Constitution Daily

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The day the Supreme Court killed Hollywood’s studio system

May 4, 2021 by Scott Bomboy


Today marks the anniversary of an important Supreme Court case that helped to end the Hollywood studio system and fuel a young television industry in the late 1940s.

Hollywood’s greatest drama took place over two decades in a fight that featured movie barons, President Franklin Roosevelt, Walt Disney, Charlie Chaplin, and the United States Supreme Court.

In the end, the Court ruled in United States v. Paramount on May 4, 1948, finding that the studios had violated anti-trust laws, in a devastating blow to five major studios and three smaller ones. The case had roots dating back to 1921, when concerns first arose about the studios and the Sherman Anti-Trust Act.

The major studios had a near-monopoly on the movie business in the United States. Each studio had exclusive contracts with actors and directors; owned the theaters where their movies played; worked with each other to control how movies were shown in independent theaters; and, in some cases, owned the companies that processed the film.

The system of “vertical integration” was expensive to maintain, but it was lucrative when the movie business was booming.

Independent movie makers and theater owners started taking legal action decades before the 1948 Supreme Court ruling.

The website Hollywood Renegades Archive has a detailed history of the 27-year fight that pitted movie titans like Adolph Zukor and Jesse Laskey against the Justice Department in the 1920s.

The Justice Department won the first round of the fight in 1930, when the Supreme Court ruled that the movies studios were monopolies. A key finding was that the process of “block booking” was illegal. In block booking, studios forced theaters to buy films as a group well in advance, and often without seeing them.

But the studios, after some legal delays, found an ear with incoming President Franklin D. Roosevelt in 1933. Claiming that the movie business was in dire straits during the Depression, the studios asked President Roosevelt to stop the forced breakup of the monopolies. After all, the nation needed movies as a relief from troubled times.

Roosevelt used the National Industrial Recovery Act to justify a delay. But the Supreme Court threw out the Recovery Act in 1935, and in 1938, the Justice Department filed a new lawsuit against the studios.

Again, the studios found a way out of losing their monopolies. In 1940, they reached a deal with the Justice Department in a consent decree. During a three-year trial, the studios could keep their movies theaters, but block booking was regulated and theater owners had a chance to see movies before they bought them.

The decision enraged independent producers like Disney, Chaplin, David Selznick, Mary Pickford, and Orson Welles. They organized as a group, even though some would be defendants in the case because of their roles in United Artists, a studio that only distributed films.

The Justice Department, with the support of the independent producers, renewed the case in 1946. A federal district court in New York eliminated the studios’ ability to sell blocks of films, but it also let the studios keep their movie theaters.

Both sides appealed the case to the Supreme Court. In its 1948 ruling, the court effectively dismantled the Hollywood studio system.

In an opinion from Justice William O. Douglas, the court killed the block booking system, and recommended the breakup of the studio-theater monopolies. The justices asked the lower court to decide the issue of selling the theaters.

As the movie studios regrouped for another fight in the lower courts or another deal with the Justice Department, their unity in the case cracked. Maverick studio owner Howard Hughes of RKO Pictures decided to sell his movie theaters.

The Justice Department made it clear that no deals were coming, and then the biggest studio, Paramount, sold its movies theaters. Its involvement in the antitrust case blocked its ability to buy into a new fad called television. The battle was over.

In the end, the Paramount case greatly fueled the growth of television, in addition to changing the movie business. RKO and other studios sold their film libraries to television stations to offset the losses from the Paramount case. The studios also released actors from contracts who became the new stars of the television world.

The audience for television grew tremendously as people stopped going to movie theaters. In 1948, about 90 million people were regular moviegoers. By 1958, that number fell to 46 million people. The audience for television grew to 204 million people in 1958.

Scott Bomboy is editor-in-chief of the National Constitution Center.


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