4) If vertical integration is effectively required in order to enter or continue in the business, how difficult is to it to achieve vertical integration? (5) If vertical integration is required, and if there are significant barriers to such integration, is the market otherwise conducive to (i.e., will it allow) non-competitive performance? and (6) Does the proposed vertical merger have offsetting positive benefits for the economy by creating efficiencies?
1985 Some Congress Members Dislike Guidelines: The Justice Department's new vertical restraint guidelines (for all industries) angered some members of Congress. The Department's position as reflected in the guidelines was that vertical restraints not involving price-setting should be presumed to be legal and pro-competitive. Congressional critics argued that the guidelines were not consistent with current antitrust law nor with the intent of Congress on how those laws should be enforced.
1985 Paul Newman Sues Universal: "...Paul Newman and a prominent director...George Roy Hill had the guts to file a federal antitrust suit in 1985 alleging price fixing because the studios refused to pay more than their standard 20 percent royalty on video receipts, their case was thrown out on a technicality."
1985 Columbia Buys Walter Reade Theatres: Columbia Pictures purchased a controlling (58%) interest in the New York-based Walter Reade chain of theatres for $19.9 million.
1985 Movie/TV Integration: Rupert Murdoch "...created the first integrated movie-television company when he bought 20th Century Fox and combined it with his chain of six independent television stations, each located in a large city."
1985 Paramount Consent Decrees Continue: The Justice Department announced that it would not seek termination or modification of the Paramount consent decrees due to a lack of interest by most of the distributor defendants. The major studio/distributors
may well have felt it unnecessary to petition the court for such relief, since the consent decrees currently have little if any impact on their operations.
1985 Distributors Win Again: Theatre owner Universal Amusements had filed a lawsuit that was tried in a Houston federal court. The suit contended that other film exhibitors and film distributors (including Columbia, 20th Century Fox, Warner Bros., United Artists, Buena Vista, General Cinema, ABC Theaters (now Cineplex Odeon/Plitt), Interstate Theaters and Loews) had engaged in anti-competitive activity violating the federal Sherman Act and that they had tortiously interfered with valuable business and contractual relationships existing between the theater and others. The antitrust allegations specifically charged illegal product-splitting, unlawful clearances, monopolistic practices, limitation of prints and distributor-circuit collusion. The Houston-based theatre circuit had sought $1.9 million in damages. On November 22, 1985, Federal Judge John Singleton issued a directed verdict of insufficient evidence against the defendants. Such a ruling does not mean that the alleged acts did not occur, only that the plaintiff theatre owner did not have enough evidence to prove any violations of the law in court.
1985 Refusals to Sell--Some movie distributors, such as MGM, were "...refusing to sell films to (Hollywood outsider) Turner (and his Atlanta based superstation) at any price...Ted Turner concluded early in 1985 that the major networks and distributors were trying to put the squeeze on him...(so he worked out a complicated purchase and partial buy-back arrangement with Kirk Kerkorian, ending up with the MGM/UA
library)...some thirty-five hundred..." movies. Subsequently, Kerkorian and Turner were
criticized by many in the Hollywood insider community for this transaction.
1986 Columbia/TriStar Buys Loew's Theatres: Columbia Pictures purchased the 230-screen Loew's theater chain for $200 million and attempted to acquire 1200 screens operated by United Artists Communications.
1986 Universal Buys Interest in Cineplex-Odeon: Universal Studios parent, MCA purchased a $75 million stake in Cineplex Odeon, the second largest theater chain in the country, operating some 1600 screens in 490 locations across twenty states.
1986 Loews/TriStar Seeks Relief From Injunctions: After TriStar acquired Loews in 1986, those two entities "...applied (in November) to the court for interim relief...to permit TriStar's films to be exhibited in Loews theaters over the lucrative Christmas release period; and...to be free of the trade practice injunctions in its dealings as a distributor with exhibitors other than Loews. Judge Palmieri granted this relief, but only on an interim basis.
1986 Warner Bros. Wants to Exhibit: Warner Bros. filed a motion with the District Court of the Southern District of New York for permission to engage in exhibition without prior court approval. The motion was granted on condition that Warner hold any acquired theatres separately and seek court approval after a review by the Justice Department.
