A controversial practice that has kept some big movies from playing at certain theaters appears headed toward a crossroads, as a major Hollywood studio has told exhibitors it would no longer grant their requests for exclusive screening rights.
Twentieth Century Fox executives have told theater owners in recent days that they would no longer entertain requests for “clearance,” which allows theaters to show a movie exclusively in markets where a competitor is located nearby. It is a rare occasion on which a Hollywood studio has set an official policy on the practice.
“We like to have choices for consumers and we think it will grow the pie,” said Chris Aronson, Fox’s president of domestic distribution.
Fox has told theater owners that its policy change would go into effect with the release of highly anticipated “X-Men: Apocalypse,” which comes out on May 27. 21st Century Fox, FOX 0.11 % which owns the studio, and News Corp, NWSA -0.86 % owner of The Wall Street Journal, were until mid-2013 part of the same company.
Clearance affects a small number of the nation’s 40,000 screens, but it has created a major rift in the theatrical business as smaller operators claim they are being denied certain movies that bigger chains want.
Debates over clearance have heated up over the past two years. Several small exhibitors have sued larger rivals over the practice, and the Justice Department’s antitrust division has been interviewing theater executives about it for more than a year. The agency has told theater chains to turn over documents related to the matter, but it is unclear whether a formal investigation is under way. The Justice Department declined to comment.
Fox made the decision in part to “keep us out of any litigation,” said Mr. Aronson.
Studios have the power to grant or deny clearance requests from exhibitors, and often theaters will refuse to play a movie in a market where their request is denied.
Clearance can be requested in markets where larger circuits compete with smaller operators and in places where major chains compete with one another.
Some smaller chains say they have been forced out of business because clearance requests deprived them of so many movies. Houston-based Viva Cinema closed in 2013 after it said it was forced to fill screens with movies like “The Croods” and “World War Z” months after they had left most theaters.
IPic Entertainment Holdings Inc., a smaller movie-theater chain, is suing AMC Entertainment Holdings Inc. AMC -2.04 % and Regal Entertainment Group RGC -2.04 % over the practice. IPic said it couldn’t book several recent titles in some locations, including the Fox blockbusters “The Revenant” and “The Martian.”
AMC didn’t provide updated comment on the iPic case, but at the time of the lawsuit filing last year, an AMC spokesman said, “Allocated film zones have demonstrated benefit to all stakeholders—moviegoers, studios and exhibitors.” Regal representatives didn’t respond to a request for comment.
Regal and AMC, the nation’s largest and second-largest theater chains, respectively, have in the past opted not to show movies in markets where their clearance requests are denied.
“Clearances have been a long-standing industry practice for decades. However, AMC is confident that we will thrive and prosper whether clearances continue or not,” said AMC Chief Executive Adam Aron. The company didn’t comment on how it would specifically respond to Fox’s plan.
By saying it won’t honor any requests as a policy, Fox runs the risk that the biggest theater chains will decide not to show the studio’s movies in some markets.
“That’s their prerogative,” Mr. Aronson said of that possibility, though he questioned whether theaters would really forego big titles. “It’s hard to have revenue if you don’t have product.”
Fox’s decision is the strongest stance taken by a distributor yet, though other studios have shown more reluctance to granting clearance requests as the controversy has heated up, exhibitors say.
Fox’s move could lead to a moment of reckoning on the issue. If other studios follow suit, it could present a new calculus that causes clearance to fade away by virtue of exhibitors needing movies to fill seats.
Fox’s policy change was cheered by exhibitors who have spoken out against the practice.
“The concepts of clearances are antiquated and don’t apply to modern-day society,” said Hamid Hashemi, CEO of iPic Entertainment.
Contributing to Fox’s decision: changing trends in moviegoing. Many major chains have begun retrofitting auditoriums with plush, wide recliners and other amenities. Such upgrades tend to lead to increased attendance even though they can significantly decrease the number of seats.
That reduced capacity means it is harder for studios to grant clearance requests, since they now might need two theaters showing a title to reach the same number of viewers as one traditional auditorium, said Mr. Aronson.
“This business has changed an awful lot,” said Mr. Aronson. “This is a legacy practice and the time has come to move on.”
Write to Erich Schwartzel at [email protected]