Federal Judge Paves Way for Hollywood Studios to Own Movie Theaters Again

Movie studios enjoying the vertical integration of distribution and movie theater exhibition, a key component of the Golden Age of Hollywood, could be coming back.

Empty luxury movie theater chairs
Photo: Getty Images

There once was a time when movie studios were more like fiefdoms, and movie theaters as much a part of their realm as the actors signing exclusive contracts in the hopes of stardom. It was called the Golden Age of Hollywood. Via vertical integration of movie production, distribution, and exhibition, studios had airtight control of what content was available at what theaters in what markets throughout the country. The studios could also force theaters they did not own to blindly buy blocks of movie content at unlimited sizes. Now after 70 years and the advent of internet streaming, those days look like they may be coming back.

That is at least one takeaway from Friday’s ruling by U.S. District Judge Analisa Torres, which overturned the precedents established by several landmark court decisions in the 1940s, including the U.S. Supreme Court decision, United States v. Paramount Pictures, Inc. (1948), and gave the U.S. Department of of Justice the ability to terminate the consent decrees that were recreate by these rulings.

Referring to the rules that barred movie studios from owning all facets of movie distribution and exhibition—forcing studios to sell theaters and the emergence of a thriving separate exhibition industry—as the Paramount Consent Decrees, Torres wrote, “Because changes in the antitrust law and administration have diminished the importance of the Decrees’ restrictions, while still providing protection that will keep the probability of future violations low, the Court finds the termination of the Decrees in the public interest.”

Torres went on to add, “Second, changes in the motion picture industry over the last seventy years have made it unlikely that the remaining Defendants could or would reinstate their cartel to monopolize the motion picture distribution and theater markets.” The judge also noted of the current film distribution landscape that “None of the internet streaming companies—Netflix, Amazon, Apple and others—that produce and distribute movies are subject to the Decrees. Thus, the remaining Defendants are subject to legal constraints that do not apply to their competitors.” You can read the full ruling here.

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It should be noted this historic decision is exactly what the current U.S. Justice Department was requesting, arguing like Torres’ eventual opinion that current antitrust laws are strong enough to prevent a monopolistic collusion among studios and select exhibitors. Meanwhile the movie theater trade organization, the National Association of Theatre Owners, lamented the decision in a statement, suggesting the legal drama in the courts is not over yet.

If Torres’ ruling stands, or is upheld by higher courts, this is a significant ruling that would permanently change the way movie theaters are operated and movies are released in them. While the limitations and bans on certain types of block booking established by the United States v. Paramount Pictures, Inc. decision will stay in place for the next two years—being forced to sunset in 2022—it is not hard to imagine scenarios where movie studios regain more power than they’ve seen in 71 years over what is screened at theaters across the U.S., which could thereby also effect what is produced by content creators facing diminished competition.

While there is persuasive logic that streaming services have no limits on owning all facets of supply and distribution of their content, the downside of each streaming service having limited and specifically curated content that’s appealing to their brand is self-evident, with some consumers feeling compelled to subscribe to many subscription services or be denied, say, popular Disney films on Netflix or 20th Century Fox films on Amazon.

Even before this overturning of precedent, the limited blocked booking allowed by the Paramount Decrees of five films has been utilized aggressively by some studios, particularly in the age of mega-franchise blockbusters eating up most of the box office in the last decade. Quentin Tarantino famously complained in 2015 about how Disney strong-armed theaters, particularly ArcLight Cinemas, to push The Hateful Eight off screens to make way for Star Wars: The Force Awakens. And in 2017, Disney made way again when it demanded theaters surrender 65 percent of the revenue earned by Star Wars: The Last Jedi, as opposed to the standard of 40 to 55 percent, and for the movie to be allowed to play for four weeks on the biggest screens in cinemas without being moved.

Given Disney is creating its own precedents these days by breaking the theatrical window for Mulan and making the blockbuster available as a Premium Video on Demand on Disney+, the prospect of Disney being able to own theaters outright or forcing existing theater chains to agree to larger block bookings without screening the content for movie theater owners is eye-opening. But perhaps in its own way, this decision creates an avenue where Disney might see better long-term profitability in continuing to support the theatrical window after the coronavirus pandemic… if they can own the theaters screening their movies.

Similarly, Universal Pictures made history during the pandemic by agreeing to potentially shorten the theatrical window of its films to 17 days. If the studio does elect to then put new releases on VOD after three weekends in theaters, it will share an unspecified amount of revenue from VOD earnings with AMC Theatres.

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With the removal of the Paramount Decrees, the ability for Universal and AMC Theatres to collaborate more—even merge, if their mutual board of directors were so inclined—would be open, thereby giving Universal a foothold so strong in one theater chain that it could potentially ignore others, at least in local markets where there is a competition. Other studios can likewise see easier paths toward establishing their own versions of the Universal-AMC deal, or perhaps begin finding their own openings of creating (or buying) theaters in the world that comes next, after audiences feel safe to return to theaters en masse.

The full extent and repercussions of this decision will likely not be grasped for years to come, but no matter what, it’s hard to see how exactly it will be good for consumers.