1986 Paramount Buys Theatres: Paramount acquired 119 theaters for $285 million. Included in the purchase were the western regional Mann and Festival chains and well as the eastern regional Trans-Lux chain (in Connecticut and the upper east side of
Manhattan). These theatres were combined by Paramount into one circuit named Cinamerica Theaters.
1986 Justice Position on Paramount Decrees: MPAA President Jack Valenti is quoted in Forbes magazine as saying that the MPAA was recently told by Justice Department officials that the 1948 Paramount "...consent decrees are outdated, and if anyone spends the money to challenge them, the (Justice Department's) antitrust division won't argue." Apparently the MPAA did not want to spend the money to initiate such a challenge.
1986 Antitrust Reform: The Reagan administration asked Congress to make the most significant reforms in antitrust law in decades. The Reagan proposals raised controversial issues relating to when and how the government should intervene in the marketplace. The administration's legislative package primarily sought to facilitate mergers and to reduce the penalties for certain economic practices that could cost violators millions under current law. The Reagan reforms generally favored big business, and within the film industry, they favored the major studio/distributors.
1987 TriStar Case Continues: Permanent Relief: In March of 1987 Loews and TriStar sought permanent relief from the Paramount consent decree and from the 1980 order. The Reagan era Justice Department came out in strong support of TriStar's application, and in doing so it set forth what it considered to be the proper analytical framework for analyzing the competitive effects of a vertical merger, at least in the motion picture business. The Department of Justice's approach (a six-part test) was derived from its
analysis of Clayton Act cases and its own 1984 Merger Guidelines. The motion was granted.
1987 Warner Bros. Becomes Exhibitor Partner of Paramount: The major studio/distributor Warner Bros. notified the Justice Department of its intent to purchase an interest in Cinamerica (owned by fellow major Paramount). The Justice Department's investigation concluded that the Paramount-Warner acquisition would have no significant impact on other exhibitors' access to films and the Justice Department declined to challenge Warner's acquisition. In its petition to the district court seeking approval to purchase an interest in Cinamerica, Warner Bros. relied on affidavits of former Justice Department attorney Maurice Silverman, who monitored the enforcement of the Paramount consent decrees for more than 25 years. Silverman put forth the argument that the antitrust laws provide adequate protection for insuring competition in the U.S. film industry. On the other hand, Judge Palmieri stated that he did not '...believe that the mere existence of the antitrust laws...is enough to permit us to sit back and allow the dismantling of the consent judgments." Judge Palmieri was following the populist view of the antitrust laws which holds that such laws are designed to prevent the larger firms in a given industry from exploiting the smaller companies. This view also contends that if vertical integration is not subject to government regulation and control, it may lead to anti-competitive abuses.
The Silverman position represents the so-called "Chicago School" of antitrust law which holds that the goal of the U.S. antitrust laws is to promote economic efficiency. Judge Palmieri rejected the view that the federal antitrust laws, standing alone, were sufficient to ensure that the U.S. film industry would remain competitive and went on to repeat the earlier charge made in 1948 by Supreme Court Justice Douglas saying that the film industry "...has shown a proclivity for anti-competitive behavior when given the opportunity."
1987 Vertical Integration Revisited: The entertainment industry trade paper Variety estimated that some 4,357 theatre screens had recently changed ownership and that most of the theatre chain purchases were made by Tri-Star, Cineplex Odeon (50% owned by MCA/Universal at the time) and Paramount. Columbia Pictures owned about 35% of Tri- Star at the time and had earlier purchased the 11 screen Walter Reade chain in New York, which it subsequently sold.
1987 Ongoing Movie Wars: Organized crime investigative journalist Dan Moldea stated in his book Dark Victory--Ronald Reagan, MCA and the Mob, that from the perspective of "...federal attorneys, the major motion picture studios had always attempted to monopolize what the American people heard and saw at their local theatres. To the movie moguls, the American government had always tried to restrict their ability to participate in the free-enterprise system."
1987 Harkins Sues UA and Buena Vista: An action was brought by Harkins Amusement Enterprises in the U.S. District court in Arizona against the Harry Nace Company and various motion picture distributors (including United Artists and Buena Vista) and film exhibitors alleging violations of the Sherman Act and related federal claims, as well as violation of the Arizona Consumer Fraud Act. The court held that the exhibitors were
entitled to a summary judgment on the federal claims and that the plaintiff would have to file the consumer fraud claims in an appropriate state court.
