Introduction
At the ninety-first Academy Awards in February 2019, streaming service Netflix earned its first Best Picture nomination for its film Roma.1 Though Roma ultimately failed to win, the fact that a streaming service was nominated for one of Hollywood’s biggest awards worried filmmakers who believed that films should only be viewed in a movie theater.2 As a result, the Academy of Motion Picture Arts and Sciences (the Academy), the organization that gives out the Academy Awards, or the “Oscars,” met in April 2019 to discuss potential changes to its eligibility rules to address this worry.3 Currently, films must be shown in a theater in Los Angeles County for one week to be eligible for an Academy Award.4 Proposed rule changes included lengthening this requirement from one week to as long as four weeks.5
While the Academy’s Board of Governors was considering potential changes to eligibility rules, the Department of Justice (DOJ) became aware of the issue.6 In response, the DOJ sent an advisory letter to the Academy outlining concerns that eligibility changes shutting out certain studios and streaming services may violate antitrust laws under the Sherman Act:
In the event that the Academy—an association that includes multiple competitors in its membership—establishes certain eligibility requirements for the Oscars that eliminate competition without procompetitive justification, such conduct may raise antitrust concerns. Section 1 of the Sherman Act, 15 U.S.C. § 1, prohibits anticompetitive agreements among competitors. Accordingly, agreements among competitors to exclude new competitors can violate the antitrust laws when their purpose or effect is to impede competition by goods or services that consumers purchase and enjoy but which threaten the profits of incumbent firms.7
The letter describes that a major point of contention is the fact that restricting studios from consideration for the Oscars could potentially result in fewer sales for those films. “If the Academy adopts a new rule to exclude certain types of films, such as films distributed via online streaming services, from eligibility for the Oscars, and that exclusion tends to diminish the excluded films’ sales, that rule could therefore violate Section 1 [of the Sherman Act].”8
With this warning, the DOJ appears to take the position that the Academy Awards play a unique role in the entertainment industry and can harm competition among film studios. Amidst fears of large technology firms such as Facebook, Google, and Amazon becoming too large and powerful, the DOJ seems to be taking the side of another corporate giant: Netflix.9 With continued mergers and acquisitions—including Disney’s $71.3 billion acquisition of Fox’s entertainment assets and the merger of CBS and Viacom—the entertainment industry will be controlled by fewer organizations going forward.10 The Oscars issue seems to be representative of this larger problem. Potential rule changes would not only affect Netflix, but would also impact smaller studios seeking award recognition.11 Amidst power grabs by some of America’s largest media organizations, it is imperative to recognize the impact eligibility rule changes for the Oscars may have on the wider landscape of competition within the entertainment industry.
This Note argues that the Academy would violate antitrust laws under the Sherman Act if it were to expand its exclusive theatrical window for films to be eligible for awards consideration. The Academy, an association representing all film professionals, would effectively be prioritizing studios with the financial ability to showcase their works in traditional theaters over those studios with the inability to do so.12 It would also be shutting out those studios whose business models do not depend on showing films exclusively in theaters.13 Not only will this change ultimately hurt such companies’ bottom lines and restrict competition, but it will also harm public trust and confidence in the Academy’s ability to name the best in film every year.
Part I of this Note documents Roma’s path to the Academy Awards,14 including Netflix’s history with prestige filmmaking15 and the Academy’s response to Netflix almost winning a Best Picture Oscar.16 Part I also documents the history of the Academy Awards,17 the current eligibility rules for films,18 and the evidence showing that the Oscars result in a tangible “box office bump” for nominated and winning films.19 Part II will provide a general background of antitrust law20 and then detail how the Academy Awards’ rule changes would constitute antitrust violations under the Sherman Act as a group boycott21 and an illegal price fixing scheme.22 Part III will discuss Netflix’s theatrical release strategy for the most recent Academy Awards ceremony,23 its response to potential rule changes,24 and the effect Roma potentially had on the Academy and the film industry.25
I. Background
A. Roma Falls Short at the Oscars
At the ninety-first Academy Awards in February 2019, history was set to be made. For more than nine decades, only nine non-English-language films had been nominated for what is considered Hollywood’s greatest honor—the Oscar for Best Picture—and none had won.26 Roma, however, was something different. Considered to be Academy Award-winning director Alfonso Cuarón’s magnum opus, Roma is a semi-autobiographical film entirely told in Spanish.27 It tells the story of an indigenous Mexican housekeeper and the family that employed her in 1970s Mexico City.28 Filmed in black and white by Cuarón himself,29 Roma entered the Oscars conversation after winning the Venice Film Festival’s Golden Lion Prize.30 Enrapturing critics31 and coming from one of Hollywood’s most endearing figures, Cuarón’s masterpiece had long been seen as the Best Picture frontrunner.32 The film ultimately secured ten nominations, tied for the highest number of nominations for a single film at the ceremony.33 Going into the final stretch of the Oscars telecast, it seemed inevitable that Roma would triumph at the end of the night.34 It had already won two awards for Cuarón—Best Director and Best Cinematography—and earned Mexico its first award for Best Foreign-Language Film.35
Even with its early momentum, Roma failed to triumph over Green Book, which was named the Best Picture of 2018.36 Entertainment journalists and industry personnel had many theories about why Green Book ultimately won out over Roma: an older audience’s resistance to a foreign-language film, Green Book’s easy-to-digest message about racism and inequality,37 a preferential ballot system that favors “typical” films,38 and a perception that Roma was simply boring.39 While all of these theories likely have merit, the fact that streaming service Netflix distributed Roma was surely one of the factors in the Academy’s ultimate decision.40 In an anonymous submission, one Academy member described Roma as an “expensive home movie,” and discussed how the experience of watching a film at home “greatly diminished” the experience.41
After that is Roma. It’s beautifully crafted and looks fantastic, but ultimately, I was wondering where the entertainment or even intellectual value is in this movie. To me, it’s a very slow and rather indulgent film—the most expensive home movie ever made. As far as the Netflix thing, what is our job as Academy members? We are trying to promote great films for audiences to see. When we gave our award to The Hurt Locker or Moonlight, we were getting people to go to theaters to see them; Roma is this brilliant work, visually speaking, on a big screen, but it becomes greatly diminished when you watch it on television, which is what 95 percent of the people that want to watch it have to do. I’ve spoken to several of my peers who watched it at home, and they were out after 20 minutes.
