Small theater chains worry a mid-century rule is all that stands between them and extinction

Up for review.
Up for review.
Image: AP Photo/Steve Helber
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A lot of forces are threatening US movie theaters in 2018. Tech companies like Netflix and Amazon are putting out more movies than all the major movie studios combined, and many of them are bypassing theaters. Studios such as 20th Century Fox are questioning how long movie theaters should have exclusive access to their new releases. Subscription services like MoviePass and Sinemia are altering the way people buy movie tickets. And, now, the US Department of Justice is reviewing a mid-century antitrust rule that’s meant to prevent movie studios from wielding too much power over cinemas.

Small theater chains, especially, worry big changes to the antitrust rules, known as the Paramount consent decrees, could open the door for major studios like Disney to set unreasonable terms for booking films that could put the theater owners out of business.

The consent decrees, which stem from a 1948 Supreme Court ruling, targeted the eight largest movie studios of the time—Paramount, Fox, Loew’s (now MGM), Radio-Keith-Orpheum, Warner Brothers, Columbia Pictures, Universal, and United Artists. It barred the studios from practices like owning movie theaters; setting minimum ticket prices; demanding theaters license other films from a studio to get access to the movies they want, a practice known as block booking; and cutting deals for movies by theater circuit, rather than theater by theater, as the former would put small theater chains at a disadvantage.

Those decrees are up for review by the DOJ, along with 1,300 other legacy decrees. Former attorney general Jeff Sessions was a vocal critic of consent decrees.

More than 70 public comments were submitted to the DOJ, and published in November, as part of the review process. They were submitted by trade groups, theater chains, independent cinemas, and private individuals, many of whom argued the Paramount decrees should remain in place.

“They understand they have limited oxygen,” Barak Orbach, a law professor at the University of Arizona, with a focus on antitrust law and the movie business, said of the small and mid-sized theater owners that submitted comments. “Then they see the market is going to be disrupted by the withdrawal of the consent decrees that could make things worse for them.”

The box office in the US and Canada will generate more than $11 billion this year, making it the world’s largest movie market. And multiplexes like those run by theater chains AMC, Regal, and Cinemark dominate the movie business. Venues with five or more screens made up nearly 90% of the 40,000 screens as of 2017, and the number of theaters with less than five screens was down 30% since 2013, according to the Motion Picture Association of America (pdf). AMC is largest theater owner in the US, by number of screens, followed by Regal and Cinemark.

Disney epitomizes many of the concerns small theater operators had. As the dominant studio power, it’s squeezing margins at movie theaters during a period of sweeping change in the industry. The media giant—which released the three top-grossing movies and was responsible for nearly 30% of domestic box office grosses so far this year—was discussed repeatedly in the public comments submitted to the DOJ. Some comments used Disney, which is set to acquire Fox’s movie studios and many other assets next year, to show that the industry is in some ways more consolidated now than it was in the 1940s. (Seven studios accounted for nearly 90% of the domestic box office last year.) Others called out specific ways Disney and other movie studios still control movie ticket prices—a practice deemed unlawful under Paramount decrees—and play favorites with big movie theater chains.

(Disney isn’t bound by the decrees. While the 95-year-old company was making movies in 1938 when the DOJ sued the eight major movie studios of the time, it was not listed in the lawsuit. The company was just beginning to expand into movies then, with its first fully animated feature film, Snow White and the Seven Dwarfs, released in 1937. Disney and other movie studios that formed after the lawsuits, like Lionsgate and Amazon Studios, are not technically bound by the Paramount decrees, but they do take their cues from the antitrust ruling.)

Movie theaters negotiate with studios for every film screened in their theaters. The major US movie studios are notoriously tough to deal with, particularly for small local chains, independent cinemas, and drive-in theaters that have less negotiating power than big chains like AMC, Regal, and Cinemark. If the movie business were the mafia, Paramount, Sony, Warner Bros., 20th Century Fox, NBCUniversal, and Disney would be the six families—and Disney would be the Corleones. It dictates the terms of the deals—the length of time the film has to run, in what theater, and the cut it will take. Movie theaters can accept them, or leave top-grossing movies like the Star Wars and Marvel films off their rosters.

“The movies that draw audiences to cinemas are blockbusters, specifically Disney’s,” said Orbach. “For the exhibitors, Disney is essential. You’re out of business without Disney.”

Disney did not return Quartz’s request for comment.

Disney gets one of the biggest shares of ticket sales in the industry, which is the common way studios get paid by theaters for their releases. One movie-theater commenter wrote that Disney took around 65% of ticket sales over the run of the film, compared to the 45%-50% charged by other studios. Fees typically range between 30-70% of ticket costs to license a movie, wrote a group representing independent cinemas. In 2017, some small theater chains had to turn down the latest Star Wars saga film, The Last Jedi, which brought in $620 million domestically, because Disney’s terms were too much of a burden, the Wall Street Journal reported (paywall).

Some of the comments on the Paramount decrees claimed Disney informally favored big theater chains, like AMC, Regal, and Cinemark, as well. For example, two small movie theaters wrote that Disney won’t license movies to them after their initial 120 day or so theatrical releases, but has allowed theaters like AMC to screen older Disney films in special cases.

Disney was named in roughly one-quarter of the 77 comments that were published by the DOJ as part of the review process—more than any other company, save Paramount, which was named in nearly every comment because it was the lead defendant in the lawsuits that led to the decrees. Commenters also talked about the effects of Netflix and Amazon, big studios like 20th Century Fox and Warner Bros., AT&T, in reference to its recent merger with Time Warner, and the big US theater chains like AMC.

Many of the comments did not name specific companies, and simply expressed their support for comments submitted by other trade groups and industry organizations.

Other theater owners were concerned that Disney and other studios could force them to charge higher prices, if the decrees were thrown out.

“I hate to think of what it might be like for us if a big studio can require me to show another film, or package of films, in order to get the film that will be most successful for us,” wrote a person who booked movies for two non-profit, single-screen movie theaters in Iowa, whose name was redacted from the comments published by the DOJ. The person added: “With some studios—you get strung along, especially with big hits. If the decrees are terminated, Disney for example may require us to charge higher admission for some films in addition to the high terms we pay.”

Other commenters claimed some big studios already fix ticket prices by setting per-capita ticket prices they expect to receive for each ticket sold.

The antitrust division of the DOJ will consider the comments related to the decrees before making a decision.

“The framework that regulates negotiations is not great,” said Orbach. “The question is whether it can get worse.”