1988 Seven Distributors Dismissed in 2nd Harkins Case: The independent film exhibitor (Harkins Amusement Enterprises) brought an antitrust action against certain regional motion picture exhibitors and national film distributors. Harkins alleged illegal product- splitting, blind bidding, illusory advances and guarantees, circuit-wide deals, block- booking, bid-rigging, moveovers, illegal clearances and shared monopoly. The Harkins case was one of eight antitrust suits combined in multi-district litigation in Houston Federal Court, and then remanded to the individual jurisdictions in which each filing originated. The seven film distributors were ultimately granted a summary motion for dismissal in the eight-year-old antitrust case in which Phoenix-based Harkins Amusement Enterprises sought $9 million in damages ($3 million trebled) from the distributors and three exhibitor defendants. The court stated that a supplier's right to set terms and choose customers is considered so important that antitrust plaintiffs are required to do more than merely allege conspiracy and unequal treatment in order to take a case to trial. The court also stated, however, that concerted action in violation of the Sherman Act may be inferred from circumstantial evidence of a defendant's conduct and course of dealings.
1988 Warner Bros. Theatre Purchase: Warner Bros. completed its purchase of a one-half interest in Paramount's 500-screen theatre chain under the court ordered limitations that it not participate in Cinamerica's management, operations and internal affairs.
1988 Attorney Makes Studio's Case: Antitrust attorney Tim McCoy published an article setting forth his pro-studio argument that the Paramount consent decrees should be abandoned and that the theatrical film market should be considered for antitrust analysis purposes to be in the same market as home video by saying: "...today's industry can remain competitive without continued application of the Paramount decrees, which at best apply unevenly to some but not all industry participants." McCoy further stated that the "...Paramount cases were decided at a time when movies exhibited in theatres could easily be defined as a relevant product market...there is growing evidence that movies shown in theatres and videocassette movies shown at home compete head-to-head in the same relevant product market, but no reported case has recognized this new reality." McCoy continued by saying: "Videocassettes have become a real and rational consumer substitute for viewing the same movies shown in theatres." His argument is based on the earlier court holding that the "...clearest indication that products should be included in the same
market is that they are actually used by consumers in a readily interchangeable manner." Of course, attorney McCoy overlooks the fact that the film industry has succeeded in distinguishing the theatrical film experience from that of the home video experience, thus his argument is not valid (see discussion below). McCoy also makes the following apparently contradictory statement in the same article: "Differentiating the theatrical moviegoing experience from videocassettes and other film media is an obvious, if not intended, effect of the dramatic increase in theatre investment."
1988 Foreign Antitrust Complaint: "Daram Dass, largest individual distributer of American films in India, (threatened)...to take the Motion Picture Association of America to court in January (1988) over the new contract (the MPAA was)...about to sign with the Indian government. According to Dass, the contract prescribes a $2,000 per-film import fee for the Americans, while private importers pay $15,000. 'It's a monopoly that has to be broken,' said Dass, a nonresident Indian who has released A Passage to India, Supergirl, Santa Claus, Delta Force and Death Wish II (in India) and who (at the time had)...10 films pegged for release in 1988, including Nowhere to Hide, four Hemdale pictures and others from Lorimar and DEG. Calling the Americans' privileged relationships with Indian theater owners 'a shutout,' the distrib laments a chronic lack of screen time for exhibs who prefer to work with volume trade from the majors, renting screens on an annual contract basis for some 100 releases. Dass, said, 'We have 10 films in stock with no screen time.'" The Dass complaint echoes complaints of independent distributors all over the world.
1988 Columbia Buys More Theatres: Columbia acquired the 325-screen USA Circuit theatre chain for $165 million and engaged in talks to acquire another chain, USA Cinemas, which operates 317 theaters in eight states and dominates first-run exhibition in Boston.
1988 Video Royalties & the 20% Rule--"The U.S. Supreme Court (in the summer of 1988)...refused, on a technical question, to reconsider a 1985 lawsuit filed against Universal Studios and its parent, MCA Inc., by actor Paul Newman and director George Roy Hill. However, as Alex Ben Block reports, the ruling does nothing to quash the allegation made in the suit that the major Hollywood studios are conspiring to deny profit participants in movies and TV shows their fair share from the sale of videocassettes...The crux of the matter is what Hollywood lawyers, agents and studio business affairs executives call 'the 20% rule.' It means that the studios, in dividing up each dollar received from home video (and laser video disc) sales and rentals, assigned an arbitrary share of 20% of the total as profits. Those profits are the amount later used to calculate how much will be paid to profit participants in a movie or TV program. That means if an actor or director or writer is to get 10% of the net profits, they are actually getting only 10% of the 20%. It is one of those issues that frequently raises cries of 'creative accounting.'"
