Hollywood Cliffhanger: What The Termination Of The Paramount Consent Decrees Means For Movie Theater Owners

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Back in the late 1940s, Hollywood studios controlled virtually everything in the motion picture industry, from the production of films all the way down to owning the movie theaters in which they were shown. The practice became so grievous to fair trade that the Department of Justice stepped in and instituted what became known as the Paramount Consent Decrees. Now the DOJ is considering terminating those statutes, and it could have a far-reaching effect on the way we watch movies.

Speaking to the American Bar Association on Monday, Assistant Attorney General Makan Delrahim announced that the DOJ had begun the process of eliminating the decrees “except for a two-year sunset period on block booking and circuit dealing,” which would allow studios and theater chains time to navigate the new rules, or lack thereof.

To define these terms, “block booking” is when one studio mandates that one of its films that is perceived as having limited box office potential must be played at a certain theater or cinema chain if the theater also wants to play that studio’s upcoming blockbuster. “Circuit dealing” is the process by which a Hollywood studio plays its films only at a certain circuit, courting preferable film rental deals accordingly and excluding other circuits or theaters.

These two main sections of the Consent Decree led to the studio distribution process with the mantra of “theater-by-theater, picture-by-picture,” meaning that if a theater chain wanted to play just one of that studio’s films in one of its theaters, then the studio’s sales team would have to capitulate. They couldn’t force that theater or circuit to play multiple films or in multiple theaters.

When I started out as a sales trainee in the 1980s for Columbia Pictures, I, along with every other salesperson in the film business, knew the phrase “theater-by-theater, picture-by-picture” better than I knew my own address. As a salesperson, you used every legal and ethical method possible to get Sheena Queen of the Jungle played, but tying it to that theater also playing Ghostbusters was strictly forbidden. That policy remains in place at studio distribution departments today.

The DOJ is correct about one section of the decree being antiquated. The “horizontal conspiracy” of studios owning movie theaters, as Delrahim described it in his speech, hasn’t been a real threat to the industry in over 50 years. There have been instances of studios—specifically smaller ones that were not part of the original Paramount Consent Decree, which covered only the major studios—owning theater chains, such as when Tri-Star bought the Loews chain in 1987, but the kind of stranglehold on the industry that the DOJ had in its sights when the decrees went into effect ended up going the way of the 78 RPM record.

So where are we now, and more importantly how will this affect the film business in 2020 and beyond? By no longer having to adhere to the DOJ’s rules and regulations of film distribution, theoretically a studio such as Sony—and this would apply to any of the studios, obviously—could attach a poorly performing film such as this past weekend’s disappointing Charlie’s Angels reboot to its upcoming Jumanji: The Next Level, which is perceived to have the potential to gross upwards of $300 million.

In practical terms, this wouldn’t be much of an issue for major circuits, which generally have larger complexes where a film like Charlie’s Angels would have played anyway. The real story here is what happens to the independent, limited-screen complexes in small towns. These towns can only support theaters with anywhere from two to six screens and have been struggling in recent years as it is, with having to invest in upgrades such as digital conversion and upgrading seating along with rising theater employee wages, just to remain a vibrant option for consumers being peddled myriad entertainment alternatives.

These theaters, and specifically their film buyers, have to be highly selective about the films they play in these smaller complexes. They can’t afford a dud like Charlie’s Angels occupying one of their screens in prime November playtime if it isn’t doing business. It’s one thing to waste a screen in September for two weeks but quite another when it blocks out a theater’s ability to play a major holiday release during peak movie-going season, and that’s where the real concern of eliminating the Consent Decrees lies.

The studio that will bear specific watching in the immediate future will be Disney. Since its purchase of 21st Century Fox, the Mouse House holds a dominant market share of 40% to 45% in the industry. They’ve been fortunate until now that the vast majority of their films are box office hits, films that limited screen theaters would want to play anyway. But what happens if the studio has a limited-appeal film during peak box office playtime? Will it insist that theaters play that lesser film in order to get the new Frozen or Star Wars? It will be difficult for theater owners to evade these types of films if it knows it will jeopardize the types of blockbusters that could make or break their year.

Proponents of the termination of the decrees will argue that the aforementioned pressure exerted by the studios for circuits to play all of their films, not just the hits, is already going on. But there is a difference—and that’s the key here—between normal sales techniques and a hard and fast mandate. Chains like AMC, Regal/Cineworld and Cinemark may not be too concerned with yesterday’s announcement. But I’m guessing that cinemas like the Temple Theater in Houlton, Maine, or the Slickrock in Moab, Nevada, will be watching these developments intently. Their existence may depend upon it.