How the Hollywood Studio System Fell Apart

For decades, Hollywood’s major studios controlled nearly every aspect of the movie business, from the stars on-screen to the theaters audiences sat in.

That grip began to loosen on May 3, 1948, when the U.S. Supreme Court issued a watershed decision in United States v. Paramount Pictures, et al. The ruling ended a long power struggle between the film industry and the federal government. It also signaled a turning point in the way movies were made and enjoyed, ushering in the demise of Hollywood’s fabled studio system. 

The Supreme Court decision affected eight major motion-picture companies. The most influential studios were the so-called Big Five: Paramount, Metro-Goldwyn-Mayer (MGM), Warner Bros., Twentieth Century Fox and RKO. They not only produced and distributed films, but also operated theater chains across the country where their movies were shown. These golden-age studios had it all: big stars, big budgets and big screens of their very own. 

As vertically-integrated industry power players, top studios wielded enormous influence over which movies American audiences watched. If a movie house outside of studio ownership wanted to screen the latest MGM drama or RKO musical, the studio would require them to pay for a whole block of the studio’s new releases instead of granting access to any single title. This practice, known as block booking, guaranteed audiences for cheaper studio films with second-tier talent, mitigating financial risk. But it also put small film producers and distributors at a disadvantage when jockeying for screen time. 

Smaller and independent film companies nonetheless maintained a presence, despite the major studios’ unquestionable market stronghold. “In 1938, the year the famous Paramount case was launched, more than 700 feature films were released by more than 200 different companies, with the eight major studios accounting for less than half the total,” says F. Andrew Hanssen, a Clemson University economics professor who has studied the impact of the Paramount decision on the film industry’s subsequent decline. 

“That said,” Hanssen continues, “most of the most expensive and highest box-office films were released by the eight majors, as distributors if not as producers.”

The case first went to trial in a New York federal court in June 1940. Two weeks later, the government and studio lawyers reached a compromise: The studios could keep their movie theaters if they limited block booking.

This decision came as a blow to independent producers such as Walt Disney, Mary Pickford, Orson Welles and David O. Selznick, who, among others, banded together to form the Society of Independent Motion Picture Producers (SIMPP) to get the antitrust case back into court. 

Their efforts were successful. The case eventually rose to the Supreme Court, where the trial began in February 1948. The court’s fateful decision three months later required studios to end block booking and sell off their movie theaters, leveling the playing field for smaller producers and distributors.

The Paramount decision is widely understood as the final nail in the coffin for the Hollywood studio system. In reality, Hanssen points out, the ruling was one of several factors that likely converged to undermine film barons’ monopoly on American entertainment, alongside the De Havilland case of 1944 that reduced the power of studio contracts with performers, the advent of television and the rise of the suburbs. Although Hanssen says it’s unclear how much any of these individual factors contributed to the eventual downfall of Hollywood’s studio system, “the Paramount decision was certainly important.” 

Yet, the ruling’s impact was not immediate. “After 1948, it took about a decade for all the studios to eventually split their companies up between production, distribution and exhibition,” says Peter Labuza, an independent researcher and film industry historian. “The lasting effect would become apparent in the mid-1950s as each studio became more financially conscious, reducing their output of films and focusing more on blockbusters like The Ten Commandments, many of them shot in Europe to take advantage of cheaper labor.”  

At the same time, Labuza notes that the end of block booking made room for different kinds of movies, such as European art films and exploitation films targeted at teenagers, that found their way to audiences through the growing market for art houses and drive-ins.

This diversified business backdrop incubated a new generation of filmmakers that was eventually welcomed into the studios’ fold, culminating in the New Hollywood era and landmark movies such as Bonnie and Clyde, The Graduate and The Godfather.