Paramount Consent Decree Review Public Comments 2018: Bow Tie Cinemas

October 3, 2018

To Whom It May Concern:

This letter provides a public comment on behalf of Bow Tie Cinemas, LLC (“Bow Tie”) in

response to the Antitrust Division of the Department of Justice’s (the “Department”) request for

comment regarding a potential modification or outright termination of various consent decrees

entered against various movie studios between 1949 and 1952 following United States v.

Paramount, 334 U.S. 131 (1948) (collectively, the “Decrees”).

Bow Tie is a family-owned company that has been owned and managed by the Moss family for

four generations and over one hundred years. In each of its 38 locations and 245 screens, Bow Tie

provides the best possible presentation and service to its patrons, continuing in the tradition of its

founder, B.S. Moss. Bow Tie Cinemas dates back to 1900

and has maintained its presence from

the Nickelodeon era through Vaudeville and into the modern multiplexes of today. As a reflection

of its history and dedication to the traditional moviegoing experience, Bow Tie currently

rehabilitates classic and unused old buildings in urban, regional markets to restore them as modern

movie theatres. This model provides a unique viewing experience for patrons in underserved or

traditionally concentrated markets and improves consumer choice.

By way of example, Bow Tie brought Richmond, Virginia its first new movie theater in more than

forty years when Movieland at Boulevard Square opened in early 2009. Featuring seventeen

stadium-seated auditoriums, Movieland is a themed adaptive reuse of a 19th Century former

locomotive assembly plant. Later, Bow Tie debuted new or completely rebuilt theatres in similar

circumstances in Trumbull, CT, Reston, VA, and Saratoga Springs, NY, the latter marking the first

time a first-run movie theater has operated in the downtown area of Saratoga Springs in nearly

forty years.

This comment focuses on the deleterious effect that modification or termination of the Decrees

would have on smaller chain theatres such as Bow Tie and the consumers they service. Put simply,

Bow Tie believes that any reduction or termination of the existing decrees will reduce consumer

choice, increase consumer cost, and significantly harm smaller regional chains that have limited

negotiating power against large studios and distributors. Therefore, Bow Tie strongly opposes any

change to the existing Paramount Decrees.

The cartoon that launched Mickey Mouse to the world, Steamboat Willie, had its first showing at one of Bow Tie’s

initial owner’s first theatres.

I. BOW TIE CINEMAS WILL BE HARMED OR PUSHED OUT OF THE INDUSTRY IF THE

DECREES ARE LIFTED.

A. The Prohibition on Block Booking is Necessary to Maintain Competition.

Bow Tie agrees with and incorporates by reference the public comment letter prepared and

submitted by the National Association of Theatre Owners (“NATO”), of which Bow Tie is a

member. Bow Tie believes that the prohibition on block booking is a critical component of the

Decrees and that NATO has appropriately assessed the issues and ill effects that would occur

should the prohibition on block booking be lifted.

However, there are specific effects that Bow Tie would experience beyond the more general

concerns outlined in the NATO comment. Due to Bow Tie’s regional presence, it only captures a

small percentage of the national market for first run films. This is due to the significant

concentration of the industry with the top five exhibitor chains capturing over half of the market.

For that reason, chains of Bow Tie’s size (and smaller) would be disproportionately affected by

the removal of block booking prohibitions, as we do not have as many screens to potentially spread

out the major studio films we would be required to book in order to have access to the films our

customers desire.

This would affect Bow Tie’s smaller markets even more disproportionally, where any imposition

of block booking would monopolize the limited number of screens a particular theatre displays.

This could effectively force a Bow Tie theatre to become captive to a particular studio’s content.

For instance, if Paramount were to require that a Bow Tie location display all of its additional films

for the right to display a summer blockbuster, it is plausible that at times a specific location would

be running Paramount pictures exclusively. Thus, in addition to the concerns surrounding customer

choice and cost, the prohibition on block booking is necessary to uphold other aspects of the

Decrees and to prevent theatre chains such as Bow Tie from becoming de facto exclusive

exhibitors of a particular studio’s content.

