Independent Exhibitors Film Bulletin (1946)

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CIEA ASKS GOVERNMENT FIGHT FOR DIVESTITURE The meeting of the Conference of Independent Exhibitors' Associations, composed of 22 exhibitor groups, including Allied, held in Washington on October 1 and 2, voted to urge the Government to carry its fight for theatre divorcement to the Supreme Court. In a letter addressed to Attorney General Tom C. Clark, the CIEA set forth the following recommendations: 1. Divestiture. The Conference re-affirmed its position that total theatre divorcement is the only effective remedy for the restraints and discriminations against which the independent exhibitors have so long complained and which the court has now found to exist. The Conference is convinced the industry cannot be opened up to competition in either the distribution or exhibition of films so long as the theatre-owning defendants continue to control upwards of 90% of the large first-run theatres. New producers and new distributors will not enter into compstition with the defendants until they have assurance of fair access to the lucrative first-run revenue. Independent exhibitors cannot fairly compete for pictures and runs so long as the affiliated theatres have a backlog of parent company products and remain free to cross-license each other's theatres. Therefore, the Conference respectfully urges that the Government promptly appeal to the Supreme Court from any order of the statutory court which does not provide for complete divestiture, and further that such appeal be made all-embracing so that such order may be open to revision by the Supreme Court in every particular. 2. Competitive bidding. Based on a thorough analysis the Conference is of the opinion that the plan for granting licenses to the highest bidder, as prescribed by the court, is wholly unworkable and if put in operation will serve only to increase the monopoly power of the defendants and to force price rises to the detriment of the public. We say it is unworkable because it contemplates a comparison of competitive bids on a percentage basis and all the variations thereof which is demonstrably impracticable. We say that it will lead to results wholly inconsistent with the Sherman Act because, left in possession of their theatre monopoly and with the right to continue cross-licensing, the defendants will be able to outbid the independent exhibitors for films in every competitive situation. Therefore, the Conference registers its opposition to the competitive bidding plan which the court has put forward as a substitute for theatre divorcement. 3. Cross-licensing. If the statutory court shall remain adamant in its position that competitive bidding is an adequate substitute for total divestiture, then the way is open for the Attorney General to propose safeguards and amendments to the court's plan against the possibility, however remote, that the plan may pass muster in the Supreme Court and some day become operative. We believe that by Paragraph III— 8 of the August 15 draft of final order, which would ban cross-licensing, the Attorney General has proposed a necessary safeguard to any system of competitive bidding. The Conference, therefore, respectfully urges the Attorney General to insist upon the ban on cross-licensing as an indispensable concomitant of the competitive bidding system. Without it the competitive market envisioned by the statutory court as a result of the bidding system can never be attained. 4. Comparison of bids. We will not burden this communication with a recital of the many reasons why bids cannot be accurately compared or licenses fairly granted if the bids are on a percentage and not a flat rental basis. Most of those reasons are obvious and we know that you are quite familiar with all of them. While the court recognized the defendants' right to license films on a participating basis, it seems to us the court inevitably will have to reconsider that dictum or else abandon the competitive bidding plan. Any attempt at awarding films to the highest bidder by predetermining the distributor's share on a percentage engagement will pave the way for the defendants to continue the discriminatory practices in favor of the affiliated theatres which the court has condemned. We see no injustice to the defendants in requiring that all competitive bidding under the order be on a clear-cut dollars and cents basis instead of a purely speculative basis. The competitive bidding system, after all, is only an alternative to what the court itself described as the "harsh remedy of complete divestiture.' and if the defendants prefer the court's plan to such harsher remedy they should be willing to yield the concessions necessary to make the plan workable. The Conference, therefore, urges upon the Attorney General that he insist upon the inclusion of the order of a provision requiring that all bidding be on a flat rental basis. Using the August 15 draft as a pattern, and we propose the inclufion, Paragraph II— 8 (c), of the following: (c) Each bid considered and each license granted shall be for a flat sum and not upon a percentage basis. 5. Advantages of the flat rental method. Inclusion of the foregoing provision will at once make unnecessary certain qualifying provisions which are pertinent only to percentage deals and which afford the opportunity for the practice of discrimination in the granting of licenses. Since no fiduciary relationship is created and the fixed rental is payable on the barrel-head, there will be no occasion to weigh the "responsibility" of the bidders and it no longer will be necessary to consider whether the bidder has a theatre "adequate to show the picture on such run." While the court condemned and ordered the termination of the joint ownership of theatres between the defendants and other exhibitors, it failed to take note of the partnerships with independent exhibitors which result from the defendants' insistence upon percentage playing. Inclusion in the order of the suggested provision will strengthen and make effective the court's order against joint ownership by eliminating defendants' partnership in theatres which are attained without any investment in such theatres. In addition, it will eliminate a number of monopolistic and vexatious practices which the defendants have imposed upon the independent exhibitors as adjuncts of the percentage system, such as the checking of theatres and the auditing of exhibitors' books and records. 6. A workable procedure. The Conference offers the following suggestions calculated to make the competitive bidding system, if it is retained, more workable. We realize that these suggestions come too late for inclusion in the draft which is due to be submitted on October 7, but we believe they will be useful in replying to any proposals relating to that system which the defendants may submit. (a) Receipt and opening of bids. The Conference submits to you for your consideration, possibly as a substitute for Paragraph II — 8 (b) of the August 15 draft, the following: After the distributor has offered a picture or pictures in accordance with sub-paragraph (a) of this section, each exhibitor within each competitive area who desires to bid for the run offered shall submit to the distributor a sealed bid within 10 days after the date of such offer. The bids shall be opened on the eleventh day after such offer ( unless on a Sunday or holiday) and made available to the inspection of all bidders on that day. The license shall thereupon be granted to the highest bidder. No suggestions are offered in reference to Paragraph II — 8 (c) and II — 8 (d) of the August 15 draft, except that if the suggestions of this letter are adopted they would then become subparagraphs (e) and (f). (b) National release date. With a view to overcoming territorial discriminations in releasing pictures and otherwise to add definiteness and certainty to the system, the Conference suggests for your consideration the inclusion of the substance of the following paragraphs: The distributors shall announce a national release date for each picture they intend to license. The offer to license each such picture on first-run in every competitive area shall be made not later than ten days after its national release date. This procedure shall follow at ten day intervals as to each succeeding run until all runs in the competitive area have been licensed: provided, that no offer shall be made to a succeeding run until a license on the immediately preceding run has been granted. 7. Cancellations. Using Paragraph II — 7 of the August 15 draft for purposes of identification, it is suggested that the unqualified right of rejection be made 25% of the group-licensed pictures and that the right be exercised "within 14 days after the first-run opening day in the exchange center in the area involved." With respect to trade showings it is suggested that provision be made so that the showings of different distributors in the same exchange center will not conflict in point of time. 8. Proposed acquisitions. The Conference notes with satisfaction Paragraph III — 6 of the August 15 draft, which would enjoin the defendants from expending their theatre holdings "in any manner whatever." If incorporated in the order this provision will, as we understand it. make Paragraph III — 5 unnecessary. However, if Paragraph III — 5 is retained, we suggest that it be amended so as to provide for notice of acquisition plans, not only to the Attorney General, but also to all affected exhibitors, granting them the right to be heard. Inasmuch as considerable time would be required in which to gather the necessary data for such a hearing, we suggest that "reasonable notice" be defined to be not less than 60 days. Respectfully submitted, (Signed) L. O. LUKAN R. H. POOLE ABRAM F. MYERS FILM BUILETIN