The
phenomenon of block booking of movies—the offer of only a combined assortment
of movies to an exhibitor—has been the subject of several antitrust cases. In
the most recent case, United States
Loew’s Inc.,1 Mr. Justice Goldberg,
speaking for the Court, again struck down the practice, stating flatly: “The
antitrust laws do not permit a compounding of the statutorily conferred
monopoly.”
· The explanation of the practice of
block booking is not explicit in the decision, but a fair interpretation is this:
The owner of two films uses the popularity of one to compel the exhibitor to
purchase the other as
·
well. This is not a full explanation, however, for it does not explain why the
seller should wish to sell the inferior film.
Consider
the following simple example. One film, Justice Goldberg cited Gone with the Wind, is worth $10,000 to
the buyer, while a second film, the Justice cited Getting Gertie’s Garter, is worthless to him. The seller could sell
the one for $10,000, and throw away the second, for no matter what its cost,
bygones are forever bygones. Instead the seller compels the buyer to take both.
But surely he can obtain no more than $10,000, since by hypothesis this is the
value of both films to the buyer. Why not, in short, use his monopoly power
directly on the desirable film? It seems no more sensible, on this logic, to
block hook the two films than it would be to compel the exhibitor to buy Gone with the Wind and seven Ouija
boards, again for $10,000.
The
explanation of the practice must lie elsewhere. The simplest plausible
explanation is that some buyers would prize one film much more relative to the
other. Consider the two buyers:
A would
pay $8,000 for film X and $2,500 for film Y.
B would
pay $7,000 for
film X and $3,000 for film Y.
166 THE ORGANIZATION OF INDUSTRY
If the seller were to price the two films separately, he would
receive:
1. $5,000 for the sale of Y,
at $2,500 per buyer. A higher price would exclude A and reduce receipts.
2. $14,000 for the sale of X, at $7,000 per buyer on the same logic.
The total received is $19,000. But with block booking, a single price
of $10,000 can be set for the pair of films, and $20,000 will be received.2
On this approach, block booking is a method of selling calculated to
extract larger sums than otherwise would be possible. The value of ten films
will he the same for two TV stations with comparable markets and advertising
rates, but the relative values of the individual films will vary from city to
city. These differences cannot be gauged so closely by the seller as by the
buyer, so a block price is used to capture a larger return.3
This is a logical explanation for block booking, but is it the correct
explanation? Several empirical tests may be specified:
1. From Variety, in olden days one could look up the receipts from
the exhibition of movies in various cities. If the relative appeal of movies in
different cities varied substantially, the theory is plausible; if the relative
appeal is much the same in most cities, the theory is false.
2. Again from trade
sources, one can determine whether the average receipts (per year) of a theater
were determined by attendance, income, etc. If there was a good relationship,
the block rate could be established with some precision and would not forfeit
large gains from discriminating among individual theaters.
3. From the record, one
can perhaps determine whether the sales prices of given blocks of films were
closely related to objective criteria of
stations’ ability to pay
(chiefly advertising rates). If so, again the possibility of personal
discrimination in price must be ruled out.
No systematic testing has been carried out, but a few suggestive,
and supporting, pieces in evidence are given in the Appendix.
Whether this simple hypothesis survives or not, clearly the Court’s
assertion that monopoly must not be compounded is futile. Let a man own two
patents on related products, say a gas turbine engine and a diesel engine, or
two copyrights, on Gone with the Wind and
Leaving with the Gale. They are
substitutes and in setting the price of one, he must take account of its effect
on the sales of the other: the monopolies will be mpounded.
The decision to outlaw block booking is not objectionable because t rests on an incomplete analysis. The
effect of the decision, if it is effective, is to reduce the receipts of the
owners of the films, and to increase the receipts of another set of
monopolists, the owners of TV licenses. If the TV licenses were sold by the
government, the redistribution would be beneficial; as it stands, no clear
judgment seems possible.
Appendix
Two separate studies shed some light on the plausibility of the hypothesis
that block booking is essentially a price discrimination technique.
1. The first week, first-run attendance receipts of a series of movies
in large American cities were tabulated. A period before the major onslaught
of television was chosen. The underlying data are reported in Table 15-Al.
