Two Small Steps in the Right Direction

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In this journal I have repeatedly expressed my intense disapproval of President Trump, so it seems to me that intellectual honesty requires me to compliment his governance when it does something I consider right. Recently, the Boss’ administration took a couple of steps toward what I consider excellent policies, so let me so record the facts.

The first pertains to something I have written about in the past.[1] Movie studios had for decades both produced and distributed their films — often playing them in theaters they themselves owned. This meant that the producers of the films made money on everything from ticket sales to snack bar concessions. This in turn allowed producers enough of a profit to take chances with new actors and directors, new genres, and smaller audience “art” movies.

Once deprived of its lucrative distribution side, the filmmaking industry settled into producing predictable movies in predictable genres, with predictable scripts, and with a relatively few established stars.

However, in 1948 (in US v. Paramount Pictures), the US Supreme Court ruled that studios could no longer control distribution. That meant they could no longer profit from concessions or control what theaters could show. The 1948 ruling widely prohibited practices such as studios owning their own theaters, limiting how their films could be shown, and “block booking” (i.e., requiring theaters to play a group of their movies or else be forbidden to any of them).

If you look at independent film critics’ lists of the best films of all time, the lion’s share were produced before the ruling was fully implemented by the Justice Department (in the mid-1950s or so). Nevertheless, once deprived of its lucrative distribution side, the filmmaking industry settled into producing predictable movies — including remakes — in predictable genres, with predictable scripts, and with a relatively few established stars. In recent years, this tendency has taken the form of endless sequels and prequels — Spiderman 78, Saw 89, Star Wars 95. For actors we see few amazing talents, discovered by wide-ranging talent scouts, but just more and more children or nieces or nephews of existing Hollywood insiders.

The original ruling was dubious to begin with. When the Federal Leviathan came up with this “anti-monopoly” action, there were five major and several smaller studios producing hundreds of movies a year. Some monopoly! However, the independent theater owners’ desire for access to other companies’ property carried the day — perhaps to the benefit of the small theater owners, but surely to the detriment of the lawful owners of the content (i.e., the studios) and the consumers as well. This was classic rentseeking in action.

The 1948 ruling led to a decline in the number and quality of films, giving people more reason to stay home rather than visit the theater.

Well, the revolution in the entertainment industry wrought by the internet has resulted in the rise of major companies — Netflix, Amazon, and recently Disney — producing and distributing their own product directly to the consumers’ homes. As a recent article in the WSJ notes, the Department of Justice has now announced that it will remove the regulations restricting distribution by producers directly to theaters. As Makin Delrahim, Justice’s top antitrust attorney, put it, “As the movie industry goes through more changes with technological innovation, with new businesses and new business models, it is our hope that the termination of the Paramount decrees clears the way for consumer-friendly innovation.”

The article claims that the DOJ’s move is a blow to the nation’s diminishing number of independent theaters and small independent studios, because it will force them into a release calendar that is dominated by expensive productions of the major studios. Half the 40,000 screens in America are controlled by three chains (AMC, Cinemark, and Regal), so smaller theater operators are already nervous about being put out of business. They complain about not being able to afford the heavy distribution prices that big studios demand for major hits. Using this past year as an example, 27% of all North American ticket sales have been for just five movies — four produced by Disney, naturally. So the small theater owners (represented by the National Association of Theater Owners, aka “NATO”) not unnaturally fear the DOJ’s letting these regulations lapse. But I would suggest to NATO and the theater owners it represents that they are not seeing the whole picture, and that if they did, they wouldn’t fear the change.

First, let’s make the obvious point that despite the onerous and longstanding restrictions put on the content providers (i.e., the studios), movie houses have been closing anyway. From 1995 to 2018, the number of theaters dropped from 7,744 to 5,803 — a loss of 25%. And the reason is clear: it is the same reason that individual retail stores and whole shopping malls have been closing — the Amazon effect. In retail sales, the internet has made many trips to the local store or mall unnecessary; the consumer can get what he wants online and have it delivered to his house, saving all the time, expense, and hassle of driving around. Similarly, the rise of cable and internet streaming has allowed TV, which started its rise as a competitor to the movies in the 1950s, to explode in audience size.

If more theaters are lost in the near future, this will probably not be because the 1948 regulations are going to be removed.

Adding to this “Amazon effect” that TV has had since its inception (the effect of allowing entertainment content to be delivered to the consumer at home) is the amazing technological development of the medium itself. The development of cable, and then internet streaming — along with the creation of big screen panel TVs and home surround sound systems — has enabled a home theater experience to come closer to a real theater experience than was ever before imaginable. I suspect that not long from now, we will have walls in our homes that are TV screens, just as in Ray Bradbury’s dystopian novel Fahrenheit 451.

