I was working on something related to movies the other day and came across an interesting slice of history I was not aware of that could have some bearing on a particularly contentious debate going on today. Last week, I wrote about how regulators should go ahead and allow free reign to so-called vertical integration, where large internet and telecom companies also own broadcasters. In Canada, the CRTC is in the midst of hearings on whether such a situation could turn anti-competitive.
My argument was to let ‘er rip – as long as consumers have fair access to the internet and a good chunk of monthly data usage, there will be tons of competitive options that will keep the vertically integrated companies from abusing their customers.
However, it does appear we’ve been on this ride before. Back in the 1940s, the U.S. courts struggled with a similar situation. Under the so-called studio system, Hollywood itself was thoroughly integrated for much of the first half of the 20th century. The likes of Warner Bros. and Paramount not only produced films, they also owned the theatre chains that showed them.
Theatres were thus required to take part in a process called block booking, where they had to purchase a bunch of crappy movies if they wanted the good ones. Not only that – they also had to buy a lot of these movies without first seeing them.
The parallels to today are obvious. In the first instance, television subscribers today commonly have to get a bunch of channels they couldn’t care less about in order to view the ones they actually do want. Many viewers would prefer to get their channels a la carte, where they only have to pay for the ones they want. Of course, many poorly viewed channels would go under if this scheme were put into effect. Once again, I say let ‘er rip – but that’s a debate for another time.
The more important parallel is that of the vertical integration. While the two situations – of yesterday and today – are not exactly alike, the similarity in both is that the content owners also control the means of distribution.
The studio system was eventually smashed, first by the Paramount decision, which forced that studio to limit its block booking, and then by Howard Hughes who was the first to split off theatres from his RKO studio.
This structural separation, a term that is increasingly getting tossed around these days in regards to telecom companies, took a huge toll on Hollywood’s profits. Actors were laid off and fewer films were produced, but the industry of course recovered as it settled into a newly competitive paradigm.
While the court’s antitrust moves were probably wise at the time, they may not have been necessary in hindsight because of the inevitable encroachment of technology. The court cases started in the 1930s, when no one could have predicted what the arrival of television in the late 1940s and early 1950s would eventually mean. Indeed, television caused movie attendance to plummet and took almost as big a chunk out of Hollywood’s revenue as the end of the studio system.
Studios were thus forced to compete, which is when they came up with their own new technologies, such as widescreen movies, 3D and, of course, Smell-O-Vision.
That’s where the big difference is between yesterday’s film integration and today’s telecom/broadcast situation. While courts and regulators couldn’t see that technology would eventually make their interference unnecessary, today it’s already very obvious, which is another reason to allow vertical integration to go ahead unhindered.