How Hollywood Studios Stayed Ahead of Regulators – The Hollywood Reporter

Rumors, news and insider gossip heralding mega-media deals from Discovery Inc. and Warner-Media, and Amazon and MGM, repeat a familiar story of consolidation and control among the top predators of the entertainment industry. . The idea was to staple together the production, distribution and operating flow charts (vertical integration) while extending sovereignty lengthwise across related media, now called platforms (horizontal integration) . Why fight tooth and claw on an equal footing when you can corner the market? The trick is to reap the gains without clashing with the Sherman Anti-Trust Act of 1890, or at least federal prosecutors willing to enforce it.

Yet seizing the means of production—not in the Bolshevik sense but in the Robber Baron sense—has been the default mode for filmmakers since the birth of the medium. Although federal regulators are now considering what would be called Warner Bros. Discovery, as well as mergers between major agencies such as CAA and ICM, federal authorities have traditionally been slow to follow the aspirations of Hollywood moguls to dominate the market.

The first major power grab came near year zero, when Thomas Edison, the wizard of Menlo Park and a credit-grabbing genius, claimed a patent on perforated celluloid and many others, acquiring thus a legal monopoly on the whole of art. By deploying high-powered copyright lawyers, who showed up at production companies with cease and desist orders, and broad-shouldered thugs who showed up at venues with baseball bats , the Edison Trust has held a stranglehold on film production. (One of the reasons Nickelodeon-era filmmakers turned on Hollywood, besides the weather, was to put some distance between themselves and Edison’s army.) Carl Laemmle, then a scrappy independent and soon to be the founder of Universal Pictures, fought Edison in court and in 1912 won the case. “That a monopoly [over motion picture production] does not exist is mainly due to Mr. Laemmle and the brilliant and resolute fight he waged against all odds”, commented Billboard in 1915.

Shortly after plaintiffs defeated the Edison Trust, they formed their own group in 1922, the Motion Picture Producers and Distributors of America, the linear ancestor of today’s Motion Picture Association. The organization’s immediate inspiration was a series of deadly drug and sex scandals that made Hollywood the Sodom on the Pacific in the eyes of Christian America, but it soon turned into a exclusive club to crush competition from non-member scum. Especially after 1927, when sound technology required an industrial strength workshop, the MPPDA facilitated the economic structure that defined the classic Hollywood studio system, where the same studio entity owned the backlot, controlled the supply chain and edited the projections.

In a closed and circular system, the benefits of the end of exploitation returned to the production centers which in turn financed more films for the theaters. The happy arrangement allowed the studios to maintain elaborate sound stages and meet huge weekly payrolls. For studios at the top of the pyramid – dubbed the Big 5 (Warner Bros., RKO, Paramount, MGM and 20th Century-Fox) and the Little Three (Columbia, United Artists and Universal) – the model ensured a level of assembly – line quality that producers outside the golden circle have found impossible to match. In 1946, with all the pistons firing in sequence, the dream factory was in full swing, with 90 million or more Americans a week flocking to the movies in ornate movie palaces or cozy neighborhood venues (“nabes ” in business jargon). The vaunted “genius of the system” was also an ingenious oligopoly.

Then, the flood — television, a specter that has haunted Hollywood since at least 1927, when the first video images were transmitted to a small screen (among the first images figured, quite symbolically, the dollar sign), siphons off audiences. In October 1947, the House Committee on Un-American Activities launched its first round of hearings into alleged Communist activities in Hollywood, leading to a blacklist that strangled careers and creativity.

However, the real blow came in 1948 and struck the economic heart of the industry. The effort dates back to 1938, when FDR’s Justice Department anti-trust division accused the major studios of engaging in both a “horizontal conspiracy” among themselves and a “vertical conspiracy” with the distributors and exhibitors to kill competition from independent producers. . For the federal government, it was a classic example of a monopoly operating in the restriction of trade. (Jack and Harry Warner, staunch supporters of FDR’s New Deal, at least to other people, felt personally betrayed by the accusation.) Of course, the government’s accusations were obviously true. (In 1945, belatedly realizing they had admitted it with the very names of motion picture producers and distributors, the studios quickly changed the group’s name to the Motion Picture Association of America.)

