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The Society of Independent Motion Picture Producers

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The Independent Producers and the Paramount Case, 1938-1949

Part 6: The Supreme Court Verdict That Brought an End to the Hollywood Studio System, 1948

The Supreme Court Trial

When the Paramount case made it to Supreme Court trial on February 9, 1948 it had bee nearly a full year after the government appealed the Statutory Court ruling.

Attorney General Tom C. Clark opened the government arguments, confident that the wealth of information would prove that divorcement was necessary to end studio domination of the motion picture industry. The counsel said that of the 92 U.S. cities with a population of 100,000 or greater, the studio-owned theater chains held domination over all but four. Over one-third of the cities had no independent theaters at all.

For the major studios, the legal defense included several heavy-hitters, including former Secretary of State James F. Byrnes and 1924 Democratic Presidential candidate John W. Davis. Again, the primary argument was that the Paramount case, which would bring an end to the studio system, would cause a disservice to the public.

The Decision

The case was rapidly tried, and the ruling was handed down by the Supreme Court on May 4, 1948. The decision favored the independent producers on practically every point. The Supreme Court affirmed the Statutory ruling that declared the studios guilty of violating antitrust laws. Once and for all the Supreme Court abolished block booking-ending over 30 years of controversy-by requiring all films henceforth to be sold on an individual basis.

Also the Supreme Court reversed the lower court mandate for competitive bidding, and stated that such an involved legal restriction would involve the government too deeply in the day-to-day business of the industry. Disagreeing with the Statutory decision, the new ruling considered studio disintegration to be the ultimate solution to the problems faced by the independents. The Supreme Court remanded the decision back to the lower courts with the recommendation that competitive bidding be nullified and that divorcement be reconsidered.

CLICK HERE to read the full text of the Supreme Court Paramount decision, May 1948

Declaration of Independence

The independent producers’ years of struggle finally resulted in a Supreme Court ruling in favor of theater divestiture from the major studios and the end of block booking. A SIMPP statement released by Gunther Lessing of Walt Disney Productions called the decision a “declaration of independence as far as independent motion picture producers are concerned.” Samuel Goldwyn called the decision “a distinct victory toward restoring free enterprise in the motion-picture industry.”

But skeptics considered the ten-year-old fight far from over. The case was sent back to the Federal District Court for the final ruling, in what seemed to many as a never-ending postponement of the divorcement decree sought by the government. For instance, Joseph Schenck interpreted the Supreme Court ruling in more vague terms, indicating that the high court never actually condemned theater ownership by the studios, but instead had sent the case back to court. “I think the ruling means the end of the divestiture threat,” Schenck declared, in far more optimistic terms than the grim outlook would indicate.

SIMPP Averts Studio Compromise

The delay also gave the major studios time to counteract the Supreme Court decision with an attempt at another consent decree. Throughout that summer, the press reported activities of the Big Five trying to enact a compromise deal with the Justice Department. In 1948 however, the studios had to deal with something that was not around during the 1940 compromise: a united independent producer movement, which stood in opposition to any unfavorable deal, and was willing to take the case to the people when the studios tried to protect their monopoly.

SIMPP sent a telegram of protest to Attorney General Clark, which Gunther R. Lessing also forwarded to President Truman on September 10, 1948 and then disclosed it to the press the following week. Lessing, who signed the telegram and probably wrote it himself, was acting as vice president and chairman of the SIMPP executive committee.

CLICK HERE to read SIMPP's Telegram of Protest, September 1948

SIMPP feared that another secret negotiation would lead to a devastating compromise, as had happened in 1940 when an antitrust misstep resulted in years of delay. The government, which had first-hand experience with the shiftiness of the Hollywood studios, agreed with SIMPP, and planned the negotiations around the recent Supreme Court victory.

On October 1 the Justice Department sent notice to the attorneys of the Big Five that the government would indeed encourage a consent decree from any company that wished to opt out of the trial, so long as the corporation agreed to a divorcement decree that separated exhibition from production-distribution. The Hollywood majors remained aloof, and they resolved to go back to court to fight divorcement to the end.

“Opinion in trade circles,” the New York Times reported, “was that the case was back to its beginning in July 1938, since divorcement was the crux of the Government’s action. However, it was felt that the Supreme Court’s dissatisfaction with these particulars tended to strengthen the stand of the Justice Department.” Industry analysts said that it looked as if real change was still uncertain, and perhaps still a long ways away. Then in October 1948 a remarkable turn of events brought the beginning of the end of Hollywood vertical integration.

Howard Hughes wielding arbitrary power as head of RKO.

The First Studio Is Dissolved

Howard Hughes, the independent producer - turned - movie - czar, announced that RKO would immediately comply with the Supreme Court decision by spinning off its theater chain from the studio operations. The move typified his spontaneous behavior, and reverberated from his independent roots as a enemy of the studio establishment. Hughes also had much to gain by forcing a divorcement decree. RKO, by far the weakest of the Hollywood theater owners, would be brought on equal ground if divestiture was successfully enacted across the industry.

Hughes’ decision to break ranks with the other major theater owners was one of the singular events in the antitrust case, leading the way for the disintegration of the vertical Hollywood majors. RKO promised divorcement within one year, creating two companies for Hughes to choose one to keep a controlling interest in. With obvious plans to remain a film producer, Hughes kept the RKO Pictures Corporation and sold the RKO Theatres Corporation. The RKO consent decree was signed on November 8, 1948, signaling the finale of the studio epoch.

