Mr. WOLVERTON. Or that it would make those objectionable features any less objectionable? Mr. PETTIJOHN. Not at all. Mr. WOLVERTON. I have been trying to ascertain why you had offered that contract in evidence. Mr. PETTIJOHN. Well, I was asked the question, and in developing the answer, whether all company members seemed to be putting out that type of contract, I offered that to show that even the proponents of this bill had put out a contract that was more onerous, contained provisions that were not even contained in our contracts, that their contract had a block-booking provision covering a period of 5 years. Mr. WOLVERTON. If it was wrong then it would be wrong now; if they were doing it then and it was wrong, it would still be wrong, if they did it now, would it not? Mr. PETTIJOHN. Yes, but we did not do it then. Mr. WOLVERTON. I am sorry that I still do not see why it was offered. Mr. PETTIJOHN. Well, I offered it for what it was worth. Mr. WOLVERTON. But that contract was in 1929, and you are here before the committee in 1940 and using that contract as the basis of testimony apparently to justify the contents of the present contract. May I call to your attention the case of the Interstate Circuit Co. of Texas, Consolidated. It is a suit which went to the Supreme Court and in which a decision was rendered by Justice Stone on February 13, 1939. The Court made reference to the tendency to eliminate competition, and made this statement: We think that the conclusion is unavoidably compelled of the existence of a contract between the Interstate and distributors by which connections were affected in violation of the Sherman Act. That decision enjoins the enforcement or renewal of these agreements as well as the enforcement of the agreement with the distributors. Do you have any knowledge of the situation sufficiently to inform us whether or not the decision of the Supreme Court was adhered to, that is, whether the contracts were changed as a result of that Supreme Court decision? Mr. PETTIJOHN. I think there were several agreements, and the Teras case involved a matter of price-fixing apparently. Mr. WOLVERTON. Mostly so. Mr. PETTIJOHN. Yes. Mr. WOLVERTON. How many of those cases in all are these? Mr. WOLVERTON. I am seeking to ascertain whether the opinion. of the Supreme Court has been reflected by a different form of contract. Mr. PETTIJOHN. In that case the Court was dealing with contracts of all distributors. There have been quite a few suits filed, and those suits are exhibitors against exhibitors, and there was in this case. They always make all the distributing companies, with whom the defendant exhibitor does business, parties to the complaint. And in those cases filed, about half of them are against affiliated theaters, and about half against the independents, but always the distributors are made parties defendant. And, evidently the Court found in that particular case there was justification for making that finding of fact. Mr. WOLVERTON. Do the contracts now in existence, at the present time contain a price-fixing clause? Mr. PETTIJOHN. I do not think so, except that I think some of them contain a clause against exhibiting a picture for less than a certain amount, and I do not think Mr. WOLVERTON. That is what I have in mind. Mr. PETTIJOHN. I mean this: That applies between all exhibitors; that is almost universal. And the reason for that is obvious. For instance, I may have a theater in a town, and 3 miles away, with a good road and good automobile service, there is another theater. Now, this theater plays the picture first, and I may have a theater in my town and charge X amount for that picture. Or they may have the privilege of showing it on the same day and date, and unless there is some provision that they would have to play on the same date at the same price, since they are in a neighboring location where the same patrons would patronize both theaters, if one plays it at a less price you can easily see what the result would be. So the fellow who is behind this provision that they shall not play at a less price is the exhibitor. Now, there is nothing in there Mr. WOLVERTON. Then your answer is that the present contracts do contain a price limitation? Mr. PETTIJOHN. Well, they have a minimum, that they shall not charge less than a certain amount. Mr. WOLVERTON. I do want to be certain about your answer. Your answer is, Yes? Mr. PETTIJOHN. It is yes. Mr. WOLVERTON. Well, that is what I want to understand. Mr. PETTIJOHN. I think the minimum is stated; I think the minimum price that the theater may charge is written into the contract. Mr. WOLVERTON. Then the answer is still yes? Mr. PETTIJOHN. I do not think the distributors fix these prices, Mr. Wolverton. I do not think that it is put in by the distributor; I would say that the man who is running the theater fixes his own prices. Mr. WOLVERTON. The question I asked you was this: Does the contract now in existence fix a limitation on the price of admission for exhibition? Mr. PETTIJOHN. Well, may I answer this way: Many, if not most, of the contracts contain a provision that the price of admission charged by the exhibitor is a part of the contract. Mr. WOLVERTON. I interpret that to mean yes. Mr. PETTIJOHN. Yes. Mr. WOLVERTON. In the suit that is pending in the District Court of the United States for the Southern District of New York, United States of America v. Paramount Pictures, et al., this charge is made in the complaint with reference to block booking: Block booking.