U.S. movie theater chains fear Justice Department review may hit profits

[November 12, 2018]    By Diane Bartz

WASHINGTON (Reuters) - U.S. movie theater chains fear that a Justice Department review of little-known mid-century rules may result in studios getting free rein to force them to show unpopular movies in exchange for getting blockbuster releases, threatening their profits.

A group of men gather in front of a poster advertising the film "Black Panther" on its opening night of screenings at the AMC Magic Johnson Harlem 9 cinemas in Manhattan, New York, U.S., February 15, 2018. REUTERS/Andrew Kelly

Before the rules went into effect, studios commonly sold multiple films to theaters as a package. The U.S. Supreme Court in 1948 ruled against the practice, called "block booking," and others that favored studios, leading the plaintiff, Paramount Pictures, Inc, and its peers to sign consent decrees over the next few years with the Justice Department that banned such deals.

The department announced in August it was reviewing some 1,300 such decrees affecting a range of industries, which have no expiration date, with an eye toward cancelling them.

The agreements regulating relations between movie studios and theaters, which the industry calls the Paramount consent decrees, were reached in the late 1940s and early 1950s when movie theaters had just one screen, televisions were not universal, and online streaming was decades into the future.

"They'll be able to get more of their duds played in your theaters," said Brian Fridley, whose father started Iowa-based Fridley Theatres in the 1930s. "If you're forced to play the less popular films, that's going to eat up your profits. Maybe all your profits."

Fridley said his chain of 20 movie theaters and 86 screens might be forced to show poor performers like 21st Century Fox's "The Darkest Minds." The dystopian teen movie made $13 million in the United States, compared with $700 million for "Black Panther," according to Box Office Mojo.

Box office sales bring in a good chunk of theater revenues, even as viewers increasingly watch movies on television and online. For example, Viacom Inc, which owns Paramount, said in an annual report that movies shown in theaters brought in 25 percent of its filmed entertainment revenues for 2017, while home entertainment brought in 26 percent and licensing brought in 40 percent.

The National Association of Theatre Owners (NATO), which represents movie theater companies with 33,000 screens across the United States, urged the department to forbid movie studios to return to the practice of block booking.

Justice Department officials believe the fears are overblown because it is not in studios' financial interest to force theaters to show poor performing films, according to a person familiar with the government's thinking.

The Motion Picture Association of America declined to comment, referring Reuters to the studios. The six biggest U.S. film studios are Warner Bros, owned by AT&T; 21th Century Fox, which is selling its movie studio to rival Walt Disney Co; Paramount; Universal Pictures, which is owned by Comcast Corp; and Sony Pictures.

The biggest U.S. movie theater companies include AMC Entertainment, Regal Entertainment owned by Britain's Cineworld and Cinemark.

All of the studios and major movie theater companies either declined to comment or did not respond to requests for comment.

(Reporting by Diane Bartz; Editing by Richard Chang)

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