1988 Attorney Dekom Observes: Los Angeles Entertainment attorney Peter Dekom makes the following observation regarding theatre purchases by major studios: "In the late 1980s it was very much a major studio trend to purchase movie theatres. Each studio believed that once the feeding frenzy commenced, they would be at an extreme disadvantage if all the other major studios owned theatres and they were left out in the cold." Of course, if the major studio/distributors believed they would be "...left out in the cold..." unless they were vertically integrated, where does that leave the smaller independent distributors? Such rhetoric from a knowledgeable Hollywood entertainment attorney would seem to suggest that theatre purchases by major studio/distributors are clearly anti-competitive (i.e., they give the major studio/distributors a clear competitive advantage over the smaller and less powerful independent distributors who are competing for screen time).
1988 Justice Department Report: In its "Report of the Department of Justice on the Legality of Customer Selection Under the Injunction in the Paramount Decrees Against Discrimination in Film Licensing", Justice Department attorneys Michael Boudin and Frederic Freilicher set forth the Department's views relating to permissible and impermissible film licensing practices.
1988 Block Booking Continues/Fox Conviction: 20th Century Fox was convicted of criminal contempt charges for the failure of one of its employees (Leila J. Goldstein) to comply with the injunction against block booking, one of the illegal practices enjoined by the
Paramount consent decrees. The Fox employee, working in the Minnesota, Wisconsin and South Dakota market in 1984 and 1985 engaged in so-called "coercive sales practices". The major studio/distributor was fined by N.Y. federal court Judge Edmund L. Palmieri $500,000 plus some $40,000 in court costs (December 7th) after a four-day trial. The MPAA filed a brief in support of its member company (20th Century Fox) on appeal.
1989 MPAA Support for Fox: "The Motion Picture Association of America has come to the defense of 20th Century Fox in the distributor's appeal of its block-booking conviction (in the Fall of 1988)...In a friend-of-the-court brief, the MPAA declared, 'A corporation should not be found in criminal contempt because of the alleged wilfulness of a single employee.' The brief filed with the U.S. Court of Appeals (in New York) further states, 'The narrow issue in this case is whether willfulness of an employee, whose alleged violations of a decree's demands (referring to the applicable Paramount consent decree) were continued and episodic, may be attributed to a company which concededly had achieved general compliance and which offered to prove the absence of a corporate willfulness through its compliance program.'" On appeal, Goldstein's conviction was upheld but the $500,000 penalty assessed against Fox was vacated.
1989 Viacom Sues Time Warner: Viacom filed a $2.4 million antitrust action against Time Warner claiming the world's largest entertainment/communications conglomerate engaged in illegal, anti-competitive and monopolistic activities.
1989 Syufy Lawsuit in Las Vegas: In a decision subsequently affirmed by the 9th Circuit, a California federal district court held that the "...advent of vast and rapid technological changes in the (film) industry resulting in substantial nontheatrical exhibition requires the Court to reassess the validity of limiting the product market (for purposes of antitrust analysis) to first-run exhibits." In the case, the government sought to force the sale of certain first-run theatres in the Las Vegas area on the grounds that the defendants were monopolizing this market in violation of section 2 of the Sherman Act. The court rejected this attempt. In other words, the Las Vegas theatre monopoly was allowed to continue.
1989 Sony Buys Columbia/TriStar: Japanese electronics hardware manufacturer Sony purchased Columbia/Tri-Star including the 870 screen Loews theatre chain.
1989 Harkins Returns--The movie theater owner (Harkins Amusement Enterprises) brought another suit alleging violations of the Sherman Act and Arizona law against distributors and exhibitors of moving pictures and persons connected with those activities. The Arizona District Court granted summary judgment to the defendants, and the plaintiff theatre owner appealed. The Court of Appeals affirmed in part, reversed in part and remanded the case to the district court stating that the earlier decision holding there was no conspiracy as to claims for which summary judgment was given for the defendants did not bar the current suit alleging conspiracy in the time period partly overlapping that at issue in the earlier suit and that the determination in the earlier decision that the plaintiff's claim of a shared monopoly had no basis in law and barred the plaintiff from making the shared monopoly claim in the current suit.
