1
Comments
of the Independent Cinema Alliance
to the Department of Justice, Antitrust Division
concerning the Paramount Consent Decrees
October 4, 2018
2
I. The Independent Cinema Alliance
The Independent Cinema Alliance (“ICA”) is a non-profit corporation that promotes the
preservation and prosperity of independent cinemas
1
as an essential part of a healthy motion
picture industry. Independents are essential because:
• independents serve small-town and rural markets that would typically not have a cinema
but for the dedication of independents to their communities;
• hundreds of thousands of Americans who love big-screen entertainment would never see
motion pictures on the big screen if independents disappeared, because the big circuits
would never go into such small markets;
• independents are frequently industry innovators because they must innovate to find ways
to survive in an industry dominated by big players;
• independents often depart (necessarily) from the Big Exhibition paradigm of featuring
only the biggest Hollywood fare, and thus diversify the motion picture entertainment
available to patrons (e.g., art films, niche films such as Hispanic and faith-based films,
and films by independent producers generally);
• independents frequently become integral components of their communities and provide
services and contributions that connect the big screen to special community watersheds
(film festivals, community fundraising, children’s matinees, showings of classic movies,
special pricing for veterans/first-responders/active military, sponsoring local events on
the big screen);
• the average ticket price for independents is significantly lower than the average ticket
price for big circuits, and independents generally operate at lower margins than circuits
command; and
• even in urban markets, where a few independents survive, they are the only remaining
check against big circuit monopoly power, and frequently innovate in pro-consumer ways
to compete (e.g., family entertainment centers).
In sum, motion picture consumers benefit enormously because, compared to big circuits,
independents vitally contribute more diverse content, in more diverse places, more
inexpensively, and in more diverse and creative ways. But they achieve these pro-competition
and pro-consumer benefits increasingly in competitively hostile and cost-crippling
circumstances. The big players in the motion picture industry are doing fine. For independents it
is a labor of love, and they are being forced out of business in growing numbers.
1
For purposes of eligible membership in the ICA, “independent” means:
• not publicly owned or owned in whole or in part by a motion picture distributor, motion picture
studio or other content supplier, including a supplier of electronic content;
• market share of domestic theatrical revenue does not exceed 2%;
• not owned in whole or in part by a national or regional circuit having a domestic theatrical
revenue share of more than 2%; and
• consolidated screen count does not exceed 500 screens.
3
As an advocacy group on behalf of independent cinemas, the ICA is uniquely positioned to urge
preserving the Paramount Consent Decrees, which foremost seek to protect independent
cinemas. The Paramount Consent Decrees happened because the Department of Justice seven
decades ago valiantly stepped into an industry rife with antitrust abuse and on behalf of
independents and their patrons. See United States v. Paramount Pictures, Inc., 334 U.S. 131, 162
(1948) (“The trade victims of this conspiracy have in large measure been the small independent
operators. They are the ones that have felt most keenly the discriminatory practices and
predatory activities in which defendants have freely indulged. They have been the victims of the
massed purchasing power of the larger units in the industry. It is largely out of the ruins of the
small operators that the large empires of exhibitors have been built.”).
The ICA currently represents 236 independent cinema companies with 2,672 screens.
II. Independents in the Motion Picture Industry
A. The Business of Big Stories
We deal in durable stories, stories with the status of national treasures, even stories with broad
therapeutic influence,
2
and stories that can take many millions of dollars to produce by teams of
hundreds. But we never know in advance whether people will credit any particular story.
The history of the motion picture industry is a tale of urgency to control the wild unpredictability
of the product. Every instance of the “product” (the motion picture) is all its own, and no truly
2
Vikas Shah, The Role of Film in Society (June 19, 2011) (https://thoughteconomics.com/the-role-of-
film-in-society/):
Contemporary research has also revealed more profound aspects to film’s impact on society. In a 2005
paper by S C Noah Uhrig (University of Essex, UK) entitled, “‘Cinema is Good for You: The Effects of
Cinema Attendance on Self-Reported Anxiety or Depression and ‘Happiness’” the author describes how,
“The narrative and representational aspects of film make it a wholly unique form of art. Moreover, the
collective experience of film as art renders it a wholly distinct leisure activity. The unique properties of
attending the cinema can have decisively positive effects on mental health. Cinema attendance can have
independent and robust effects on mental wellbeing because visual stimulation can queue a range of
emotions and the collective experience of these emotions through the cinema provides a safe environment
in which to experience roles and emotions we might not otherwise be free to experience. The collective
nature of the narrative and visual stimulation makes the experience enjoyable and controlled, thereby
offering benefits beyond mere visual stimulation. Moreover, the cinema is unique in that it is a highly
accessible social art form, the participation in which generally cuts across economic lines. At the same
time, attending the cinema allows for the exercise of personal preferences and the human need for
distinction. In a nutshell, cinema attendance can be both a personally expressive experience, good fun, and
therapeutic at the same time. In a rather groundbreaking study, Konlaan, Bygren and Johansson found that
frequent cinema attendees have particularly low mortality risks – those who never attended the cinema had
mortality rates nearly 4 times higher than those who visit the cinema at least occasionally (Konlaan,
Bygren, and Johansson 2000). Their finding holds even when other forms of social engagement are
controlled, suggesting that social engagement specifically in an artistic milieu is important for human
survival.”
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reliable formula has ever been devised to predict its demand with meaningful certainty.
3
And
thus has the last century (roughly the age of Hollywood) been alternating determinations by big
production, big distribution, and big exhibition to control the chaos and assure the reliable
revenue stream that is more commonplace in other industries.
The antitrust sensitivity of this industry follows inevitably. The formula for dealing with chaos is
to control as much as possible: in the case of distribution, to ensure that its stories always get to
the big screen on as favorable terms as possible, and in the case of exhibition, to ensure that it
gets the best stories on as favorable terms as possible, ideally at the expense of any potential
competitors.
4
The market structure that emerges is the irresistible force (Hollywood distribution) versus the
immovable object (the big circuits). From an abstract antitrust perspective, perhaps that looks
like sufficient parity to pay no further attention. But that ignores the compelling reasons for the
Paramount Consent Decrees in the first place: independents, the people who do the really hard
work in markets that would never have a big screen if they went out of business. See Paramount,
334 U.S. at 162.
B. Being an Independent
The cinema business is essentially comprised of two types, large national and regional
exhibitors, or circuits, and independent exhibitors. Typically, the large national and regional
circuits are publicly owned, operate in larger metropolitan markets and collectively generate
most of the domestic theatrical ticket revenue. In 2017, for instance, the top 8 circuits produced
over 65% of cinema revenue in the United States. AMC, Regal, and Cinemark alone accounted
for 51% of revenue.
The average number of screens per large circuit location is between 12 and 16, because circuits
typically open “multiplexes,” while the average number of screens per small independent
3
But see sequels and prequels, the ubiquitous multiplication of a “proven” formula, typically beyond
the formula’s ability to deliver.
4
See M. Conant, Antitrust in the Motion Picture Industry: Economic and Legal Analysis (Univ. of Cal.
Press 1960) at p.1 (“The final product is not homogeneous, but is constantly changing, and market uncertainty
is greater than in most industries. Consumer reaction to any particular film is unpredictable. The search for
security—for protection against market uncertainty—gave the greatest impetus to combination and concerted
market control in the industry. Major producers purchased leading theaters in order to be assured that their
pictures would be exhibited in them—a necessity if they were to earn revenues adequate even to cover the
production costs of first-class films. Some large theater chains, in order to be assured of adequate supplies of
films, acquired production companies. From these initial vertical combinations, it was only a short step to
nation-wide horizontal combines that could exclude the pictures of independent producers from large theaters,
and, by withholding their own pictures from independent exhibitors, force them to sell out to major theater
circuits. Monopoly and combination in the motion picture industry can thus be said to rest on the foundation of
market uncertainty.”); M. Anderson, State Regulation of Motion Picture Distributors, 3 Pace L.R. 107,
107 n.2 (1982) (“Motion pictures are high risk, high profit enterprises, in part, because of the difficulty in
predicting public acceptance and box office revenues. Distributors attempt to share the financial risk with
exhibitors by obtaining as favorable terms as possible.”).
