Supercolossal: The Movies

I

MOTION pictures are the most modern example of American Bigness. Here is a creative business, whose mushroom growth coincides with the era of mergers, trusts, and the worship of all things big. It tells the story of a long line of creative inventors, of search for monopoly powers by entrepreneurs, pursuit of Bigness, deplorable confusion, and stupendous loss by stockholders.

From the days of Daguerre (1830) forward, men had been trying to develop ‘motion’ pictures. A famous argument among California turfmen in 1872 helped along that development. Leland Stanford, one-time Governor of California, railroad owner and philanthropist, was also a breeder of blue-ribbon winners. He contended that at certain times a horse in full gallop took all four feet off the ground at once. Other stable owners scoffed at Stanford’s notion, so he wagered $25,000 with James R. Keene and Frederick MacCrellish that he was right. He hired Edward Muybridge, a Britisher who had the carriage trade in photography in the San Francisco of the seven1 ies, to prove by action shots that a horse really did, at full speed, have all feet off the turf.

Muybridge, after trying for many months, failed literally to click. Stanford then turned to John D. Isaacs, graduate of the University of Virginia, class of ‘75, able engineer and advanced amateur photographer. Isaacs solved the problem first in the laboratory and then applied his findings by building a chronophotographic apparatus. By means of quickly succeeding exposures of twelve cameras electrically controlled, he recorded a horse in motion, vindicating Stanford’s view.

In 1887, Thomas Alva Edison, who had completed his phonograph, was seized with the desire to complement its capacities by adding recorded sight to recorded sound. He examined the Isaacs method, along with others, and cast them all aside; then hit upon the idea of feeding picture images into the camera via a belt or tape. His first experimental films were too fragile for use.

However, in 1889 George Eastman, seeking a film material that could be employed in the roller of his new Kodak, started to manufacture a film that had a flexible nitro-cellulose base. Edison got hold of a sample of this and it solved his problem, since the Eastman film was strong enough to be wound back and forth many times, retaining its surface images.

On October 6, 1889, the first model of the Edison Kinetoscope, progenitor of today’s elaborate projector machines, was shown to the world at West Orange, New Jersey. It was a small black box into which one spectator at a time could peer at a running film magnified by a lens illumined from behind by an electric bulb. The film itself was about an inch wide, fifty feet long, and was run off at the rate of forty-eight images a second. Edison’s first efforts to project pictures on a screen were not especially satisfactory or exciting, but the peep show did give a pretty fair idea of motion.

By 1904, the Kinetoscope business was going full blast, and Edison was receiving excellent revenues. Among the thirteen or fourteen hundred establishments that sprang up in former shops and pool parlors all over the country, perhaps the most famous was the Penny Arcade which in 1904 was located in New York City just where East Fourteenth Street, as it crosses Broadway, forms the south side of Union Square.

Here, by dropping a penny in an ornate tubular machine, you looked into a black eyepiece and beheld such stirring dramas as ‘The Servant Girl’s Dream’ or ‘Girl Climbing a Tree,’ in which latter a quantity of black stocking, the era’s sine qua non of erotica, was progressively revealed. On Sat urday nights, queues of men waited patiently with pennies in hand to get their turn in viewing such art as Adolph Zukor, furrier and onefifth partner in the Penny Arcade, was presenting daily until midnight.

Meantime, technical developments were taking place that were to make screen projection of motion pictures a reality. In France the Brothers Lumiere, and in Washington, D. C., the American inventor Thomas Armat, had been busy experimenting with Edison’s devices, and in 1895 both the Lumieres and Armat hit upon successful methods of screen projection. Promoters persuaded Armat and Edison to bring out this perfected projector under Edison’s name, and Armat has only in recent years received the credit which is rightly his.

