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The DOJ Moves To Terminate the Paramount Consent Decrees: Is This the End of the Movie Industry as We Know It?

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The DOJ Moves To Terminate the Paramount Consent Decrees: Is This the End of the Movie Industry as We Know It?

Postby MrFredPFL » Mon Dec 09, 2019 2:45 pm

Story :

Last month, the Department of Justice (DOJ) asked a federal district court to terminate the Paramount Consent Decrees (Decrees), a set of rules governing major film studios for the last 70 years. In effect, these rules prohibited movie studios from owning downstream movie theaters and banned a variety of vertical agreements, such as block booking—the practice of bundling multiple films into one theater license. This decision comes after the DOJ said last year that it planned to review almost 1,300 “legacy” antitrust orders to determine which are “outdated” and do little more than “clog court dockets, create unnecessary uncertainty for businesses or … elicit anticompetitive market conditions.” See DOJ Office of Public Affairs, Department of Justice Announces Initiative to Terminate “Legacy” Antitrust Judgments (April 25, 2018). Pursuant to that process, Assistant Attorney General of the DOJ Antitrust Division Makan Delrahim explained that the DOJ found that the Decrees “have served their purpose, and their continued existence may actually harm American consumers by standing in the way of innovative business models for the exhibition of America’s greatest creative films.” See DOJ Office of Public Affairs, Department of Justice Files Motion to Terminate Paramount Consent Decrees (Nov. 22, 2019). The DOJ emphasized that significant structural changes in the industry, coupled with technological innovations, new movie platforms, new business models, and changing consumer demands no longer make the Decrees necessary. Id. In other words, going to a movie theater is no longer the only way to see the newest film. Consumers can access movies from their homes with just a few clicks of their TVs, tablets, or phones. As a result of this drastic shift in the ways consumers access movies, the DOJ believes a change is needed in how the market is regulated.

The Decrees stem from a late 1930s DOJ enforcement action where the DOJ alleged that the five major film studios of that time—Paramount Pictures, Twentieth Century-Fox, Warner Brothers Pictures, Radio-Keith-Orpheum (defunct as of 1959), and Loew’s (now known as Metro-Goldwyn-Mayer)—were engaged in illegal price fixing and monopolization of both the movie theater and film distribution markets with distributors Columbia Pictures, Universal, and United Artists. Importantly, at the time, the five major film studios owned or controlled movie theaters, which was the main driver of the alleged horizontal conspiracy. Specifically, the DOJ alleged that these companies, led by the five major film studios, violated the Sherman Act by colluding to set minimum prices for tickets, divide markets, and bundle films. After years of litigation, the parties involved in the action entered into a series of consent decrees, beginning in 1949, called the Decrees. See, e.g., United States v. Paramount Pictures, 1949-1 Trade Cas. (CCH) ¶ 62,337 (S.D.N.Y. March 3, 1949).

A consent decree is a settlement between a private party and the government. It is entered as a court order and is enforceable by the court. Consent decrees bind the government and the consenting party to the terms stated in the consent decree. In the antitrust context, private parties often enter into consent decrees as a result of a regulatory investigation into certain anticompetitive conduct. Some third parties prefer to enter into a consent decree rather than go through an expansive regulatory investigation or litigation, as entering a consent decree saves costs and provides certainty to a private party.

The Decrees had two major components. First, the Decrees prevented major movie studios from being both a creator of movies and a downstream exhibitor of movies through their ownership of movie theaters. Thus, the Decrees forced the movie studios to divest their movie theater businesses. Second, the Decrees banned the following vertical agreements: (1) the setting of minimum prices on movie tickets (known as resale price maintenance); (2) the granting of exclusive film licenses for geographic areas (known as overbroad clearances); (3) the bundling of multiple films into one theater license (known as block booking); and (4) the entering into one license that covered an entire theater circuit (known as circuit dealing). Of note to the Decrees is that, prior to 1979, the DOJ did not include “sunset” provisions—a time when the consent decree expires—in their consent decrees. Thus, the Decrees could have theoretically existed in perpetuity without the DOJ’s advocating for their termination.

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