The Paramount Decision

Coinciding with the HUAC investigations, the government also increased its scrutiny of the movie industry’s aggressive business practices. By the mid-1940s, the Justice Department demanded that the five major film companies—Paramount, Warner Brothers, Twentieth Century Fox, MGM, and RKO—end vertical integration, which involved the simultaneous control over production, distribution, and exhibition. In 1948, after a series of court appeals, the Supreme Court ruled against the film industry in what is commonly known as the Paramount decision, forcing the studios to gradually divest themselves of their theaters.

Although the government had hoped to increase competition, the Paramount case never really changed the oligopoly structure of the Hollywood film industry because it failed to challenge the industry’s control over distribution. However, the 1948 decision did create opportunities in the exhibition part of the industry for those outside of Hollywood. In addition to art houses showing documentaries or foreign films, thousands of drive-in theaters sprang up in farmers’ fields, welcoming new suburbanites who embraced the automobile. Although drive-ins had been around since the 1930s, by the end of the 1950s more than four thousand existed. The Paramount decision encouraged new indoor theater openings as well, but the major studios continued to dominate distribution. By producing the most polished and popular films, they still influenced consumer demand and orchestrated where the movies would play.