The new Armat-Edison mechanism was christened the Vitascope. It was set up on the balcony of Koster and Bial’s Music Hall, in Herald Square, the site now occupied by Macy’s, and on April 20, 1896, there flashed on the screen, as the last number on the playbill, ‘Kaiser Wilhelm Reviewing His Troops,’ ‘The Bar Room,’ ‘Sea Waves,’ ‘Venice, Showing Gondolas,’ and similar exciting attractions.

At this stage of the game, Edison, like the Lumieres in France, regarded the Vitascope as merely a toy. He refused to spend the few hundred dollars necessary to protect his European rights. Others, however, were glimpsing the enormous potentialities of the ‘movies,’ and when the film industry began to get its stride, largely by violation of Edison’s patents in the United States, the Wizard of West Orange became a very litigious old gentleman indeed. In 1897, he hired lawyers to protect his interests, since he felt that, he deserved a monopoly position, and for years suits raged against existing producers, notably the Biograph Company, which fought stubbornly against Edison in the courts until a peace pact was signed between all other producers and Edison in 1908.

But this peace, which marked Edison’s virtual retirement from the scene, was followed by renewed warfare. The Motion Picture Patents Company was a trust involving ten of the biggest producers, each of whom paid Edison a royalty in return for the right to employ his apparatus, both the cameras and the projectors. These ten pooled their various claims to patent rights in their own corporation, and the new trust’s legal advisers assured such participants as the old Vitagraph, Essanay, Ivalem, Selig, Biograph, and Edison that, whereas the Sherman Antitrust Law could be invoked against other forms of industrial combination, the Motion Picture Patents Company would not encounter any such difficulty.

This merger, which excluded the fifty or seventy-five smaller fry in the field, had virtually complete control over machinery, equipment, processes, and patents. Indeed, it was hardly possible to photograph, develop, print, or exhibit a motion picture without coming to an arrangement with the MPPC.

On the surface it seemed to its sponsors that this new venture in Bigness would enable them to sit tight and let the funds roll in. All they had to do was make the movies, rent them at the largest possible prices, and rake in the profits. From January 1909 forward — birthday of the trust’s Big Ten — dimes were replacing nickels, as in the preceding decade nickels had replaced pennies as admission prices, while more and more ticket windows were opening up.

The single reel was at this time the standard unit of the silver screen. It was either a complete story, showing a cowboy rescuing a maiden from Indians, or a custard-pie comedy, or it might be in two parts, half scenic, half dramatic. Exhibitors who presented an hour’s show used four or five reels; those who gave a two-hour performance needed eight or ten reels or more. Since the program was changed daily, the exhibitors required on the average thirty to sixty reels a week.

This meant that each member of the Big Ten must produce from three to six reels every seven days. To do so, of course, the manufacturer had to have a competent studio staff and a reliable labor force. Since the ten big companies included in the amalgamation had such requisites, they were not worried by the prospect of competition. They had everything sewed up tight. Some of the independent producers might have managed an output of two or three reels a week, but all of them put together could not fill the demands of exhibitors.

Meanwhile, as independents kept appearing and as distributors or wholesalers were getting an upper hand in the business by means of their ability to influence, if not to dictate, the price paid to producers and the rental charged exhibitors, the trust determined to banish these middlemen, the film exchanges. The Motion Picture Patents Company therefore decided to freeze out the independents by creating a distributing agency of its own. The new combine was called the General Film Company. Each of the ten manufacturers was allotted one tenth of the stock and granted equal representation on the board of directors. General Film thereupon purchased sixty of the leading wholesalers, or film exchanges, and proposed to make war on all others.

General Film next sought to classify each exhibitor and force him to pay the same price as others in his group. There would be neither haggling nor bargaining. The trust had the power to dictate. The bigger and better theatres would pay $100 to $125 per week on a sliding scale based on size and location, and the little hole-in-the-wall on the side street would pay $15. The top-class contingent was to have first-release dates — an important point, because film patrons attended first showings with great fervor. Furthermore, at this stage, the newer the film, the clearer the image on the screen. No theatre was to use projection apparatus or reels made by any manufacturer outside the confines of General Film’s sacred precincts. Each exhibitor, as manifest of his intention to abide by this ruling, was to be licensed by General Film to the tune of two dollars a week per license.