Id. While Netflix had become a household name for its commercial and award-winning television series, it was new to the film world.42 It was the nontraditional actor shaking up the movie business by making the types of movies other studios would not, like teen comedy-dramas and romantic comedies.43 Many in the industry felt that Netflix was incapable of making such high-brow fare as Roma.44 Even with Roma’s track record of critical acclaim, many thought the film should be considered a television movie because most people would be watching it at home.45
B. Netflix Enters the Prestige Filmmaking Business
1. Netflix’s First Foray into the Film Festival Scene
Before getting into the “prestige film” business, Netflix had a contentious relationship with power players in the film industry. Netflix’s first major foray into the film festival circuit was Bong Joon-ho’s Okja and Noah Baumbach’s The Meyerowitz Stories, which both premiered at the 2017 Cannes International Film Festival in France.46 Both films came from well-respected veteran directors.47 While both films opened to positive reviews, organizers and board members of the festival were immediately opposed to rewarding the streaming service because Netflix did not release the films in French theaters.48 According to the National Federation of French Cinemas, releasing Okja and The Meyerowitz Stories on streaming services before or at the same time as their theatrical distribution would “call into question their nature as a cinematographic work.”49
While festival organizers did not remove these two films from competition at the 2017 festival, the organizers almost immediately changed the rules to require theatrical releases in France for all films in competition at the 2018 festival.50 As a result, Netflix pulled its plans to premiere films at the 2018 festival, which would have included Roma.51 Instead, the film premiered at the Venice Film Festival, which imposed no such rule.52 Netflix’s Chief Content Officer, Ted Sarandos, said that the reason Netflix pulled the films from competition was France’s strict law for theatrical release windows.53 The law requires that films cannot be placed on online streaming services for the first three years after their theatrical release in France.54 The rivalry between Netflix and Cannes would begin to mirror Netflix’s uphill battle toward gaining respect within the American film industry.
2. Netflix Enters the Academy Awards Conversation
Netflix received its first major Oscar nominations in 2018 for Mudbound.55 As a result, highly-esteemed director and producer Steven Spielberg appeared prepared to go to war with Netflix’s film release and Oscar campaign strategy.56 Spielberg, who serves as a governor on the Academy’s Board of Governors, believes that movies that hit streaming services before an extended run in theaters are “a clear and present danger to filmgoers.”57 He went on to say: “Once you commit to a television format, you’re a TV movie. You certainly—if it’s a good show, deserve an Emmy. But not an Oscar.”58 Spielberg made these remarks long before Roma hit the festival circuit and ultimately overtook the Oscars conversation.59 Ultimately, however, the Academy fully embraced Roma as a cinematic achievement, giving it ten nominations across a wide swath of categories.60
C. Steven Spielberg and the Academy Respond to Roma’s Almost-Win
Though Roma ultimately came up short in the Best Picture race, Spielberg wanted to make sure that Netflix, other streaming services, and all production companies complied with what Spielberg and other traditional film proponents saw as a pure theatrical experience.61 As a governor on the Academy’s chief rule-making body, the Board of Governors, Spielberg holds considerable clout to affect changes in Academy initiatives and the Oscars.62 In March 2019, Spielberg was prepared to discuss with the Board of Governors what role streaming services should play in the awards conversation.63 Spielberg did not attend the March meeting, however, as he was tied up with production of his 2020 release, a remake of West Side Story.64 As a result, and without much fanfare, the Board of Governors took no affirmative action to change the eligibility rules, maintaining the current rules for the 2020 Academy Awards.65 While the particular rules that Spielberg would have proposed were kept under wraps, they would have potentially required films to be shown exclusively in theaters for a longer period of time before hitting streaming; restricted the amount of money any studio could spend on an Oscars campaign; and/or required production companies to report box office numbers.66
D. History of the Academy and the Academy Awards
The Academy of Motion Picture Arts and Sciences was founded in 1927 by Louis B. Mayer of MGM and other studio executives.67 Initially, its main purpose was to prevent filmmakers from unionizing so that studios could retain nearly all of the profits from distributing their films.68 The Academy’s initial goal, however, became moot as Hollywood employees, including writers, actors, and directors, unionized to protect their interests.69 Today, the Academy is most well-known for its annual award ceremony, colloquially known as the Oscars. In the Academy’s first ceremony in 1928, the organization gave out “awards of merit” in twelve categories.70 Throughout the Academy’s nearly 100-year history, it has expanded its mission to include documenting film history, archiving and preserving films, and educating up-and-coming filmmakers.71 Because of its expansive programming, the Academy plays an important role in the film industry as a bellwether of film excellence and a promoter of the filmmaking medium as an artform.72