-Block booking is a practice whereby unaffiliated or independent exhibitors are compelled to take blocks or groups of pictures in order to obtain any of them. Compulsory block-booking, such as is enforced against the independent exhibitor, should not be confused with voluntary block booking whereunder a group or block of pictures is purchased as the result of a voluntary agreement freely entered into between distributor and exhibitor. Block booking is seldom, if ever, enforced by the producer-exhibitor defendants against each other. On the contrary, the exhibition contracts between and among the defendants herein are usually placed upon a selective basis, whereunder each defendant and its affiliated theaters may play such product or pictures of the other, or others, as it may select. In the case of the independent exhibitor, he is compelled to contract and pay for a whole block or group of pictures in order to obtain any of them which he may desire. This practice has the effect of imposing upon the independent exhibitor a great number of pictures that are not desired by him, and tends to arbitrarily fill up and consume his screen time, thus preventing him from securing other pictures through other distributors. Is that a fair statement of block booking? Mr. PETTIJOHN. That is not a fair statement, Mr. Wolverton. Mr. WOLVERTON. Is the statement of the complaint, with respect to block booking, similar to what this bill is endeavoring to correct? Mr. PETTIJOHN. I have an answer on that if I may give it. Mr. WOLVERTON. Very well. Mr. PETTIJOHN. Would you mind repeating the question? Mr. WOLVERTON. Is the practice which is outlined in this complaint, to which I have just referred, a similar practice to what this bill seeks to correct? Mr. PETTIJOHN. I think it is, substantially. Mr. WOLVERTON. Will you explain to me, in view of your testimony that it is necessary to have block booking, why it is that block booking is not in effect between producers who are also exhibitors? In other words, why is it effective with respect to the independent exhibitors and not between producer-exhibitors. Mr. PETTIJOHN. It is. It is. They all buy the same way. Mr. Rodgers will bear this out; the independent theater man buys just as the affiliated; the only difference is, the first-run theater may run a picture longer and not require as many. Mr. WOLVERTON. May I follow that a little further? Mr. PETTIJOHN. Yes. Mr. WOLVERTON. Is Paramount Co. a producing and exhibiting company? Mr. PETTIJOHN. Paramount Pictures is a producing company; there is a Paramount Distributing Corporation, and then there are some Paramount theaters and some Paramount partners, as well; yes. Mr. WOLVERTON. All right, what other producer is also an exhibitor, so that I may be able to complete my inquiry? Mr. PETTIJOHN. RKO, Loew's, Fox, Warner. Mr. WOLVERTON. That is sufficient. Now, if Paramount wishes to utilize any production by Loew's or by RKO, is it necessary for Paramount, in obtaining the picture it desires from RKO or Loew's, to enter into a contract that it will make so many pictures for them? Mr. PETTIJOHN. Yes; they have some small theaters, and there are some in the out-of-the-way sections, and they try to supply pictures for all of them. Then, you have the theaters like Keith's here in Washington where the theater will not need over 40 pictures a year, and sometimes not that many, because of the fact that they may run one picture for 2 or 3 weeks. Now, because they may run a picture for 2 or 3 weeks, they will buy a few pictures from this and a few pictures from the other companies. But, that applies only to first-run theaters. And that applies to all first-run theaters; the theaters that pay from $2,000 to $20,000 for first-run pictures, and from them is supplied the money needed to run the industry. They do have selectivity from the very fact that they only need 40 pictures; they do have a choice, and it would be foolish for me to stand here and make a denial of that, but we must have the first-run theaters; we must have the first-run money in order to make pictures so they can sell them to the small theaters who need 300 pictures in wholesale lots at from $10, $12, $15, to $25 each. Now, you have to have selectivity, Mr. Wolverton, in those theaters, but that not only applies to the producer-exhibitor theater, but to all first-run theaters; not only those producer-owned. Not all of the first-run theaters are owned by the affiliates. Mr. WOLVERTON. I am trying to ascertain what justification there is to the charge in the complaint filed in the New York court, because it has seemed to me that the charge in that complaint and on which the suit is brought is very similar to the charge that is made by the proponents of this legislation with respect to block-booking. Mr. PETTIJOHN. It is. Mr. WOLVERTON. The complaint contains this further charge: Block-booking is seldom, if ever, enforced by the producer-exhibitor defendants