This fee, first of its kind in American business history, was a shakedown of terrific proportions. General Film auditors during the first weeks of this ‘come across or no pictures’ edict had to use clothesbaskets in their offices to receive the two-dollar bills and money orders that poured in from all over the United States. By 1911, the number of contributors to this racket was about twelve thousand; General Film’s take was $1,250,000 per annum — all this, be it noted, exclusive of film rentals. But this two dollars a week ‘ kick-in ‘ aroused theatre owners, who regarded it as the very symbol of an oppressive monopoly.

Capitalizing on this resentment of exhibitors against the General Film Company, independent producers took new courage and began turning out reels as fast as they could. Significantly, the commercial risk at this time wasn’t very great. For the five years (19091914) during which General Film was filing hundreds of lawsuits against independents, and sending thugs into their plants to wreck their cameras, and calling upon federal marshals to confiscate ‘ illegal ‘ equipment, the top cost of a big two-reeler was a thousand dollars. Plots were simple to the point of childishness; actors, directors, and writers still thought that $75 a week was big money; a few standard props, which, with a little ingenuity, could be used over and over again, provided the ‘set.’

By 1910, the patronage of the movies had grown to an estimated twenty million per annum. There was no accurate count available until 1918, when the United States Government began collecting a tax on every ticket sold. The boys at the head of General Film had built their enterprise to conform with the best thinking on mass-production methods. They believed that the public wanted standard merchandise, of dependable quality, and retailed at a dime top. They had, they believed, included all the sane, reliable companies in their trust. Hence quantity, a large volume at set costs, a constant flow of uniform product, were to General Film the criteria of successful operation. Studios thus turned out film of 1000 feet per reel, and all prices were fixed on this footage system, regardless of the subject, the actors, or whatever. General Film steadily charged ten cents per foot for everything produced by its ten affiliates.

Since rentals paid by exhibitors were definitely fixed, there was very little leeway or elasticity in studio costs, for producers had to regulate their outlays carefully to establish a sane ratio between expenditures and earnings. While all the vagaries — human, climatic, and chemical — entered into the cost of movie making and rendered standardization difficult, General Film’s ten usually averaged out by keeping their costs down to about $750 per reel. They had to do this or endanger their profits.

Their rivals, however, the independents, could take chances. They could dicker with exhibitors, and if an independent had a particularly popular picture he could often persuade exhibitors to pay him a price above the normal; if some of his stuff wasn’t so good, he could cut his prices, make bargains.

Moreover, since the independents had almost all been former exhibitors, they were on their toes to sense changing taste in audience reaction, while the big boys were too far removed, too enthusiastic over their factory-like clockwork methods, to bother with changing tastes. There was the arrogance of distance from the place of operation, too. The heads of General Film, for example, felt too secure to consider the reports of their field men that, in 1910-1911, the consumers were tiring of the same product, wanted something more startling, more elaborate, and more dramatic. This was absurd. Motion pictures, the tycoons said, were the poor man’s entertainment, and what poor man was discriminating? Furthermore, better films would cost more; tworeelers were very expensive, three-reelers were extravagant. The poor wouldn’t pay more nickels or dimes, so what was the use of seeking to alter cinema fare? The profits were rolling in, and the independents were being gradually tangled in lawsuits that handicapped them at every turn.

But one independent, Carl Laemmle, head of Imp (forerunner of Universal), had noticed that the ‘Little Biograph Girl,’ Mary Pickford, was being talked about by patrons of theatres. Biograph, of course, was one of the strongest of the ten firms in General Film. Laemmle hired Mary away from Biograph by the simple expedient of doubling her salary, and began to advertise her, starting the first big ballyhoo build-up for a movie ‘star.’ Other independents followed his lead with celerity and abandon.