The Academy consists of approximately 9,000 individual members from a wide array of filmmaking disciplines.73 Academy members must be professionals working in the production of theatrically released motion pictures and be sponsored by two current Academy members in the branch in which they are seeking membership.74 These members ultimately make up the body that selects the nominees and the eventual winners at the Academy Awards.75
E. The Oscars and Theatrical Exclusivity
The Academy currently gives out twenty-three Oscars at its annual ceremony.76 To be eligible for an Academy Award, a film must satisfy six requirements, including: (1) being more than forty minutes long; (2) being publicly exhibited within certain technical parameters; (3) being shown for “paid admission in a commercial motion picture theater in Los Angeles County;” (4) meeting a theatrical qualifying run of at least seven consecutive days during which screenings must occur at least three times daily, with at least one screening beginning between 6 p.m. and 10 p.m. daily; (5) being advertised and exploited during its Los Angeles County theatrical qualifying run in a “manner normal and customary to theatrical feature distribution practices;” and (6) being released between January 1 and December 31 of the eligibility year.77
Additionally, the Academy’s rules specifically state that films that receive their first public exhibition in a manner other than a theatrical release will not be eligible for an award.78 Such manners of distribution include television, video-on-demand, DVDs, and internet transmission.79 However, the Academy has built in a caveat for films released in theaters and available at home on the same day.80 Films released through nontheatrical means “on or after the first day of their Los Angeles County theatrical qualifying run remain eligible.”81 Therefore, Netflix can qualify its films for Academy Awards if it exhibits in a single theater in Los Angeles County for seven consecutive days before or on the same day the film begins streaming on its service.
This exception built into the Academy’s rules is one of the many sticking points that “theater purists” feel allows Netflix to devalue the filmgoing experience. Allies of Steven Spielberg appear to have provided two main ways to address the problem.82 First, the Academy could get rid of the rule allowing streaming services to release a film on its service the same day it begins its seven-day theatrical run.83 Second, and likely more controversial, is expanding the theatrical window from one week to as long as four weeks.84
To evaluate the consequences of such a rule change, it is important to first understand the traditional model of theatrical exhibition. When a film is completed and ready to be distributed for viewing in theaters, the studio’s distribution arm, or a distinct distribution entity, will work with movie theater chains on a distribution agreement.85 Traditionally, the theater will pay a fee to the studio to show the studio’s films.86 The agreement will stipulate the division of proceeds from ticket sales between the studio and the theater chain.87 Generally, the movie studio will receive the majority of the box office proceeds while the theater will retain only a minority of the proceeds.88 To capitalize on profits available from showing movies in theaters, major exhibitors typically require a seventy-two-day period of exclusivity before distributing in other forms, such as Blu-ray or streaming.89
When Netflix distributes its films in theaters, however, it does not follow the traditional revenue-splitting agreements that traditional studios do.90 Netflix uses the unique method of “four-walling” screens, which involves renting the screen at a flat fee and taking all the revenue raised from ticket purchases.91 With four-walling, Netflix is not obligated to report box office revenue, unlike those studios which release their films through traditional means.92 Many industry professionals and theater owners take issue with this four-walling practice, with only small independent chains such as Landmark Theaters and iPic allowing Netflix to exhibit its films.93
Netflix has the size, money, and bargaining power to be able to release its films through such a nontraditional method.94 Nearly all other studios, however, choose or have no other option but to show their films through the traditional exclusive window and revenue-splitting method. The Academy’s proposal to expand the theatrical exhibition period required for awards consideration would require Netflix to spend more money to exhibit its films for a longer amount of time.95 On the other hand, however, smaller independent studios would likely have a hard time complying with such a rule. Theaters would be unwilling to pay for the opportunity to screen those films that do not attract a large enough audience.