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location is significantly fewer. The smaller population base in markets served by independents
typically cannot support the considerable costs of expansion.
Because the smaller independent exhibitors typically serve markets the large circuits disregard,
they are usually the only source of big-screen entertainment in their communities and serve a
very important economic, social and cultural function. Put another way, if these independent
exhibitors shuttered, tens of thousands of Americans would never again watch stories on the big
screen (unless they were willing to drive 50 or more miles).
To build a modern cinema costs from $500,000 to $750,000 per auditorium. The bar of public
expectations has been raised to expect this level of construction and amenities.
Since the 1960s the rule of thumb has been that it takes 10,000 people to profitably support one
screen. A town of 20,000 could support 2 screens, and pay a full-time manager a decent salary,
service the mortgage and provide a reasonable return on investment. A town of 2,500 could
support a mom and pop operation with no or few paid employees, and maybe mom or pop
having a day job. But these are numbers specifically for independents. No big circuit would ever
locate in these towns because the numbers do not fit their model.
Independents in small towns and rural areas are there for the love of the business. The people in
these markets enjoy the big screen because someone loves the business enough to stay open
notwithstanding. And they love it enough to wear multiple hats.
Unlike other businesses which sell basically the same products year after year, each movie is a
new product that appeals to a different audience segment and presents a new marketing
challenge. Motion picture contracts must be tirelessly negotiated and renegotiated. New
marketing plans for each motion picture must be managed every week. The way cinemas are
constructed and maintained is governed by strict fire and life safety codes, Americans with
Disabilities Act regulations and insurance requirements. HIVI (hearing impaired, visually
impaired) equipment must be regularly maintained to ensure proper service to patrons with
disabilities and comply with DOJ regulations. Precise time schedules must be worked out to
meet contract requirements, ease congestion and optimize use of the facilities. Buildings and
furnishings host high traffic counts and must be cleaned, maintained and repaired daily. Seat
maintenance and repair is a major issue especially with the newer, more complex rockers and
recliners. Regular HVAC maintenance includes air filters, grease traps in grill hoods, and
popcorn and lobby vents. Water filter maintenance includes water lines to mix drink dispensers
and ice makers. Technical equipment must be maintained in perfect order – and digital cinema
equipment is so much more difficult and expensive to maintain than the old film projectors used
to be. Staffs must be hired and trained, including “how to” instruction and customer service
training, periodic fire drills, fire extinguisher training, emergency procedures for power outages,
tornado warnings, etc., and state-mandated chemical training for use of cleansers and other
chemicals used at the cinema, and state-mandated food and alcohol testing and certifications.
Perishable concession supplies must be ordered, inventoried, stored and sold while still fresh.
Security must be maintained handling large amounts of cash and large crowds. Each individual
guest must be welcomed, sold tickets and concessions, seated and cleaned up after in a calm,
gracious manner. Local events must be managed. Federal, state and local legislatures frequently
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want a piece of the cinema business, in the form of admission taxes or beverage taxes, and so
lobbying is required.
The typical independent cinema owner is “in charge,” frequently “hands on,” of all of the
foregoing. As noted, it is a labor of love.
Finally, independents in small towns tend to be active in their communities, serving on various
volunteer boards, local chambers of commerce, school boards, local colleges and hospitals, and
municipal government positions (one independent served several terms as mayor of Paradise,
California).
C. Booking the Movie
Motion pictures are copyrighted creations, and the copyright owners enjoy the standard
ownership rights with respect to their creations. Thus, exhibitors do not typically purchase
content, but instead purchase a license to show it. The license terms and conditions are contained
in the complex master license agreements (MLA) imposed upon exhibitors by distributors,
coupled with particular booking requirements for individual motion pictures (and sometimes
picture rental is negotiated or renegotiated or “settled” after the picture has finished its run)
(collectively, “the booking contract”). Most of the prohibitions contained in the Paramount
Consent Decrees concerned the booking contract.
Motion pictures typically start on Fridays. It matters to play a major motion picture “on the
break.” It means playing the picture when it first comes out, when its popularity is greatest and
national advertising is most intense, when the most people will buy tickets to see it. Small-town
cinemas could once wait to play motion pictures later when the rental percentage was lowered.
But with the steady shrinking of the theatrical window (the period when a motion picture can be
viewed exclusively at the cinema), and pictures released on video and other platforms ever more
swiftly, playing off the break is increasingly unsustainable.
The price of the license may be either “flat” or “percentage.” Flat terms are rare, and typically
apply only on older motion pictures which have already gone to other formats. A common flat
fee would be $250 to $350 for a one- or two-day engagement. All other motion pictures are
licensed on a percentage of “gross” ticket sales after deduction of local and state sales taxes.
Percentage arrangements range from 35% to as outrageously high as 70% payable to distributors.
Even at a 50/50 split, independents are lucky to break even and must rely on concession sales (or
other revenue streams) to profit and stay in business.
Variations on the percentage arrangement include the “90/10 deal,” in which a pre-set “house
allowance” (the house expense or “nut”) is deducted, and 90% of the remaining gross is paid to
the distributor. Of course, a high-grossing, prestigious cinema in a big city may negotiate a house
allowance that is more than the actual cost of running the theatre for the week, while the house
allowance in other cinemas will fall short of the actual expenses.
A distributor may demand an advance or a guarantee before opening the picture. An advance is
applied to the film rental that the picture earns. If the picture does not earn the amount of the
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advance, the overpayment is applied to future films. It is very hard to get a distributor to make a
cash refund of an unearned advance. A guarantee is a nonrefundable payment and will not be
refunded even if the picture does not earn the guarantee. At the end of the engagement, the
theatre will owe any percentage film rental over the guarantee. Guarantees are illegal in some
states.
5
Independents routinely engage in discount programs in order to survive in markets with lower
population bases, to account for certain viewing realities (e.g., matinees), and to serve certain
deserving demographics (e.g., children, senior citizen, military and first-responder discounts).
Distributors generally accept differential pricing for adults and children, and discounts for
matinees (showtimes before 6 p.m.), but may or may not accept any other differential ticket
pricing. Per capita requirements by distributors effectively eliminate ticket pricing flexibility
independents would otherwise enjoy.
Discount theatres are a variation. Most distributors have a discount or “sub-run” release date
after the national break, when ticket prices are understood to be lower.
Somewhere in the “booking contract” will typically be a “holdover” provision, meaning that if
the motion picture grosses above a certain dollar amount on its opening weekend, it must “hold”
another week (that is, play another week, whether or not the exhibitor planned to continue
featuring that motion picture). Of course, if the picture is performing well, both the distributor
and the exhibitor will benefit from continuing its run.
Too frequently, however, these “holdover” provisions are becoming “minimum runs,” where
distributors dictate multi-week runs whether or not the motion picture is performing well. Two-
week minimums have become common and the bigger distributors demand three-week
minimums, or more.
6
For the average big circuit with a multiplex, a “minimum run” might be vaguely irritating. (One
of fifteen screens must be devoted to a poorly performing picture at a loss.) For independents, it
can be ruinous. An independent with a two-screen or four-screen location simply cannot afford
to commit one of those screens to a poorly-performing “holdover” and lose the opportunity to
play a fresh and better-performing picture. Coupled with per capita requirements, that scenario is
5
See generally Martin G. Anderson, “State Regulation of Motion Picture Distributors,” 3 PACE L.
REV. 107 (1982), available at: http://digitalcommons.pace.edu/plr/vol3/iss1/6.
6
See, e.g., Erich Schwartzel, “Disney Lays Down the Law for Theaters on ‘Star Wars: The Last
Jedi,’” The Wall Street Journal (Nov. 1, 2017), https://www.wsj.com/articles/disney-lays-down-
the-law-for-theaters-on-star-wars-the-last-jedi-1509528603 (“Few operators can afford to turn
away a Disney windfall. But some independent theaters have decided against screening ‘Last
Jedi’ when it is released, saying the company’s disproportionate share of ticket sales and four-
week hold make little economic sense—especially in small towns … ‘There’s a finite number of
moviegoers in my market, and I can service all of them in a couple of weeks,’ said Lee Akin, who
operates a single-screen theater in Elkader, Iowa (population: 1,213).”).
