Why the Supreme Court Broke Up Hollywood's Studio System
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This is On The Media's Midweek Podcast. I'm Michael Loewinger. Television writers are currently striking in protest of streaming services like Netflix and Disney+, which have come to dominate our entertainment industry. The Writers Guild of America says the streamers are to blame for lower pay, poor residuals,

and shaky job security. In order to understand our current media moment, this week we're looking back at a pivotal time for the film industry, when the government successfully broke up the major studios that ruled Hollywood in the 1930s and 40s. In February, I asked historian Peter Labuza to take us back to before the trust-busting, to the so-called Golden Age of Hollywood.

There's these touchstone films like Gone with the Wind, which remains the biggest film of all time, adjusted for inflation. Where shall I go? What shall I do? Frankly, my dear, I don't give a damn. Or The Wizard of Oz. There's no place like home. It's a Wonderful Life, which I'm sure many people watched over Christmas.

Each one of the studios, there were five big studios at the time. Some of these are studios you know, like Paramount and MGM and Warner Brothers. They were producing over 100 films a year. Right now, a studio like Disney will release into movie theaters maybe about 80%.

That sounds great. I mean, high artistic output, some of the quote unquote best movies of all time. I mean, why did the government say we need to step in and start regulating Hollywood?

The studios made the movies, they distributed them, and then they owned most of the big, important movie theaters you went to see. If you were an independent movie theater, you could buy films from the studios to show. Now, the problem was if you wanted a big film starring Clark Gable and Joan Crawford,

The studio would sell it to you for a week-long release, but then they would make you buy 11 other movies at the time. This was known as a block, and this was known as block booking. The problem with that is those 11 movies were really, really low-quality movies. They were like cheap westerns. They had no stars. And you're losing money on that process if you're the independent movie theater owner.

And if you're in a small town, right, that only has one movie theater and one movie house, then you really only get what that one studio that kind of controls that theater gets to say that you get to see that week.

And so the government sued the studios in 1938, and the case eventually went to the Supreme Court. The court sided with the government. And in 1948, we got the Paramount Decrees, which basically forced these studios to stop block booking and sell off their movie theaters, or at least separate them into a different part of their business. How else did the so-called Paramount Decrees change Hollywood?

Well, the big thing that they said is you can no longer sell these movie packages. Each film had to be sold one by one to different movie theaters. But that's what really, really changed. Each film now has to compete on the open market. And this wildly changes the types of films that were being made. The studios really start to focus on the blockbuster. These are films like The Ten Commandments. You are

You are not worthy to receive these Ten Commandments. Ben-Hur. You! I said no order for him! The Sound of Music. Don't! Don't!

But then you have all these independent filmmakers who are making sort of interesting social dramas. You have the rise of actors like Sidney Poitier. And then when you get to the 60s, you get the sort of new Hollywood. These are films like Bonnie and Clyde. This here's Miss Bonnie Parker. Clyde Barrett. We rob banks. The Godfather. I'm going to make him an offer he can't refuse. Easy Rider. You got a helmet?

Oh, I've got a helmet. I got a beauty. Really what you see is a sort of new niches of audiences appear. It's not everyone going to one type of film. It's audiences being able to find their own type of films and go to different type of theaters. You get art house theaters that will be showing foreign films from Italy and France and Sweden.

So breaking up the big companies had massive creative consequences that basically created what we think of as like modern cinema culture.

Exactly. The studios had been largely conservative and even making those blockbusters, right? Those are conservative types of films that aren't meant to be stylistically unique, that are just meant to appeal to every type of sensibility. And then you get these people like your Martin Scorsese's and even the early films of Steven Spielberg that are kind of made more independently and made with a lot more artistic daring that really pushes what's

what types of movies audiences might be interested in watching. Obviously, the big Hollywood companies were still around, but they focused on making fewer movies a year, bigger blockbusters, rather than just kind of

flooding the market with junk. They didn't need those B movies, right? There were independents who would make those for them. They could focus on a few blockbusters and then they would make these deals with these independent filmmakers, right? They would want to attract someone like John Frankenheimer who made the Manchurian Candidate and be like, we want you to make a film. Here's the check.

And we will distribute it. And we're not going to control all that process because we trust you more than we trust ourselves to kind of work in this new type of financial environment. And by the 1980s, the picture of this post-Paramount decrees landscape was as clear as ever. But the law and how antitrust was enforced changed quite a bit under President Ronald Reagan. What happened? You know, if you've covered antitrust on the show before, this name Robert Bork,

has possibly come up. He was this legal scholar in conservative movements who developed this idea of the consumer welfare standard, which said when we think about competition and markets, we should focus on what the consumer pays at the end of the day, which really helped change a lot of thinking in both conservative and liberal antitrust scholarship. You know, let markets regulate themselves.