F. The “Oscar Bump” at the Box Office
The 2019 domestic box office raked in approximately $11.4 billion.96 While that number may seem large, it is a four percent drop from 2018’s $11.88 billion.97 Additionally, a few studios dominated the box office, including Disney, which accounted for thirty-three percent of all ticket sales.98 Amidst a box office which brought all-time records for films such as Avengers: Endgame, The Lion King, and Spider-Man: Far From Home, independent film studios struggled to bring in revenue.99 Critical indie darlings such as Booksmart, Late Night, and Blinded by the Light failed to meet box office expectations, and only a few independent films made a significant profit.100 This trend is not new, but independent movies have traditionally filled a niche for those audiences seeking original, drama-driven works.101 Additionally, one thing that independent distributors could practically guarantee was that, with the proper amount of attention and critical acclaim, they could campaign for Oscars. Being nominated for or winning Oscars would translate into higher revenues from streaming or home release.102 Therefore, while Netflix would be the target of an Academy rule change, independent studios would likely feel the brunt of a rule change’s effects.103
There is evidence to suggest that an Oscar nomination or a subsequent win provides an “Oscar bump” to box office numbers for those nominated films. Among the eight films nominated for Best Picture at the ninety-first Academy Awards in 2019, six experienced a box office bump.104 While some were fairly small, Green Book, the eventual Best Picture winner, made an additional $24.5 million after winning.105 This number is quite large considering the film had been in theaters for nearly two months prior to the Oscar nomination announcement.106 The Shape of Water, the 2018 Best Picture winner, earned an additional $33 million after its initial nomination.107 Other examples of large box office bumps after Best Picture wins include $34.5 million for Million Dollar Baby in 2005, $43 million for Slumdog Millionaire in 2009, $24.6 million for The King’s Speech in 2011, and $12.9 million for The Artist in 2012.108 An even more stark example is the 2017 winner, Moonlight.109 In the time between being nominated and the Oscars ceremony, Moonlight gained an additional $3.2 million, and the film ultimately earned another $2.5 million after winning Best Picture.110 The post-nomination bump represents nearly 400 percent of the initial production budget of $1.5 million.111 These numbers illustrate that the Oscars can play an important role in boosting profitability for small independent movies.
Though the evidence is clear that independent studios and other traditionally released films benefit from Oscar nominations, Netflix films do not receive such box office bumps. The DOJ stresses that Academy rule changes may be antitrust violations if they “tend[] to diminish the excluded films’ sales.”112 If Netflix’s main business model does not depend on releasing films in theaters, how could an Academy rule change result in a reduction in the films’ “sales”? First of all, Netflix has a “conquer everything” strategy, which it finds necessary to eventually become the dominant force in Hollywood.113 To actually “conquer everything,” Netflix needs to obtain Hollywood’s highest honor, the Best Picture Oscar.114 Netflix needs a wide variety of content on its service to steadily increase its subscriber base.115 Presumably, Netflix can attract more subscribers by diversifying its arthouse, prestige films available for viewing, and the Oscars serve as the bellwether for these types of films every year. Because of the prestige the Oscars offer, while Netflix would not lose “sales” in the traditional box office, it could lose subscribers if it is unable to compete for Oscars and attract consumers who care about these awards.
Additionally, there are other potential harms, apart from a loss of subscriptions, that could result from not receiving awards recognition. First, because these films would not receive the historical marker that an Oscar can provide, Netflix would be unable to capitalize on its Oscar-level fare. For example, there would be limited marketing and merchandising opportunities to sell toys, develop sequels, or release Oscar-branded home content.116 Second, Netflix would also be less inclined to re-release its movies in theaters for historic milestones. The Wizard of Oz and Titanic, both Oscar-winning films, are frequently re-released to mark important anniversaries, and Netflix would essentially be barred from this practice.117
II. Analysis
A. Background of Antitrust Law
The Sherman Act prohibits agreements in restraint of trade, and the plain language of the statute does not treat different business entities differently.118 The Supreme Court has further elaborated by saying that only those agreements with “unreasonable” restraints of trade are illegal, so courts will analyze restraints under the “rule of reason.”119 Additionally, some forms of restraints are considered per se unreasonable because the Court can “predict with confidence that the rule of reason will condemn [them].”120 Examples of such per se unreasonable restraints in violation of the Sherman Act include group boycotts and some price-fixing schemes.121
This Note will examine whether the potential expansion of the theatrical window for consideration at the Academy Awards would constitute an “unreasonable” restraint of trade. The case law establishes two main arguments that the expansion of the theatrical window is an unreasonable restraint of trade. First, the rule changes should be considered a group boycott—also known as a “concerted refusal to deal”—in reference to Netflix and other streaming services, which would be per se illegal under the Sherman Act.122 Second, the rule changes may constitute per se illegal price fixing, as they would result in higher barriers to entry for all studios seeking to access the awards market, including small independent studios.123
B. The Academy’s Changes Effectuate a Group Boycott
The DOJ letter sent to the Academy stated that “agreements among competitors to exclude new competitors can violate the antitrust laws when their purpose or effect is to impede competition by goods or services that consumers purchase and enjoy but which threaten the profits of incumbent firms.”124 The DOJ cited the case of Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co. to support its claim.125
