Streaming and Production: A Call for Antitrust in Hollywood

The consolidation of power in entertainment becomes more and more alarming by the day. The film industry is, for the most part, made up of a short list of names: Disney, ViacomCBS, Warner Brothers and NBCUniversal, and of these names Disney owns 33%. In fact, in 2019, Disney took home one third of the world box office, a feat that has never happened in modern box office history. The monopolization of the film industry has vastly changed its landscape and the rise of streaming has only accelerated this consolidation. During the pandemic already large studios have only become larger: Disney’s recent roll out of Disney+ has made the streaming platform one of the most successful streaming platforms on the market. Although much of the discourse surrounding Hollywood focuses on the vertical expansion of its larger studios through various mergers and acquisitions, perhaps the first and most crucial discussion is one that critically looks at streaming platforms such as Netflix, HBOMax, and Disney+. Streaming has only accelerated the consolidation of power in Hollywood, as theatres and the importance of box-office numbers dwindles more and more every year. Streaming, and its expansion into content creation, is detrimental to the health of the film industry, and must be stopped by anti-trust legislation before it is too late.

Americans have seen the consolidation of the film industry before. The infamous ‘old studio system’ worked in a similar fashion. During the old Hollywood system, the industry was dominated by a select group of studios: MGM, Paramount, RKO, Twentieth Century-Fox and Warner Brothers. These studios owned nearly every aspect of the filmmaking process: production, distribution, and exhibition. Major studios used their control over the industry to participate in unfair business practices such as “block booking,” fixing admission prices, and maintaining clearances between runs of films (Conant, 80). Studios used their power to gatekeep the American market from independent artists and foreign films. After years of semi-successful anti-trust litigation between a variety of actors and the major studios, the Department of Justice put an end to any confusion in 1948, in a landmark decision known as the Paramount Consent Decrees. The Supreme Court crafted a settlement that outlawed anti-competitive practices, and asked that the big five studios (MGM, Paramount, RKO, Twentieth Century-Fox and Warner Brothers) divorce from their theatrical branches. Moreover, these five studios were required to get permission from the Department of Justice before participating in any major mergers or acquisitions (Conant, 81). The Paramount Consent Decrees did not outlaw vertical integration in Hollywood, nor did it request that any studio out of the big 5 avoid owning theatres. It did, however, set a new standard in the film industry, as nearly the only piece of antitrust policy Hollywood has been held to.

Unfortunately, over time companies have slowly chipped away at the decree, and new technological advancements in the industry only blurred the lines of consolidation further. In the 80s, a time period of serious deregulation in all sectors of the United States, the Paramount consent decrees were peeled back even further (Holt, 22). One of the primary defenders in the Paramount case, MGM, was given permission to own theatres, marking the moment in which the Paramount Decrees went from actual policy to a mere guidebook (Holt, 25). During this time period, the nation also saw a huge shift in antitrust thought; the Chicago School became particularly popular, ….

In August of 2020, the final nail was put into the coffin: U.S. District Court Judge Analisa Torres terminated the Paramount Decrees. Torres reasoned that the Decrees did not apply to the modern film industry; they were outdated and useless. It’s true that the Department of Justice did not absolve the consent decrees without reason. However, the abolition of the Paramount Decree should open a conversation of creating lasting legislation that could replace it; legislation that would apply to the modern marketplace. In its hay day the Paramount Decree was vital in maintaining a level playing field in film. Without any piece of antitrust policy over seeing it and the ever-looming threat of streaming platforms, Hollywood now runs the dangers of creating an anti-competitive market that gate keeps audiences from small, new, or marginalized producers.

Hollywood was once dominated by box office numbers, the theatrical releases and runs of its films. However, streaming over the last decade has become a formidable competitor to the long-standing tradition of movie-going. The COVID-19 pandemic has accelerated the process, bringing audiences blockbusters such as Godzilla vs. Kong (2021) via their smart devices. Demonstrating that Hollywood will soon be ruled by a new model if it isn’t already.

Streaming services that also act as content producers, such as Netflix, are incredibly dangerous to the film industry’s marketplace for numerous reasons, and therefore should be broken up by antitrust legislation. However, to understand the danger that Disney+, Netflix, HBOMax, Amazon, and Hulu pose to Hollywood, one must understand the current standing behind anti-trust thought in the United States of America. The leading school of thought in antitrust legislation is rules primarily by the idea of “consumer welfare.” “Consumer welfare,” the focus on low prices for the consumer, came from a school of thought known as the Chicago School. The Chicago school, ideated by Aaron Director — a professor from the University of Chicago law school — gained popularity in the 1970s and 1980s, and created a large shift in thinking around antitrust (Wu, 88). Rather than looking at the marketplace as a whole and analyzing the long-term effects of business practices, the Chicago school and its focus on consumer welfare focused on the short-term interests of consumers, ignoring the welfare of producers and the market. By this means, streaming is a huge bang for your buck for consumers. Not only do audiences get to watch a movie for the same cost of a ticket, but they have access to a virtually unlimited library, and they can watch any title over and over again, whenever they want. However, the “consumer welfare” logic fails to recognize market structure in the age of the internet. Focusing on competition through the limited lens of price and output is wildly inappropriate when looking at antitrust in relation to streaming. Film and law scholar Lina Khan from Columbia University suggests that the law look at modern competition by focusing on how a business is structured and the structural role it plays in a market (Khan, 803).

