December 17, 2014

Investors want studios' response to 1,000,000 deaths

On September 20, 2015, shareholder advocacy organizations announced that they were filing shareholder resolutions with the major movie studios regarding the portrayal of tobacco in youth-rated films (covered by the New York Times).

Shareholder concerns stem from publication of the 2012 US Surgeon General report, which concluded that “there is a causal relationship between depictions of smoking in the movies and the initiation of smoking among young people.”

Shareholders were concerned that this data, and the publicity it has received, reflected a reputational risk to the company, and could hurt the company’s long-term profitability. Citing data from the Surgeon General’s report, in 2014 the US Centers for Disease Control and Prevention (CDC) wrote:

"Giving an R rating to future movies with smoking would be expected to reduce the number of teen smokers by nearly one in five (18%) and prevent one million deaths from smoking among children alive today."

The first shareholder resolutions were filed at Walt Disney and Viacom (Paramount) in September, and a revised shareholder resolution has just been filed at Comcast (Universal) and Time Warner (Warner Bros.). The resolutions at 20th Century Fox and Lion’s Gate Entertainment will be filed in spring 2015.

Disney and Viacom appealed to the Securities and Exchange Commission (SEC), asserting that the shareholder resolutions should be omitted from the companies’ proxy statements and not be voted on, because they address “ordinary business operations” — that is, determining film content. The companies also argued that the resolutions did not address a “significant social policy issue,” which would have overridden concerns about ordinary business operations.

The resolutions proponents filed a counter-brief with the SEC stating that the proposal was in no way asking to alter content, only asking the studio to report on the reputational risks they faced, as they were named in the Surgeon General’s report and linked to the million deaths.

Ultimately, the SEC decided that the companies could exclude the shareholder resolutions without a vote (see the SEC decision, and the proponent/defendant briefs, here).

Despite the fact that smoking is the leading cause of preventable death in the country, and the US Surgeon General has reported that that 18 percent of youth smoking is caused by exposure to smoking in youth rated movies, the SEC did not believe that the issue was of public significance or warranted any response from the companies.

The shareholder advocates filed revised versions of their resolution at Comcast and Time Warner to clarify the issue and are considering an appeal of the SEC's Disney and Viacom decisions.

Between 2005 and 2012, dialogues between Hollywood studios and shareholders resulted in each of the major studios creating and adopting smoking in youth-rated movies policies regarding the oversight of tobacco portrayal in film. However, independent data does not yet show any sustained reduction in audience exposure form youth-rated films.

It will take continuing pressure from the shareholders, together with public health advocates and authorities to pressure the six media companies that own the major studios to acknowledge their culpability for this preventable public health crisis and use their votes to as members of the Motion Picture Association of America (MPAA) board to change the industry’s voluntary rating criteria to give all movies with smoking an R rating.