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 FTC files Lasky-complaint Cease order to stop block booking DOJ files antitrust case 1930 Supreme Court guilty verdict Block booking allowed via National Industry Recovery Act Studies mostly recovered Summary

Jan 1946 Variety piece & DOJ case: 8 studies 25 affiliates 132 Execs 1939 June Gone With The Wind, Wizard of OZ, Wurthering Heights Consent decree: block booking regulated small 3 left out Consent decree expiration: all 8 must be compliant Oct Back in Court Movie Admission Peak Guilty verdict: block booking, theatre pooling eliminated Big 5 allowed theatres Summary

Jan 1946 Feb-May 1948 Nov RKO first to sign divorce agreement Feb 1949 Paramount divests to focus on TV MGM divests Guilty verdict: block booking, theatre pooling eliminated Big 5 allowed theatres Supreme Court Appeal Supreme Court: - Ban block booking - Require theatre divestiture - offered 2 nd consent decree 1951 Fox and Warner divests Summary

Questions?

Economics Big 8 17% 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

Reduced competition Divestiture unnecessary Today: Independents still need major distributers Antitrust economics infancy Little empirical analysis Conclusion USD (adj. for inflation)

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Works Cited Slide 1: 1) 2) udy.htm