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literally a net negative. The independent is losing money by playing that distributor’s punitive
“minimum run” unless the four people who come to the movie in week 3 buy 165 popcorn tubs
among them.
For very small towns, even the standard “two-week minimum” means they cannot play the
picture on the break and must wait until they can play the picture for one week only off the
break. Yet there is no rational reason, especially in the digital age, why they should be forced to
play the picture off the break, other than an arbitrary and anti-competitive minimum run.
The minimum runs demanded by studios mean that independents are constantly required to pick
and choose among distributors because (lacking “multiplexes”) they cannot accommodate all
distributors’ minimum run requirements. If five distributors are demanding minimum runs on
their pictures, independents must pass on some product, or play it, if at all, off the break, which
then strains their relationship with distributors.
III. The Department of Justice Project Concerning Legacy Consent Decrees
and the Reasons for Preserving the Paramount Consent Decrees
Unlike most previous occasions when the Department of Justice parachuted into the motion
picture industry to inquire about the continuing efficacy of the Paramount Consent Decrees,
7
the
Department this time made no secret of its negative disposition:
The Department of Justice’s Antitrust Division today announced an initiative to terminate
outdated antitrust judgments.
“Today, we are taking a first step toward freeing American businesses, taxpayers, and consumers
from the burden of judgments that no longer protect competition,” said Makan Delrahim,
Assistant Attorney General for the Justice Department’s Antitrust Division. “We will pursue the
termination of outdated judgments around the country that presently do little more than clog court
dockets, create unnecessary uncertainty for businesses or, in some cases, may actually elicit
anticompetitive market conditions.”
From the early days of the Sherman Act until the late 1970s, the Division often entered into final
judgments that did not include an express termination date. In 1979, the Division adopted the
general practice of including sunset provisions that automatically terminate judgments, usually 10
years from entry. However, nearly 1300 “legacy” judgments remain on the books of the Antitrust
Division, and nearly all of them likely remain open on the dockets of courts around the country.
7
The original consent decrees are reported as follows: United States v. Paramount Pictures, Inc.,
1948-49 Trade Cas. (CCH) ¶ 62,335 (S.D.N.Y. Nov. 8, 1948) (RKO); United States v.
Paramount Pictures, Inc., 1948-49 Trade Cas. (CCH) ¶ 62,377 (S.D.N.Y. Mar. 3, 1949)
(Paramount); United States v. Loew's Inc., 1950-51 Trade Cas. (CCH) ¶ 62,573 (S.D.N.Y. Feb.
8,1950) (Columbia, Universal and UA); United States v. Loew’s Inc., 1950-51 Trade Cas.
(CCH) ¶ 162,861 (S.D.N.Y June 7, 1952) (Fox); United States v. Loew’s Inc., 1950-51 Trade
Cas. (CCH) ¶ 62,765 (S.D.N.Y. Jan. 4, 1951) (Warner); United States v. Loew’s Inc., 1952
Trade Cas. (CCH) ¶ 67,228 (S.D.N.Y. Feb. 7, 1952) (Loew's).
9
The vast majority of these judgments no longer protect competition because of changes in
industry conditions, changes in economics, changes in law, or for other reasons.
8
The ICA readily acknowledges that consent decrees, especially in the absence of truth-finding
adjudications, can be taken too far as heavy-handed government regulation.
9
We respectfully
contend, however, that the Paramount Consent Decrees present a special and compelling case, in
an antitrust-sensitive industry, for retention. We urge the Department not to take the disruptive
and dangerous step of dissolving the Decrees and potentially unleashing a wave of
anticompetitive conduct at an already very volatile moment in the history of our industry. And
make no mistake: the primary victims of dissolving the Decrees would be independents, and the
tens of thousands of Americans who consume motion pictures at their local independent cinema.
A. The Heart of the Paramount Consent Decrees
For independents, and for the district court that fashioned the Paramount Consent Decrees, “the
heart of the consent judgment was the licensing injunction, prohibiting the defendants ‘from
licensing any feature for exhibition upon any run in any theatre in any other manner than 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.’”
10
That declaration was a magnificent antitrust achievement. It synthesized better probably than any
other single statement in cinema history the essential principle of free and fair competition in the
exhibition industry. It deserves to be preserved.
Interestingly, the original “theatre by theatre” language of the Decree presupposed a competitive
bidding requirement, which the Supreme Court ultimately rejected.
11
The language was thus
8
https://www.justice.gov/opa/pr/department-justice-announces-initiative-terminate-legacy-
antitrust-judgments.
9
See Washington Post, “Sessions wants a review of consent decrees, which have been used for
decades to force reforms” (Apr. 4, 2017) https://www.washingtonpost.com/news/post-
nation/wp/2017/04/04/sessions-wants-a-review-of-consent-decrees-which-have-been-used-for-
decades-to-force-reforms/?utm_term=.7901b3076f77 (Attorney General Jeff “Sessions has been a
longtime critic of the pacts. The attorney general — a former federal prosecutor and U.S. senator
— once called consent decrees ‘one of the most dangerous, and rarely discussed exercises of raw
power’ and ‘an end run around the democratic process.’”).
10
United States v. Loew’s Inc., 705 F. Supp. 878, 881 (S.D.N.Y. 1988) (emphasis added) (quoting
Warner Consent Judgment § III(8), 1950-51 CCH Trade Cas. ¶ 62,765, at 64,266; Loew's
Consent Judgment § II(8), 1952-53 CCH Trade Cas. ¶ 67,228, at 67,327; Fox Consent Judgment
§ II(8), 1950-51 CCH Trade Cas. ¶ 62,861, at 64,546; Columbia, Universal and UA Consent
Judgment § II(8), 1950-51 CCH Trade Cas. ¶ 62,573, at 63,678; Paramount Consent Judgment §
II(8), 1948-49 CCH Trade Cas. ¶ 62,377, at 63,011).
11
See Paramount, 334 U.S. at 155-56 (“the findings on franchises are clouded by the statement of
the District Court in the opinion that franchises ‘necessarily contravene the plan of licensing each
picture, theatre by theatre, to the highest bidder.’ As will be seen hereafter, we eliminate from
the decree the provision for competitive bidding. But for its inclusion of competitive bidding the
District Court might well have treated the problem of franchises differently.”).
10
modestly adjusted on remand to become a perfect non-discrimination declaration at the heart of
the consent decrees. As to that perfect declaration, the Supreme Court opinion contains scattered
bits and pieces of it throughout its opinion
12
– but nowhere is the declaration so succinct and
perfectly encapsulated as in the Decrees themselves.
Most of the specific prohibitions of the Paramount Consent Decrees follow naturally from this
essential proposition: if distributors truly license each motion picture “theatre by theatre, solely
upon the merits and without discrimination in favor of affiliated theatres, circuit theatres or
others,” then practices such as circuit dealing, block booking and overbroad clearances would be
impossible. Moreover, licensing with such meticulous fairness would blunt the anticompetitive
effect of any vertical integration.
12
See id. at 154-55 (“The formula deals and master agreements are unlawful restraints of trade in
two respects. In the first place, they eliminate the possibility of bidding for films theatre by
theatre. In that way, they eliminate the opportunity for the small competitor to obtain the choice
first runs, and put a premium on the size of the circuit. They are, therefore, devices for stifling
competition and diverting the cream of the business to the large operators. In the second place,
the pooling of the purchasing power of an entire circuit in bidding for films is a misuse of
monopoly power insofar as it combines the theatres in closed towns with competitive
situations.”); id. at 155-56, supra note 10; id. at 156-57 (“Block-booking prevents competitors
from bidding for single features on their individual merits. The District Court held it illegal for
that reason and for the reason that it ‘adds to the monopoly of a single copyrighted picture that of
another copyrighted picture which must be taken and exhibited in order to secure the first.’”); id.
at 159-60 (“(6) Discrimination. The District Court found that defendants had discriminated
against small independent exhibitors and in favor of large affiliated and unaffiliated circuits
through various kinds of contract provisions. These included suspension of the terms of a contract
if a circuit theatre remained closed for more than eight weeks with reinstatement without liability
on reopening; allowing large privileges in the selection and elimination of films; allowing
deductions in film rentals if double bills are played; granting moveovers and extended runs;
granting road show privileges; allowing overage and underage; granting unlimited playing time;
excluding foreign pictures and those of independent producers; and granting rights to question the
classification of features for rental purposes. The District Court found that the competitive
advantages of these provisions were so great that their inclusion in contracts with the larger
circuits and their exclusion from contracts with the small independents constituted an
unreasonable discrimination against the latter. Each discriminatory contract constituted a
conspiracy between licensor and licensee. Hence the District Court deemed it unnecessary to
decide whether the defendants had conspired among themselves to make these discriminations.