For each city a receipts figure (say, re) was calculated
for each film on the assumption that this film had obtained the same share of
receipts in this city as it did in all cities combined. The expected receipts (re) are compared with actual
receipts (ra), by the
formula
taking absolute values since we are not interested in the sign of the
relative deviation.
The mean
absolute relative deviation, to give the average of this expression its
formidable title, is 14.4 percent for 12 pictures in 7 cities, and 14.9 percent
for 7 pictures in 13 cities. Thus if the seller (actually lessor) of a picture
to the theater in a particular city assumed that it
|
TABLE 15—A1*
RECEIPTS FROM FIRST-WEEK EXHIBITION OF MOVIES, 1946—47
(Thousands of Dollars)
|
|
City
|
Movie*
|
|
|
A
|
B
|
C
|
D
|
E
|
F
|
G
|
H
|
I
|
I
|
K
|
L
|
|
Washington, D.C.
Indianapolis
Los Angeles
Minneapolis
Montreal
Philadelphia
Pittsburgh
Buffalo
Cincinnati
Seattle
San Francisco
St. Louis
Omaha
|
31.0
27.0
62.5
38.0
17.0
52.0
40.0
31.0
36.0
27.3
45.0
24.0
23.0
|
28.0
22.0
65.7
22.0
22.5
47.5
27.0
28.0
30.5
16.0
23.0
30.0
9.3
|
33.0
19.0
111.0
21.0
16.0
50.0
26.1
24.0
29.5
26.0
46.0
21.0
18.0
|
25.0
21.0
75.6
23.0
16.0
53.5
28.0
29.5
18.0
16.0
37.5
32.0
15.3
|
24.0
17.0
80.0
15.0
14.5
31.5
24.0
24.0
16.0
16.8
24.5
24.0
12.2
|
26.0
14.0
66.0
11.0
13.0
37.0
20.0
16.0
13.0
13.2
30.0
19.0
8.5
|
29.0
20.0
23.0
27.0
18.0
53.0
32.5
27.0
26.0
27.0
45.0
24.0
17.2
|
20.0
13.0
74.9
15.0
14.2
32.0
13.0
....
.
... .
... .
|
25.0
12.0
65.2
14.0
14.0
33.0
19.5
....
... .
. .. .
|
26.0
13.0
67.0
20.0
15.0
32.0
24.0
. ...
. .. .
. ...
|
23.0
18.0
73.8
26.0
13.0
35.0
22.0
. ...
... .
...
|
29.0
15.0
62.0
17.0
14.5
45.0
22.0
.
|
|
* See opposite page for key to
movie titles.
Source: Variety, Nov. 6,
1946, through May 7, 1947.
|
170 THE ORGANIZATION OF INDUSTRY
would
have the same appeal (relative to other pictures) as in other cities, he would
on average be making a 14 percent over- or underestimate. This is indeed an
underestimate of the variation among cities, since our procedure excluded
pictures appearing in certain cities in double features or with stage shows.
A
related aspect of this difference among cities in tastes for particular shows
is the length of the first run (Table 15—A2). A summary number corresponding to
that used for Table 15—Al would indicate a larger relative difference among
cities, chiefly because the unit of time (a week) is rather lumpy.
2. The
aggregate value of all films to a television station is, on our hypothesis,
tolerably well explained by the power of the station, characteristics of the
population it serves, etc. If this be true, block booking does not forego
appreciable revenue relative to higgling over individual pictures.
An
interesting study by Professor Harvey Levin4 gives some support to this view.
He made a statistical analysis of the excess of the sales price of thirty-one
television stations over the replacement costs of their tangible assets in
1956-59, as a measure of their franchise values. The explanatory variables
were:
Retail
sales in the station’s market
Buying
income in the market
TV
homes per TV station
Network
hourly rate of the station
National
minute spot rate of the station
Age of
station
Network
affiliation
Percentage
of market population that is urbanized
He
obtained a coefficient of multiple correlation of .935.
4 “Economic
Effects of Broadcast Licensing,” Journal of Political Economy,
April 1964.
Most of the explanatory variables were not very helpful: buying income and
national minute spot rate explained most of the franchise values.
