hen the Federal Trade Commission began investigating film companies for potential violations under the Sherman Antitrust Act of 1890.
The major film studios owned the theaters where their motion pictures were shown, either in partnerships or outright and complete. Thus specific theater chains showed only the films produced by the studio that owned them. The studios created the films, had the writers, directors, producers and actors on staff ("under contract" as it was called), owned the film processing and laboratories, created the prints and distributed them through the theaters that they owned: In other words, the studios were vertically integrated, creating a de facto oligopoly. By 1945, the studios owned either partially or outright 17% of the theaters in the country, accounting for 45% of the film-rental revenue.[1]
Ultimately, this issue of the studios' unfair trade practices would be the reason behind all the major movie studios being sued in 1938 by the U.S. Department of Justice. Coincidentally, the Society of Independent Motion Picture Producers a group led by Mary Pickford, Samuel Goldwyn, Walter Wanger, and others filed a lawsuit against Paramount Detroit Theaters in 1942, the first major lawsuit of producers against exhibitors.
The federal government's case, filed in 1938, was settled with a consent decree in 1940,[2] which allowed the government to reinstate the lawsuit if, in three years' time, it had not seen a satisfactory level of compliance. Among other requirements, the consent decree included the following conditions:
The Big Five studios could no longer block-book short film subjects along with feature films (known as one-shot, or full force, block booking);
the Big Five studios could continue to block-book features, but the block size would be limited to five films;
(3) blind buying (buying of films by theater districts without seeing films beforehand) would now be outlawed and replaced with "trade showing," special screenings every two weeks at which representatives of all 31 theater districts in the United States could see films before they decided to book a film; and
the creation of an administration board to enforce these requirements.[3] The film industry did not satisfactorily meet the requirements of the consent decree, forcing the government to reinstate the lawsuit—as promised—three years later, in 1943. The case went to trial—with now all of the Big Eight as defendants—on October 8, 1945, months after the end of World War II.[4]
The case reached the U.S. Supreme Court in 1948. The verdict went against the movie studios, forcing all of them to divest themselves of their movie theater chains. In addition to Paramount, RKO Radio Pictures, Inc., Loew's, 20th Century-Fox Film Corporation, Columbia Pictures Corporation, Universal-International, Warner Bros., the American Theatres Association and W.C. Allred (the former of which no longer exists as a film studio) were named as defendants.
This, coupled with the advent of television and the attendant drop in movie ticket sales, brought about a severe slump in the movie business, a slump that would not be reversed until 1972, with the release of The Godfather, the first modern blockbuster.
The Paramount decision is a bedrock of corporate antitrust law, and as such is cited in most cases where issues of vertical integration play a prominent role in restricting fair trade.
Decision[edit]