No provision of the decree specifically enjoins these discriminatory practices because they were
thought to be impossible under the system of competitive bidding adopted by the District Court.
These findings are amply supported by the evidence. We concur in the conclusion that these
discriminatory practices are included among the restraints of trade which the Sherman Act
condemns.”); and see id. at 160-61 ((“It will be for the District Court on remand of these cases to
provide effective relief against their continuance, as our elimination of the provision for
competitive bidding leaves this phase of the cases unguarded.”). And the result on remand was
this perfect statement of fair competition: that no distributor may license “any feature for
exhibition upon any run in any theatre in any other manner than 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.’”
11
For independent cinemas, the “theatre by theatre” mandate is a lifeline, the continuing reason for
their existence in the teeth of increasingly consolidated and powerful distribution and exhibition
industries. To dissolve the Decrees at this moment in cinema history would declare open season
on the most vulnerable players in the market and imperil access to the Big Screen for so many
Americans in small towns and rural areas.
B. The Reasons to Preserve the Paramount Consent Decrees
The Paramount Consent Decrees are a special case. They deserve to be preserved, and their
termination now would send exactly the wrong signal in an industry with steadfastly more
structural conditions and incentives for anticompetitive abuse.
First, these are not decrees negotiated without any adjudication of guilt. See United States v.
Loews's Inc., 705 F. Supp. 878, 881 (S.D.N.Y. 1988) (“Because this case was actually litigated,
the judgments are not consent decrees in the traditional sense. Only the details of relief were
negotiated and entered by consent, findings of guilt having been entered and upheld.”). Indeed,
the Paramount Consent Decrees were abundantly litigated, at the district court, on immediate
appeal to the United States Supreme Court, and then further on remand.
13
Moreover, the Supreme Court remand did not undo the key factual findings by the district court.
The Supreme Court affirmed the findings, and indeed remarked not once, but twice on the
defendants’ proclivity for unlawful conduct.
14
The Supreme Court “affirmed in part and reversed
in part” only because the Court quibbled with one remedy of mandatory competitive bidding, not
any findings of fault. It therefore cannot be said that the Consent Decrees rested in any sense
upon findings that had been undone, questioned or reversed on appeal.
15
Second, the Paramount Consent Decrees pose none of the problems and perpetuate none of the
mischiefs associated with overzealous employment of consent decrees.
16
The Paramount Consent
13
United States v. Paramount Pictures, Inc., 66 F. Supp. 323 (S.D.N.Y. 1946), affd in part and
rev'd in part, 334 U.S. 131 (1948), on remand, 85 F. Supp. 881 (S.D.N.Y. 1949), aff'd, 339 U.S.
984 (1950).
14
See Paramount, 334 U.S. at 147 (noting studio defendants’ “proclivity to unlawful conduct”); id.
at 148 (noting that distributors had “shown such a marked proclivity for unlawful conduct”).
15
See Don George, Inc. v. Paramount Pictures, 111 F. Supp. 458, 467 (W.D. La. 1951) (“Under the
circumstances of the remand, it will not do to say that the Supreme Court granted the defendants a
new trial as the defendants contend, since it must be borne in mind that the judgment was
affirmed in part, that is, as to many findings of fact and conclusions of law with reference to
violations of the antitrust laws by the defendants and reversed in part but the reversal was made
largely to enable the district court to solve the problem of divestiture. It appears that in order to
give third parties, such as plaintiffs herein, the benefit of pleading the consent decrees for use as
prima-facie evidence a careful distinction was made in the consent decrees between issues which
had been closed by the decision of the Supreme Court and issues such as the problem of
divestiture which were left open for determination by the District Court on remand.”).
16
See generally Andrew Grossman, Former Visiting Fellow, American Heritage Foundation, Use
and Abuse of Consent Decrees in Federal Rulemaking, Testimony before the Subcommittee on
the Courts, Commercial and Administrative Law, Committee on the Judiciary, United States
12
Decrees are not an example of an agency seeking to short-circuit traditional rulemaking
procedures, or two parties colluding to effect “regulation” by consent decree, or one
administration seeking to limit the policy discretion of a future administration, or an arrogation
of excessive judicial power and excessive judicial involvement in on-going policy matters.
Indeed, the Supreme Court disagreed with the district court as to the remedy of mandatory
competitive bidding precisely because the Court believed such a remedy would excessively
entangle the judiciary in on-going industry activity. The Department of Justice played by the
rules, filed and fully litigated one of the most significant antitrust lawsuits in the 20
th
century,
obtained detailed findings, and negotiated appropriate remedies in the form now known as the
Paramount Consent Decrees. The passage of decades has not dimmed their relevance.
Indeed, the ICA submits respectfully that not a single mischief can be cited from perpetuation of
the Paramount Consent Decrees. It is certainly true that antitrust law has evolved since the
1940s. For example, vertical arrangements are viewed more benignly now than they were in the
1940s. But that is not to say that the Paramount Consent Decrees are perpetuating “bad law.” The
salutary effect of the Paramount Consent Decrees is not their recitation of modern antitrust
principles, but their expression of certain timeless guides for fair conduct in an industry inclined
to misbehave.
While not dispositive, it is at least relevant that the Department of Justice has parachuted into the
motion picture industry several times to conduct precisely this inquiry – and each and every time,
the Department concluded that no disturbance of the status quo was necessary or appropriate.
Third, if general antitrust laws were adequate, these particular decrees would not have been
necessary, which remains true today. See United States v. Loews's Inc., 705 F. Supp. 878, 884
(S.D.N.Y. 1988) (“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.”).
Moreover, the primary beneficiaries of the Paramount Consent Decrees – independent cinemas
and their patrons – generally cannot afford to invoke “general antitrust laws” in any event.
Especially given the trajectory of antitrust law (away from the per se category and toward the
“rule of reason,” with its notoriously dense factual exploration), and the tendency of antitrust
litigation to be complex, protracted and expensive, very few independents could ever afford to
launch an antitrust lawsuit.
Fourth, the Paramount Consent Decrees have become a part of movie industry jurisprudence.
Comparable to case law from another jurisdiction, the Decrees are persuasive authority; they are
not “binding” on all industry players, but they usefully instruct. Industry players, including small
exhibitors, who have never heard of the Sherman Act or the Clayton Act have heard of the
“Paramount Consent Decrees.” When an errant distributor pushes the envelope (and to be sure
we still hear many reports of such conduct) and hints at conditioning access to a blockbuster on
taking some stinkers, the invocation of the “Paramount Consent Decrees” can be very effective.
House of Representatives (February 3, 2012), available at
https://www.heritage.org/testimony/use-and-abuse-consent-decrees-federal-rulemaking.
13
In this sense, despite the absence of “statutory” status, the Paramount Consent Decrees have
exercised a measurable “civilizing influence” on an antitrust-inclined industry. The Decrees
have become part of the essential fabric of the industry, and dissolving them would accomplish
no salutary purpose, but would strip vulnerable independents of a valuable negotiating tool.
It is of course true that the Decrees are not strictly applicable across the industry. We cannot
ignore the fact, for example, that the current industry behemoth, Disney, was not even one of the
original Paramount defendants. But “bound” or not, all industry players take instruction from the
Paramount Consent Decrees. And why wouldn’t they? The Paramount Consent Decrees
constitute a highly particularized adjudication and application of “general” antitrust laws to our
very idiosyncratic industry.
For example, “general antitrust law” says broadly that tying arrangements are illegal, subject of
course to numerous exceptions and countless factual gradations and distinctions. But thanks to
the Paramount Consent Decrees, we have a much more specific and therefore useful application
of that “general” antitrust principle to our industry: “block booking” specifically is unlawful.
That specificity lends a very useful clarity to behavior in our industry.