In Northwest Wholesale, the Supreme Court held that the expulsion of an office supply retailer from a cooperative buying agency could potentially constitute a violation of antitrust laws as an example of a group boycott—also known as a concerted refusal to deal.126 In the case, the membership of the Northwest Wholesale cooperative voted to expel Pacific Stationery from its membership without any explanation and without giving Pacific any notice or providing the opportunity for a hearing.127 Pacific subsequently brought suit for violation of section 1 of the Sherman Act.128
The Court first determined what types of activities would constitute a group boycott.129 The most common example of a group boycott is when firms jointly “disadvantage competitors by ‘either directly denying or persuading or coercing suppliers or customers to deny relationships the competitors need in the competitive struggle.’”130 In general, a group boycott which “cut[s] off access to a supply, facility, or market necessary to enable the boycotted firm to compete” will be held to be a per se antitrust violation, and, frequently, the boycotting firms possess a dominant position in the relevant market.131 Additionally, certain group boycotts are “so likely to restrict competition without any offsetting efficiency gains that they should be condemned as [a] per se violation[]” of the Sherman Act.132 Ultimately, however, group boycotts need not involve the denial of supplies, a dominant market leader, or the decision to cut off the firm from a necessary market.133 To merit per se treatment of a restraint of trade, the challenged action only needs to present “the likelihood of predominantly anticompetitive consequences.”134
In deciding the case, the Court rejected the plaintiff’s argument that the lack of procedural protections afforded in the expulsion proceedings was a basis for finding an antitrust violation.135 The Court determined that the expulsion of Pacific from the cooperative’s membership did not merit per se invalidation under the Sherman Act because it did not “imply anticompetitive animus.”136 The expulsion of a member from the cooperative would only constitute a per se illegal group boycott if the cooperative “possesse[d] market power or exclusive access to an element essential to effective competition.”137 Since the per se analysis was inappropriate, the case was remanded to the lower court to assess the potential for anticompetitive effects.138
In Fashion Originators’ Guild of America, Inc. v. FTC, the Supreme Court found that an action was a per se illegal group boycott under the Sherman Act.139 Important fashion houses in New York founded the Fashion Originators’ Guild of America (Guild) in 1932 with the stated goal to protect “originators of fashions and styles against copying and piracy.”140 The Guild attempted to protect original fashion designs in the absence of copyright laws by devising a scheme among its members.141 The Guild members agreed to boycott certain manufacturers who sold garments copied from non-Guild manufacturers.142 The agreement also prohibited member organizations from participating in retail advertising, regulated discounts that retailers could provide, and determined when sales could be held.143 Nearly 12,000 retailers throughout the country agreed to cooperate with the Guild’s boycott program.144 Approximately half of these retailers, however, agreed only because Guild members threatened not to sell to them.145
The Federal Trade Commission asserted that the Guild’s agreement “substantially lessened, hindered and suppressed” competition and effectively created a monopoly.146 The U.S. Supreme Court agreed. The Court held that such an agreement among competitors ran contrary to the policy established by the Sherman Act to prevent the formation of a monopoly.147 The agreement, while not necessarily creating an actual monopoly, sufficiently “deprive[d] the public of the advantages which flow from free competition.”148 The Fashion Originators’ case is often taught in fashion law courses to illustrate that attempts to protect fashion designs outside established intellectual property laws will likely fail in the United States.149 It also stands for the proposition, however, that a self-regulatory scheme among competitors to shut out others will likely fail on antitrust grounds.150
These cases support a finding that an agreement among Academy members to shut out Netflix and other streaming services would unduly burden competition and should be considered a group boycott, a per se violation of section 1 of the Sherman Act. Unlike the cooperative in Northwest Wholesale, which was not found to have exclusive control of the office supply market, the Academy controls the exclusive access to the market for an Academy Award, and the Academy possesses market power.151 Members of the Academy, including Steven Spielberg, have expressed their animus to Netflix being a peer in the awards community.152 By cutting off companies from award recognition, the Academy would be “cut[ting] off access to a . . . market necessary” for firms to compete.153 Additionally, because the Academy has nearly all the market power in the award-giving space, it will have a strong impact on those studios seeking award recognition. The market power which the Academy possesses is the ability to exercise control over the means by which films become eligible for awards consideration. These means effectively correlate with the “price” the Academy charges for eligibility, or the cost of putting films in theaters for a specified period of time. Because studios would be cut off from the awards market and because the Academy has market power, the Academy’s eligibility rule changes would constitute a group boycott specifically targeted at Netflix and would thus be per se illegal under the Sherman Act.
Additionally, the Academy’s rule changes shutting out Netflix are effectively the same as the Fashion Originators’ Guild’s attempts to control its members, which was found to be a per se illegal group boycott under the Sherman Act. First, the Fashion Originators’ Guild and the Academy are starkly similar organizations. In the same way the Guild sought to include only the most high-value fashion houses, the Academy seeks to only include those film professionals who have risen to a certain level of fame and success within the industry.154 Both organizations exert an air of exclusivity in their membership selection processes. Though the Academy is made of individuals and not distinct business entities like the Guild, the Academy as an entity exerts enough influence within the entertainment industry to be able to coerce members like the Guild did.
