Theater Monopolies in Hollywood

The Crescent Case

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

The Crescent case was one of three federal actions filed in 1939 against the three largest independent theater circuits. In a sense these three suits are companion cases to the Paramount case, since -all four attack the monopolistic effect of circuit buying power. One of them reached the Supreme Court four years earlier than the Paramount case and the other two at the same time. The three cases together develop a legal theory of divorcement and divestiture which was applied in the Paramount case.

In the Crescent case, nine exhibition companies, all having stock affiliations with one another, were found to have conspired with the eight leading distributors to restrain trade and to monopolize exhibition in 78 towns in Alabama, Arkansas, Kentucky, Mississippi, and Tennessee. The aggregate bargaining power of these firms was used to monopolize exhibition in these market areas. The defendants insisted that a distributor give them monopoly exhibition rights in towns where they had competition or else defendants would not give the distributor any business in the closed towns where they had no competition. Defendants were thus able to cut off film supply to their rival exhibitors and force those theaters to sellout to one of the defendants. The selling exhibitor was required to sign covenants not to compete with Crescent or its affiliates in other towns far beyond the area necessary for the protection of the business.

Defendants also coerced distributors into granting them franchise agreements covering a period of years and allowing them the right to first-run exhibition of all feature pictures which they chose to select for their designated towns. These first runs were followed by long clearances. In addition, defendants were given the opportunity for a prior repeat run in their own theaters if they chose. These repeat runs in many cases wiped out the value a film would have in second-run opposition houses.

The growth and income data of Crescent and its affiliates supported the charge of monopolization. In August, 1934, defendants operated in 32 towns and had competition in only 6. In August, 1939, defendants operated in 78 towns and had competition m only 5. Defendants' gross receipts in the year ending June 30, 1939, were somewhat less than twice the amount for the year ending June 30, 1935. But their net profits in the latter year were five times the earlier profits. Part of this, of course, merely reflects the recovery in the national economy. The average annual net earnings on capitalization for the five years ending June 30, 1939, were 35 per cent.

Both structural and injunctive remedies were applied. Each defendant corporate exhibitor was ordered to divest itself of any stock or interest in any of the other corporate defendants. The nine interrelated firms were thus to be made completely independent of each other. The defendants were prohibited from future acquisitions of financial interests in additional theaters outside Nashville "except after affirmative showing that such acquisition will not unreasonably restrain competition." The nine defendant-exhibitors were enjoined from conditioning the licensing of films in any competitive situation upon that in any other theater situation. Finally, the defendants were enjoined from making franchises with certain distributors for the purpose and effect of maintaining their theater monopolies and of preventing independent theaters from competing with them.

No detailed information is available on the progress of the stock divestitures. However, Crescent Amusement, the largest of the nine firms, increased its operations from 67 theaters in 1942 to 82 theaters in 1955. Later efforts at enforcing the judgments ended in failure. In 1950, a government petition for a preliminary injunction to stop Lewisburg Theatre Company, owned 50 per cent by Crescent, from building a new theater without court permission was dismissed. The court held that the decree requiring Crescent to obtain such permission did not apply to this subsidiary which Crescent had been allowed to retain at the time of divestiture. In 1953, the district court granted a voluntary dismissal of a criminal contempt action against Crescent after it had struck major allegations of the complaint. The government originally charged Crescent with discouraging potential competition by obtaining court approval to construct new theaters in places where it had no immediate intention of building. Crescent was also charged with keeping from the court evidence of the true competitive facts on which the court was entitled to act in passing on new theater construction. More important, it was alleged that defendants had failed to divest themselves of stock interest in other exhibition corporations, as required by the judgment.

SOURCES:

Conant, Anti-trust in the Motion Picture Industry

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