Independent Exhibitors Film Bulletin (1954)

Mifgrnes Cites Dangers at Pre ^ Releases (Cuntinued from Page 15) Mr. Shor testified that with respect to Hans Christian Andersen RKO proposed to license the picture to him on the basis of a stipulated sum for each adult and for each child admitted to see the picture instead of on a basis of either a flat sum or a percentage of the gross receipts. Air. Shor had also written to us about this. We already had secured a copy of the new instructions issued by RKO to its sales personnel which provided, in part, as follows: "You are hereby instructed hereafter to solicit proposed exhibition contract covering the motion pictures "Peter Pan" and "Han Christian Andersen" in the manner and upon the terms, and only in the manner and upon the terms, set forth below. In negotiating each such contract you must advise the exhibitor that the contract is subject to the approval of the producer of the picture and that the exhibitor is free to charge such admission prices as he wishes. ".'\. Preferred Licensing Method. You must use your best efforts to solicit such contracts on the basis of a license fee for the picture equal to the aggregate of certain stated amounts for each child and for each adult admitted to each performance of the picture. The contract provision covering the license fees which you are to use in this regard is as follows: "The license fee for the Picture licensed hereunder shall be an amount equal to the aggregate of c for each child (12 or less years of age) admitted to any performance, of c for each adult admitted to matinee performances, and of c for each adult admitted to evening performances of the Picture. "It is the earnest hope of RKO and o both the producers of the above-mentioned pictures that substantially all exhibition contracts may be negotiated by you on the abovedescribed Preferred Licensing Method." In connection with our over-all study relative to the pre-release of motion pictures we have considered whether this manner of pricing motion pictures on the part of a distributor is proper. It is our considered opinion that it does not constitute the fixing of minimum prices for admission by the parties to the license agreement and hence it is a proper method by which to determine the film rental to be paid by an exhibitor to the distributcjr. The Division has given a great deal of study to the pre-release practice and to whether the fixing of admission prices and unlawful clearances are involved in the prerelease practice. We do not believe that the pre-release of a given picture necessarily involves the fixing of admission prices or the granting of unlawful clearances but we do believe that there are dangers in the practice and we therefore wish to elaborate on this matter considerably. Pictures of any degree of merit are almost without exception licensed on the early runs on the basis of a percentage of the box office receipts. The admission prices which the exhibitor charges have an important and direct bearing on the amount of such receipts. Hence the admission prices an exhibitor expects to charge and the evaluation of the film rental the distributor may reasonably expect to derive are related. Therefore when a distributor asks an exhibitor for this information for the purpose of evaluating the exhibitor's bid this does not, without more, constitute the fixing of admission prices, for the information is germane to such an evaluation. However, the exhibitor cannot be requireil to charge the admission prices which he advised the distributor he proposed to charge. That would be the fixing of minimum admission prices. It, of course, is quite true that what the e.xhibitor states his proposed admission prices will be will have a bearing on whether or not he will be the successful bidder, but this is because what he is really offering the distributor for its picture depends in substantial part on what he will charge his patrons. It is also quite true that though the ehxibitor is contractually free to change his mind, the exhibitor will normally be impelled by considerations of good faith and even of self-interest in maintaining good distributor relationships to charge the prices he says he will charge even though he is not contractually bound to do so. The dilemma arises from the manner in which motion pictures are marketed. Knowledge or lack of knowledge of admission prices on the part of the distributor cuts across one other provision in the judgments entered in the Paramount case. The distributors are enjoined "From licensing any feature for exhibition upon any run in any theatre in any other manner than that each license shall be offered and taken theatre by theatre, solely upon the merits and without discrimination in favor of affiliated theatres, circuit theatres, or others." Let us suppose that three exhibitors have submitted bids for an especially desirable picture and that the theatres expect to raise their admission prices in varying amounts. If the distributor has no information whatsoever concerning the admission prices which the exhibitor propose to charge, the distributor would have to evaluate the bids as best it could, but there might be considerable likelihood that the best of the bids would not have been accepted. Yet the distributor on the basis of the information available to it may have acted with complete objectivity. I'he distributor could hartlly be charged with discrimination in any instance where the significant differences between the bids lay in the different admis.'^ion prices which the exhibitors concerned have decided upon but have not comnumicated to the distributor. Yet once the picture had been played the unsuccessful bidders might very well have good cause to feel that their bids in the light of the admission prices they had intended to charge for the picture were better than the bid actually accepted and that therefore they had, in fact, been discriminated against. .Also an exhibitor could possibly obtain an advantage over his competitors by disclosing his proposed admission prices without any prodding from a distributor whatsoever. In the case of usual pictures the distribu tor knows that the exhibitor will in all prob ability charge his usual admission prices. Th distributor knows or can easily find out wha such usual admission prices are. The admis sion jjrice problem arises in the case of th high production cost picture which the dis tributor feels has unusual merit and whicl the distributor has therefore undertaken to market specially. The judgments entered in the Paramoun' case enjoin a distributor from giving thi licensee (the exhibitor) a contractual right known as clearance not to have a picturt shown for a period of time in a theatre which is in substantial competition with tiulicensee's theatre in excess of what is reasonably necessary to protect the licensee in the run granted. Such judgments also enjoin the granting of clearance between theatres not in substantial competition. The judgments do not provide that a run in one theatre must be followed by a run in any other theatre. Thus whether the pre-release practice involves the granting of excessive clearances between theatres in substantial competition or of clearances between theatres not in substantial competition depends on whether there are agreements between the distributors and the exhibitors licensing the pre-release runs that the picture will not be shown for a period of time in other theatres. Since the distributors when pre-releasing a picture have refrained from specifying how long a time must elapse between the pre-release run of the picture and other runs in other theatres, it cannot be categorically stated in the absence of proof of such an agreement that the pre-release practice involves the granting of improper clearances. We would now like to turn to what we believe to be the dangers in the pre-release practice. Some exhibitors have earnestly contended that they are subjected to pressure by distributors to fix their admission prices at certain levels for pre-release pictures, and that if they resist such pressure they are invariably unsuccessful in their efforts to license the picture. Whenever any picture is pre-released there is a serious danger that conduct may take place from which agreements between the distributor and exhibitors relating to admission prices can fairly be implied. While the concept of clearance in tin Paramount judgments contemplates the ex istence of an agreement between the distributor and the exhibitor to whom the prior run has been licensed, there may be circumstances in which agreements to grant improper clearances could properly be implied in law. As in the case of admission prices, whenever any picture is pre-released there i> a serious danger that conduct may take place from which agreements between the distributor and exhibitors relating to when the picture shall be licensed on other runs can fairly be implied. During approximately the last two years the number of pictures pre-released has increased. This is of some concern, for such increase accentuates the dangers we have referred to. It accentuates them because the (Continued on Page 20) Page 16 FILM BULLETIN January 25, 1954