Second, both the Guild’s boycott program and the Academy’s potential eligibility changes effectively force industry members to conform to industry norms. For fashion, the norm was to refrain from copying other companies’ designs.155 For film, the norm is to exhibit films in a traditional movie theater for a certain standard amount of time before allowing viewers to experience the film at home.156 The effect of not conforming with such rules is different for these two organizations, however. For the fashion retailers, not following rules set by the Guild cuts off a major source of inventory to be sold to customers.157 On the other hand, film studios would be free to disregard the eligibility requirements for the Academy Awards and would still be able to sell and market their products to consumers. Only one particularly strong marketing channel—the ability to market their movies as “award-winners” or “award nominees”—would be restricted. This advertising mechanism can be essential, however, for non-blockbuster films.158
The Academy may argue that the scheme employed by the Fashion Originators’ Guild is different from changing eligibility rules because the Academy would not be cutting off a market necessary to compete in the overall film industry. The Academy could argue that success in the film industry does not depend on awards recognition. Plenty of examples exist, including Disney’s films in the Marvel Cinematic Universe.159 Regardless of whether awards recognition is necessary to compete in the industry, however, Netflix could show the rule changes would have strong anticompetitive effects. Netflix would be unable to capitalize on wins to draw viewers to its services or films. Ultimately, it would potentially “lose sales” in its inability to grow its subscriber base from competing for Oscars.160 Netflix would be treated differently than studios that follow traditional theatrical exhibitions. It would also not be able to brand its content as “award-winning” or capitalize on historic milestones going forward like traditional studios.161
C. The Academy’s Rule Changes Result in Illegal Price Fixing
Price fixing involves competitors agreeing to “raise, fix, or otherwise maintain the price at which their goods or services are sold.”162 Price fixing, however, does not require that competitors literally “fix” the price.163 Multiple competitors may literally “price fix”—establish a single price for a category of goods or services—and still comply with the requirements of the Sherman Act.164 The price-fixing scheme must still be one that is “plainly anticompetitive” and without “redeeming virtue.”165 Additionally, organizations may still be price fixing when they restrict the output of a certain good or service, having the ultimate effect of altering prices in the marketplace.166
In Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., the Supreme Court refused to apply a per se rule on violation of the Sherman Act for the issuance of blanket licenses for musical works.167 The television network CBS sued two performing rights organizations, which operate as clearinghouses for the issuance of public performance licenses for musical works.168 These performing rights organizations are nonprofit corporations composed of members of the broadcast industry, representing the vast majority of the authors and composers of musical works.169 To publicly perform works held by performing rights organizations, television networks and other distributors obtain a blanket license, which gives the licensees the right to perform any and all of the compositions owned by the organization as often as the licensee wants for a specified term.170 CBS alleged that such blanket licenses are examples of price fixing and are thus per se illegal under the Sherman Act.171 CBS’s argument alleged that the performing rights organizations had negotiated among themselves for a single rate at which the blanket licenses would be issued, and, therefore, CBS had no power to bargain for a different price.172
The Supreme Court ultimately refused to determine that these blanket licenses were a form of illegal price fixing under section 1 of the Sherman Act because there were many procompetitive reasons for the existence of the blanket license.173 With the unwieldy copyright laws related to musical compositions and sound recordings, organizations wishing to perform certain works would lack the ability to effectively negotiate prices for individual works with individual music publishers and record labels.174 Therefore, the blanket license provides a better opportunity for organizations with little bargaining power to gain affordable access to musical works.175 Even for large businesses like CBS, having a blanket license provides a simpler and more cost-efficient method for securing the performance rights for compositions than individually negotiating for the rights to each work.176
But even for television network licenses, ASCAP reduces costs absolutely by creating a blanket license that is sold only a few, instead of thousands, of times, and that obviates the need for closely monitoring the networks to see that they do not use more than they pay for. ASCAP also provides the necessary resources for blanket sales and enforcement, resources unavailable to the vast majority of composers and publishing houses. Moreover, a bulk license of some type is a necessary consequence of the integration necessary to achieve these efficiencies, and a necessary consequence of an aggregate license is that its price must be established.
Id. at 21.
This case illustrates how courts will analyze claims of per se violation of the Sherman Act.177 To determine if an action is anticompetitive, it must be shown that the “practice facially appears to be one that would always or almost always tend to restrict competition and decrease output.”178 Otherwise, the action may be one “designed to ‘increase economic efficiency and render markets more, rather than less, competitive.’”179 The blanket license scheme is a clear example of something that makes the market for performing rights more efficient and competitive.180
Contrary to the blanket licensing case, the Supreme Court held that the National Collegiate Athletic Association’s (NCAA) scheme to restrict the output of football games available in the broadcast market constituted horizontal price fixing.181 The NCAA creates and promulgates rules for twenty-four different sports, determines academic eligibility for student-athletes, and regulates the sizes of teams and coaching staffs.182 In the 1980s, the NCAA was struggling to fill college football stadiums because of the ease with which fans could watch games at home on their televisions.183 As a result, the NCAA developed a plan to encourage physical attendance by manipulating the number of games that could be aired on television.184 Under the plan, NCAA member schools were allowed to contract directly with television networks for the right to televise their games.185 No NCAA member institution, however, was allowed to appear on television more than six times overall and four times nationally.186 Additionally, the institutions were required to split their appearances between the NCAA’s two carrying network partners, ABC and CBS.187 By limiting the number of times each team could appear on television, people would presumably be more motivated to attend live games to support their favorite teams.188