B. The Prohibition on Overbroad Clearances is Necessary to Maintain Consumer

Choice.

Beyond block booking, the Decrees also prohibit overbroad (or unreasonable) clearances, the

prohibition on which has served to foster competition and an even playing field across markets

since the Decrees were entered. “A clearance is the period of time, usually stipulated in license

contracts, which must elapse between runs of the same feature within a particular area or in

specified theatres.”

In many instances, such a clearance results in a particular theatre in a given

market receiving the exclusive right to show a particular film, to consumers’ detriment, and to

maximize the gains of a particular theatre.

Under Paramount, clearances are permitted under

See Redwood Capital, North American Cinema Exhibitor Report 2016, available at

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&uact=8&ved=2ahUKEwjbr9_zt

uPdAhVBmlkKHeYsAvoQFjADegQICRAC&url=https%3A%2F%2Fwww.vipcinemaseating.com%2Fcontent%2F

uploads%2F2016%2F08%2FNorth-American-Cinema-Exhibitor-Report-Redwood-

Capital.pdf&usg=AOvVaw2qrFD2RP3h4qE1oWokxNDD.

United States v. Paramount Pictures, 334 U.S. 131, 144, n. 6 (1948).

Id.; see also Cobb Theatres III, LLC v. AMC Entertainment Holdings, Inc., 101 F. Supp. 3d 1319 (N.D. Ga. 2015).

limited circumstances, “when the theatres are in substantial competition, and the clearances are

used to assure the exhibitor that the distributor will not license a competitor to show the movie at

the same time or so soon thereafter that the exhibitor's expected income will be greatly

diminished.”

Specifically, the decrees prohibit clearances that are “unduly extended as to area or

duration.”

Forcing theatres or theatre chains through overbroad clearances to exhaust the earning potential of

a particular film is especially problematic in smaller or more specialized markets, where the

earning potential of a particular film may be exhausted in a matter of weeks, and being forced to

run a film for an extended period ignores local market concerns. The existing prohibition on

overbroad clearances serves to protect competition across exhibitors, and creates opportunities or

regional chains to exist. Indeed, the Decrees’ requirement that “each license shall be offered and

taken theatre by theatre, solely upon the merits and without discrimination in favor of affiliated

theatres, circuit theatres, or others”

actually serves to create and support the diverse and varied

regional chain markets that exist today.

Any changes to this system would undermine the markets

as they exist and make competition by regional chains such as Bow Tie difficult if not impossible.

Furthermore, testing of the limits of the Decrees by the large studios clearly demonstrates the

potential for abuse of overbroad clearances.

The Supreme Court understood as much, in

explaining that overbroad clearances are “too potent a weapon to leave in the hands of those whose

proclivity to unlawful conduct has been so marked.”

This has proved prophetic, as distributers

have continually tested the limits of the Decrees and antitrust law in using clearances to depress

competition. As recently as this year, an alleged overbroad clearance was examined in the Viva

Theaters case, wherein a chain with an exclusive clearance of first run films from large distributers

in the Houston market was accused of leveraging that clearance to shut out competitors, including

Viva Cinemas, which ran Spanish dubbed first run films in the same market.

In that case, the

judge allowed the case to trial despite the fact that the geographic area only spanned five miles.

Theee Movies of Tarzana v. Pac. Theatres, Inc., 828 F.2d 1395, 1399 (9th Cir. 1987) (citing Paramount, 334 U.S.

at 145–46).

Paramount, 334 U.S. at 145.

United States v. Paramount Pictures, 85 F. Supp. 881, 898 (S.D.N.Y. 1949), aff'd sub nom. Loew's, Inc. v. United

States, 339 U.S. 974, 70 S. Ct. 1031 (1950), United States v. Loew's, Inc., 339 U.S. 974, 70 S. Ct. 1032 (1950),

Twentieth Century-Fox Film Corp v. U S, 339 U.S. 974, 70 S. Ct. 1032 (1950), and Warner Bros Pictures, Inc. v.

