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Biden vs. Block Booking

With the Paramount Decrees being rolled back in 2022, it’s worth considering how a Biden DOJ might respond to anti-competitive practices at movie theaters.
November 13, 2020
Featured Image
People walk outside the AMC Empire 25 movie theater in Times Square as the city continues the re-opening efforts following restrictions imposed to slow the spread of coronavirus on October 28, 2020 in New York City. The pandemic has caused long-term repercussions throughout the tourism and entertainment industries, including short-term and permanent closures of historic and iconic venues, and costing the city and businesses billions in revenue. (Photo by Noam Galai/Getty Images)

Given the precarious state of the film industry—even with a vaccine on the horizon, studios continue to lack the ability to project when the coronavirus will end and their products will be able to return to theaters; the theaters themselves remain precariously close to bankruptcy, given the lack of new product from studios—one thing worth watching from the incoming Biden Administration will be what they choose to do if the studios or theaters decide to take advantage of the recent termination of the Paramount Decrees.

Because of Covid-19, theaters are distressed assets; as such, it’s even more likely that an Apple or AT&T (which owns Warner Brothers) or Amazon will try to buy some theaters to control all aspects of distribution for their movies.While the ownership aspect of the Paramount Decrees is the best l known, other angles here are potentially more concerning to me. The ruling prevented studios from engaging in block booking, which was the process of forcing exhibitors to show lesser movies in exchange for the privilege of playing movies exhibitors wanted to play. In today’s world, this would be Disney making theaters play whatever they wanted—even content never designed for theatrical exhibition or movies not even in production—in exchange for playing Black Widow or the next Thor movie. You want the good stuff, you have to take whatever else we want you to take.

This may not seem like a big deal, as I’m sure you have heard that Disney leverages their position in negotiating runs better than any other studio. They can dictate the highest film rental (around 65 percent of the box office take for their biggest films, compared to the 55 percent average), have dictated theater placement (guaranteeing the biggest houses), and required longer-than-usual runs in those prime theaters (Disney has demanded four-week runs in the biggest theaters instead of the standard two-week runs for big releases). The post-covid world in exhibition is only going to exacerbate studio leverage over theaters, which is precisely what the Paramount Decrees were trying to prevent. Theaters have always needed studios more than studios need theaters, and it is increasingly likely that in 2021 and beyond, theatrical windows will be shorter and only the biggest studio movies will get the best theatrical release.

In evaluating the Paramount Decrees, Trump’s DOJ focused on the competitive market in 2020 in simple ways. It mostly focused on how the marketplace looks now versus 70 years ago, when United States v. Paramount Pictures was a going concern. There are two very relevant passages from the August motion to end the Decrees. First, the DOJ remarked that there are a lot more theaters now. They write:

Most metropolitan areas today have more than one movie theatre. The first-run movie palaces of the 1930s and 40s that had one screen and showed one movie at a time, today have been replaced by multiplex theatres that have multiple screens showing movies from many different distributors at the same time.

This is absolutely true as there are over 40,000 screens in the United States and only a thousand movies actually report any box office each year. In theory, there’s plenty of room for every movie.

The DOJ also stated that consumers don’t just see movies in theaters. They write:

Finally, consumers today are no longer limited to watching motion pictures in theatres. New technology has created many different distribution and viewing platforms that did not exist when the decrees were entered into. After an initial theatre run, today’s consumers can view motion pictures on cable and broadcast television, DVDs, and over the Internet through streaming services.

This is also true. Therefore, the DOJ reasoned,the original protections are no longer needed as there are so many theaters and screens and also so many different ways to watch.

Despite these truths, I still have issues with this thinking. My main complaint about block booking is that it negates the first fact above: more screens don’t do you much good if a handful of studios will monopolize the available screens. This isn’t necessarily a huge problem for the big chains. They are essentially playing the 100 or so movies that generate 90 percent of the total box office and more than 90 percent of those movies come from the big studios. AMC and Regal and Cinemark are in the studio business. However, it is a problem for theaters that rely on playing a diverse selection of movies. If most theaters are just going to play studio movies, having the flexibility to play a wider range of movies is the key competitive difference for other theaters.It’s also a problem for distributors that don’t release studio movies. If block booking comes back, the space for these movies and these distributors will shrink. Studios will use block booking to command even more screens in the future than they do now.

This concern was true seventy years ago, it was true in 2019, and it’s doubly true in a 2021 post-COVID theatrical environment. One of the first items on a new administrative agenda will be another needed stimulus package and NATO, the largest lobby organization for exhibition in the U.S., has already been working the phones to let our elected leaders know that without assistance from the federal government, most circuits after the big three (who aren’t eligible for a bailout) will go under. Consolidation is seemingly inevitable.

I’ll grant some consolidation is needed. Most box office—70 to 75 percent—is generated in around 33 percent of the theaters. However, this is largely made up of the largest theater chains and they can—and should—shrink their footprint. (Indeed, AMC is already quietly closing a lot of theaters.) However, the remaining theaters can’t afford to lose too much of their theater count. This is why block booking is problematic. Studios know that the footprint is shrinking and some smaller chains are likely to go away forever. They know that screen space is going to be an even larger premium and they will leverage that as much as they can and they’ll use block booking to do so.

What does this mean? Smaller movies from your favorite non-studio distributors will be fighting for less space. This doesn’t affect most moviegoers because, as I pointed out earlier, about 10 to 20 percent of movies are making up 90 percent of the box office. However, I’d argue that it’s not healthy for the industry to continue to trust that audiences will keep coming to superhero and other giant IP movies at the same level as they do now. The more top heavy the industry gets, the more the middle opens up. This is the space in which A24 and NEON have done their best work, with creative movies and smart marketing that targets 25-44 year-olds from both genders. The healthier this space is, the better I feel about theatrical exhibition’s long term prospects.

A new administration is going to have their work cut out for them and NATO is primarily focused on getting theaters the financial support they need so they aren’t dealing with mass amounts of bankruptcies. Lobbying the new DOJ about the Paramount Decrees will have to wait. NATO has two years from the cancellation of the Paramount Decrees—so, August 2020—to push the new administration to reevaluate. They also may not care. After all, the big theater chains only care about betting on the big movies and they do represent the bulk of NATO’s membership, so they may not be as concerned about booking practices as I am. But everyone outside the big three circuits are likely invested in not losing more control over their screens.

Forget about studios owning theaters: it’s the thing everyone knows about the Paramount Decrees, but it’s not the biggest issue here. Block booking is, and I will continue to argue that this practice sets up the whole business for failure in the future.

James Emanuel Shapiro

 James Emanuel Shapiro (@JamesEmShapiro) is a 20-year veteran of the entertainment industry. He's been the COO of NEON and Drafthouse Films and most recently started the analytics department at the Alamo Drafthouse. His gravestone will read "Made the only other offer to buy PARANORMAL ACTIVITY.”