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May 01, 2013 11:07 AM
How a Landmark Antitrust Case Changed the Movies
By Keith Humphreys

The marked decline in Hollywood’s fortunes in the 1950s and early 1960s (before Scorsese, Coppola, Evans et al saved the day) is usually attributed to the increasing availability of televisions in American homes. This was no doubt a factor, but equally important was a Supreme Court decision made 65 years ago this week: United States v. Paramount Pictures. The impact of this antitrust ruling was enormous both for the artistic content of studio movies and for the economic shape of the film industry.

Understanding the case requires an appreciation of the vertical integration of Hollywood’s business prior to the war. You may have noticed that many cities and towns have cinemas with names like “The Paramount”, “The Detroit Fox Theater” and “Warner” (including the hometown theater where I happily misspent a non-negligible portion of my West Virginia childhood). Those theater names are a legacy of the era in which the five major film studios owned the bulk of movie houses in the U.S.

Owning the theaters in which their movies played gave the big studios an extraordinary financial advantage in distribution, which they leveraged further by forcing independently-owned theaters to “block book” their products. If you wanted to show the hot new Bogart picture Casablanca in your independently-owned theater, you were strong-armed into also showing some Warner Brothers-made newsreels, short subjects and probably a low-budget second feature as well. And if you were an independent film producer looking for an audience, you pretty much had to go on your knees before the major studios to gain access to their theaters. The SCOTUS Justices knew an antitrust violation when they saw it, and their 1948 decision in the Paramount Pictures case forced the studios to give up ownership of theaters.

The artistic impact of the high court’s decision is not fully appreciated, even by film buffs. In the old business model, studios had regionalized audiences, which influenced their film production choices. In trying to explain why Broadway style musicals and cosmopolitan comedies were staples at MGM/Loews studio but not at 20th Century Fox for example, you need look no further than where their respective theaters were located: The former were concentrated in New York City and other parts of the Northeast, the latter were mostly further west, often in more rural areas.

Shorn of regionalized audiences, all the studios began playing a national game of pursuing audiences and lost their distinctive artistic approaches. Their products became more homogenized as a consequence.

Economically, the Paramount Pictures decision helped create what my pals Robert Frank and Phil Cook term a “Winner-Take-All-Market” in the movie industry. In the old system, all the studios could ensure at least some ticket sales by putting their own films into their own theaters. As theaters became free entities, competition was nationalized with no floor under what amount any studio might make and not much of a ceiling on what they might realize either.

Funnily enough, it was Paramount that first grasped the implications of the new market when it released The Godfather in a then shocking 400 screens nationwide. Soon afterward, Jaws tripled the size of that release. Both films made money hand over fist, and the blockbuster film era had truly arrived. From then on, a small number of films would make extraordinary profits, whereas the great bulk of films would make little or no money at all.

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quote: Jim Cassedy

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Face it- - they now OWN you. 7 or 8 years ago when this whole nonsense started I was screaming that there should have been lawyers all over this digital conversion crap.

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