So to a large extent, the trend of theaters closing is an outgrowth of TV expansion. The 1948 ruling did not stop this; it just led to a decline in the number and quality of films, again giving people more reason to stay home rather than visit the theater. If more theaters are lost in the near future, this will probably not be because the 1948 regulations are going to be removed.

But this is just a negative defense of removing the restrictions. I think a positive case can also be made, that allowing producers to own theaters will likely increase the number and variety of them.

The experience of watching a film alone or with your family and friends is quite different from that of viewing it in the company of a large number of strangers.

Start with the idea that single producers — say, Netflix — could own their own theater chains to first present their own content. Recently, Netflix premiered a major production (The Irishman) on TV first, and only then to theaters — presumably because it was the way to maximize receipts upon release. With its own theaters, it could debut films in them for maximum revenue, and later make them available on TV. More revenue would mean more original films it could then produce. It could build a chain of new theaters to do this, or it could buy out a large number of independent ones, or even join them in a franchise arrangement. You can imagine Netflix, Disney, HBO, and so on having large chains running only their own productions, allowing for the showing of shorts, cartoons, and serials as well, along with the sales of large amounts of accompanying merchandise. Again, this would lead to even more revenue, which would support even more production.

Next consider the possibility of “mixed use” theaters. Amazon — already producing some of its own content — could put together a chain of theaters where people could pick up or return their on-line orders, and also see a flick. Other retail players — such as Walmart, which has a large internet presence of its own — might be tempted to start producing and distributing its own movies, perhaps by buying an already existing movie producer (HBO, Hallmark/Crown Media, or such) and expanding its operations.

The reason I am so optimistic about the future of movie theaters is simple. The experience of watching a film alone or with your family and friends is quite different from that of viewing it in the company of a large number of strangers. It’s called “social proof” — look it up.

Much of the data is dispiriting, but there is some comfort in it.

The second area where this administration deserves a compliment is in education policy. The WSJ reports that the Department of Education has released a large amount of new data showing what students are earning on average after graduation, and what their average student debt load is. What is novel about this mass of data is the granularity, the nice specificity of the information, which is provided by major and college.

We learn that one of the best returns on an education investment comes from getting a bachelor’s degree in mathematics from MIT. People with that degree averaged $120,300 in first year’s income, with an average student debt load of $8,200. That is perhaps no surprise, but the fact that bachelor’s degrees in business administration from Bismarck State College average $100,500 in initial salaries perhaps is.

Alas, many other programs are not so lucrative. Dentists graduating from NYU averaged $69,000 right after graduation, but had an average student loan debt load of $387,600. Bachelor’s grads in computer science from DeVry University-Illinois earned $37,800 on average while owing an average $53,400. (The same degree from Wichita State University led to $61,800 in average starting salary and only $31,000 in debt.) Graduates in rhetoric and composition from Columbia University earned a meager $19,700 upon graduation, but had a debt load of $28,500. Undergrad degrees in theater from the University of Alabama averaged $14,000 in first-year income with an average debt load of $25,000. And those who got their Master’s in Theater from USC averaged only $30,800 initially, but had a debt of $100,800.

Ironically, though, business ethicists are all college professors, and colleges have seldom if ever provided accurate data about how much their products really benefit their consumers.

This data set is gathered from a website first set up by the Obama administration called the “College Scorecard,” and covers over 36,000 programs at 4,400 colleges, using input from millions of recent college grads. It is limited in one respect: it covers only students who received financial aid, and it excludes debt that parents assume. Much of the data is dispiriting, but there is some comfort in it. Despite the recent inflation in college tuition (driven in great measure by the federal student loan program, which has allowed American students to rack up a collective $1.5 trillion in debt), in 85% of the programs for which data are available, grads earned more in their first year than their total debt — although this means that in 15% of programs, students had total debt greater than their first-year incomes. In 2% of the programs, the students’ debt load was double the initial incomes.

I agree with Education Secretary Betsy DeVos that “the best way to attack the ever-rising costs of college is to drive real transparency.” Yet releasing data about schools, majors, incomes, and student debt levels isn’t merely good public policy. It seems to me a moral imperative. It is a truism of business ethics that for any purchase to be ethical, it must be possible for the consumer to obtain all materially relevant information about the product. Ironically, though, business ethicists are all college professors, and colleges have seldom if ever provided accurate data about how much their products really benefit their consumers.

My only concern is whether Trump will follow through on these policies. With the Boss, this is always an issue.


[1]See “The Rise of the Comic Book Movie” in Liberty, October 2008. For an extended defense of my claims in that piece, see “The History of Cinema and America’s Role in It” in Reason Papers (July 2014).




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