1990 Studio Market Share--The Paul Kagan Associates Motion Picture Investor newsletter reported statistical information in June of 1990 indicating that the average yearly market share of independently distributed films (as a percentage of total box-office gross) was approximately 8.2% during the period from 1984 through the first half of 1990. That means the films released by the major studio/distributors were (on the average) generating 91.8% of the box-office gross during those same years. According to Art Murphy, the major studio/distributor dominance of the domestic film box office continued after the numbers of the complete year for 1990 were in at 86.4%.
1990 Syufy on Appeal: The 9th Circuit federal appeals court judge affirmed the trial court findings and "...found no antitrust violations by an undisputed monopolist in the Las Vegas first-run theater market, since the 100 percent monopoly created by its acquisition of several other theaters in the area was somewhat dissipated by one upstart entrant...Since the court found no barriers to entry in the relevant market, it
concluded that (the monopolist theatre) could never hold onto the market power needed to exploit the moviegoers of Las Vegas.
1990 Santa Cruz Theatre Sues: A Santa Cruz, California movie theater sued a local competitor and a group of film distributors in 1990 alleging that the defendant's conspired
to monopolize the showing of first-run movies in Santa Cruz.
1990 AFMA Warns of Monopolization: "The domination of European cinemas, distribution and production by the American majors is a threat to independents overseas as well as in the United States. This was the tenor of a speech given by William A. Shields at AFMA's recent annual meeting...In 'Europe, the majors indulge in the very monopolistic practices that are illegal in the United States. They are the producers and the distributors and are becoming the exhibitors.'"
1990 Valenti Debate Tactics: "AFMA chairman William Shields decried what he termed 'monopolistic practices' by the American majors in Europe that were squeezing Continental partners of AFMA members, most of whom are independent production or distribution entities not associated with the studios." In response, the MPAA's Jack Valenti wrote in an open letter to The Hollywood Reporter and other news organs: "What a sad spectacle, a decent man like (Shields) rising to testify on the global theatrical marketplace and uttering total nonsense." Of the two, it appears that Valenti's utterance were more nonsensical. In other words, Valenti utilized a personal attack on Shields that was irrelevant to the question posed.
1990 Matsushita Buys MCA/Universal: "Japan's largest electronics company Matsushita purchased MCA/Universal for $6.2 billion.
1990 Defining the Market for Competition: "A survey of the American motion picture audience conducted during the summer of 1990 by the Opinion Research Corporation (ORC) of Princeton, New Jersey, for the Motion Picture Association of America, reported...Cable and pay-TV subscription, VCR ownership and exposure to pay-per-view all enhanced moviegoing." This would seem to conflict with the argument expressed in Tim McCoy's 1988 law review article (noted above) that home video and theatrical compete directly and thus, should be considered the same market.
1990 Harkins Tries Again: The Phoenix-based motion picture exhibitor Harkins Amusement Enterprises brought an antitrust action against distributors (including MGM/UA) and other exhibitors (including AMC), alleging acts of market splitting, bid rigging, and circuit dealing. On various motions for the defendants for summary judgment, the district court held that (1) evidence implicating each individual distributor in bid rigging and circuit dealing was not necessarily required to establish its participation in a conspiracy; (2) triable issues existed regarding the distributors' participation in market splitting; and (3) damages did not have to be segregated and claimed for each separate act taken in furtherance of the alleged conspiracy. Thus, the motions for summary judgment were denied.
1990 Movies and Politics: Buchwald Attorney Pierce O'Donnell and Los Angeles Times reporter Dennis McDougal (writing in 1992) offer their views on the status of antitrust law enforcement in the U.S. film industry in 1990: "Abdicating their responsibility to promote competition and bust monopolies, politicians looked the other way...the Justice Department--particularly in the Reagan-Bush era--had fallen into a deep sleep. By 1990, motion picture studios once against owned large and increasing numbers of theaters-- backsliding influenced by the benign neglect of a succession of Presidents--Republicans and Democrats alike--who courted studio brass and their stars for political support. Congress was likewise asleep at the switch as monopoly concentration in the motion picture industry intensified after World War II."