At the same time, the independents first saw and profited from the possibilities of the more-than-one-reeler. The trust, with its whole modus operandi bused on inflexible pay envelopes and standard footage prices, was damming back cinema progress, but meanwhile prospering mightily. It chased independents — constantly under threats of prosecution for patent infringements — from New York and Chicago to San Francisco and finally to Los Angeles. This last community was chosen by the pioneers among the independents not only because of exceptional photographic climate, but also because it was so close to the Mexican border that they could escape the writ-armed minions of the General Film Company by picking up their cameras, their casts, their props, and their hats, — if they had the lime, — and diving into a haven where United States process servers couldn’t reach them.

II

Despite its lack of ability to adjust to the times, the trust and its ten components continued to thrive for some years. One of the General Film affiliates, for example, the Vitagraph Company, was organized in 1897 with $500 in cash and an office for which it was paying $10 a month rent. Its original assets, acquired by one means and another, couldn’t have topped $2000. In 1912, its gross income was about $6,000,000, and its net profits available for dividends, after liberal salaries to top executives, were in excess of $1,000,000. And this was typical of the other nine members of General Film Company.

It was argued by General Film’s radical W. W. Hodkinson, who had started as telegraph operator in Utah and had advanced to the management of General Film’s important San Francisco exchange office, that the public of 1911-1912 was ready for better entertainment. He said that ten cents as an admission charge was merely a step in the right direction; that the day would come when people would pay twenty-five cents through the wickets of the nation’s playhouses. He was hooted down at meetings of General Film’s Board. He pleaded, in vain. He faced a group of self-sufficient men, relying on the Power of Bigness. The daily program change, he contended, impaired a really good picture’s chief asset, the word-of-mouth advertising of satisfied patrons. When friends of the pleased patron arrived at the theatre, anxious to see the praised film, it had moved on to parts unknown. A sale was therefore lost. Hodkinson said that, from his experience on the premises of his own exhibition houses, he was certain that the public would keep a really interesting picture on the screen for two or three days in succession, perhaps a week or more. His logic could be summarized as follows: If the public were given superior pictures, it would pay higher prices; exhibitors, out of their enlarged profits, could construct better theatres and pay higher rentals to producers; out of such increased revenues the producers would be able to spend more for pictures, making them better in every respect; and a policy of this kind would enable the industry to achieve genuine advances. His associates on General Film thought him a lunatic. Why should a monopoly ever change its practices?

About this same time Adolph Zukor was hanging out in the reception room of General Film, vainly trying to interview the big shots and impress them with the necessity of going into production of feature films with four or five reels each. This was Zukor’s great idea; he was obsessed with it. He couldn’t convince General Film, however. The trust had taken a single flyer into a four-reel feature when David W. Griffith had turned out for Biograph Judith of Bethulia. It was really a splendid piece of work; audiences were enthusiastic. But under General Film’s system of a flat price for everything and everybody, the standardization of bigness built on mass production, Judith, costing four times as much, didn’t gross any more than any other film on General’s rigidly conducted schedule.

Nevertheless, Judith was a turning point in the history of American cinema. Within the next five years, writers, artists, directors, and players from Biograph’s own studio were to leave the ironclad rules of the trust and to win fortunes for producers who, like Zukor in New York, were beginning to manufacture on shoestrings and prayers such features as The Prisoner of Zenda. Rebuffed by the Big Ten, Zukor over the years was to build up Paramount, only to have it flop in the end from the same essential faults which the trust itself had exemplified. For by this time the trust was already going into a decline. Unable to adapt itself to changing business needs, staggered by a court decision against Edison, which denied the exclusiveness of his patents, baited by newly sanguine exchange owners, who alleged that General Film had wrecked their businesses and who therefore demanded treble damages under the Sherman Antitrust Law, the amalgamation of the Big Ten went to pieces. A government decree of dissolution in 1915 merely confirmed the preceding decree of economics.

