Hollywood Renegades Archive

The Society of Independent Motion Picture Producers

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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 Paramount monopoly.

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.

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SOURCES:

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.

See Bibliography.

 

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