When looking at streaming under Khan’s lens it becomes clear that streaming services are not only exhibitors in the film industry, but an entire market structure. Streaming services act as the platform in which audiences can access movies, they create and provide the technology in which those movies are streamed through, they advertise and market movies to their consumers, they act as a data gather corporation through the collection of viewer’s data, they purchase movies from independent creators, and they make their own films and tv in house via their studios. Although this means that streaming services can most likely provide low prices to their audiences, it does not mean that their practices are healthy for the film industry’s marketplace. Due to their power, streaming services can bottleneck the market, and choke out new and independent creators from the industry, and at the end of the day hurt both producers and audiences alike.

Firstly, streaming platforms have completely changed the model in which new talent in the industry is judged, giving streaming services all the power over their competitors and new creators. Having sole access to the data within a marketplace provides streaming service an unlimited amount of power. One might suggest more transparency from the company if it were to remain a producer of content. It’s not as if the large studios have exclusive access to box office numbers. Peter Labuza, postdoctoral fellow at the University of Southern California states, “In an industry whose thesis is “you’re only as good as your last film,” actors, directors, and writers often rely on industry information about the success of their works as traditionally conceived through the industry-reported box office.” (Labuza, 11) Netflix, and other streamers like it, ruin this dynamic because it does not openly share the success of its films and tv shows with the public. There is no quantifiable way for new artists to determine their worth, without box-office numbers serving as a “receipt” of their labor. Thus, new artists, or producers who come from marginalized communities may find themselves underestimated in the rest of the film marketplace, with no place to go, they must continually work with Netflix to get projects made.

Secondly, streaming platforms can strong arm independent artists or competitors into doing whatever they want. For example, Amazon infamously took down the book publisher Hachette’s books from its website while in negotiation (Khan, 715). This was seen as a huge abuse of power because it was perceived as a hostage-like situation. If the book publisher Hachette, did not quickly end and agree to its negotiations with Amazon, it would lose one of the world’s largest distribution channel for its books. Similarly, streaming sites because they are a platform as much as a marketplace can hold smaller independent artists and companies’ hostage. If these companies do not have the finances or facilities to look elsewhere for distribution, they are at the mercy of large streaming platforms.

Thirdly, streaming services have no incentive structure in place that would encourage the promotion of independent filmmakers on their platform. Streaming services can bury independent films in their endless catalogues and instead push their own original content. This is obvious to see as one logs into Netflix. One of the very first category of films or tv to watch is often “Netflix Originals.” Moreover, Netflix’s business model, the practice in which it buys content at a flat fee from producers and distributors, ensures that talent does not see any further profit from their films (Labuza, 10). This practice also widens the economic gaps in the film industry; production companies will cut the wages of below the line workers, in order to keep a “backend” on their work.

Lastly, another issue with streaming platforms is their emphasis of growth over profits. This may lead to many predatory practices such as the acquisition of competitors virtually forcing them out of the industry. To expand, Disney+ may see that a new semi-successful children’s streaming service is emerging in the U.S. Disney+ can participate in a predatory practice here in one particular way. Disney+ can lower the price of its service to ensure that audiences will subscribe to its cheaper platform over the new more expensive platform, thus forcing the new company to lower its prices until it can no longer sustain itself as a business. In this scenario the profits made by Disney+ are much less important than the number of subscribers the platform has.

If there is anything modern studios should have learned from the Paramount case it is that the consolidation of power in the industry greatly impacts the heal of the film market. Moreover, if there is the government should have learned it is that if you give Hollywood an inch, it will take a mile. The government has abolished the only piece of antitrust policy during an extreme period of consolidation. Although the new presidential administration brings some hope, the Biden administration has mentioned next to nothing about its plan for Hollywood’s future. Now more than ever Hollywood needs anti-trust legislation to stop, not only large studios like Disney, but to stop the production and streaming service combination that Hollywood’s largest companies have been leaning toward.

The only hope moving forward for the industry is the creation of new anti-trust legislation that takes streaming into account, made from a new mindset about antitrust, one that focuses on the long-term impacts of business on a marketplace and puts on an emphasis on protecting new and independent producers. The Department of Justice needs to collaborate with industry experts to reevaluate the Paramount Decrees, and update them for the modern world.