1990 Nothing Has Changed--In conducting research in preparation for the Buchwald v Paramount case in the early '90s, Buchwald attorney Pierce O'Donnell stated: "In the forty-two years that had elapsed since United States v Paramount, little had changed to curb the studios' awesome power. Everywhere I turned, I was struck by the conspicuous lack of competition. If anything, the studios' collective 'strategic hold on the industry' and 'marked proclivity for wrongful conduct' was even greater today." O'Donnell and McDougal also now go on record agreeing with Justice Douglas and Judge Palmieri, with regards to the film industry's "marked proclivity for wrongful conduct".
1990 M&R Amusement Case: "A U.S. District Court in Chicago decided that the granting of 'priority runs' of sought-after new films to one theatrical exhibitor to the exclusion of another does not violate federal antitrust laws. In its decision of the 5-year old case, the court held that the defendant, M&R Amusement, did not violate the Sherman or Clayton antitrust acts by requesting a priority-run license from a distributor. The theatre chain
sought to show a distributor's film unhindered by what the decision called 'substantial competition' from competing theatres or exhibition chains. The practice has long been unofficially performed, especially as theatres have multiplied prolifically over the past 15 years and cities have become more densely populated. Such changes have forced a reassessment of 'substantial competition' in the contemporary exhibition marketplace. In the past, when such cases have come before courts for adjudication, judges have tended to decide that such practices may be unlawful under the terms of various antitrust regulations.
1991 Major Studio Market Share: According to Art Murphy, the major studio/distributor dominance of the domestic film box office continued in 1991 at 84.5%.
1991 Major Exhibition Chains: Although, ownership interests changed often in the last several years, the top ten theatre owners who controlled the most theatres and screens in the best locations were reported in the Paul Kagan Associates Motion Picture Investor newsletter (with the number of sites and screens shown after) as: (1) UA Communications--543/2517, (2) AMC Entertainment--263/1604, (3) General Cinema-- 312/1504, (4) Cineplex Odeon--277/1120, (5) Carmike--260/960, (6) Loews--203/835, (7) Cinemark--135/839, (8) National Amusements--75/568, (9) Act III--122-544 and (10) Cinemerica--112/488. Following the Reagan administration easing of regulatory restraints, the major studio/distributors regained a certain level of control over these major exhibition chains, (e.g., MCA, the parent of Universal has a substantial ownership interest in Cineplex Odeon; Columbia and Tri-Star have an ownership affiliation with the Loews theatre chain; and Paramount and Warner have ownership interests in Cineamerica. Paramount also operates Famous Players, one of the largest Canadian exhibition circuits).
1991 More Pro Studio Arguments: Attorneys Barry Brett and Michael Friedman argue in The Entertainment and Sports Lawyer article that, "[c]ertainly, in no way should the Paramount defendants be excused from complying with the antitrust laws. What is clear, however, is that the practices enjoined by the venerable Paramount decrees would probably, in view of significant changes in both the industry and the law, no longer be considered illegal today. Through the years, regulation under and enforcement of the Paramount decrees have been inconsistently and selectively applied and have, at times, quashed economic activity that could only be described as pro-competitive. Other, often bigger players are free to engage and do engage in aggressive trade practices, subject to the general restraints of the antitrust laws, while the Paramount defendants remain bound and limited by the restraints imposed by the dead hand of antiquated decrees." One reasonable approach that attorneys Brett and Friedman (along with Tim McCoy earlier) fail to consider in their respective articles to the uneven application of the underlying principles embodied in the Paramount consent decrees is to make them applicable to all distributors and exhibitors through federal legislation.
1991 20th Century Fox Held In Contempt: The major film studio/distributor 20th Century- Fox and an employee were held in contempt by the U.S. District Court for the Southern District of New York for violating provisions of an antitrust decree, and they appealed. The Court of Appeals affirmed in part, and vacated and remanded in part. On remand, the District Court imposed a $100,000 fine, and assessed costs of prosecution in the amount of $36,039. The studio appealed, challenging the calculation of costs. The Court of Appeals held that the studio had waived its challenge to the calculation of costs by failing to raise the issue on its prior appeal. Fox had been adjudicated in criminal contempt in
1988 by the late Judge Edmund L. Palmieri for violating a 1951 consent decree that concluded a government antitrust action.