And giant companies are totally OK and good. The studios back in the 60s and 70s had already started to become part of these larger conglomerates. So, you know, Paramount was bought by an oil company called Gulf and Western in 1967. Warner Brothers became a bigger company called Warner Communication. And then, of course, Columbia Pictures, which now is technically under Sony, was bought

by the Coca-Cola company. So what really starts to happen in the 80s is the paramount decrees still exist. They're on the books, but there's a lot of exceptions being allowed. I want to jump forward to 2020 when the Department of Justice under President Donald Trump requested to end the decrees, which was approved by U.S. District Court Judge Annalisa Torres.

What was her rationale for ending this legal framework that dictated 70 years of Hollywood? Basically, there was a huge review within the Department of Justice under Jeff Sessions at the time to look at what are called horse and buggy decrees, right? These consent decrees from 60, 70, 80 years ago that might not be helping companies at all. Now, there's a few reasons that I think she was justified in doing this.

One, certain major companies like Disney were never beholden to the decrees, right? Disney was an independent distributor at the time. So what is the point of these consent decrees that apply to slightly smaller companies like Paramount but don't apply to Disney? And I think the most important thing she said is –

If this is something that will help these big companies compete with streamers, companies like Netflix and Amazon, then maybe giving them the option to possibly purchase theaters could be beneficial in the end. Now, none of the major...

companies have made a decision to invest or buy these theaters. Disney owns like two movie theaters. Netflix owns two. We'll kind of see the effects that might pop up in the next few years. But really, the new market concentration is in how the studios are looking at streaming. Does Disney need to get into the movie theater business? Does Netflix need to get into the movie theater business? They already have

have ways of distributing their films. The audience is already there. Of course, these companies also make movies. I mean, Netflix, Amazon, Disney Prime, and HBO Max. Aren't they kind of running afoul of that same production and distribution framework?

I think that's where people who look at antitrust in the movie industry today look at the problems of streaming and see it kind of recreating those frameworks. And I think if you look at the independent producers of today, you kind of see parallels with the frustrations that the independent producers of yesterday had to have.

I think a good example would be like the Daniels, right? Who wrote and directed everything everywhere all at once. Nominated for Academy Awards. A lot of Academy Awards. Made a lot of money at the US box office, mostly through word of mouth. Started in a few theaters and grew and grew. They now have a deal with one of the major studios. You can make a film and make it into a word of mouth hit, but it's so much harder when streaming has become the dominant environment and the

But economics of streaming are so different, right, where you get paid all the money up front as opposed to sort of getting a small share of the profits down the road. So you kind of have to just sign away a first look deal, which really frustrates a lot of talent. OK, so you've made one point in favor of rethinking the streaming paradigm that we're now in. Mm hmm.

Just to play devil's advocate a little bit. You pay 15, 18 bucks for like a movie theater ticket that is like in theory a better viewing experience.

But for that same price, you get a month of a streaming service. Isn't this setup, at least economically, better for most of us? The big thing that everyone is about to realize is streaming prices are going up. Your Netflix account is going up. Your Disney Plus account is going up. Your HBO Max account is going up. As they've been able to eliminate all the competition, they raise prices. So it might seem cheap right now, but it's about to get more expensive.

more expensive. And if you look at how these streaming companies financials are doing, they need to make more money. There's a reason that this is going to be the year that Netflix cracks down on password sharing. All these studios have realized that they no longer want to spend that same amount of money to even make quality content.

and they want to focus on just enough to make you not cancel, right? So HBO Max is going to go through this whole thing this next year now that they're owned by Discovery of bringing a lot of Discovery shows onto HBO Max. So that's your food channel, your travel channel,

You described how the HBO Max changes are going to affect viewers. Is

Is there another example of that? When you show up on, say, the Netflix homepage, they'll put the letter N representing that it's one of their own productions. And I think if you've been watching Netflix, you're seeing more and more of those programs showing up online.

that homepage, whether those are the things that are attuned to your algorithm or not, right? I think that's one of the biggest changes that I think a lot of consumers are understanding. The algorithm is just trying to push their own prioritized content, whether that's the stuff that you actually care about. And I think that's become an issue for a lot of the streamers where that

algorithm is no longer tailored to your interests. It's just tailored into something that will prioritize the bottom line of the company itself. Do you think there's any chance that the FTC under Lena Kahn would pursue antitrust action against these streamers? You know, the thing about antitrust cases is they take sometimes decades. The case against the studios opened in 1938.

And it closed for a few years during the war and then got reopened, right? But it took essentially 10 years for that case to go up to the Supreme Court. So I don't know if this is priority in Chairman Kahn's office. I know that a lot of people have been

advocating for at least more open looks into how is this working and is there different ways we might be able to set rules about pricing or about ownership that could fundamentally change the way that these things are being made. And I think there's a lot of advocates out there that would like to see it. Peter, thank you very much. Thanks so much for having me. Peter Labuza is a film historian and a researcher with the International Cinematographers Guild.

Thanks for listening to the On The Media Midweek Podcast. I'm Michael Loewinger. Tune into The Big Show this weekend to hear us deconstruct the hype around artificial intelligence.