United States, 339 U.S. 974, 70 S. Ct. 1032 (1950).

United States v. Loew's Inc., 705 F. Supp. 878, 881 (S.D.N.Y. 1988) (“Moreover, important producers and

distributors have come into existence since the judgments were entered, and large national and regional circuits of

theatres have developed, due in large measure to the effect of the licensing injunctions in the Paramount

judgments.”).

See Cobb Theatres III, LLC v. AMC Entertainment Holdings, Inc., 101 F. Supp. 3d 1319 (N.D. Ga. 2015); Theee

Movies of Tarzana v. Pac. Theatres, Inc., 828 F.2d 1395, 1399 (9th Cir. 1987); see also Viva Cinemas Theaters and

Entertainment, LLC v. AMC Entertainment Holdings, Inc., 4:15-cv-1015, S.D. Tex. Aug. 21, 2018 (ECF 109)

(denying motion for summary judgment and sending case to trial on Viva’s claim that AMC used clearances with

distributers for first runs and geographic exclusivity to put Viva Cinemas out of business).

Paramount, 334 U.S. at 147.

See Viva Cinemas Theaters and Entertainment, LLC v. AMC Entertainment Holdings, Inc., 4:15-cv-1015, S.D.

Tex. Aug. 21, 2018; Eriq Gardner, AMC Theater Chain Headed to Trial Over Alleged Conspiracy with Movie Studio

Giants, THE HOLLYWOOD REPORTER (Aug. 21, 2018), https://www.hollywoodreporter.com/thr-esq/amc-theater-

chain-headed-trial-alleged-conspiracy-movie-studio-giants-1136535.

Id. (notably, that case settled prior to trial).

That distributers continue to push the limits of reasonableness with clearances is a good indicator

that if the overbroad clearance prohibition is lifted, more attempts will be made, resulting in

increased litigation. And any litigation that ensues will be long and expensive, given that

clearances are analyzed under a rule of reason standard. A company such as ours would be

challenged to marshal the resources needed to engage in the litigation that would be required to

clarify and define the new parameters of the law. Consequently, a regime in which the Decrees no

longer exist could force a theater or theater chain out of business—if not due to the overbroad

clearance itself, then while attempting to challenge the behavior through drawn-out litigation—

thus, victories in this space are (and if the Decrees are lifted will become more often) pyrrhic.

It does not take much to imagine a similar scenario occurring in one of Bow Tie’s markets. In the

Richmond market, for instance, there are two Regal theaters within a reasonable proximity to the

Bow Tie location. If one or both of the Regal theaters is provided a first run exclusivity from a

distributer and a long clearance time for certain pictures, it could serve to put the Richmond area

Bow Tie theater out of business. It would result in moviegoers in the downtown Richmond area

having to drive much farther to see certain first run films (neither Regal is in or near downtown

Richmond) or simply forcing them to miss the films entirely. Thus, any reduction in the existing

limits on clearances would serve not only to harm Bow Tie, but also consumers.

C. The Prohibition of Fixed Minimum Pricing Remains Necessary.

In addition to the prohibitions above, prohibiting producers and distributors from setting minimum

fixed pricing is a necessary component to Bow Tie’s ability to compete. Under the Decrees,

distributers are prohibited from mandating “fixed minimum admission prices” for film licensing

by exhibitors.

This prohibition not only extended to horizontal price fixing, but also to minimum

prices set by distributers and their licensees.

As explained by the Court, “[t]he total effect [of this

top-down price maintenance] is that through the separate contracts between the distributor and its

licensees a price structure is erected which regulates the licensees' ability to compete against one

another in admission prices.”

Notably, many smaller theatre chains can only compete through pricing options, such as discount

days and other unique and innovative pricing structures. Without maintenance of price at the resale

level (either by itself or in combination with the other prohibitions), many smaller chains or

independent theatres would be pushed to lower margins or potentially out of business. The

introduction of new models of purchasing movie tickets (such as Moviepass) have instituted

unique ways of pricing and innovation not seen in the industry in many years. Any reduction in

the ways in which studios can control downstream prices of ticket sales will inhibit this growth,

and prevent consumers from gaining access to new forms of pricing and enhanced choice.