1992 Major Studio Market Share: According to Art Murphy, the major studio/distributor dominance of the domestic film box office continued in 1992 at 95.3%.
1992 Viacom and Time Warner Settle: "Viacom and Time Warner have finally resolved their 3-year anti-trust battle...that began in May 1989 with Viacom filing a $2.4 billion anti-trust action...claiming that Time Warner and its divisions exerted 'illegal, anti-competitive and monopolistic activities.' Insiders put the immediate cash value of the multi-faceted (settlement) agreement at $170 million, with tens of millions more expected to flow into Viacom's coffers over time. No admission of liability...was made in settling the suits."
On the other hand, it may be fair to assume that nobody would pay $170 million in settlement of a dispute unless they were concerned that wrongful conduct could in fact be demonstrated at trial.
1992 Defining the Market for Competition: Loews Theatres chairman Alan Friedberg suggests that there "...is a fundamental need to get out of the home, to interact with an audience and enjoy an entertaining movie on a big screen in a comfortable environment. And that is the unique service we provide." This comment, about the uniqueness of the theatre going experience, throws more cold water on the argument that video and movies compete in the same market. Friedberg seems to suggest that there is no competition between video and theatrical. If that is the case, the two should not be considered part of the same market for antitrust analysis purposes.
1992 Further Defining the Market for Competition: Exhibitors Stanley Durwood and Gregory Rutkowski of AMC theatres say: "As an industry, exhibition has found it easy to coexist with home entertainment, such as VCRs. For example, studies have shown that the avid moviegoer (representing 30% of our audience), who goes to the movies thirty- five to forty-five times a year, is also a person who rents as many cassettes. Those nay- sayers who predicted the demise of exhibition with the advent of home video were as wrong as those who predicted the end of theatres with the coming of television."
1992 Oligopoly and Market Share: Attorney Pierce O'Donnell makes the claim that the "...major studios have a virtual stranglehold on motion picture distribution in the United States. Over the past decade..." O'Donnell reports, "...the eight members of the Motion Picture Association of America (Disney, Columbia, Paramount, MGM/UA, Universal, Orion, Warner Bros., and 20th Century Fox) have generated 93 percent of the domestic theatrical box office gross. The studios represent an oligopoly in Hollywood...And, remarkably, their business practices--ranging from standard contracts, fees, and charges to the financial terms for splitting box office take with theaters--are similar or identical. In other words, creative talent and theaters have no effective choice--if they want to be in the movie business, it is take-it-or-leave-it."
1992 UK Review of Competition in Film: In early 1992, "The U.K. Office of Fair Trading (initiated)...an informal review of competition in the distribution and exhibition sectors of the (U.K.) film industry. The review will look at competition in general, as well as the effectiveness of a 1989 government order that barred distributors and exhibitors from entering into exclusivity deals for film packages..." Lord Reay, the U.K films minister said: "There have been complaints recently about distribution and exhibitor arrangements in this country acting to the detriment of U.K. production..."
1992 EC Official Critical of American Owned Multiplexes: "A top official with one of the European Community's media programs sharply attacked multiplex construction programs undertaken by three U.S. majors during a roundtable discussion held (in February of 1992) at the European Film Market. Nicolas Steil, secretary general of the EC program Euro- Aim warned against 'the vertical concentration, which will bring us a cinema full of stereotypes,' that is being sought by Warner Bros., Paramount and Universal through their European cinema construction ventures. He called for action at 'the political and legal level' to block 'total economic control' by the majors suggesting European cartel laws might be applied...'When you have the majors owning the production, (and) they own the distribution network and they own the theaters,' he said, 'I don't see a place for European cinema anymore.'"
1992 Block-Booking Continues: In October of 1992, "...a Los Angeles jury...found ITC Entertainment violated antitrust laws when it packaged the motion picture Twice in a Lifetime for syndication. In its decision, the jury awarded the film's producer, Bud Yorkin, $2.45 million." Yorkin's attorney Barry Langberg said: "...ITC had packaged this commercially valuable film with 15 other films some of which had commercial value, some of which were borderline and some of which were junk...And then they refused to allow television stations to buy any of these films independently, which is block booking. To my knowledge, this is the first time this kind of case has actually made it to a jury trial." A so- called "industry insider" was quoted in the same article saying: "...It's not often that these cases make it to trial; they're usually settled to avoid making them public...But block booking is really the dark underbelly of the motion picture industry." Langberg also
confirmed that "...station execs often are 'very reluctant' to publicly go against distributors. 'They're afraid the distributors are going to cut them off...' (thus) ultimately it becomes the distributor who decides what a station's programming will be.'"
