The Structural Development of the Motion Picture Industry

Abstract

Ever since it was formed in about 1900, the motion picture industry has had more than its share of antitrust troubles. Many of these problems have involved industry structure. Movie theaters (ex hibitors) have been strongly inclined to concentrate horizontally, and exhibitors and distributors strongly inclined to integrate vertically. The main legal event was a sweeping government victory in US vs. Paramount Pictures, et al. 344 US 131 (1948). Consent decrees resulted in complete vertical dis integration of distributors and exhibitors, extensive divestiture of theaters by the divorced theater cir cuits, and the dismantling of elaborate collusive arrangements among the integrated firms. Conant [3], Whitney [12], and others have studied the economic effects of the Paramount decision. This paper offers an explanation for how movie distribution and exhibition developed into the heavily concentrated and integrated structure that was brought to trial in US vs. Paramount, using a comparative statics model. The model depends on the public good characteristics of the motion pic ture product and involves the exercise of monop sony power by exhibitors within local markets. First the industry's condition at the time of the trial is detailed. Then the models are introduced and applied. But the main purpose is not historical. The same economic forces are still evident in the modern film industry and the Paramount Decrees continue to be enforced. The pattern of concentra tion and integration now emerging in the cable television industry also suggests some parallels. In the last section of the paper, some implications for policy toward the modern movie industry and the cable television industry are discussed.