The Paramount Decrees and the Deregulation of Hollywood Studios

A landmark antitrust decision on Hollywood will sunset this year, paving the way for more major studios to overpower independent producers and exhibitors. A better course of action would have been to update the antitrust legislation to account for the entrance of tech companies like Amazon and Netflix into the film industry.

In November 2019, the Department of Justice (DOJ) began the process of requesting a repeal of the Paramount Decrees. The Paramount Decrees were the result of a 1948 Supreme Court decision in United States vs. Paramount Pictures, Inc. in which the Court ordered the divestment of major studios from their cinemas and established a landmark antitrust decision for the motion picture industry. The Decrees were formally repealed in August 2020 with a sunsetting period of two years, potentially unleashing more problems on an industry already struggling with inequitable resources.

The Paramount Decrees originated with a 1938 lawsuit filed by the DOJ against the major studios, then known as the Big Five (MGM, Paramount, RKO, 20^th Century Fox, and Warner Brothers) and the Little Three (Universal, United Artists, and Columbia). According to the DOJ, the Supreme Court found that these studios “had engaged in a wide-spread conspiracy to illegally fix motion picture prices and monopolize both the film distribution and movie theater markets.” This “conspiracy” was functionally known in Hollywood as “vertical integration”, or the Studio System. Vertical integration is a process in which the studios own the production, distribution, and exhibition of their films. In other words, they own the processes of creating, marketing, and screening a film for audiences.

Exhibition was the primary concern for the Supreme Court in their decision-making process, as exhibition was the highest grossing of the three filmmaking processes. The major studios often owned individual theaters in various theater districts or owned theater chains spanning districts. When exhibiting a film, the studios would send it to their cinemas exclusively for their first runs, which invariably were the most profitable releases as marketing, reviews, and word-of-mouth encouraged audiences to see a film in the first weeks of its showing. Films were then sent to subsequent-run cinemas which were either owned by competing studios or independent.

When the Supreme Court handed down the Paramount decisionin May 1948, the eight studios had to sign consent decrees legally binding them to stop monopolistic practices – such as fixed minimum cinema-ticket prices and block-booking – which gave the wealthy studios unfair advantage over competing studios, independent filmmakers, and independent theater owners. The decrees also required them to break ties with their studio-owned picture-houses, though some such as MGM appealed the decision and held out until 1957 before finally signing their decree and selling their cinemas.

All these anti-monopolistic requirements had a significant impact on the film industry that was already in turmoil for other reasons outside of their control. In the post-WWII period, the US economy fell into recession before rebounding in the early 1950s, and as a result, cinema-ticket sales began plummeting from a weekly average attendance of 60% of the population in 1946 down below 30% in 1954. Television was becoming a more affordable and exciting home entertainment option prolonging the decrease in ticket sales, and the effects of the House Committee on Un-American Activities (HUAC) hearings in 1947 and 1952 seeking to root out Communists from Hollywood shook the film industry for years.

In response to the economic concerns of the late-1940s and the precarity of the motion picture industry with HUAC’s presence, banks were less inclined to grant loans to the film studios for production funds. When the Paramount decision was handed down, forcing studios to sell their cinemas – a guaranteed form of income – the studios were in a tight spot financially. In order to cut costs, many of the studios changed their employment tactics. Previously, at the height of the Studio System, employment with a studio was on a multi-year or multi-film basis, meaning everyone employed from set designers to writers, directors, actors, and producers were contracted to a single studio. Their contracts could be loaned out to other companies at the discretion of the studio heads and for compensation. After the decision, studios relied more on independent hires and single-film contracts to ease financial burdens and fund films, ultimately changing the landscape of the film industry towards more independent productions that dominated the 1960s New Cinema wave.

The Paramount Decrees were in place for 72 years for the studios that signed the consent decrees until the Federal District Court of Southern New York overturned the Supreme Court decision in August 2020 at the request of the DOJ. For the DOJ, as written in their Order Terminating Antitrust Judgement on the decision, there were two primary concerns in line with their call for less antitrust regulation in Hollywood. Firstly, the studios that signed the decrees no longer exist or no longer exist in the ways they did when they were signed. RKO, for instance, suffered financially from the Paramount decision and under the management of aviation tycoon Howard Hughes, and ultimately went bankrupt and dissolved by 1959. 20^th Century Fox is now owned by Disney, and MGM is owned by Amazon, a non-traditional movie studio.

Secondly, concerning the likes of Amazon, the DOJ correctly argued that the streaming site giants, including Amazon, Netflix, and Apple, were not beholden to the same restrictions as the major movie studios. Part of the issue surrounding streaming services is that they are not legally recognized as movie studios, even when they produce films in-house, and therefore cannot be held to the same standards. With this disconnect, the DOJ suggested the repeal of the Paramount decision to make the film industry more equitable for the major studios in competition with streaming services.

The first thing to surmise with the DOJ’s order is that the rationale was to make the industry more equitable for major corporations and not, as the original 1948 judgement was, to make it more equitable for independent producers and exhibitors. The DOJ order to repeal the antitrust decision abandoned independents by allowing another channel of profits for major studios at a time when funding for independent films is a crucial issue in the industry. Independent funding concerns led the 2022 Zurich Summit, a film festival and conference of filmmakers. Several independent filmmakers at the summit alleged that streaming sites are not interested in original stories unless they can own the film outright as opposed to licensing the film from an independent producer. These issues are likely to be worsened within the US with the repeal of the Paramount Decrees having gone into effect in August 2022, after its two-year sunsetting period.

It is also important to acknowledge that while the DOJ was correct in its assessment that the original judgement did not account for streaming sites, the alternative approach would have been to update antitrust legislation. Enshrining the Paramount decision into law and updating the regulations would have been appropriate recourse to handling the issue of streamers, as Dawson Oler lays out in “Netflix, Disney+, & A Decision of Paramount Importance” in the University of Illinois Journal of Law, Technology & Policy.

Summarizing or predicting the effects of repealing the Paramount Decrees is complex because there are myriad factors constantly impacting and changing the motion picture industry. However, I do not think repealing this judgement was the correct course of action, as deregulating the industry has direct and positive financial opportunities for major studios to grow even larger while smaller studios and independents subsist on ever-decreasing production funds and exhibition prospects.

There is some hope for new potential antitrust regulation in the film industry with the Biden Administration’s DOJ under Assistant Attorney General for the Antitrust Division Jonathan Kanter. Kanter is pursuing more rigorous applications of antitrust regulations, having said in a keynote speech at the University of Chicago in April 2022 “that the era of lax enforcement is over, and the new era of vigorous and effective antitrust law enforcement has begun.”

Additionally, in November 2022, YouTube TV users filed a class-action antitrust lawsuit against Disney over their price-fixing of live-streaming television and alleging Disney is in violation of the Sherman Act of 1890. This lawsuit and the renewed vigour for antitrust enforcement could prompt the DOJ to take antitrust actions against the major studios once again and this time incorporate their streaming sites as exhibitors.

Ultimately, antitrust legislation in the motion picture industry is a complex issue, but a necessary one to tackle. Allowing one of the largest arms of cultural media to slip into the hands of a few wealthy studio heads is not only irresponsible, but especially dangerous. We need independent creators to succeed to encourage more democratized and diverse messaging, thoughts, perspectives, and experiences in our culture. Balancing the power of the motion picture industry does not mean making it more equitable for major corporations across the board; it means making it more equitable for artists, filmmakers, and producers to flourish.