United States v. Paramount Pictures, Inc.

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United States v. Paramount Pictures, Inc., 334 US 131 (1948) (also known as the Hollywood Antitrust Case of 1948, the Paramount Case, or the Paramount Decision) was a landmark United States Supreme Court anti-trust case that decided the fate of movie studios owning their own theatres and holding exclusivity rights on which theatres would show their films. It would also change the way Hollywood movies were produced, distributed, and exhibited. The Court held in this case that the existing distribution scheme was in violation of the antitrust laws of the United States, which prohibit certain exclusive dealing arrangements.

[edit] Background

The legal issues originated in the silent era, when the Federal Trade Commission began investigating film companies for potential violations under the Sherman Antitrust Act of 1890.

The major film studios owned the theaters where their motion pictures were shown, either in partnerships or outright and complete. Thus specific theater chains showed only the films produced by the studio that owned them. The studios created the films, had the writers, directors, producers and actors on staff ("under contract" as it was called), owned the film processing and laboratories, created the prints and distributed them through the theaters that they owned: In other words, the studios were vertically integrated, creating a de facto oligopoly.

Ultimately, this issue of the studios' unfair trade practices would be the reason behind all the major movie studios being sued in 1938 by the U.S. Department of Justice. Coincidentally, the Society of Independent Motion Picture Producers a group led by Mary Pickford, Samuel Goldwyn, Walter Wanger, and others filed a lawsuit against Paramount Detroit Theaters in 1942, the first major lawsuit of producers against exhibitors.

The case filed in 1938 by the federal government reached the U.S. Supreme Court in 1948. The verdict went against the movie studios, forcing all of them to divest themselves of their movie theater chains.

Insofar as the studios were concerned, by divesting them of their theaters, the exhibitors were free to play movies produced by any studio, or a movie produced by an independent producer. Therefore, the box-office rentals (the amount of money from the tickets that goes to the producer of the picture) fell significantly, since now studios were competing with each other and with independent producers and, later on, independent distributors for the screens now owned by independent film exhibitors. This, coupled with the advent of television and the attendant drop in movie ticket sales, brought about a severe slump in the movie business, a slump that would not be reversed until 1975, with the release of Jaws, the first modern blockbuster.

Insofar as general trade practices are concerned, the Paramount Case is a bedrock of corporate anti-trust law, and as such is cited in most cases where issues of vertical integration play a prominent role in restricting fair trade.

[edit] Consequences

The court orders forcing the separation of motion picture production and exhibition companies are commonly referred to as the Paramount Decrees. Paramount was forced to sell its own theater chain (United Paramount Theaters), which merged with the American Broadcasting Company (led by former United Paramount Theaters boss Leonard Goldenson for decades). Today, the former Paramount theaters are controlled by another theater chain, National Amusements, through its control of Viacom. Despite these mergers, it seems unlikely that a vertically integrated motion picture business will ever be revived in the U.S.

Consequences of the decision include:

• More independent producers and studios to produce their film product free of major studio interference.
• The end of the old Hollywood studio system and, effectively, The Golden Age of Hollywood.
• A possible cataclyst for some studios selling their backlog of films to others--for example, most of Paramount's classic films ended up with EMKA, Ltd./Universal Studios, Warner Bros.' library to Associated Artists Productions (later United Artists Television and Turner Entertainment, and back to Warners in 1996), and so on.
• The weakening of the (Hays) Production Code, since it saw the rise of independent "art house" theaters.