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Off-Screen Drama At The Movies

This holiday season your local cinema is bound to be packed with drama and suspense, intrigue and subterfuge. Some of it will even be on the screen.

But quite a bit of it is taking place behind the camera, as well as away from the silver screen entirely in the Trump administration’s Justice Department, the offices of K Street lobbyists, and courthouses around the country. From the biggest chains to the smallest local art houses, movie exhibitors are fighting to keep their place in the industry’s financial ecosystem in the era of blockbuster “tentpole” franchises and nearly infinite on-demand streaming to private screens of all sizes.

A lot of the current angst stems from the Justice Department’s announcement that it will ask the courts to eliminate, after a two-year phaseout, a set of restrictions on film studios that arose in the immediate aftermath of World War II. Stemming from the Supreme Court’s 1948 decision in United States v. Paramount Pictures, Inc., and enforced by the courts under a set of consent decrees, the rules sought to break studios’ hold over the way films were distributed in the era before television.

In practice, the rules all but eliminated “block booking,” in which a theater that wanted to screen a star-studded, surefire hit also needed to take a certain number of lesser products issued by the same studio. The rules also restrict “clearances,” block booking’s alter ego. In clearances, studios agree to a theater (or chain’s) demand not to let a competing theater in the same market screen a certain motion picture. While not flatly prohibiting clearances, the rules do create a constraint against those deemed overly broad.

So who really cares? As Captain Obvious would observe – if only he could get someone to buy a screenplay about him – today’s video entertainment business is vastly different from that of the days when a handful of major studios dominated the box office. Back then, through theaters that the studios either owned outright or indirectly controlled, studios more or less dictated what movies the public would see and when they would see them. (A snarky film insider would observe here that nowadays Disney pretty much does that all by itself.)

Makan Delrahim, the antitrust chief at the Justice Department, seemed to be auditioning for a role as the captain in question at an American Bar Association conference recently. “We cannot pretend that the business of film distribution and exhibition remains the same,” he said.

Delrahim isn’t wrong. Today, the big studios release only a handful of films. These are a mix of big-budget would-be blockbusters and cheaper, low-budget passion projects or award-focused prestige efforts. Studios have largely abandoned the middle market to Netflix and its competitors. Those stories are now as apt to be made into a series as a standalone film. Foreign box office is collectively bigger than that of the U.S. for the major studios. Studios hope to recoup their big-ticket investments by getting those films on as many screens as they can – and by avoiding a collision with another studio’s would-be blockbuster, when possible. At home, half of American screens are controlled by three big chains: AMC Entertainment, Regal Entertainment and Cinemark Holdings. Regional chains, art houses, drive-ins and dine-in screeners fight for whatever audience remains.

When the Justice Department announced last year that it was considering dropping the Paramount consent decrees, the big studios and big theater chains yawned. Yet the independent and regional exhibitors threw a collective fit. Some have worried that the move will result in a return to block booking, where a powerhouse studio like Disney could insist on putting its own content on most or all of a theater’s screens if that theater wants to show a major release like “Avengers: Endgame.”

I have trouble seeing how this is likely to happen when Disney only releases 10 to 12 theatrical films a year under its own label (plus a similar number from Fox, which it acquired earlier in 2019). In the pre-Paramount days, big studios released as many as two films each week, and theaters typically had only one screen in a single auditorium.

But clearances are another matter. To highlight both sides of the issue, exhibitor Landmark Theaters has gone to court against Regal, claiming the big national chain monopolized first-run movies and hurt Landmark’s business in the nation’s capital. But Landmark also has been sued by independent art-house cinemas in Detroit, Denver and Washington, D.C. These cinemas have claimed that Landmark used its own clout to prevent them from gaining access to critically acclaimed and commercially promising independent films. Independent operators all have reason to fear that, once free of the Paramount consent decrees, the big national chains can effectively lock them out of the commercially appealing content they need to survive.

Which gets us back to the Justice Department’s conclusion that the Paramount consent decrees should be tossed aside like last year’s movie posters. (Never mind that movie posters often become valuable collectibles.) Even if the department has concluded that the consent orders are not doing much good in today’s environment, what evidence is there that they are doing any harm?

It would make more sense to take a close look at clearances and how studios are actually applying them in the real world. There are valid reasons why manufacturers (in this case the major and independent studios) grant geographic territories to their distributors (in this example the theaters). If a low-budget film has a niche audience, it may make sense to draw that audience to a single location where it can be profitable, rather than divide it among five locations where it can’t. Perhaps we want to force the losers in such competition to find other ways to get by, say by compiling the many well-done short films that play festivals but are seldom seen anywhere else. Or perhaps we don’t.

But we ought to give any policy change serious consideration beyond merely observing that the current arrangement is old and that the world has changed. Only Captain Obvious would think this is the best way to make a better world for film aficionados.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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