Eriq Gardner, AMC Theater Chain Headed to Trial Over Alleged Conspiracy with Movie Studio Giants, THE

HOLLYWOOD REPORTER (Aug. 21, 2018), https://www.hollywoodreporter.com/thr-esq/amc-theater-chain-headed-

trial-alleged-conspiracy-movie-studio-giants-1136535. (reporting that Viva Cinemas was shuttered by the alleged

clearance system and filed suit after it went out of business).

Paramount, 334 U.S. at 141.

Id. at 143–144.

Id.

D. Modifying or Terminating the Decrees Will Require Private Enforcement.

Given Bow Tie’s smaller market share, it could be a target for anticompetitive activity by large

producers and distributors if the Decrees are modified or terminated. Also given its smaller market

share and size, it lacks the financial and negotiating strength to be able to mitigate or offset the

impact of the anticompetitive dealings that would occur following any modification or termination

of the Decrees.

Bow Tie would be forced to either accept that anticompetitive behavior or take on the significant

expense of becoming a private antitrust enforcer as studios and distributers begin to test the fences

of antitrust law in the wake of such changes. The standard as it exists for analyzing overbroad

clearances is convoluted and uncertain, but the fact that it has not been tested extensively is likely

due to the fact that the Decrees have been in place, which has prevented more egregious examples

from occurring. The vagaries of antitrust law that would arise in the Decrees’ absence would render

smaller exhibitors and chains vulnerable to anticompetitive harms and shutter many while they,

and the courts, struggle to catch up to the anticompetitive practices wrought by modification or

termination of the Decrees. Studios and distributers have consistently shown a willingness to push

the limits of antitrust law even in spite of the Decrees,

and to remove them would result in

boundary pushing behavior that would require independent lawsuits from those most strongly

affected, but those with limited resources to challenge the behavior—small and independent chains

of movie theatres.

The converse is not true as well, insofar as the studios, producers and distributers do not appear to

be as dissuaded from litigation. This was acknowledged by the Loew’s court, which, in addressing

arguments that the threat of litigation would deter behavior observed:

It is almost a leitmotif running through the affidavits and

memoranda that the threat of prosecution under the antitrust laws

and the fear of litigation by other parties involved in the motion

picture industry will be sufficient to assure that no anti-competitive

behavior will ensue from this acquisition. That line of reasoning is

specious. These consent judgments were fashioned after years of

litigation in which this industry was shown to have a proclivity for

anti-competitive behavior. If the specter of criminal prosecution and

civil litigation were a sufficient prophylactic for antitrust violations,

the consent judgments in this and many other cases would never

have been necessary.

Despite the Decrees, many players in the industry have pushed the limits of compliance, as noted

by courts and other observers.

It is readily apparent that in the absence of the Decrees, this would

only be more pronounced, and Bow Tie, and similarly situated chains, should not be forced into

See supra note 9.

United States v. Loew's Inc., 705 F. Supp. 878, 884 (S.D.N.Y. 1988)

Id. at 885 (“There [] appears to be a climate of non-compliance with the heart of the consent judgments—that

films be licenced theatre by theatre, solely on the merits and without discrimination.”).

litigation to define the parameters of the law, when the existing structure promotes healthy

competition.

II. CONCLUSION

Failing to maintain the status quo under the Decrees will negatively impact Bow Tie and its

consumers by limiting Bow Tie’s ability to manage its showings, prices, and runs independently

and without undue influence by studios and distributers. Furthermore, any adjustment to the

Decrees will incentivize fence testing behavior and lead to increased litigation, and cost, for Bow

tie and other regional chains.

Thus, Bow Tie urges the Department to maintain the Decrees in every way, so that small and

middle market theatre chains can continue to compete and provide customer choice and options in

an increasingly concentrated market.

Thank you for your consideration of the foregoing.

Sincerely,