The Mighty Paramount Is Broken

With RKO proving the precedent for a feasible divorcement, the trial of the remaining four theater-owning studios was set for the following April. Anticipating a costly battle, the mighty Paramount Pictures became the second studio to submit to the divorcement demands. The studio felt the burden on impending legislation looming over the company fortunes, and decided to voluntarily divest their theater chain rather than submit to a court-directed liquidation. Paramount entered into a divorcement decree with the Justice Department on February 25, 1949.

CLICK HERE to read about Paramount at the End of the Studio Era

The Hollywood Studios Continue to Fight

The other three Hollywood theater-owners resisted the Justice Department demands. “We will not give up our theaters without a court fight,” Harry M. Warner announced within a few hours of the Paramount capitulation of February 25, 1949. “We have taken years to accumulate the company assets we have, and we will fight to hold them.” Celebrating the twenty-fifth anniversary of the formation of Metro-Goldwyn-Mayer, Loew’s told its stockholders that the company bitterly opposed theater divestiture. The Loew’s circuit refused to sell off MGM, and reminded the Department of Justice that the Supreme Court may have outlawed block booking, but it never declared vertical integration illegal per se. Twentieth Century-Fox also protested disintegration. It offered to eliminate some of its more notorious regional exhibition monopolies, if the attorney general would regulate but not force the studio to sell its entire chain. The government rebuffed all proposals, and agreed to see the studios back in court where, by this time, divorcement was virtually assured. The decisive blow came with the Federal Statutory Court decision on July 25, 1949-eleven years and one week after the Paramount case was filed.

Though the Society of Independent Motion Picture Producers reached a plateau with the decision in the Paramount suit, the Society considered the case as one step toward their ultimate goal of complete freedom of the screen. As Sam Goldwyn cautioned, “it will be necessary to see that divorcement means more than just a transfer of circuit control from one set of hands to another.” SIMPP decided to continue the battle against select movie companies in private suits to see that predatory practices were stopped, and, in some cases, damages collected. They were also positioning themselves to fill the void left by the studio system. When Paramount, for years the scourge of the independent producers, finally broke up its vertical monopoly, the producers found themselves in agreement with Paramount’s Barney Balaban who said “this consent decree marks the end of the old, and the beginning of the new.” 



“Declaration of independence as”: “Ruling Opens U.S. Market for Indies, Says SIMPP Chief,” HR, May 5, 1948, pp. 1, 4.
Goldwyn and Schenck reactions to the Supreme Court ruling: “Ruling ‘Boon’ To Movie Fans, Goldwyn Says,” Hollywood Citizen-News, May 5, 1948; “Film Leaders Split On Merits of Ruling,” NYT, May 5, 1948, p. 29.
SIMPP telegram of protest: “Indies Fight Trust Suit ‘Deal’,” HR, September 14, 1948, pp. 1, 9; “Independents Wary of Major Film ‘Deal’,” NYT, September 14, 1948, p. 34; “SIMPP Fights Majors’ Consent Decree Bid,” Hollywood Citizen-News, September 14, 1948; “SIMPP Protests Any New Decree; Urges U.S. Force Theatres Sale,: DV, September 14, 1948, pp. 1, 11.
Justice Department concurs: “Movie Firms Asked To Drop Theatres,” NYT, October 2, 1948, p. 10.
“Opinion in trade circles”: A. H. Weiler, “Supreme Court Decision Summary,” NYT, May 9, 1948, sec. II, p. 5.
RKO divorcement decree: “RKO Will Divorce Theatres,” HR, October 27, 1948, p. 1; “RKO Board Agrees To Split Its Stock,” NYT, October 31, 1948, p. 79; “Ruling Against RKO Ready For Court,” NYT, November 2, 1948, p. 39; “Thomas F. Brady, “RKO Divorcement Plan May Set Pattern For Entire Industry,” NYT, November 7, 1948, sec. II, p. 5.
Paramount consent decree 1949: Lewis Wood, “Paramount Consent Decree Splits Film Firm, Theatres,” NYT, February 26, 1949, pp. 1, 10; Thomas M. Prior, “Paramount Split Will Be Tax Free,” NYT, February 26, 1949, p. 10.
Reactions from the major studio holdouts-“Warner Says He Won’t Sign,” NYT, February 26, 1949, p. 10; “Loew’s Fights Divorcement,” HR, March 28, 1949, p. 1; Twentieth Century-Fox proposed consent decree and Loew’s 154-page brief: “Ten Years Later: Movie Antitrust Action Draws to Close,” NYT, March 6, 1949, sec. II, p. 5.
Government pursues case: “U.S. Hits At Trust ‘Holdouts’,” HR, April 4, 1949, pp. 1, 13; “Loew’s, 20th Battle Renewed On U.S. Divorcement Demand,” HR, April 22, 1949, pp. 1, 8; “Big 3 Get U.S. Divorce Terms,” HR, April 25, 1949, pp. 1, 9; “U.S. Seeks Loew Houses Sale,” HR, April 29, 1949, pp. 1, 11.
“It will be necessary”: “Independents’ Day,” Time, May 17, 1948, p. 91.
“This consent decree marks”: Prior, “Ten Years Later,” p. 5.

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