Previous case of Paramount importance to Live Nation-Ticketmaster

The merger of LiveNation and Ticketmaster gave one company control over several parts of the production and selling process of the concert business. If the Justice Department tries to unwind the deal, it’ll likely study how one of the government’s large enforcement actions from 75 years ago altered the entertainment industry.

The DOJ is examining the effects of the merger, which it approved in 2010. As part of the approval, the DOJ and several states mandated a consent decree that forbids the combined company from punishing venues that don’t use it to sell tickets. But critics have said the result has harmed both smaller venues and less well-known performers.

Last month’s Senate Judiciary Committee hearing on the problems in the ticketing industry was an opportunity for a bipartisan expression of frustration with LiveNation and Ticketmaster and calls for more aggressive antitrust enforcement in this case.

Two lawyers advising parties in the consent decrees told FTCWatch they expect the DOJ to take some action, but said they aren’t sure whether the result will be litigation or a stronger consent decree.

Assistant Attorney General Jonathan Kanter has declined comment on that case, but during a talk at a Feb. 15 Open Markets Institute conference, he expressed concern about some kinds of vertical integration. He said when one entity owns different parts of the supply chain, it can result in “creating conflicts of interest.’’

But unlike when the government brought its antitrust case against the movie industry in the 1940s, there are fewer judges now who are sympathetic to strong antitrust enforcement.

The Supreme Court’s 1948 decision in US vs. Paramount Pictures Inc. was the culmination of almost 30 years of work by the DOJ and Federal Trade Commission, and it forbade studios from simultaneously controlling the production, distribution and showing of films.

Before the decision, the studio system gave most actors and directors little control over their careers.

The studios usually locked up talent for years at a time, though they occasionally gave people permission to work on a movie for another company. During that period, the studios produced many films that are today considered classics, including “Casablanca” (1942), “Citizen Kane" (1941) and “The Wizard of Oz” (1939).

Once a movie was completed, the studios determined the distribution terms. They often forced theaters to rent various movies at once, packaging popular titles with less well-known ones. They called this block booking, and it first came under scrutiny by the FTC in 1921.

Studios owned many theaters and the studios routinely made agreements with one another on how to distribute films to independently owned theaters.

The DOJ argued that these practices violated the Sherman Act and prevented independent studios from having a fair opportunity to get their movies shown to a wide audience and thus hurt consumers.

In his majority opinion, Justice William Douglas wrote that the distribution method violated Section 1 of the Sherman Act and the conspiracy to monopolize the way movies are shown violated Section 2 of the law.

He also noted “Vertical integration of producing, distributing, and exhibiting motion pictures is not illegal per se.” But it is illegal if it is a “calculated scheme to gain control over an appreciable segment of the market and to restrain or suppress competition.”

The decision didn’t outright ban studio ownership of movies, but after it was announced, many studios divested themselves of movie theaters. Some of the studios also sold their film libraries to television stations to offset some of their losses.

The decrees that the eight movie studios signed with the DOJ required them to stop practices the high court had ruled were monopolistic, such as fixing minimum ticket prices, block booking and granting overbroad exclusive film licenses for certain geographic areas.

On the day the Paramount decision was released, May 3, 1948 — following three dates of oral arguments in February — the court issued decisions in three antitrust cases, all written by Douglas. The other two were United States v. Griffith and Schine Chain Theatres, Inc. v. United States. According to Southern Methodist University antitrust law professor C. Paul Rogers III, this tied a record set in 1898 by Justice Rufus Peckham.

An actor-turned-movie industry labor leader questioned the wisdom of the decision.

"It destroyed the stability of the industry under the justification that the studios monopolized the picture business. But they didn’t have a monopoly; there was intense competition that worked well for everybody,” Ronald Reagan wrote in “An American Life,” his 1990 memoir. “Owning the theaters provided a guarantee to the studios that if they guessed wrong on a movie and made it, at least they’d get some of their money back by playing it at their own theaters.”

Reagan was president of the Screen Actors Guild when the Supreme Court decision was released. When he became president 33 years after the high court’s decision, his administration took a conservative approach to antitrust enforcement guided by proponents of the consumer welfare standard.

Other actors, however, were not big fans of the studio system and complained it deprived performers of autonomy and gave studios disproportionate control over their careers.

The decision came at a time of dramatic change to the movie industry that likely would have occurred regardless of how the high court ruled.

There was a precipitous decline in the number of movies produced and the number of people attending movies. At the same time, television stations increased along with television viewership. Many movie actors and directors would find work in television.

The decrees remained in effect until 2020 when, at the request of the Trump administration, they were terminated by a federal judge.

But they might be used as part of a basis for what the DOJ might do to the ticket industry.