It is true that dissolution of the Paramount Consent Decrees would still leave the Supreme
Court’s United States v. Paramount Pictures opinion itself as precedent. But the Supreme Court
opinion is not what has become an integral part of this industry’s self-understanding. It is the fact
of those Decrees, the fact of those specifically-embodied remedies, that continue to guide and
constrain so many industry players today. Moreover, as noted, the eloquent heart of the
Paramount Consent Decrees – the theatre-by-theatre without discrimination mandate – is
contained only most succinctly in the Decrees themselves. See supra, section III.A at pp. 9-11.
Interestingly, that eloquent heart of the Paramount Consent Decrees has truly become an industry
mantra, and it is invoked widely by both distributors and exhibitors. For example, in recent Cobb
Theatres antitrust litigation against AMC, concerning clearances, AMC defended itself in part by
insisting that “AMC has always licensed films at these theatres on a film-by-film, theatre-by-
theatre basis.”
17
Nothing about “general antitrust laws” would have suggested that specific
17
See The Hollywood Reporter, “Cobb Theatres Argues Jury Should Decide Antitrust Case Against
AMC” (Nov. 7, 2016), available at https://www.hollywoodreporter.com/thr-esq/cobb-theatres-
argues-jury-should-decide-antitrust-case-amc-944852: (“AMC tells the judge in a summary
judgment motion that ‘uncontroverted evidence disproves’ the allegation that it coerced
distributors into granting it exclusive licenses. Specifically, AMC says in its court papers that the
distributors ‘unequivocally testified that AMC never threatened or attempted to coerce them into
doing anything. To the contrary, both the distributor witnesses and AMC’s witnesses have sworn
that AMC has always licensed films at these theatres on a film-by-film, theatre-by- theatre
basis.’”); see also Deadline Hollywood, “Distribs & Exhibs Hold Line On Clearances Despite
Fox’s Position Change” (Mar. 31, 2016) (“Added Sony’s distribution honcho Rory Bruer: ‘We
will make decisions theater by theater, picture by picture and we aren’t looking to change that.
It’s our intention to continue to distribute our pictures on what’s right for each film.’”). Available
at https://deadline.com/2016/03/20th-century-fox-exhibition-clearances-circuit-dealing-
1201729061/. Again, significantly, nothing in “general antitrust laws” obliged Mr. Bruer to frame
14
phrasing. Nor, of course, was AMC a defendant in the original Paramount litigation. For AMC
(and its distributor witnesses) to frame AMC’s defense that way underscores the continuing
salutary and civilizing influence of the Paramount Consent Decrees.
Fifth, while decades have passed, modern conditions in the motion picture industry, if anything,
reinforce the continuing relevance of the Paramount Consent Decrees. On both the distribution
and the exhibition sides of the business, the drive toward consolidation continues unabated. All
of that consolidated power will almost certainly squirt out as anticompetitive conduct, because
they can, and almost certainly the losers will be independent cinemas.
The motion picture industry is much less vertically integrated than it was when the Department
of Justice instigated the Paramount litigation. But the primary beneficiaries of the Decrees –
independent cinemas and their patrons – do not need protection specifically from “vertical
integration.” They need protection from anticompetitive abuse by all players with market power
and a natural tendency to exploit it. That means the shrinking distribution oligopoly and the
shrinking exhibition oligopoly and the looming streaming oligopoly.
Interestingly, the era following the Paramount Consent Decrees roughly coincided with the broad
advent of television, perhaps the single greatest competitive threat to cinemas in their history.
Cinemas survived, but the motion picture industry was changed forever. Fewer people went to
cinemas and studios pivoted to fewer and more expensive motion pictures. Thus, independent
exhibitors “found themselves bidding for a smaller supply of films in a more competitive
market.”
18
But for the Paramount Consent Decrees, independents, and the small-town cinema
experience generally, likely would have been crushed out of existence, and a generation of
Americans would have missed the big screen.
Conditions are ripe for the big squeeze. Streaming services with massive market power are the
new, potentially scarier, “television.” If they purchase cinemas, and throw around their ample
weight, independent cinemas confront the predations of Big Distribution, Big Exhibition, and
Big Streaming. On the other hand, if the Paramount Consent Decrees continue to be respected,
the entry of behemoths like Amazon into the exhibition business would more likely be on terms
that deterred Amazon from abusing its market power either to favor its own cinemas with its
content or to punish fairly competing exhibitors with terms such as overbroad clearances.
19
his company’s conduct that way. That is the continuing salutary legacy of the Paramount Consent
Decrees.
18
Michael Conant, The Paramount Decrees Reconsidered, 44 LAW & CONTEMP. PROBS. 79, 107
(1981).
19
See Open Markets newsletter, “Lights, Camera, Monopoly: DOJ Could Revive the Studio
System” (Aug. 24, 2018), available at https://openmarketsinstitute.org/newsletters/corner-
newsletter-august-23-2018-paramount-consent-decrees-matter-tech-giants-threaten-banking-
overlooked-dissent-ftc/:
A DOJ decision to end the Paramount Decrees would allow major studios to buy up theater
chains and impose the same anticompetitive practices on filmmakers and consumers
barred 70 years ago. More troubling is that this would come at a time of increased
concentration in the studio, movie theater, and online distribution markets. Disney’s recent
15
Moreover, the great promise of digital cinema – that distribution of motion pictures can be
accomplished easily and at a tiny fraction of the cost (there being no $1,500 cumbersome
celluloid print involved),
20
and that widely-released motion pictures can therefore more easily
and more widely get into the hands of independents in small markets – is reaching a delicate
stage, and the results so far are decidedly mixed.
Despite the relative ease of digital distribution, independent cinemas curiously continue to
experience vexatious obstacles to accessing major motion pictures. Much too frequently, our
members are hearing vague excuses like “you’re not a part of our marketing plan.” What
“marketing plan” seeks a lower gross for a major motion picture’s opening weekend?
21
Some of the reluctance to widen the availability of major motion pictures can possibly be
attributed to “virtual print fees,” the arrangements whereby distributors pay exhibitors a certain
sum upon booking a motion picture to subsidize purchase of digital equipment and pass on some
of the savings reaped by distributors.
22
But here is the strangeness, and the reason why it is a
delicate stage in our industry’s history. The era of virtual print fees is coming to a close. Many
purchase of 20th Century Fox means that four corporations now control 75 percent of the
movie production business. In theaters, three firms now control 60 percent of the domestic
market. Online, two companies dominate the streaming market, where 30 percent of
consumers report using Amazon Prime Video and 50 percent report using Netflix as of 2017.
* * *
In announcing the plan to review the Paramount consent decrees, Assistant Attorney General
for Antitrust Makan Delrahim said that ‘much has changed in the motion picture industry
since’ the Paramount Decrees. That’s true. In many key respects, the film industry is more
concentrated now than it was in 1948.
20
H. Alexander and R. Blakely, “The Triumph of Digital Will Be the Death of Many Movies,” The
New Republic (Sep. 12, 2014) https://newrepublic.com/article/119431/how-digital-cinema-took-
over-35mm-film (“Yet the real opportunity to axe costs digitally comes long after the final scene is
shot. To produce and ship a 35mm print to an American cinema costs about $1,500. Multiply that
by, say, 5,000 prints for a big movie and it comes to $7.5 million. Digital formats can do the same
job for 90 percent less.”).
21
Even in the pre-Paramount period, it was recognized that “multiple first runs” (as opposed to
default exclusivity arrangements) increased total revenue. Michael Conant, Antitrust in the
Motion Picture Industry: Economic and Legal Analysis at 65 & n.20 (Univ. of Cal. Press 1960).
(“Some postwar deviations showed that multiple first runs (in a number of neighborhood theaters
at one time) increased total revenues for the distributor.”).
22
See Wikipedia, the Free Encyclopedia, “Virtual Print Fee,” at
https://en.wikipedia.org/wiki/Virtual_Print_Fee (last visited Oct. 4, 2018):
Virtual Print Fee (VPF) is a subsidy paid by a film distributor towards the purchase
of digital cinema projection equipment for use by a film exhibitor in the presentation of first
release motion pictures. The subsidy is paid in the form of a fee per booking of a movie,
intended to match the savings that occurs by not shipping a film print. The model is designed
to help redistribute the savings realized by studios when using digital distribution instead of
film print distribution.
