A New Court Ruling Could Forever Alter The Movie Theater Industry

A little more than 100 years ago — after the Spanish Flu pandemic shut theaters down nationwide, wreaking havoc on the industry — some movie studios swooped in and bought up theaters chains. In turn, the studios that owned those theater chains only showed their own movies, which gave studios like Paramount too much control, since they ran both the product and its distribution. Then in 1948, the Supreme Court ruled in a 7-1 decision that studios could no longer own movie theaters under United States antitrust law. The “Paramount Decrees” effectively put an end to the old Hollywood studio system.

On Friday, after 70 years, federal judge U.S. District Court Judge Analisa Torres terminated the Paramount decrees, essentially allowing studios to come in and buy up theater chains again during the most financially difficult time for movie theaters since the 1918 Pandemic. Effectively, it means that studios can now once again buy theater chains, although there is a two-year sunset termination provision.

What does that mean in a theoretical sense? It means that a movie studio like Disney or Universal — or more likely a streamer like Netflix or Amazon — could buy up a theater chain and, theoretically, prioritize their own movies. What will it mean in actual practice? That remains to be seen, in large part because most studios aren’t even interested in owning theater chains now; they’re more interested in strengthening their own streaming platforms, increasingly where we consume more of our media. In fact, a federal judge overturned the Paramount Decrees because the industry has changed so much in 71 years, shifting lately toward streaming platforms. The threat that the Paramount decrees were designed to prevent no longer seems to exist or — as the federal judge ruled — to the extent that those threats remain, existing antitrust laws can take care of it (that is debatable, of course, since existing antitrust laws have done nothing to prevent companies like Google, Facebook, Amazon, and Apple from dominating their particular fields).

In either respect, it is unlikely that a movie studio like Disney or Universal will pursue a theater chain, simply because theater chains may not be a great long-term investments at the moment because of streaming services created by Disney and Universal. Netflix, meanwhile, says it has no interest in pursuing a theater chain, because it falls outside of its expertise. AMC Theaters, however, has been in conversations with Amazon about a potential purchase, but the Paramount Decrees never applied to Amazon, anyway.

In other words, parts of the Paramount decrees were mostly symbolic. However, there were other provision in the Paramount decrees that have been repealed that could have major effect, namely the restrictions on block booking that will be lifted in two years. What does that mean? Before the Paramount decrees, studios could force movie theaters to take a block of their movies together. In other words, Universal Pictures could say to AMC theaters that it would not get rights to screen the next Fast and Furious movie unless AMC theaters also agreed to screen Dolittle. Studios would package movies, and in many cases, theaters had to accept the entire package in order to have the rights to the one surefire hit.

The federal judge in this case, however, ruled that block booking is no longer a threat: “There also are many other movie distribution platforms, like television, the internet and DVDs, that did not exist in the 1930s and ‘40s. Given these significant changes in the market, there is less danger that a block booking licensing agreement would create a barrier to entry that would foreclose independent movie distributors from sufficient access to the market.”

It’s worth noting, however, that just because a judge says that something is no longer a threat, that doesn’t mean it’s actually no longer a threat. In two years, Amazon could buy AMC theaters, and then Sony the next year, and only screen Sony and Amazon movies in those theaters, while Disney makes Regal cinemas screen Pirates of the Caribbean 8: Johnny Depp Has Legal Bills in exchange for the right to screen Avengers Endgame: For Real, This Time. In two years’ time, the industry could change dramatically.

(Via Deadline)