Robert L. Wright, the tenacious antitrust attorney who led the case for the DOJ, said the purpose of the lawsuit was to ensure a level playing field, where a studio’s success would depend “on the merits of its product” rather than “because it has a monopoly. Paramount, the most prominent target in the crosshairs, eventually settled out of court with the DOJ — hence “The Paramount Executive Order,” the name that has stuck for the show’s historic divorce from the Hollywood production. Faced with years of costly litigation, other studios quickly threw in the towel. The details of the regulations, worked out in 1948-49, took years to be fully implemented, but the template was in place, the racket was broken.

Needless to say, Hollywood lawyers and accountants, widely regarded as the most creative people in the business, have found new and original ways to violate the spirit of the Supreme Decree. The obvious frontier was television, which more far-sighted executives saw less as a rival than a savior. The broadcast liaison had in fact been initiated years earlier with the immediate predecessor of television. The weak sister among the Big Five, RKO (Radio-Keith-Orpheum), was born from a hybrid of three entertainment tributaries: vaudeville theaters (the Keith-Albee-Orpheum circuit), the Radio Corporation of America and Joseph P. Kennedy’s Film Reservation Office.

The inaugural post-war gamble came in 1951, when the American Broadcasting Company, then a distant third in the emerging trinity of television, and United Paramount Theatres, Inc., recently divorced from the parent company, announced merger plans. The deal required approval from the Federal Communications Commission, which held hearings to consider the propriety of an arrangement that appeared to be at odds with what had been decreed in 1948. These FCC hearings were much larger for industry executives that the other rounds of hearings are still conducted by HUAC.

Opponents of the merger, which included the FCC’s own broadcasting advisory office, argued that clearance should be denied “due to the fundamental conflict of interest between broadcasting and the showing of movies” and that approval would mean that “the whole antitrust policy would be scrapped. The fear, ultimately prophetic, was that the merger would ultimately result in “the eventual complete unification of the motion picture industry…with the ‘television and radio industry’. ABC argued that the infusion of money from the movie chain would ‘allow us to better serve the public’.

On February 9, 1953, the FCC formally approved the merger and thus “set a precedent removing barriers to participation in television previously believed to exist against motion picture companies that have been embroiled in anti-trust actions”. That is to say, after having banned a monopoly, the government seemed to give the green light to a duopoly.

No one navigated the new post-war media environment better than Walt Disney. (It is perhaps no coincidence that its institutional legacy has flourished so dramatically in the new media environment of the current era.) Disney had steered clear of the theater ownership game and had instead diversified horizontally, first into merchandising, then into television and theme parks. . Launched in 1954, on ABC-TV prime time Disneyland and, in 1955, the Monday-Friday tween ritual the Mickey Mouse club served as the small-screen billboards for its big-screen releases and the real-world Magic Kingdom in Anaheim. On July 17, 1955, Disney achieved maximum synergy with the live broadcast of Disneyland to commemorate the formal dedication of the real estate title. “An unbeatable ‘teaser’ to whet the appetite of millions for a personal visit to the source of television broadcasting,” enthused the Hollywood journalistimpressed that the American Motor Company and Gibson Greeting Cards are funding a 90 minute ad for another business entity.

In the decades since the Great Break of 1948, the tango of cross-pollination and centralization in the entertainment food chain has often been too serpentine even for the Justice Department to untangle, which explains perhaps why, more often than not, and despite the ebb and flow of laissez-faire Republicans and (nominally) more interventionist Democrats, the DOJ has been mostly indifferent. One notable non-economic exception: In 1972, Richard Nixon’s hitman Patrick Buchanan threatened television news services with anti-trust action if they did not give conservative views more time. .

The coda to the most transformative of all government interventions in Hollywood’s business model is both ironic and instructive. In 2020, at the request of the DOJ, the Paramount executive order was overturned, its rationale rendered moot in the age of streaming. “As the Court points out, Gone with the Wind, Wizard of Oz, and It’s a wonderful life were the blockbusters when those executive orders were challenged,” Assistant Attorney General Makan Delrahim said in a DOJ press release, exaggerating the profit margin of the last of the trio. “Without these market restraints, American ingenuity is once again free to experiment with different business models that can benefit consumers.”

After all, consumer benefit is always paramount in these matters.

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