16
independents have already concluded their virtual print fee arrangements with distributors, and
yet they still report inexplicable motion picture availability problems.
What is happening? We cannot yet be certain, but it is a fixture of antitrust law that when players
leave money on the table or otherwise act contrary to self-interest, antitrust conspiracies may be
much more readily inferred.
23
Are overbroad clearances to blame for the difficulty independents
are experiencing with film availability? Clearances are analyzed under the rule of reason, which
makes proving them and their specific anticompetitive effects a dense and difficult undertaking.
But it would send a terrible signal at this moment in our industry to dissolve the most eloquent
expression and free and fair competition in the exhibition industry.
The great promise of digital cinema is precisely that distribution can be as wide as there are
willing exhibitors, which was not possible in the finite “print” era. As we approach the end of the
virtual print fee era, at an otherwise highly dynamic moment in the larger entertainment industry,
we should take tremendous care not to change or abolish rules that have long constituted the
most significant checks on anticompetitive impulses.
For the foregoing reasons, the ICA and its members respectfully request that the Department of
Justice conclude, as it has repeatedly before, that no action concerning the Paramount Decrees is
necessary or appropriate.
IV. The Specific DOJ Inquiries
The case for preserving the Paramount Consent Decrees set forth in the previous sections
implicitly answers many of the DOJ’s specific inquiries. The ICA nevertheless briefly addresses
them.
A. Do the Paramount Decrees continue to serve important competitive purposes today?
Why or why not?
Yes. The Paramount Consent Decrees constitute a vital checklist of do’s and don’ts in the motion
picture industry, particularized to this industry in a way that the “general antitrust laws” could
never justly or efficiently accomplish. Even if not strictly “binding” on all current industry
players, the “civilizing influence” and salutary instruction of the Decrees warrants their
retention.
23
See Regal Entm't Grp. v. Ipic-Gold Class Entm't, LLC, 507 S.W.3d 337, 350 (Tex. App. 2016)
(“The evidence that Regal and half of the major film distributors acted contrary to their self-
interest is what permits a rational inference of conspiracy or coercion as opposed to permissible
independent conduct.”) (citing Admiral Theatre Corp. v. Douglas Theatre Co., 585 F.2d 877, 884
(8th Cir. 1978) (when conduct is inconsistent with self-interest of actors, were they acting alone,
agreement may be inferred solely from action)); see also Cobb Theatres III, LLC v. AMC Entmt.
Holdings, Inc., 101 F.Supp.3d 1319, 1331 (N.D. Ga. 2015) (noting that most conspiracies are
inferred from behavior of alleged conspirators and denying motion to dismiss restraint-of-trade
claim where premium theater alleged that megaplex requested clearance, implicitly threatening
economic harm if distributors did not accede, and premium theater subsequently received fewer
films).
17
Most importantly, as noted, the heart of the Paramount Consent Decrees – the theatre-by-theatre
on the merits licensing mandate – might be the single most important factor in the ability of
independents cinemas to survive in today’s increasingly concentrated market.
B. Individually, or collectively, are the decree provisions relating to (1) movie
distributors owning movie theatres; (2) block booking; (3) circuit dealing; (4) resale
price maintenance; and (5) overbroad clearances necessary to protect competition?
Are any of these provisions ineffective in protecting competition or inefficient? Do
any of these provisions inhibit competition or cause anticompetitive effects?
As previously noted, and worthy of repetition, most of the specific prohibitions of the Paramount
Consent Decrees follow naturally from the requirement that motion pictures be licensed “theatre
by theatre, solely upon the merits and without discrimination in favor of affiliated theatres,
circuit theatres or others.” If that essential formula for fairness is followed, then practices such as
circuit dealing, block booking and overbroad clearances would be impossible. Moreover,
licensing with such meticulous fairness would blunt the anticompetitive effect of any vertical
integration by any content provider, no matter how much market power. See supra, p.10.
(i) Movie Distributors Owning Movie Theatres
As noted, it is not vertical integration per se that threatens the livelihood of independents. It is
the abuse of the market power gained either by the vertical integration itself or otherwise. If
distributors truly follow the mandate to license “theatre by theatre, solely on the merits,” then by
definition they cannot favor either their own “affiliated theatres” or other large “circuit theatres.”
It is a somewhat common misconception that the Paramount Consent Decrees precluded vertical
integration. They did not. While substantial divestiture was ordered as part of the initial remedy,
neither the Supreme Court nor the district ruled that defendants could not get back into the
exhibition business. Several of the defendants were required to seek permission to do so, but the
relative lack of vertical integration today is not because of the Paramount Consent Decrees. It is
because the studios themselves have concluded for various reasons that the exhibition industry is
too difficult or insufficiently attractive.
The ICA does not see distributor ownership of cinemas as the primary mischief to be avoided,
24
provided critically that the theatre-by-theatre licensing mandate is preserved and respected. That
said, a scenario where a studio or a behemoth streaming service bought up a significant number
of cinemas (or, for example, bought one of the biggest circuits) would raise significant antitrust
anxieties. We believe the DOJ is well equipped to assess the impact on competition if such a
possibility materializes.
24
Indeed, perhaps some modest vertical integration would be a net positive insofar as content
providers acquired some skin in the exhibition game and learned the importance of the theatrical
window and the pro-consumer and pro-competitive benefits of tiered entertainment, something
that Amazon, for example, has suggested it would respect.
18
It warrants emphasis that the chief mischief associated with vertical integration in the motion
picture industry is clearances.
25
If clearances are illegal, or at a minimum regulated strictly,
vertical integration poses less of a threat to competition. If clearances are legal, or their
regulation too lax, then vertical integration quickly becomes a big problem.
(ii) Block Booking
The Supreme Court in United States v. Paramount described block-booking as “the practice of
licensing, or offering for license, one feature or group of features on condition that the exhibitor
will also license another feature or group of features released by the distributors during a given
period. The films are licensed in blocks before they are actually produced. All the defendants,
except United Artists, have engaged in the practice. Block-booking prevents competitors from
bidding for single features on their individual merits.” 334 U.S. at 156-57.
Block booking has significant anticompetitive consequences for any exhibitor, including the
biggest circuits. But it is ruinous for independents with their smaller screen counts. Somewhat
akin to the effect of “minimum runs,” block booking occupies tremendously valuable screen
space with under-performing content. Thus, it is one thing for a multiplex with 15 screens to
devote one screen to an under-performing motion picture – to be sure a pernicious mischief that
ought to be unlawful – but the effect on the independent with two screens is obviously
devastating.
The prohibition of block booking in the Paramount Consent Decrees most certainly does not
have anticompetitive effects, quite the opposite. Block booking empowers distributors to push
weak content on exhibitors,
26
and the opportunity cost of devoting that screen to that weak
content (especially devastating to locations with few screens) empowers distributors unfairly to
keep their distributor-competitors’ content off the big screen.
(iii) Circuit Dealing
The ICA notes at the outset that the exhibition market is not a zero-sum game between big
circuits and small independents. Indeed, independents have often benefited from the buying
power of big circuits, which has prevented studio predations that might have otherwise occurred
25
See Michael Conant, Antitrust in the Motion Picture Industry: Economic and Legal Analysis, at
64 (Univ. of Cal. Press 1960) (“The record showed that many theaters received first-run films
only during a period when affiliated with a major circuit. When under independent ownership,
either before or after circuit affiliation, the Paramount defendants even refused to bargain with the
operator to license him first-run film. Examples were the Oriental Theatre in Chicago, the Roxy
in Atlanta, the Fifth Avenue in Englewood, California, and the Palace in Gary, Indiana. A small
theater in Janesville, Wisconsin, took first run away from larger local houses when Fox acquired
control of it.”).
26
See Michael Conant, Antitrust in the Motion Picture Industry: Economic and Legal Analysis, at
79 (Univ. of Cal. Press 1960) (“Many mediocre films would never have earned their costs of
production had the distributor tried to market them singly, each on its own merits. In this way
block booking enabled distributors to shift a part of the market uncertainties to the exhibitors by
guaranteeing that poorly accepted pictures would be bought.”).
