Justice Department to Terminate Longstanding Legal Rules for Movie Distribution
Brent Kendall and Erich Schwartzel
6-7 minutes

WASHINGTON—The Justice Department is moving to terminate legal rules that have governed the movie industry since the late 1940s, a step that could shake up how movies are distributed and the terms on which they hit the big screen.

The department’s antitrust division has determined that rules limiting film studios’ influence over theaters have outlived their usefulness in a movie business that has changed considerably since the curbs were first imposed. The rules set to be lifted were laid out in decades-old legal settlements known as the Paramount consent decrees.

“As the movie industry goes through more changes with technological innovation, with new streaming businesses and new business models, it is our hope that the termination of the Paramount decrees clears the way for consumer-friendly innovation,” Makan Delrahim, the department’s top antitrust official, said at an American Bar Association conference in Washington, D.C. on Monday.

The decrees clipped the wings of a core group of dominant studios in the post-World War II era, the result of a government lawsuit alleging the studios conspired to control the movie business from start to finish.

The decrees followed the Supreme Court’s blockbuster 1948 ruling in U.S. v. Paramount Pictures that covered the nation’s eight major motion-picture distributors.

The ruling largely prohibited the studios from owning the theaters where their movies played, as well as from requiring theaters to play either several of their movies or none at all, an all-or-nothing deal known as “block booking.” And it stopped certain industry practices that limited when and how films could be shown in particular areas.

After the ruling, each studio entered into a decree with the Justice Department memorializing the new rules. The movie-theater industry flourished and expanded in the decades that followed.

The Justice Department won’t seek to drop all the rules right away; it is seeking a two-year sunset period for parts of the decrees that address block booking and certain movie licensing practices for theaters in a specific geographic circuit.

Mr. Delrahim said the decrees were no longer needed because the conspiracy among movie-industry giants from the 1940s no longer exists. If modern practices arise in the movie industry that harm consumers, “antitrust enforcers remain ready to act,” he said.

The department will have to make a motion in federal court in Manhattan to terminate the decrees. That filing is expected in the coming days.

The Justice Department’s decision is a blow to the nation’s dwindling number of independent theaters and smaller studios trying to squeeze movies into a release calendar increasingly dominated by big-budget franchise titles.

Smaller operators have complained in recent years about not being able to afford the onerous distribution terms required by studios to show their biggest blockbusters—terms that major chains can stomach but mom-and-pop operations cannot. In extreme cases, up to 70% of ticket sales on a major release can flow back to the studio.

The termination of the decrees could speed up a consolidation happening across the industry as independent chains throw in the towel. About half of the nation’s roughly 40,000 movie screens are controlled by the top three exhibitors: AMC Entertainment Holdings Inc., Regal Entertainment Group and Cinemark Holdings Inc.

When the Justice Department invited theaters and studios to comment on the pending decision in 2018, no major studio weighed in. Instead, the comments were mostly left to small exhibitors and drive-in theaters, which cited a top-heavy box office as a concern.

So far this year, more than 27% of the box-office grosses in the U.S. and Canada have been generated by the five-highest grossing movies, according to Box Office Mojo. Four of those movies were released by Walt Disney Co. , which currently holds a commanding market share over the industry but wasn’t a party to the Paramount decree because it wasn’t a juggernaut back then.

Since blockbusters like “Avengers: Endgame” or “The Lion King” are too lucrative for most theaters to pass up, those same titles could be used as leverage by studios if the decree disappears and block booking is allowed, the National Association of Theatre Owners argued in comments submitted to the Justice Department.

“If exhibitors were forced to book out the vast majority of their screens on major studio films for most of the year, this would leave little to no room for important films from smaller studios,” NATO argued. The organization said Monday it would wait to review any motion filed by the Justice Department in court before commenting further.

The Justice Department’s review of movie-industry rules has been part of a broader initiative in which department antitrust officials have revisited long-ago legal settlements across a range of industries that have remained on the books with no expiration date.

The other big review that remains pending is in the music industry, where the department is considering whether to revise or terminate decrees that have set rules for music licensing since the 1940s. The outcome could shake up how businesses, broadcasters and digital streaming services secure rights from songwriters and publishers.

Write to Brent Kendall at brent.kendall@wsj.com and Erich Schwartzel at erich.schwartzel@wsj.com

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