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Theater Monopolies in Old Hollywood

The Schine Case

Excerpt from Anti-trust in the Motion Picture Industry by Michael Conant


Schine Chain Theatres v. United States

The Schine case was the third of the group of cases filed against independent circuits. In May, 1942, the Schine circuit, through five subsidiaries, operated 148 theaters in 76 towns in six states. Of these, 78 theaters were in 41 towns in New York and 36 theaters were in 17 towns in Ohio. Of the 76 towns where Schine operated, 60 were closed towns. Like the Crescent and Griffith cases, Schine was charged with combining closed and open towns for the purpose of pooling their entire circuit bargaining power in licensing films.

The District Court found a conspiracy among the Schine firms and with the eight leading distributors. It held that through use of circuit bargaining power Schine was able "to dictate terms to the distributors" and "to exert pressure on the distributors to obtain preference." Mr. Justice Douglas summarized the District Court findings as follows:

"Through the use of such buying power Schine arbitrarily deprived competitors of first and second-run pictures, was able in many towns to secure unreasonable clearances year after year of from 90 to 180 days, obtained long-term agreements for rental of film (franchises) which gave it preferences not given independent operators, and received more advantageous concessions from the distributors respecting admission prices than competitors were able to get. Schine made threats to build or to open closed theatres in order to force sales of theatres in various towns or to prevent entry by an independent operator. Schine cut admission prices. Schine obtained from competitors whom it bought out agreements not to compete for long terms of years which agreements at times extended to other towns as well. Schine obtained film-rental concessions not made available to independents."

The District Court entered a decree enjoining these practices and requiring divestiture of more than 50 theaters in more than 40 towns. It rejected a proposed plan by the Schine interests to divide the theaters among three of the subsidiaries and make them independent except that each would be headed by a member of the Schine family. The court felt that this plan, modeled on the Crescent decree, would not restore competition. It therefore drafted a decree to turn large numbers of closed towns into open towns by forcing Schine to sell a theater in each town.

The Supreme Court affirmed most of the injunctions but reversed the divestiture decree so that appropriate findings could be made to support it. It held the finding that Schine obtained film rental concessions not available to independents not intelligible. It held the finding that Schine cut admission prices, without additional findings of the way price cutting was used as an instrument of monopoly, would not support an injunction. It held the findings relating to unreasonable clearances inadequate. As to the divestiture decree, the District Court had ordered sale of such theaters as it thought would effectively end the monopoly power of the Schine circuit. The Supreme Court held that the lower court had failed to make a necessary finding under the criteria stated in the Crescent opinion. There was no finding concerning what theaters had been unlawfully obtained, that is, the benefits Schine gained from the conspiracy. The Supreme Court ruled that these theaters should be ordered divested first. Then if illegal monopoly power would still remain in the circuit, the court should order such further divestiture as would terminate this power.

On remand to the District Court, defendants entered into a consent decree that enjoined marketing practices condemned by the Supreme Court. The decree also prohibited receiving clearances other than those "reasonably necessary to protect the licensee in the run granted." It prohibited Schine from attempting to control the admission prices charged by other independent theaters. It ordered nondiscriminatory bargaining for film on a theater-by-theater basis. In most of its towns Schine was enjoined from licensing more than 60 per cent of the films released by major distributors for first-run exhibition for a period of three years following July 1,1949.

Schine also agreed to divest itself of 39 theaters. It was enjoined from acquiring any interest in additional theaters except after an affirmative showing that such acquisition would not unreasonably restrain competition. This was the period of marked decline in theater attendance and revenues. Schine found difficulty in finding theater customers at what it considered a fair price. In January, 1952, Schine was given a time extension to complete the theater sales, setting up some criteria for what was a reasonable offer that had to be accepted.

In March, 1954, both civil and criminal contempt proceedings were begun against nine of the affiliated Schine corporations and five individuals. Defendants were charged with having failed to dispose of 23 of the 39 theaters ordered sold and with conspiring to retain indirect control of theaters purportedly sold. On motion to dismiss, both of these proceedings were upheld as correct enforcement procedures. The criminal contempt case was tried first and, after a three-month trial, Judge Knight died before giving a decision. On stipulation of the parties to a new trial, the case was submitted on the record before Judge Knight, with both sides retaining the right to enter additional evidence. In December, 1956, more than 17 years after the case began, defendants were held in criminal contempt for having violated the divestiture decree. This decision was affirmed and became final in 1959.


SOURCES:

Conant, Anti-trust in the Motion Picture Industry

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