United States vs. Paramount Inc.

By Alex Fisher & Paul Wagner

Vertical Integration: Movie Industry

PRODUCERS

DISTRIBUTORS

EXHIBITORS

1933

Famous Players-Lasky Corporation acquires Bosworth and Paramount

1921 April 1928 19351916 1927

FTC filesLasky-complaint

Cease order to stopblockbooking

DOJ filesantitrustcase

1930

Supreme Court guilty verdict

Block booking allowed via National Industry Recovery Act

Studies mostlyrecovered

Summary

Jan1946

Variety piece &DOJ case:8 studies25 affiliates132 Execs

1939 June1942 19461938 1940

Gone With The Wind, Wizard of OZ, Wurthering Heights

Consent decree:block booking regulatedsmall 3 left out

Consent decree expiration:all 8 must be compliant

Oct1945

8 Back in Court

Movie AdmissionPeak

Guilty verdict:block booking, theatre pooling eliminatedBig 5 allowed theatres

Summary

Jan1946 Feb-May1948 Nov1948 1954

RKO first to sign divorce agreement

Feb1949

Paramount divests to focus on TV

MGMdivests

Guilty verdict:block booking, theatre pooling eliminatedBig 5 allowed theatres

Supreme Court Appeal

Supreme Court:- Ban block booking - Require theatre divestiture- offered 2nd consent decree

1951

Fox and Warner divests

Summary

Questions?

EconomicsTheatre Own-

ershipBig 817%

• Independent Theatre Owners• SIMPP

• Relevant market• Pop. > 100,000

• 70% have major affiliation• 91% have independent competition

• Pop. = 25,000 – 100,000• 5 majors have interest in 60%

• Pop. < 25,000• 1 of 5 has 100% affiliation

• No nationwide competition

83%

Economics

• Restraints of Trade• Theatre pooling

• Vertical and Horizontal Agreement• Price fixing• Minimum admission price• Rental Income = % of revenue from

screening

• Block booking• Less consumer welfare: less output and

increased prices

Outcome

1) Exhibitor pricing

2) Theatre-by-theatre and movie-by-movie licensing

3) No Vertical Integration: Divestiture of Theatres

4) No joint theatre ownership unless < 5%

Post Mortem

• Failures• No evidence for explicit collusion• Burden of enforcing competitive

bidding• Consumer welfare loss• Independents harmed

• Inputs decrease: • Studio exits increase and entries

decrease

• Output decreases• Quality is stagnant till 1970’s

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Ticket Pr...

• Reduced competition

• Divestiture unnecessary

• Today: Independents still need major distributers

• Antitrust economics infancy• Little empirical

analysis

Conclusion

U

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on)

Questions?

Works Cited

Slide 1:1) http://www.filmforum.org/films/paramount.htm2) http://www.justice.gov/dag/pubdoc/deathpenaltystudy.htm