For the film distribution and media sectors, this year has been action-packed. Production budgets are skyrocketing and new digital services are being announced or are being launched with each passing month. The streaming wars are upon us. In addition, the FCC recently voted treating streaming services as “effective competition” to traditional cable providers (or MVPDs), thus triggering basic cable fare deregulation in parts of Hawaii and Massachusetts.

The distribution landscape experienced another unexpected legal twist this week. On November 18, Assistant Attorney General Makan Delrahim announced that the Antitrust Division of the Department of Justice has reportedly asked a federal court to end the “Paramount Consent Acts” (the “Deeds”), which have prohibited movie studios from engaging in certain distribution practices with theaters since since the 1940s. The DOJ has settled at motion to revoke the decrees in federal courthouse in the Southern District of New York on November 22, 2019. In particular, the DOJ cites streaming services and new technologies as some of the many reasons the decrees may no longer be needed in what the DOJ official regards as highly competitive and consumer-oriented content market. Given the volatility of the content licensing space, film licensors and licensees will need to carefully consider how the DOJ’s actions will affect their content rights and options going forward.

By way of background, the Decrees emerged from the landmark 1948 Supreme Court antitrust case, United States v Paramount Pictures, Inc. Prior to the case, top Hollywood studios often owned movie theaters (hence, owning both the means of production and distribution). This vertical integration led to lower distribution costs for the studios and gave them pricing power and the ability to discriminate on which theaters they released their films. Unsurprisingly, smaller, independent theaters have struggled to survive. The problem has been exacerbated by studios engaging in practices such as “bulk booking” (requiring theaters to release all or none of the studio’s films) and excessive “licensing” (restrictions on the time that must elapse between a particular run of a films), as well as alleged horizontal conspiracies between film and movie studios over issues such as minimum ticket prices. As part of the decrees, the defendant studios were barred or prohibited from engaging in these practices and were required to divest certain interests in their theaters.

The DOJ’s Nov. 22 motion may not come as a surprise, as the DOJ announced for the first time that the decrees were under review in August 2018, after which several industry players showed up, including the National Association of Theater Owners (NATO). Comments. In particular, NATO has argued that despite how streaming and the technology could increase competition, bulk billing would still negatively impact independent or local chains that screen fewer films and may be unable to afford larger film blocks.

Delrahim summed up the Justice Department’s position by saying that “(D)ecree, as they are, no longer serve the public interest, because the horizontal conspiracy – the original violation that animated the decrees – has been stopped. (…) Changes over more than half a century have also made it unlikely that the remaining defendants will restore their cartel.” In particular, the DOJ argued that the competition concerns of the 1940s no longer exist because the motion picture market has changed so dramatically, citing how film distributors have become less reliant on theatrical distribution with the advent of streaming. According to the Justice Department, colluding to limit the theatrical distribution of films in today’s market “wouldn’t make any economic sense.” In addition to streaming services, Delrahim also cited new theatrical release business models (such as flat-rate pricing for multiple tickets) as increasing competition and innovation in film distribution.

The Justice Department acknowledged NATO’s concerns in part and asked the court to implement a two-year sunset on block-booking and circuit dealing (licensing all theaters under common ownership, rather than on a theater-by-theatre basis). . Whether the cessation of decrees would diminish innovation, neither the motion papers nor Delrahim would venture to guess. Delrahim noted that antitrust enforcers don’t have to predict the future, they just need to recognize that changes are taking place. He added that the practices contemplated by the decrees would not in themselves become lawful, but would rather be subject to review according to the standard of the state of reason.

Commentators are divided on whether the end of the decrees that have shaped Hollywood for decades will lead to significant changes for the film world. One thing that’s important to note is that the decrees did not outright prohibit vertical integration of studios and theaters: the defendant studios could (and did) acquire theaters after demonstrating that such acquisitions would not unreasonably restrict trade. Additionally, only the studios that are part of the Decrees remain subject to their restrictions, meaning that many of today’s top studios (which now typically own a large portfolio of traditional and digital entertainment properties) were either non-existent or much smaller in the 1960s. ’40 and were not subject to the Decrees.

While it remains to be seen how this development plays out, it’s noteworthy for digital purveyors because it could lend extra life to the theatrical release window. With gigantic streaming deals inked every week, the value of the theatrical release window seemed to be dwindling for some films. But now that many studios are forgoing third-party licensing fees and instead holding their own content for their own streaming platforms, studios may be starting to wonder if the additional revenues from owning a chain theater could be a potential new source of revenue and a way to gain additional theatrical window control. Meanwhile, the effect of the Decrees’ lifting may not necessarily lead to a flurry of acquisitions, as other studios involved in direct-to-consumer streaming campaigns may not have the capital or desire to capitalize on the Decrees’ termination. Major theater chains will likely look to strengthen relationships with studios, while independent theaters will look for ways to succeed despite potentially rising costs.

With all these developments, studios and media platforms will also need to carefully consider how to protect their interests when managing their licensing deals given the volatility in this space and with the two-year sunset in mind (assuming the DOJ is successful). on the block – bookings and trading on the circuit. While some distributors may be looking for long-term exclusive content deals as they launch their streaming services, studios and content providers may be looking for flexibility as their distribution options change by the day.