19
industrywide. Moreover, big circuits pay the lion’s share of dues to trade associations such as the
National Association of Theatre Owners, which ably represents the entire exhibition industry in
multiple forums.
However, it is undeniable that “circuit dealing” violates the “theatre-by-theatre on the merits”
licensing mandate at the heart of the Paramount Consent Decrees. See Flagship Theatres of Palm
Desert, LLC v. Century Theatres, Inc., 198 Cal.App.4th 1366, 1375 (2011) (“The case law
contains no general definition of prohibited circuit dealing, but it is generally characterized as
‘the pooling of the purchasing power of an entire circuit in bidding for films,’ which undermines
the competitive process of bidding for film licenses ‘theatre by theatre.’”) (citing Paramount,
334 U.S. at 154). Indeed, the “theatre-by-theatre” mandate expressly includes in its recitation of
prohibited discrimination both affiliated theatres and circuit theatres. As the Supreme Court
described circuit dealing in Paramount:
The inclusion of theatres of a circuit into a single agreement gives no opportunity for
other theatre owners to bid for the feature in their respective areas and, in the view of the
District Court, is therefore an unreasonable restraint of trade. … The formula deals and
master agreements are unlawful restraints of trade in two respects. In the first place, they
eliminate the possibility of bidding for films theatre by theatre. In that way they eliminate
the opportunity for the small competitor to obtain the choice first runs, and put a premium
on the size of the circuit. They are, therefore, devices for stifling competition and
diverting the cream of the business to the large operators. In the second place, the pooling
of the purchasing power of an entire circuit in bidding for films is a misuse of monopoly
power insofar as it combines the theatres in closed towns with competitive situations.
334 U.S. at 154-55.
In any given geographic market, if the big circuit gets the picture on the merits, and an
independent competitor does not, the antitrust laws generally provide no recourse for the
disappointed independent. But what big circuits cannot do is obtain circuit-wide deals that
predetermine “the merits” across multiple geographic markets (and, if coupled with overbroad
clearances, suppress independent access to motion pictures even outside the big circuit’s
geographic markets).
Given the steadily increasing consolidation in the exhibition industry, the prohibition of circuit
dealing is even more vitally important today than it was in 1948. Whether the anticompetitive
mischief is instigated by Big Distributors or Big Circuits matters little to the struggling
independent who cannot stay in business if denied access to major motion picture content.
(iv) Resale Price Maintenance
Horizontal price fixing continues to be a per se violation. “Vertical price fixing” used to be a per
se antitrust violation but is no longer. “Resale price maintenance” (a vertical arrangement) is
subject to the “rule of reason,” as opposed to per se treatment, meaning it requires a dense
factual inquiry. See General Cinema Corporation v. Buena Vista Distribution Inc., 681 F.2d 594
(9th Cir. 1982) (finding a distributor’s per capita requirements not “vertical price fixing”). In
20
2007, the Supreme Court made it official that vertical resale price maintenance arrangements are
subject to the “rule of reason,” and no longer per se violations. Leegin Creative Leather
Products, Inc. v. PSKS, Inc., 127 S.Ct. 2705 (2007).
While distributors are not fixing a specific ticket price, their per capita requirements
(essentially, a floor on ticket price that exhibitors will be charged regardless of the actual ticket
price) certainly eliminate nearly all pricing flexibility an exhibitor might otherwise have.
Independents in particular chafe at the per capita requirements because (1) as small operators,
they have less buying clout and they are already operating at lower margins; (2) their average
ticket prices are generally lower than the average ticket prices of big circuits; and (3) they
generally need more pricing flexibility to account for local socioeconomic and other conditions.
While independents steadfastly complain about the stifling of pricing flexibility from per capita
requirements, the ICA has not surveyed its members concerning details of per capita
requirements. It is accordingly an open question whether per capita requirements are imposed
unfairly against independents, or in a discriminatory fashion that favors big circuits, or in other
anticompetitive ways. What seems clear, however, is that per capita requirements, coupled with
abuses like minimum runs, constitute unlawful restraints of trade. Having to keep an
underperforming picture on a screen beyond its opening week and pay excessive per capitas for
the relatively few patrons who show up (and of course being unable to price the ticket downward
precisely because of per capita requirements) is manifestly anticompetitive, and especially
injurious to independents with their typically smaller locations.
While antitrust law has changed with respect to resale price maintenance since 1948, the
Paramount Consent Decrees still constitute a salutary check on vertical price predations,
especially as to more vulnerable and consumer-friendly independents.
(v) Overbroad Clearances
It is not unlawful for a distributor to “pick a winner” in a given geographic market. What the
Paramount Consent Decrees add to the rule-of-reason inquiry
27
is, again, the requirement that the
“winner” be picked “on the merits” and on a theatre-by-theatre film-by-film basis. Nobody gets
to be the automatic winner. Moreover, nobody gets to “win” beyond a reasonable geographic
range. The big circuit winner downtown cannot keep the picture out of the small independent’s
suburban or rural cinema.
Especially pernicious is the coupling of clearances and circuit dealing, where a “blanket
clearance” effectively issues in favor of a big circuit. The Paramount Consent Decrees justly
deter that kind of anticompetitive conduct. And because clearances tend (with some exceptions)
to operate against a distributors’ interest by reducing the number of runs and the achievable
27
Regal Entm't Grp. v. Ipic-Gold Class Entm't, LLC, 507 S.W.3d 337, 346-47 (Tex. App. 2016)
(alleged clearance analyzed under rule of reason); Cobb Theatres III, LLC v. AMC Entmt.
Holdings, Inc., 101 F.Supp.3d 1319, 1332 (N.D. Ga. 2015) (alleged clearance agreement between
premium theater and distributor is vertical agreement scrutinized under rule of reason); Orson,
Inc. v. Miramax Film Corp., 79 F.3d 1358, 1371 (3rd Cir. 1996) (clearances are vertical, nonprice
restraints evaluated under rule of reason).
21
gross,
28
the persistence of clearances, especially in favor of the same big circuit, raises serious
suspicion of an unlawful restraint.
29
In Paramount, the Supreme Court treated clearances appropriately as likely anticompetitive and
as requiring specific competitive justification by the distributor.
As we have said, the only justification for clearances in the setting of this case is in terms
of the special needs of the licensee for the competitive advantages they afford. To place
on the distributor the burden of showing their reasonableness is to place it on the one
party in the best position to evaluate their competitive effects. Those who have shown
such a marked proclivity for unlawful conduct are in no position to complain that they
carry the burden of showing that their future clearances come within the law. Cf. United
States v. Crescent Amusement Co., 323 U. S. 173, 323 U. S. 188.
334 U.S. at 148.
Apart from the obvious anticompetitive impact on the exhibitors who are getting excluded (and
these are usually, though not always, independents), clearances operate in other ways to distort
competition. For example, clearances prevent the kind of head-to-head competition that requires
exhibitors to get creative in pro-consumer ways. An exhibitor consistently getting a clearance is
basically getting a market pass from competition.
30
Moreover, clearances can constitute significant (and hidden?) barriers to entry, in that an
otherwise attractive market might be fatally less attractive if the exhibitor operating in that
market is regularly getting (or clearly capable of getting) muscular clearances.
31
Thus, for
example, clearances might confer the power to exclude competition even if a monopolist is not
exacting a monopoly profit, and thus obscure the abuse of monopoly power.
28
See supra, note 21.
29
See supra, note 23.
30
A similar “consumer choice” argument was one of the reasons Fox noted when, upon the May 27,
2016 release of X Men: Apocalypse it famously declared it would not honor clearances. Deadline
Hollywood, “Distribs & Exhibs Hold Line On Clearances Despite Fox’s Position Change” (Mar.
31, 2016) (“with the different types of movie theaters that exist today from PLFs to
restaurant/multiplex combos, Fox believes the consumer should have the right to choose where
they’ll see a movie. This puts some pressure on exhibition to provide a better experience than
their competition down the street.”). Available at https://deadline.com/2016/03/20th-century-fox-
exhibition-clearances-circuit-dealing-1201729061/.
