Theater Monopolies in Hollywood
The Crescent Case
Excerpt from Anti-trust in the Motion Picture Industry by Michael
Conant
United States v. Crescent Amusement Co.
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
See Bibliography
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