With the decline of General Film, the independent went to town. The very men who had rebelled against the Trust, the Giant, the Mammoth, forgot their rantings, while they themselves strove for increasing power and domination. Not one of the outs kept his eye on quality rather than quantity. Zukor, Lasky, Fox, Selznick, Laemmle, — all of them former clothing manufacturers, furriers, or clothing retailers, —outdid Horatio Alger’s most lavish imaginings. By 1915, Zukor was recognized generally as the leading producer through his insistence upon fourand five-reelers, his emphasis upon the star system, and his willingness to take long chances. He had Mary Pickford, Cecil B. De Alille, and ideas. The Squaw Man, released in 1915, cost $40,000; and it typified the changing costs of production. In 1909, the standard cost of film negatives for exhibition was $1000, including everything; in 1919, it was verging toward $100,000; by 1929, pictures costing $1,000,000 or more were almost commonplace; today, 1940, a feature averages about $300,000.

In 1918, Zukor, accepting the faith of bigness at its face value, merged Paramount and Artcraft producing companies into the larger Famous Players-Lasky combination. He now had 50 per cent of the favorite stars; his consolidation controlled between 20 and 25 per cent of film rentals. He was ‘big’ in a way that must have soothed an ego rankling under the rebuffs of the General Film magnates of a few years before. But he wanted to be bigger. He started quietly but persistently in 1918-1919 to put the squeeze on exhibitors by raising rental rates. He began giving first-run preferential treatment and even rebates to theatre owners who would use Paramount-Artcraft products to the exclusion of all others. Leading theatre owners like Eugene Roth in San Francisco had followed the sensible practice of using a part of the Paramount output, rounding out their usual fifty-tw’ofeatures-a-year schedule by buying from Fox, Metro, Universal, and others.

Under this arrangement the better exhibitors were assured of first runs from the better producers, and their ability to choose from among their sources of supply kept prices fairly in line. Some of them quickly perceived the implications of Zukor’s ‘preferential’ policy; they saw that soon ‘preference’ could become ‘insistence’; and if Zukor’s program were carried out to its logical implications, other producers might well starve and he alone would have attained a monopoly of moviedom similar to Rockefeller’s monopoly of oil. On the other hand, managers who discarded Zukor’s commodity noticed that, since he had the best stars and directors, other theatre owners who presented Zukor offerings prospered while those who rejected them were at a great disadvantage.

Hence, in self-defense, such exhibitors as Thomas L. Tally of Los Angeles organized the First National Exhibitors Circuit with the underlying purpose of banding together the twenty-five or thirty chief theatre owners in the country, who, among them, had about a hundred first-rate or good houses; and who would produce, distribute, and exhibit their own pictures. First National, set up in April 1917, quickly became a threat to the very person who had forced it into existence.

Zukor realized that he was in danger of being hoist with his own petard; for, as First National began to lure big-name stars from Paramount and other studios, it seemed that it wouldn’t be long before the First National’s components, owning as they did the country’s key places of exhibition, would be forcing him aside. First National exhibitors, most legally, could quietly supplant Zukor pictures with their own, especially since they were busy getting their hands on such top drawing cards as Charlie Chaplin. Paramount’s profits would then be very much endangered.

Zukor began to view the situation with alarm. ‘The evil of producing and exhibiting coalitions,’ he lamented in Variety in 1918, ‘is one of the gravest perils that have ever confronted the motion-picture industry. For some time past this condition has been developing and now threatens to halt the industry’s progress. ... It has been permitted to develop this far because no one individual, either producer or exhibitor, has dared face the facts himself and compel other producers and exhibitors to face them with him. . . . We should all realize that the most effective way to develop the industry to its largest capacity is to maintain a broad open field of endeavor in its every branch.’