The television plan sparked controversy because major football programs wanted more influence in determining football television policy than they had as members of the NCAA.189 Five major conferences and major football-playing independent institutions organized the College Football Association prior to the development of the television plan at issue.190 This organization, designed to promote major football-playing schools within the NCAA structure, obtained an independent contract to air its teams’ games on a competing network, NBC.191 As a result, the NCAA threatened disciplinary action against those institutions that complied with the NBC contract.192 Subsequently, the institutions sued the NCAA for antitrust violations under the Sherman Act.193
The District Court held in favor of the plaintiffs, and the Court of Appeals affirmed, finding the scheme to be a per se violation of antitrust law.194 The Supreme Court affirmed, holding that the NCAA’s practices in its television plan were unreasonable restraints on trade.195 However, the Supreme Court refused to apply a per se analysis because some horizontal restraints on competition are necessary to develop a market for collegiate football games.196 Even so, the NCAA created an unreasonable horizontal restraint that was plainly anticompetitive.197 The Court reasoned that the television plan placed an “artificial limit on the quantity of televised football games . . . available to broadcasters and consumers.”198 Therefore, by limiting the output available in the marketplace, the NCAA was effectively price fixing.199 Additionally, the television plan eliminated a significant number of competitors from the broadcast market because only those broadcasters able to bid on television rights for the entire NCAA could compete.200
The NCAA argued, however, that its television plan could not have significant anticompetitive effects because the record failed to show the plan had market power.201 The NCAA believed that its plan lacked the ability to affect supply and demand for televised football games in the market.202 The Court rejected this argument on both legal and factual grounds.203 Legally, proving that an action is anticompetitive does not require showing market power when there is a naked restriction on price or output.204 Factually, the Court found the NCAA clearly possessed market power in the market at issue—football broadcasts.205 The Court reasoned that the availability of other sports to be televised was not sufficient to refute an antitrust violation because the product—football games in particular—is unique.206 As a result, college football broadcasts can be defined as a separate market from other sports broadcasts.207
The Academy’s proposed eligibility rule changes more closely align with the NCAA’s restriction of football broadcasts than with the performing rights organizations’ issuance of blanket licenses. The blanket license scheme is different from the Academy’s potential theatrical exhibition rule change. A blanket license provides two major benefits: (1) opening up access to copyrighted musical works to organizations with little bargaining power, and (2) providing a cost-saving mechanism for purchasing the right to perform the musical compositions.208 These benefits motivated the Court to find that the blanket license could actually be procompetitive.209
In contrast to the issuance of blanket licenses, extending the required theatrical exhibition window for awards consideration would not provide the same benefits. While a blanket license is beneficial for smaller users of the musical compositions,210 the extension of a theatrical window would restrict small independent studios from bargaining with theaters.211 Because larger studios would contract with theaters to showcase their films for longer periods of time to be eligible, less opportunity will exist for smaller independent fare to compete in the theatrical marketplace. In fact, such a rule would counteract the Academy’s reported purpose for its rule changes to encourage exhibition in movie theaters.212 Also, while the blanket license provides for lower costs for those seeking to perform musical compositions, a longer theatrical window would increase costs for studios showing in movie theaters.213 Therefore, a court is unlikely to find that the Academy’s potential rule change is procompetitive, and, thus, should be considered a per se unreasonable restraint of trade.
Alternatively, the Academy could argue that horizontal restraints are necessary for the existence of an awards-giving community in order to define what works could be considered “film,” much like such restraints are necessary for the existence of a college football broadcast market.214 If the Academy is successful in proving this argument, a court may be prone to not find the eligibility rule changes to be a per se violation of the Sherman Act. Even so, a court will likely find that the rules are so anti-competitive as to constitute an antitrust violation, especially regarding small independent studios with little bargaining power.
The Academy could also argue that it is inappropriate to define its awards ceremony as a single market capable of being anticompetitive. The NCAA case supports a finding, however, that the practice of awarding films can be considered a single market for an antitrust analysis. The Court was “convinced” that football broadcasts should be defined as a single market, and, therefore, it is reasonable to find that courts should treat the Academy Awards as a single market because there are no sufficient substitutes.215 While other award bodies exist, none of them match the size and prestige of the Academy.216 While other awards are important, the Oscar stands out as the most prestigious award that a film professional can win.217 Earning an Oscar implies that the recipient is someone at the top of their craft being honored by their fellow filmmakers. Even though Steven Spielberg seems to imply that Emmys for television are just as prestigious as the Oscars for film, the Oscars occupy a much more important space in the entertainment world.218 Therefore, because no other entertainment or film award is as important as the Academy Award, for the purposes of an antitrust analysis, giving out and broadcasting the Academy Awards should be treated as a single market. Even so, the Academy could argue that it has no market power in the industry, but market power is not a prerequisite to finding an antitrust violation.219 However, even if market power were required to find an antitrust violation, the Academy does possess market power in the awards-giving community.220
While increasing the necessary theatrical window for competing for an Academy Award is not directly restricting output like the NCAA’s television plan, the eligibility rule changes may have the unintended consequence of altering the available number of theater screens available in the marketplace. If a successful streaming service like Netflix or Amazon is required to book a screen for up to four weeks in a movie theater, that would shut out other production companies and smaller independent studios from being able to bargain with movie theater chains for screening space.221 Even without competition from these large studios, small indies would have a hard time putting their movies in a theater for an extended time.222 Alternatively, changing such a rule would place studios in a position of losing money by exhibiting a film for an amount of time that does not meet public demand. Therefore, the restriction on output of theater exhibitions available to studios as a whole is much like restricting the number of television broadcasts available for football games. Such a restraint of trade will likely be found to be unreasonable.
