Investigation of concentration of economic power; monograph no. 1[-43] (1940)

2g CONCENTRATION OF ECONOMIC POWER restraint upon the freedom of an exhibitor to select and lease for use and exhibition only such film or films of such block or group as he may desire and prefer to procure for exhibition, or (6) as tends to require an exhibitor to lease such entire block or group or forego the lease of any number or numbers thereof, or (c) that the effect of the lease or offer to lease of such films may be substantially to lessen competition or tend to create a monopoly in the production, distribution, and exhibition of films; or to lease or offer to lease for public exhibition films in any other manner or by any other means the effect of which would be to defeat the purpose of this Act.* The major difficulty which such a provision would face in practice is that the magnitude of the price differential which would constitute an unreasonable restraint upon an exhibitor's choice of pictures or which would substantially lessen competition is not explicitly defined. The interpretation of the provision would thus be left to the courts. A variety of judgments not necessarily in consonance with each other might well arise, and there is little doubt that both the industry and the already crowded courts would be plunged into a new period of extensive and costly litigation. The Federal Trade Commission in 1927 attempted to outlaw the practice by issuing a "cease and desist" order against Famous Players- Lasky Corporation ^ in which it declared that block booking was an unfair and improper practice. The ruling was later reversed by the Federal courts.^ Trade practice hearings conducted by the Federal Trade Commission in 1927 resulted in little change as the Commission was unable to secure agreement between all factions in the industry. Another alternative to block booking which has been proposed is the cancelation privilege. It has been suggested that many of the disadvantages of block booking would be eliminated if the exhibitor were given the privilege of canceling a stated proportion of all films bought in groups without having to make payment therefor. One of the early proposals of this type was the "5-5-5" clause, so called because under it exhibitors were permitted to cancel 5 percent with- out payment, 5 percent with half payment, and 5 percent with full payment (but with extended playing time on other features) of all pictures bought in block, provided the block included all features released by the distributor during a season. This clause was drawn up as a result of meetings between distributors and exhibitors during 1928 and 1930; it was not, however, extensively adopted. It was superseded in 1933 by a 10 percent cancelation clause incorporated in the Code for the Motion Picture Industry set up under the National Recovery Administration.^ Under the Code provisions, exhibitors were given the privilege of canceling without payment up to 10 percent of all films bought in blocks. Exercise of the cancelation privilege was, however, hemmed about with many restrictions which, according to exhibitor testimony before the Darrow Board and House and Senate hearings, made the privilege of little value to them.^° Some form of cancelation clause has remained in the licensing agreements of many of the companies since the N. R. A. codes were invalidated. The following illustrates the t ype of provision usually found at the present time. * * * If the total number of feature motion pictures offered to the Exhibitor by the Distributor, at one time, shaU have been licensed by the Distributor here- • S. 280, 77th Conp., 1st sess. ' Federal Trade Commission. Docket No. 835, July 9,1927. ' Federal Trade Commission v. Paramount Famous-Lasky Corporation, Adolph Zukor, and Jesse L. Lasky, In the United .States Circuit Court of Appeals for the Second Circuit, April 4,1932. • National Recovery Administration, Code of Fair Competition for the Motion Picture Industry, article V-F, Part 6, of the approved Code, 1933. " See National Recovery Administration, Work Materials, No. 34, 1936, pp. 93-96.