Source: Wikimedia Commons

NOVEMBER 19 UPDATE: Shares in theatre chains jumped up following Monday’s remarks by a top Department of Justice (DoJ) officer that it was still looking to end the 71-year-old Supreme Court judgment governing the relationship between studios and theatres.

AMC Entertainment stock surged 6% early on Tuesday and ended the day on $8.47, while Cinemark climbed several points to $34.32. Cineworld, which owns Regal Cinemas and is listed on the London Stock Exchange, climbed a little below 5% to finish trading on $199.25.

The DoJ announced last August its review of more than 1,300 antitrust cases and has not yet filed papers with a federal court to overturn the Supreme Court ruling affecting Hollywood.

Some analysts have said even if the ruling were to be overturned it would have a negligible impact on the film business as many companies are not looking to the theatrical model as a path to growth and are looking instead towards SVOD platforms.

ORIGINAL NOVEMBER 18 REPORT: With an eye on the emergence of streaming platforms and the evolution of the Hollywood landscape, the US government is seeking to end a decades-old practice regulating how certain Hollywood studios release features to exhibitors.

Makan Delrahim, head of the Department Of Justice’s (DoJ) antitrust division, told the American Bar Association on Monday (18) that the DoJ will ask a federal court this week to end the practice, known as the Paramount Consent Decrees.

If successful, the bid will end protection granted to the theatre chains by a 1948 Supreme Court ruling that ordered studios to sell their theatre chains, effectively banning them from block-booking theatres with packages of their films.

The ruling came 10 years after the DoJ’s antitrust division filed an antitrust lawsuit in which it claimed several studios engaged in a conspiracy to control Hollywood through ownership of feature distribution and exhibition. At the time the suit involved Paramount, MGM, Warner Bros, 20th Century Fox and RKO, and the Supreme Court ruling also applied to Columbia Pictures, Universal and United Artists.

Up until that point, before the multiplex age, many communities in the 1930s and 1940s had one theatre operating a single screen. When studios booked the theatre, there was no opportunity for smaller films to be seen. The practice also meant theatres were often required to screen less commercially appealing films in order to get access to blockbusters on the studio’s slate. The Paramount Consent Decrees also blocked studios from owning theatres without permission from a judge. 

It is understood that because Disney was a smaller studio at the time it was not – and is still not – covered by the decrees. Neither are the streaming platforms that have sprung up in the last decade.

Delrahim said the DoJ planned to ask for a two-year sunset period on the bans on block booking and circuit dealing, which is designed to allow studios and theatres ”a period of transition to adjust to any licensing proposals that seek to change the theatre-by-theatre and film-by-film licensing structure currently mandated by the decrees.”

However Delrahim emphasised that were the Decrees to be overturned, that would not pave the way for studios to engage in antitrust practices. “To be clear,” he continued, “terminating the Paramount decrees does not mean that the practices addressed in them are now considered per se lawful under the antitrust laws.

“They are not insulated from antitrust scrutiny. Rather, consistent with modern antitrust law, the Division will review the vertical practices initially prohibited by the Paramount decrees using the rule of reason. If credible evidence shows a practice harms consumer welfare, antitrust enforcers remain ready to act.

He concluded, ”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.”

Last year the National Association Of Theatre Owners (NATO) urged the DoJ to keep the Paramount Consent Decrees. In a statement on Monday NATO said, “NATO submitted comments to the Department previously and we stand by those comments. We will wait to review any actual motion the Department may file in court before commenting further.”

The Motion Picture Association did not comment on the development.