31
See American Stores, 872 F.2d at 842 (“An absence of entry barriers into a market constrains
anticompetitive conduct, irrespective of the market's degree of concentration.”). Where entry
barriers are low, market share does not accurately reflect the party’s market power. United States
v. Waste Mgmt., Inc., 743 F.2d 976, 982-83 (2d Cir. 1984). But entry barriers that are only
apparently low distort analysis of that market and hamper efforts at competitive redress.
22
Clearances almost always hurt smaller players. Almost. Sometimes a smaller player wins the
lottery and gets a "clearance" vis-a-vis a big player.
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And that’s what makes clearances so
insidious. They’re not “structurally” anti-competitive because they can always be withheld or
given to another player (although they can certainly become structurally anticompetitive if the
same exhibitor essentially obtains a permanent and automatic clearance in plain violation of the
Paramount Consent Decrees). But obviously it is typically the big circuits with the economic
wherewithal to extract most clearances, especially clearances that reduce the distributor’s gross.
The Paramount Consent Decrees did not eliminate clearances, but they did create a higher bar
with respect to their competitive justification. As with circuit dealing, given the steadfastly
increasing concentration in the exhibition industry, the importance of the Decrees’ skepticism
regarding clearances is even more important today than it was in 1948.
C. What, if any, modifications to the Paramount Decrees would enhance competition
and efficiency? What legal justifications would support such modifications, if any?
The ICA respectfully submits that the status quo ought not be disturbed, and that, as the
Department has done on each previous occasion when it revisited the Paramount Consent
Decrees, it conclude that no change is necessary or appropriate. However, taking the question
seriously, the very best “modification” of the Paramount Consent Decrees would be codifying
their central principle as positive law: prohibiting distributors “from licensing any feature for
exhibition upon any run in any theatre in any other manner than 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.”
That principle, writ large, would do wonders for competition, consumers and the motion picture
industry generally. If the Department of Justice instituted a rulemaking proceeding toward the
end of distilling the best of the Paramount Consent Decrees, including their “theatre-by-theatre
on the merits” mandate, the ICA would applaud the initiative, and likely not object if the action
were coupled with efforts to vacate the Paramount Consent Decrees.
D. What effect, if any, would the termination of the Paramount Decrees have on the
distribution and exhibition of motion pictures?
Termination of the Paramount Consent Decrees would be not only misdirected policy, but
terrible timing. This is not the moment to untether big distributors (or other behemoth content
providers) or even to hint that some “testing the waters” or “pushing the anticompetitive
envelope” might be okay. Even the perception that the Department of Justice feels less solicitous
toward independent cinemas would tempt too many big players (including big circuits) into the
kinds of predations that are difficult to detect, and even some that are more brazen. Independents
already dwell in a kind of perpetual existential angst, and the economic challenges of running a
cinema continue to mount. It is difficult to navigate these waters. Independents need to see that
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That is exactly what happened in the government’s antitrust litigation against Syufy Enterprises,
which doomed the government’s case. See United States v. Syufy Enterprises, 903 F.2d 659 (9th
Cir. 1990).
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the Department of Justice remains committed to the principles of fairness so succinctly embodied
in the Paramount Consent Decrees, especially the “theatre-by-theatre on the merits” mandate.
To the extent that termination of the Decrees introduced ambiguity into the state of the law (and
it is a virtual certainty that some, and possibly substantial, ambiguity would be introduced),
anticompetitive conduct would spike, and the earliest casualty would likely be the “theatre-by-
theatre on the merits” mandate. If that mandate is compromised, we would witness the death
spiral of independent cinema, with appalling consequences to the industry and to patrons of
independent cinemas.
E. Have changes to the motion picture industry since the 1940s, including but not
limited to, digital production and distribution, multiplex theatres, new distribution
and movie viewing platforms render any of the Consent Decree provisions
unnecessary?
To be sure, the motion picture industry is very different in 2018 than it was 70 years ago. Most
obviously, nearly every consumer of motion pictures owns at least one television, and probably a
mobile device as well. But the basic rules set forth in the Paramount Consent Decrees continue to
serve the industry and consumers well.
(i) Digital production and distribution
The digital revolution should make wide distribution of motion pictures easier than ever, as there
will never again be a “finite print” issue (and once we’re post-VPF, not even an artificially
“finite” print in the form of transfer payments). This is the promise of digital: easy distribution to
as many exhibitors as possible, and for a truly wide-release, there should be no impediment to
such wide release. But we need the Paramount Consent Decrees to ensure that true promise of
digital, else big players will introduce competitively advantageous bottlenecks that limit
distribution.
Since the point of tiered entertainment is to determine as early and precisely as possible the value
of a motion picture across platforms, distributors, acting in their best interest, will naturally
distribute popular features as widely as possible. Failure to do so suggests some collusion or
conspiracy in restraint of trade.
(ii) Multiplex theatres
In one sense, multiplex theatres indicate the ascendency of exhibition, the power of choice. But
that refers primarily to circuits, not independents. Independents are often 1, or 2, or 3, or 4-
screen locations not because they are technologically “lagging,” but because they know exactly
what their market can support.
Predatory practices like “minimum runs” are especially problematic in the world of multiplex
theatres, which can easily accommodate “minimum runs” (just bump that poorly performing
movie to the smallest screen for that third required week) versus independents, who typically do
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not have the luxury of keeping a poorly performing movie on their one or two screens for three
weeks.
The rise of multiplex theatres gives circuit theatres even more buying power, and power
specifically to discriminate against independents. If circuits are encouraging minimum runs, for
example, that would violate the Paramount Consent Decrees. It is easier to make the case that
minimum runs are improper with the Paramount Consent Decrees than without them.
(iii) New distribution and movie viewing platforms
Even with multiplying platforms, the “theatre-by-theatre on the merits” licensing mandate
remains a relevant and persuasive principle. See United States v. Loew’s Inc., 882 F.2d 29 (2d
Cir. 1989) (“The continuing injunction to license features theatre-by-theatre also makes it
unlikely that Warner’s interest in Cinemerica will result in foreclosure of distributors’ access to
exhibitors. Moreover, the changed nature of the motion picture exhibition industry has made
such foreclosure highly improbable.”).
Importantly, while platforms for movies have multiplied, the big screen remains the primary
platform, and the one that typically drives the value of motion pictures in subsequent platforms.
The cinema’s primacy in the sequence of various platforms preserves the relevance and the
importance of the Paramount Consent Decrees. Obviously, the Paramount Consent Decrees did
not become irrelevant or obsolete with the advent of television, which sent the exhibition
industry generally reeling. To the contrary, given the additional competitive pressures introduced
by television (as with the additional competitive pressures today from new platforms), the
Paramount Consent Decrees substantially aided in ensuring that independents cinemas could
navigate the rocky waters and survive to provide Big Screen entertainment to people who would
likely otherwise never have such access.
F. Are existing antitrust laws, including, the precedent of United States vs. Paramount,
and its progeny, sufficient or insufficient to protect competition in the motion
picture industry?
While “general antitrust laws” point a little of the way into clarity about proper and improper
conduct in the motion picture industry, no extant statute or regulation or collection of cases
comes anywhere near providing the level of particularity and clarity of application to our
idiosyncratic motion picture industry as the Paramount Consent Decrees. See discussion, supra,
at p. 12. Moreover, even if “general antitrust laws” could be refashioned over a period of time to
adequately address all of the matters addressed in the Paramount Consent Decrees, the interim
chaos and spur to experimental predations would doom too many independents.
As noted throughout these Comments, nothing in existing antitrust law comes close to the
elegance and power of the “theatre-by-theatre on the merits mandate” in the Paramount Consent
Decrees. The ICA respectfully urges the DOJ not to consider terminating the Decrees unless and
until it has something of equal value and power in their stead.
Independents are robust competitors. The ICA is not promoting mere sympathy for a victim
class. But they are the most vulnerable players in an industry increasingly dominated by very big
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players. And their disappearance would have a terrible impact on the industry and on mostly
rural and small-town patrons who would probably never again watch a movie on the Big Screen.
The Paramount Consent Decrees have operated for decades as a kind of civilizing influence on a
dynamic industry, and as a solace for independents, who know the Department of Justice went to
bat for the little guy in a big way, and won. The ICA and its members respectfully ask the
Department of Justice now not to renounce its own remarkable victory.
Respectfully submitted,
October 4, 2018
