Justice’s Rear Antitrust Window

By The Editorial Board, Wall Street Journal

Americans nowadays have a plethora of options to stream movies online, and many may not recall the last time they viewed a film in a theater. So credit to the Justice Department for getting with the digital times.

The Antitrust Division on Friday asked the U.S. Southern District Court of New York to terminate the 70-year-old Paramount consent decrees that restrict how films are distributed in theaters. As antitrust chief Makan Delrahim noted, “These decrees have served their purpose, and their continued existence may actually harm American consumers by standing in the way of innovative business models for the exhibition of America’s great creative films.” Hear, hear.

During the 1930s, eight major studios controlled film distribution, and five also owned theaters. In that pre- Netflix -DVD-VHS-multiplex era, theaters had single screens, crimping film distribution. The Justice Department discovered that the major distributors were colluding to limit competition. In 1938 the government sued the distributors under the Sherman Antitrust Act for conspiring to fix licensing terms, among other things. 

Distributors lost at the Supreme Court and were required to divest their theaters. Government consent decrees also prohibited them from engaging in licensing practices that are common in other industries. For instance, distributors were forbidden from bundling film licenses or providing exclusive licenses to theaters in geographic areas. 

New distributors such as Disney (which isn’t covered by the decrees) benefitted, but the movie scene has changed in seven decades. Even small-town theaters have multiple screens—an AMC in Peoria is currently showing 16 films—and most films can be streamed online within months of their debut.

Small distributors and filmmakers also have other launching pads. Netflix plans to release more than 50 films this year—more than Warner Bros., Disney and Paramount combined. MGM distributed 52 movies in 1939, including “Gone with the Wind,” “The Wizard of Oz” and “It’s a Wonderful Life,” but distributed only three last year. All were duds. 

Theater attendance has fallen about 20% since 2001 as more folks watch movies at home or on smartphones. Many theaters have merged to increase their leverage with distributors and reduce overhead. Three chains—AMC, Regal and Cinemark—control 80% of the U.S. theater market.

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