The Independent Producers and the Paramount Case, 1938-1949
Part 7: Paramount and the End of an Era, 1949
The mightiest of all Hollywood studios became one of the first
to agree to vertical disintegration at the hand of the Justice Department, which
was aided in the Paramount antitrust case by the Society of Independent
Motion Picture Producers
With RKO proving the precedent for a feasible divorcement, 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.
However their were other reasons why Paramount capitulated when most of the
other major studios pledged to continue the fight to the end.
The Paramount Television Interests
One of the key reasons Paramount conceded to the Justice Department was due
to its interests in the new television market where the Paramount studio was
establishing itself as a leader. In 1938 Paramount had invested $400,000 in the
DuMont Corporation to gain a foothold in television manufacturing. But rather
than home television, the studio believed there might be some use for broadcasts
into their movie theaters, providing live showings of remote news events, for
instance. Also in the early 1940s Paramount bought into several television
stations. The studio owned four of the nine operating stations in the U.S., and
established the first TV stations in Chicago and Los Angeles. However, according
to the Communications Act of 1934, the Federal Communications Commission was
authorized to refuse broadcast licenses to any company convicted of monopolistic
practices. During the New York Equity
Suit, Twentieth Century-Fox and RKO had
each unsuccessfully applied for television licences, as the FCC took a
wait-and-see attitude until the antitrust case was settled. United States v.
Paramount also delayed Paramount’s plans for television expansion, and the
studio could not afford to risk an adverse ruling that would jeopardize its
sprawling television duchy.
Paramount would be protected by its consent decree, but the terms were severe
and specific. In addition to total separation of the studio from all domestic
theaters, the Justice Department restricted the spin-off exhibition company to a
maximum of 600 theaters. The Paramount circuit was then 1,450 strong, of which
over 1000 were still partially-owned Paramount affiliates. So Paramount decided
to negotiate leeway to be able to acquire the controlling interests in several
of its affiliates, while selling off its less-desirable theaters. The Justice
Department stipulated-so long as Paramount created a free market with no local
The New Paramount
Paramount president Barney Balaban, always the diplomat, called the
divorcement decree “constructive,” and optimistically predicted a solid
future for the theater chain: “It will leave the new theatre company with a
large, well-selected and thoroughly sound theatre circuit.” Though his
personal roots were in exhibition, Balaban remained as president at the
producing-distributing end of the divestiture. Leonard H. Goldenson, a Harvard
graduate who joined Paramount in 1933, presided over the new theater company.
However the new Paramount studio, minus its U.S. theater chain, would keep its
dominant Canadian circuit of 370 theaters, as well as its important overseas
screens. The studio was given three years to comply, but Paramount Pictures,
eager to inaugurate a new decade with the divorcement behind them, completed the
reorganization on New Year’s Eve 1949. Adolph Zukor joined in the media event
that heralded a new era of filmmaking.
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.
Paramount and television: “‘Trust’ Background Makes
‘Big 5' Unfit for TV, Senate Told,” HR, April 21, 1949; Gomery, The
Hollywood Studio System, pp. 35-38, 85, 129.
Paramount Pictures corporate split: “Paramount Stockholders
Vote Approval of Split Into 2 Units,” NYT, April 13, 1949, pp. 45, 47;
“Paramount Ending Joint Ownership,” NYT, December 8, 1949, p. 55;
“Paramount Splits Into Two Companies,” NYT, December 30, 1949, p. 13;
“Paramount Reorganization Plan Completed 2 Months Ahead of Time,” NYT,
December 31, 1949, pp. 19, 21.