The Artistic and Economic Legacy of a Landmark Antitrust Case

A Supreme Court Decision 65 years ago this week changed Hollywood forever

Hollywood_signThe marked decline in Hollywood’s fortunes in the 1950s and early 1960s (before Scorsese, Coppola, Evans et al saved the day) is usually attributed to the increasing availability of televisions in American homes. This was no doubt a factor, but equally important was a Supreme Court decision made 65 years ago this week: United States v. Paramount Pictures. The impact of this antitrust ruling was enormous both for the artistic content of studio movies and for the economic shape of the film industry.

Understanding the case requires an appreciation of the vertical integration of Hollywood’s business prior to the war. You may have noticed that many cities and towns have cinemas with names like “The Paramount”, “The Detroit Fox Theater” and “Warner” (including the hometown theater where I happily misspent a non-negligible portion of my West Virginia childhood). Those theater names are a legacy of the era in which the five major film studios owned the bulk of movie houses in the U.S.

Owning the theaters in which their movies played gave the big studios an extraordinary financial advantage in distribution, which they leveraged further by forcing independently-owned theaters to “block book” their products. If you wanted to show the hot new Bogart picture Casablanca in your independently-owned theater, you were strong-armed into also showing some Warner Brothers-made newsreels, short subjects and probably a low-budget second feature as well. And if you were an independent film producer looking for an audience, you pretty much had to go on your knees before the major studios to gain access to their theaters. The SCOTUS Justices knew an antitrust violation when they saw it, and their 1948 decision in the Paramount Pictures case forced the studios to give up ownership of theaters.

The artistic impact of the high court’s decision is not fully appreciated, even by film buffs. In the old business model, studios had regionalized audiences, which influenced their film production choices. In trying to explain why Broadway style musicals and cosmopolitan comedies were staples at MGM/Loews studio but not at 20th Century Fox for example, you need look no further than where their respective theaters were located: The former were concentrated in New York City and other parts of the Northeast, the latter were mostly further west, often in more rural areas.

Shorn of regionalized audiences, all the studios began playing a national game of pursuing audiences and lost their distinctive artistic approaches. Their products became more homogenized as a consequence.

Economically, the Paramount Pictures decision helped create what my pals Robert Frank and Phil Cook term a “Winner-Take-All-Market” in the movie industry. In the old system, all the studios could ensure at least some ticket sales by putting their own films into their own theaters. As theaters became free entities, competition was nationalized with no floor under what amount any studio might make and not much of a ceiling on what they might realize either.

Funnily enough, it was Paramount that first grasped the implications of the new market when it released The Godfather in a then shocking 400 screens nationwide. Soon afterward, Jaws tripled the size of that release. Both films made money hand over fist, and the blockbuster film era had truly arrived. From then on, a small number of films would make extraordinary profits, whereas the great bulk of films would make little or no money at all.

Author: Keith Humphreys

Keith Humphreys is the Esther Ting Memorial Professor of Psychiatry at Stanford University and an Honorary Professor of Psychiatry at Kings College London. His research, teaching and writing have focused on addictive disorders, self-help organizations (e.g., breast cancer support groups, Alcoholics Anonymous), evaluation research methods, and public policy related to health care, mental illness, veterans, drugs, crime and correctional systems. Professor Humphreys' over 300 scholarly articles, monographs and books have been cited over thirteen thousand times by scientific colleagues. He is a regular contributor to Washington Post and has also written for the New York Times, Wall Street Journal, Washington Monthly, San Francisco Chronicle, The Guardian (UK), The Telegraph (UK), Times Higher Education (UK), Crossbow (UK) and other media outlets.

6 thoughts on “The Artistic and Economic Legacy of a Landmark Antitrust Case”

  1. Keith, I can’t believe you sat on this until after my Arts and Cultural Policy course ended this spring!

  2. Great post. Fascinating that you cite The Godfather as the first big response … A lag of 20+ years!

  3. “before Scorsese, Coppola, Evans et al saved the day”

    For the late 60’s, I would say: Stanley Kubrick; Mike Nichols; Arthur Penn; George Roy Hill; Blake Edwards; William Friedkin; Sam Peckinpah.

    They made the 70’s generation possible: Lucas, Bogdanovich, Spielberg, Scorsese, Coppola.

    That there were so many of them shows that it wasn’t a few geniuses that saved the day. It was the opening of the system. Hollywood was a major contributor to what we think of as “the 60’s,” a lot of which happened in the early 70’s.

    1. I don’t understand Keith as saying Hollywood didn’t do anything good in the 1960’s; just that industry profits were down. And that’s true, and he has further identified the two causes– television and the forced divestiture of theaters.

  4. Oligopolies, like the patrons that preceded them, are often very good for the artists they choose to support. See also Bell Labs. Also worth noting is that those oligopolies have essentially recreated themselves in both the film and TV industries. Sure, there are independents, and the nominal lines between studios and distributors are different, but getting something independent to a wide audience is still incredibly difficult, and getting it there in a way that can be monetized is well-nigh impossible. (Someone who shows the ability to create a “viral” sensation seldom makes money from doing that, but they do tend to get a contract from the majors that does supply serious money.)

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