1992 Paramount Consent Decrees Almost Gone: "The legendary studio consent decrees of (1948 through) 1952, which forced the major studios out of the exhibition business as a result of charges by the federal government of monopolistic and anti-competitive business practices have moved one step closer to abolition now that a federal judge has removed Sony Picture Entertainment's Loews theater chain from the decrees and subsequent agreements. The ruling, by Judge William Conner of the U.S. District Court for the Southern District of New York, leaves only one remaining party to the consent decrees, the scattering of Mann Theatres screens not included in the purchase of the chain by Cineamerica, the Warner Bros.-Paramount exhibition joint venture...In his finding, Conner noted that the current Justice Department supported Loews' release from the decrees and filed a legal brief supporting the change." The judge wrote: "The ultimate question before the court at this time is whether termination of the Loews' Consent Judgment would serve the public interest in 'free and unfettered competition as the rule of trade." "Noting that the movie business has changed dramatically in the four decades since the 1952 agreements, 'including the use of wide release patterns and the development of multiplexes and new forms of post-theatrical exhibition, such as videocassettes and cable television,' Conner said clauses restricting Loews' business operations are 'less relevant to today's market.' Further, he said, federal anti-trust laws have evolved to such a point that, in today's marketplace, the studios are no longer at risk of exercising the kind of illegal, anti- competitive practices that first sparked the legal actions." This entire book makes the counter-argument that Judge Conner was dead wrong on this decision. That he has in fact been duped by well orchestrated campaigns by the major studio/distributors to regain some of the power and control over the film industry that they previously enjoyed, whereas in truth, the power of these entities has never fallen below that of a shared monopoly or oligopoly, therefore there is no excuse for allowing them to regain any power over the market.
1992 Motion Picture Industry Not Competitive: In contrast to Judge Conner's decision, cited above, the "...judge (in the Buchwald v Paramount case) made a finding that the motion picture industry was not competitive."
1992 Anti-competitive Practices Major Problem--Buchwald litigating attorney Pierce O'Donnell cites the "...anti-competitive business practices..." of the studios as a major problem in the industry.
1992 Santa Cruz Case Moves Forward: The U.S. Supreme Court refused to stop a Santa Cruz, California movie theatre's federal antitrust lawsuit against two local competitors and several film distributors. The owners of a two-screen theatre in Santa Cruz (The Movie) sued United Artists Communications which operates five theatres in the city and the Nickelodeon, a four-screen theatre that primarily exhibits what are considered art films (UACI is now part of the cable giant Tele-Communications Inc.) The suit contends that UA and the Nickelodeon conspired to monopolize the showing of first-run movies in Santa Cruz and that various film distributors joined in the conspiracy.
1993 Law Student Makes Studio Argument: Loyola of Los Angeles third year law student Brian J. Wolf published an article in the school's law journal stating that the "...purpose of the prohibitions against studio ownership of theaters is to prevent horizontal conspiracies, not to protect small, independently owned theaters." He also argued that "[c]hanges in demand, technological innovations and market structure have permanently altered the structure and nature of the motion picture industry from the era when the decrees were originally imposed. As a result, there is no realistic possibility of a return to the economic structure or collusive business practices that gave rise to the consent decrees. Finally, the prohibitions against studio ownership of theaters may actually deter efficient, pro- competitive behavior. In short, these prohibitions are an anachronism that make no economic sense in today's marketplace. This article was prepared with the assistance of Loyola law professor Lon Sobel who was co-counsel for Paramount during the Buchwald case. Again, after reviewing this brief chronology of movies and antitrust, it is apparent why it is
difficult to understand what is really going on in Hollywood without an appreciation of the effects of the antitrust laws and their enforcement (or lack thereof). Much of what happens in Hollywood, occurs because of the possible application of the U.S. antitrust laws. Although, in recent years, it is clear that the major studio/distributors are winning in their ongoing battle to increase their control over the U.S. film industry.