Are we headed for a high-tech version of Hollywood's bad old days?
If President Trump's Justice Department has its way, Hollywood will take a big step back to the bad old monopoly days.
On Monday, the Department asked a court to jettison a series of decrees dating back nearly 70 years. These "Paramount decrees" arose from a Supreme Court case in 1948, in which Paramount Pictures was the main plaintiff. The decision forced the big Hollywood studios to give up anti-competitive practices that dictated terms to the theater chains, or owned them outright. A series of subsequent agreements with the Justice Department solidified the new rules for the film market.
Trump's Justice Department is apparently engaged in a larger review of old antitrust settlements, with an eye towards deregulation. The move to scrap the Paramount decrees is part of that larger effort. "As the movie industry goes through more changes with technological innovation, with new streaming businesses and new business models, it is our hope that the termination of the Paramount decrees clears the way for consumer-friendly innovation," Makan Delrahim, Justice's top antitrust official, said Monday.
Delrahim's logic is, frankly, perverse. He's certainly right that technological advances and the onset of streaming services have profoundly changed the industry. But they've changed it precisely by eroding the decentralized balance of market forces that old antitrust decisions sought to create. Streaming technology has helped bring back the pre-Paramount decree world of concentration and top-down vertical integration. The Justice Department's decision, if it goes through, would only accelerate the decline.
Vertical integration is when a company owns two different steps in the supply chain of a product. In the case of films, that would mean the same company owning both a production studio and a theater chain. That was a common circumstance before the 1948 Supreme Court decision. And even if the studios didn't own a theater chain outright, they had other ways of dictating terms: "Block booking" combined multiple films into a packaged licensing deal that theaters had to take or leave. To get one film they wanted, they had to take a bunch of others they didn't necessarily want from the same studio. That way, one studio could monopolize a theaters' screen time and squeeze out competing studios. There was also "circuit dealing," which applied one single licensing deal to a whole regional circuit of theaters.
The Paramount decrees did away with all these practices, splitting off the theater chains from the big studios, and imposing market rules of "theater by theater" and "film by film."
The Open Markets Institute's Matt Stoller has written on how this framework gave us a better movie system. Theaters were able to pick and choose what movies they wanted to show, and were able to adapt to word-of-mouth among theater-goers over time. Back to the Future, for instance, released in 1985, had an unimpressive opening weekend. Then it went on to build in popularity until, two months later, it was showing on more screens than it started. By contrast, the monopoly power provided by vertical integration, circuit dealing, and block booking all gave producers security and guaranteed eyeballs in front of their product. They didn't have to experiment or take risks, because they could control the market and force consumers to watch what they wanted them to watch.
Unfortunately, the framework the Paramount decrees sought to enforce has come apart since then. They covered five big juggernauts at the time — Paramount, Warner Bros, Sony Pictures, Universal, and 20th Century Fox. But not Disney, which has risen to equal or surpass those other five. Nor, obviously, were companies like Apple, Amazon, and Netflix covered, as they didn't even exist back then. But they've now become movie producers in their own right. Other studios not covered by the decrees have gained market share as well. And at least a few studios have started snapping up distributors since. Already, studios are able to siphon off as much as 70 percent of ticket sales from the theater chains. And those chains have responded by consolidating themselves, with just three chains — AMC, Regal, and Cinemark — owning around half the theaters in the United States.
In that sense, Back to the Future's success represented the tail end of the Paramount decrees' framework. These days, even with our massive supply of multiplex theaters, our selection of movies is not that wide or diverse, and is dominated by a small field of formulaic blockbusters. Already this year, 27 percent of all ticket sales have come through just five movies — four of which were released by Disney. And those sorts of blockbusters could be used as leverage should block booking be allowed again.
Defenders of the Justice Department's decision point out that individual theaters boast many screens these days, compared to the single-screen theaters of yore. But it's not clear why this should matter. Block booking can monopolize 10 screens as easily as one, and anyone who sees movies regularly knows that big chunks of a multiplex's screens can already get chewed up by the same opening blockbuster.
Meanwhile, streaming is merely another form of distribution, same as movie theaters. That Netflix, Amazon, Apple, Disney and many other streaming companies are producing film content as well is vertical integration all over again. The new burst of streaming services we got this year is obviously welcome competition over a world in which Netflix is the sole behemoth wielding the production-plus-streaming model. But a handful of six or seven massive competing companies, each with their own siloed production-to-streaming pipeline, is hardly ideal.
One fundamental mistake Delrahim and the Justice Department seem to be making is that they've been dazzled by the "newness" of technology, and just assume such innovations must have changed the game. "We cannot pretend that the business of film distribution and exhibition remains the same as it was 80 years ago," Delrahim said. Except, well, we can.
Technology may have changed the nature of production and distribution. But it has not changed the basic challenge of balancing market forces and achieving healthy decentralized competition. The desire on the part of any one company to crush its rivals and dominate a market, thus achieving guaranteed riches without risk or effort, will be an eternal temptation under capitalism. Only eternal regulatory vigilance can guard against it.
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