III. Recent Developments
Aside from playing at film festivals, Roma was only in theaters for approximately three weeks prior to its home release on the streaming website.223 Other more unlikely Oscar hopefuls in 2018, including The Ballad of Buster Scruggs and Bird Box, only received a one-week exclusive theatrical run.224 While Roma’s limited theatrical release was not a barrier to it receiving a significant number of nominations, the release strategy may have ultimately prevented the film from winning the biggest prize of the night. As a result, Netflix expanded its theatrical release strategy for its Oscar hopefuls for the ninety-second Academy Awards in 2020.225 Initially, Netflix attempted to contract with large cinema chains like AMC and Cineplex.226 Talks fizzled, however, after Netflix refused to honor an exclusivity window of sixty days in theaters, which is lower than the typical seventy-two days.227 Netflix refused to go above forty-five days.228 As a result, Netflix had to slightly alter its strategy by showing in smaller independent theaters.229
Martin Scorsese’s The Irishman, a three-and-a-half-hour-long gangster epic, starring Robert De Niro, Al Pacino, and Joe Pesci, received almost four weeks in theaters.230 Marriage Story, from previous Netflix collaborator Noah Baumbach, showed for a full month.231 Additionally, movies such as Dolemite Is My Name and The King, received more than three weeks, even though neither were expected to break through in major categories.232 The two main players for awards, The Irishman and Marriage Story, played on an estimated 2,000 and 1,000 screens, respectively.233 The Irishman even received a splashy four-week release at Broadway’s Belasco Theater in New York, with Netflix footing the bill to provide the appropriate equipment to screen the film.234
Aside from increasing its theatrical footprint for its Oscar fare, Netflix has gotten into the business of purchasing movie theaters to screen its own films.235 Netflix is currently finalizing a multimillion-dollar deal to purchase Hollywood’s historic Egyptian Theater from current owner American Cinematheque.236 The streaming service also saved New York City’s last single-screen venue, the Paris Theatre, from closing down by leasing the property for at least ten years.237 Netflix primarily used the Paris Theater to show Marriage Story as part of its awards campaign.238 While these purchases allow Netflix to increase the number of its revenue streams, Netflix seems to be preparing to shield itself from a potential Academy rule change.
Netflix’s awards strategy seems to have worked. For the 2020 Academy Awards, Netflix was the studio with the highest number of nominations at twenty-four, a first for a streaming service.239 Both The Irishman and Marriage Story received Best Picture nominations while The Two Popes also received major nominations.240 While Joker led the nominations with eleven, The Irishman was close behind with ten (in a three-way tie with 1917 and Once Upon a Time in Hollywood).241
Though leading all studios with the most nominations at the ninety-second Academy Awards, Netflix walked away from the night with only two wins.242 Netflix had a tough time besting two cinematic juggernauts in Best Picture frontrunners Parasite and 1917.243 Parasite, a South Korean film directed by previous Netflix collaborator Bong Joon-ho, became the first non-English film to win Best Picture.244 This achievement followed just one year after Roma’s loss.245
The COVID-19 pandemic has drastically altered the landscape for the 2021 awards season and the ninety-third Academy Awards.246 For the first time ever, films that premiere on streaming services or video on-demand will be eligible for the Oscars.247 Studios, however, must prove that they were planning to release these films in theaters.248 Though this new rule may signify a major development for Netflix’s Oscar chances,249 the Academy has made it clear that this rule is only temporary until movie theaters are able to reopen.250 In a press release describing the rule change, the Academy professed that “[its] commitment to [the theatrical experience] is unchanged and unwavering.”251 Such a strong sentiment further proves a strong animus toward Netflix and other streaming services. Therefore, even though Netflix may temporarily benefit from a rule change for the 2021 ceremony, the fight between Netflix and the Academy is still far from over, and potential antitrust violations should continue to worry the Academy.
Conclusion
Netflix has considerably increased its ability to create a number of Oscar-quality films. Though Netflix has acquired the ability to shield itself from being shut out of the Oscars race through its purchase of movie theaters, smaller independent studios and low-budget films do not possess the same power as the streaming giant and would feel the brunt of an eligibility rule change. A potential Academy rule change would effectively be a group boycott and an illegal price-fixing scheme.252 Expanding the theatrical window would cut off not only Netflix and other streamers, but also these smaller studios, from accessing the awards-giving market.
The Academy’s mission is to “recognize and uphold excellence in the motion picture arts and sciences, inspire imagination, and connect the world through the medium of motion pictures.”253 The way consumers interact with film, the way production companies make film, and the way the world sees film will inevitably be different going forward. By shutting out Netflix and other studios, the Academy would be failing to recognize the benefits of these changes. Since its inception, the Academy has honored risk takers and new players in the film industry, whether it was Moonlight, Parasite, or Walt Disney—the most honored filmmaker in the history of the Academy Awards with twenty-six competitive awards.254 The Academy should heed Disney’s advice: “In this volatile business of ours, we can ill afford to rest on our laurels, even to pause in retrospect. Times and conditions change so rapidly that we must keep our aim constantly focused on the future.”255 Failing to allow Netflix, streaming services, and all studios of all sizes to compete in a fair marketplace for awards recognition would mean the Academy would not be focusing on the future, but rather on the past. That failure would not only pose antitrust concerns, but it would diminish the public’s respect for the Academy as the bellwether of the best in film.