12
Motion Pictures
Competition, Distribution, and Efficiencies

Stanley I. Ornstein

The history of the motion picture industry spans the twentieth century. During this period the industry has endured competitive challenges from network television and cable, massive corporate reorganizations, and years of government and private antitrust attacks. Since the passage of the Sherman Antitrust Act in 1890, few industries have been so drastically altered by government antitrust action as the motion picture industry. But it has survived, gaining prosperity through technological improvements in filmmaking and exhibition and by capitalizing on new channels for distributing movies. Born from innovations in the photography of moving objects and the projection of images onto a screen, the industry rose from humble beginnings in the 1890s. The first theatrical screening was in New York City in 1896, following a vaudeville act. Movie viewing was widespread by 1910 and reached enormous popularity in the 1920s, 1930s, and 1940s. In the 1930s and 1940s around five hundred feature films were produced per year in the United States, and attendance in many years reportedly averaged 85 to 90 million per week, or over 4 billion annually, well above contemporary attendance levels of approximately 1.3 billion.1

Following World War II, the vertically integrated structure of the top firms, with common ownership of production, distribution, and exhibition, was dissolved by government antitrust actions, and, under court order, many of the industry's well-established marketing and distribution practices, such as block booking, blind bidding, and exclusive-dealing franchise arrangements, were prohibited.2 Movies then faced the challenge of network television, which some believed would destroy the movie business. With declining theater attendance, thousands of motion picture theaters were closed. However, over the last twenty-five years the industry has rebounded, capitalizing on the introduction of videocassettes and pay cable television, experiencing huge growth in foreign revenues, and attaining a post 1970peak in North American theatrical admissions of over 1.3 billion in 1996.

This study offers an overview of the industry's evolution--its organizational structure, marketing and distribution practices, alleged antitrust transgressions, responses to forced dissolution, and contemporary economic performance. Industry studies provide an opportunity to broaden our understanding of economic practices. The motion picture industry provides vivid examples of prominent economic phenomena, including vertical integration, exclusive dealing, and price discrimination. The courts' dissolution of the

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