Why Is the Department of Justice Investigating the Owners of Half the Movie Screens in America?

If you live in a major (or even minor) movie-going market, there’s a pretty good chance you see your first run-movies at a theater owned by one of three major chains: AMC, Regal, and/or Cinemark. They control a combined total of nearly 17,000 movie screens in the US; Regal alone boasts over 7,000 of them. Those are giant numbers — nearly half of all the indoor screens in the country, according to the National Association of Theatre Owners — which is why it’s kind of a big deal that all three chains are currently under investigation by the Department of Justice for violation of antitrust laws. It’s a big, complicated story, full of legal precedents and jargon, so here’s a quick primer on the questions of the case.

What exactly is the Department of Justice investigating?

In a nutshell, the DOJ is investigating complaints from the owner/operators of several independent theaters that the big three chains (can we call them Big Multiplex? I’m gonna call them that) have used their influence and power to keep their smaller competitors from screening big movies — and enjoying the revenues provided by such titles. The inquiry launched several months ago, but we just started hearing about it in May, via this article in the LA Times, which reported that Justice had ordered Big Multiplex to supply documents relating to their business and booking practices. The story is back in the news this week because the DOJ has made a new inquiry for documents relating to the specific practice of film clearances.

What are “film clearances”?

Thanks for asking! I’ll illustrate by example: here in New York, two giant multiplexes — owned, coincidentally enough, by two of the three prongs of Big Multiplex — are situated directly across the street from each other in Times Square. The AMC Empire has 25 screens, while the Regal E-walk across the way has 13. And while some big movies might screen in multiple auditoriums within those complexes, no movie will screen at both, and that’s because of film clearances.

Basically, a film clearance is an agreement between a theater (or, in this case, a chain) and a film distributor, guaranteeing that the distributor will not place their film at another theater within X miles of the theater in the agreement. It keeps too many screens from showing the same movies to the same consumers.

The AMC NorthPark 15 in Dallas, Texas

That sounds like a good idea. What’s the problem?

Well, the trouble is, the aforementioned smaller theaters in competition with Big Multiplex contend that the chains are using their considerable clout and ability to generate ticket sales to force distributors into giving them preferential treatment and first dibs on big movies, which keeps them out of the independent theaters and chains, and thus hurts those businesses. Specifically, per the LA Times, theaters in California and Georgia have sued the big chains, while theaters in Texas, California, and Kansas have taken their complaints of “monopoly power” to the Department of Justice, prompting this investigation of “potentially anticompetitive conduct.”

Is there a precedent for this kind of thing?

Indeed! Back in 1948, the Supreme Court ruled against Paramount Pictures — but, in doing so, it was ruling against all of the Hollywood studios — in a landmark antitrust decision. At that time, the studios not only made and distributed films, but exhibited them as well, in their own theaters and chains; it was a practice known as “block booking,” which the Court ruled was in violation of the Sherman Antitrust Act. As a result, studios were forced to divest of their theatrical holdings (which led to a decrease in production and, some have argued, the beginning of the end of the studio system). But that decision also led to, wouldn’t ya know it, the very same film clearances that are now so controversial; they were initially intended to guarantee (irony of ironies) that independent theaters would have access to first-run films.

So what will happen next?

It’s hard to tell. The investigation could last up to a year, and it’s difficult to imagine anything resembling the industry shake-up of the Paramount case; Big Multiplex’s practices are under investigation, but not their right to own that many screens. (We’re a lot more accommodating of monopolies in mass media these days, as you might’ve noticed.) All three chains have stated that they are merely following industry standards and have, obviously, insisted they haven’t violated any laws. But if the practice of film clearances is determined to give Big Multiplex an unfair advantage over their competitors, there could be consequences: reform of, or even injunctions against, those clearances, as well as potential civil suits from the government and antitrust suits from the chains’ competitors. So, in short, the DOJ investigation probably won’t affect whether you see next summer’s blockbusters — but it could affect where you see them.