against each other. On the contrary, the exhibition contracts between and among the defendants herein are usually placed upon a selective basis whereunder each defendant in the affiliated theaters may play any product of one or the other which they may select. Mr. PETTIJOHN. That is wrong, and I will tell you why. The affiliated theaters do business the same as the others do, and blockbooking is not enforced against the exhibitors in this country, as I tried to illustrate by giving you the list of pictures, the number of contracts that are played. In my opinion, and I can state it only as my opinion, I do not think that 10 percent of the exhibitors of the United States buy the entire block of pictures of any company, and 90 percent have more or less selectivity, depending upon the number of pictures they buy or have to use. When you get up to the top theaters that only need 40 pictures, why, naturally, he has an opportunity for selectivity. But, as I said, it is necessary to have these $10,000 or $8,000 firstrun accounts because that is where we get the money from to make it possible to furnish pictures to the small theaters at a price which they can afford to pay. And, Mr. Wolverton, I doubt if there is any better or fairer method for everybody concerned. And we will welcome suggestions; we do not resent criticism; we do not resent suggestions; and if somebody will give us a distribution system today for the picture business, that is better or fairer to all concerned, we would welcome the suggestion and be glad to try it out. Mr. WOLVERTON. Have you submitted to the committee the agreement you referred to? Mr. PETTIJOHN. May I finish my answer; may I finish the answer to that part of your question? Mr. WOLVERTON. Yes; certainly. Mr. PETTIJOHN. The mere allegations in the complaint to which you refer do not establish that it is true. To that complaint there has been filed a general denial by the defendants, and that suit is to start, I think, on June 3, and will be tried out in court. Now, when the court has tried out those issues the industry is going to have some information upon which to base its future action, and to guide it for the future. But this bill, gentlemen, this bill suggests the most untried experiment that I have ever heard of. Now, as suggested before, there has been a general charge made, and the defendants have filed a denial, and the court will take testimony and reach its conclusion on that evidence. Now, that conclusion will have to be reached by analyzing contracts of the important distributing companies in the light of furnishing films to exhibitors on a basis that will not disrupt their program, as fast as the pictures are required, in areas where the theaters depend upon this method for their entire program, which offers them a limited selectivity, and which permits cancelation as charged in the section to which you referred in the United States of America versus Paramount, in Paragraph 214 (1). Mr. WOLVERTON. Yes. Mr. PETTIJOHN. That is the same section; I am talking about the same section you referred to. Mr. WOLVERTON. Yes. Mr. PETTIJOHN. Now, that ought to be subjected to judicial examination, and the court after hearing the evidence will make a finding of fact, and the burden of proof, according to our present system, will be upon those who make the charge. And, until proven, it cannot be even assumed that the allegations stated in that complaint represent facts. Proof is required; a comparison between the contracts of these distributing companies with the theaters, over a period of years. And, we welcome that suit, so far as the producers are concerned; we think we ought to have a judicial determination, under proper rules of evidence, in order to know if these charges are justified. I think that is a fair statement. Mr.WOLVERTON. It seems to me that the charges that are made in the complaint are very similar to those that have been made by the proponents of this legislation and which is now under consideration by this committee. Assuming that the trade practices set forth in the complaint are in effect, and, that as charged it is a violation of the Sherman Antitrust Act, then this committee could determine whether the charges in the complaint are similar to the charges that the proponents are now making; in other words, if the trade practices are already fully covered by the provisions of the Sherman Antitrust Act it would not be necessary for this legislation A proceeding instituted under the Sherman Antitrust Act would be sufficient. On the other hand, if your position is that that practice, even if it does exist, would not be a violation of the Sherman Antitrust Act, then it might be necessary for this committee to decide whether the trade practice complained of is such as to justify the passage of the legislation now proposed to correct it. Are you in position to give your opinion with respect to that, Mr. Pettijohn? Mr. PETTIJOHN. I would not hesitate a moment to give my own personal opinion. Mr. WOLVERTON. What is your opinion? Mr. PETTIJOHN. I am not the attorney in that case and I do not want you gentlemen to feel that I am endeavoring to speak for those attorneys, those who are handling the defense of that case, but I say |