For much of the early 20th century, only a handful of film studios dominated the movie industry. The “Big Five”—Paramount, Warner Bros., RKO, 20th Century Fox, and MGM—cranked out pictures at an incredible rate and reaped unprecedented profits. Movie-going was an essential part of the fabric of American leisure: In 1930, 65 percent of the US population saw at least one movie a week. With power over such a vast market, the large studios sought to maintain the status quo and further expand their influence.
The biggest asset that propelled the studios’ dominance for the first half of the 20th century was their tight control of a significant number of theaters in the US. The Big Five owned 17 percent of theaters. Independent theaters were also kept under their thumb through the use of coercive tactics such as block booking, whereby theater owners were forced to display a whole slate of films from a studio in order to display any single film they might want. As a result, every theater essentially only showed content from the big studios. No new competitors could arise because no theater would show their films, completely boxing out any viable competition.
These practices were put to an end when, in 1948, the Supreme Court declared that the studios had formed an oligopoly. The decision, US v. Paramount, ended over a decade of litigation and forced the studios to sell their theaters and terminate their tactics of control. However, 70 years later, vertical integration is returning to prevalence with the rise of streaming services. US v. Paramount failed to force any lasting regulations that would protect competition in the industry. Still, the ruling may point us in the right direction when considering how to respond to the domination of streaming services.
In recent years, the media landscape has shifted to favor streaming companies in two ways. First and most obviously, traditional media has taken a downturn. Fewer than 60 percent of millennials pay for cable or satellite television, a number that only five years ago was as high as 75 percent. Box office revenue continues to grow incrementally, but theaters are selling fewer tickets.
The second shift follows the changing nature of streaming companies. As streaming services move increasingly toward content creation, they are responsible for an ever-increasing share of dollars flowing into productions. When Netflix’s streaming service launched, its catalogue was composed entirely of independently produced content. Now, the company is overshadowing those projects with its ballooning slate of Netflix Originals. Netflix spent $13 billion on original content for its platform in 2018 alone—dwarfing the $4 billion and $2.5 billion that CBS and HBO spent on production in 2017. Other streaming services such as Hulu and Amazon have started pouring millions into their own original content.
If this trend continues, streaming services may soon comprise entirely original content. And customers with limited budgets will subscribe to a few services at most, opting for the platforms that offer the best content. Growth for a streaming service only begets more growth; the larger a service, the more it can spend on content, and the larger it can grow. This dynamic will create a handful of dominant companies with near total control of the market: In fact, these companies have already begun to emerge.
Today, Disney and its soon-to-be-subsidiary, 21st Century Fox, are responsible for six of the 10 highest grossing films at the US box office as of 2018. Disney’s cable channels’ fees bring $13 billion in revenue. And next year, Disney will undermine both when it launches its forthcoming streaming service.
Disney’s streaming service will feature new releases as well as movies from Disney and Fox’s extensive archives. Disney has announced a slate of television shows that will premiere only on its streaming platform, and that it will not renew contracts to license content to Netflix. The company may also soon decide to start premiering its movies on its streaming service the same day they are released in theaters. Disney would lose ticket sales, but it would no longer have to share its profits with theaters.
For theaters, this may be a fatal blow. Yet other studios might not only be able to adapt to a post-theater landscape; they might be even better positioned than Disney to do so. NBCUniversal is only the third-largest studio right now, but it has one key advantage: It is owned by the largest internet provider in the US, Comcast. With the future of net neutrality laws uncertain, Comcast may leverage its control of internet connections to undermine any other competition to boost its own offerings.
In doing so, Comcast would be following in the footsteps of AT&T. AT&T is the second largest mobile carrier, the third largest broadband provider, and is now merged with Time Warner, which includes Warner Bros, the second largest movie studio, as well as HBO, CNN, TBS, Cartoon Network, and TNT. AT&T entered the streaming market with DirecTV Now, and its subsidiary HBO has fully embraced streaming with its HBO Now and HBO Go services. Today, AT&T offers HBO and DirecTV Now packaged with a wireless plan that exempts their streaming services from certain data restrictions. In the future, the company could easily throttle competitors or block them from its network entirely.
What happens when Netflix, Disney, Amazon, Comcast, AT&T, or some other company eventually wins the streaming wars? In a post-theater and post-cable world, streaming will be the only place of exhibition for medium-to-high-budget work. All content creators will have to go through one of the new Big Five in order to fund their projects or turn a profit. The media world will have regressed to its pre-1948 status quo, with a few companies acting as gatekeepers.
When there is only one avenue for exhibition, it is too much power for any exhibitor to also create content. Streaming certainly has it upsides: We can enjoy hours of on-demand entertainment, wherever we want it, for a small monthly fee. But the quality and diversity of media we consume may suffer without competition among streaming services.
One of the first steps to combat this is to protect net neutrality, but there is already a wide coalition fighting that front. A similar coalition should push the Federal Communications Commission—the agency in charge of regulating the consolidation of broadcast media—to set guidelines for the ownership of media exhibitioners by media producers. Netflix should not be allowed to create original content exclusively for Netflix. Disney should not be able to start a streaming service if it means pulling its content from other streamers. AT&T and Comcast should be forced to divest from their media empires. These regulatory changes would require a far heavier hand than the government has been willing to play for decades, but they are essential to protect freedom of speech and competition within the media industry.