Behind these crocodile tears Zukor was already scheming to profit from control of retail outlets, and in the spring of 1919 he acquired the Rialto and Rivoli in New Vork City and the Grauman Million Dollar Theatre and the Rialto in Los Angeles. After three months of experimenting with these theatres, Zukor decided that he could lick First National by building first-run houses in principal cities throughout the United States. His first step in this direction was to hire Walter W. Irwin, a lawyer adept in avoiding possible Sherman Law contingencies. Irwin later testified before a Federal Trade Commission hearing in 1927 that he had ‘suggested to Zukor that Paramount could destroy First National if it would threaten to go into each one of the First National cities and build, or threaten to build, the finest and largest theatre in the city. ... In any event, it would not be necessary for Zukor to build more than a few theatres to frighten First National members.’

Meantime Zukor had impressed A. G. Connick, vice president of the American International Corporation, a Kuhn, Loeb and Company affiliate, with the possibilities of building theatre chains and tying the production, distribution, and exhibition branches of the industry into a big profit knot. In a report to Kuhn, loeb and Company, Connick said: —

‘From an examination of such theatre records as are available, and assuming that the sum required to amortize the building will not exceed 2 per cent of its cost, and that the amount of the ground rent per annum does not exceed thirty dollars per seat, and with prices of admission ranging (1918-1919) upward to sixty cents, a preliminary guess has been made that a theatre with 3100 seats will return at least 25 per cent on the investment in addition to the usual first-run rental charge in their district for the use of the films. That the 25 per cent is conservative is indicated by the fact that the Grauman Theatre of Los Angeles is now earning profits of 100 per cent a year; the Stillman in Cleveland at the rate of over 100 per cent.’

The bankers thought the water fine. In the fall of 1919 they and associated bankers sold a $10,000,000 issue of preferred stock of Famous Players-Lasky Corporation, listing both preferred and common on the stock exchange. Investors gobbled the issue; Zukor had the coin required to expand into the field of exhibition. His swinging of this support was at the time unique. Previously he had himself epitomized the industry’s general practice of growth via the ploughing back of profits into the business. Zukor’s entrance into Wall Street thus began a new era in cinema financing. Within a few years, shares of Loew’s, Inc., Fox, Pathé, and others were also being listed, while Samuel Goldwyn was being backed by the du Pont, interests, and William Fox was being supported by John F. Dryden and a group of the Prudential Life Insurance Company.

‘On July 22, 1919,’ declares the report of the FTC in 1927, ‘respondents Zukor, Lasky and Famous Players-Lasky Corporation had become, long had been, and still were the dominant power in the moving-picture industry. . . .

‘On July 22, 1919, the Board of Directors of Famous Players-Lasky Corporation ... to modify its distribution policy and to intimidate and coerce exhibitors into leasing its films adopted a progressive and increasing policy of building, buying, owning or otherwise controlling theatres. . . .

‘The Zukor outfit adopted the fixed method of leasing . . . its films under a system known in the trade as “block booking.” It still maintains this unfair distribution policy. It offers to lease . . . blocks of films as such, the exhibitor taking all or none offered. If an exhibitor declines to take all, the block is successively offered to competitors until a sale is made.’

The idea of this program, of course, was simply to coerce the exhibitor into ‘surrendering his free choice’ and ‘thereby denying to him the opportunity or privilege of leasing and exhibiting other films of higher qualities. . . . The purpose and . . . effect of such distribution policy is to lessen competition in the motion-picture industry, and tending to exclude from the market and the industry small independent producers and distributors . . . and denying to exhibitors freedom of choice in leasing films.’ Like oil, chain stores, and other businesses, Big Movies strove for reduction of fair and free competition.

That Zukor, in seeking to gain a supreme position in moviedom by stressing theatre control, either by ownership or by threats, was on the ‘right track’ was accepted by many other operators. Zukor was not alone in this program. He was only the leader. Most of the major producer-distributors emulated his example.

III

If we accept the statement that 1890 marked the beginning of all things in motion-picture commerce, the cinema’s half-century growth was staggering. In 1926, Paramount alone was worth around $1,50,000,000. It entered 1931 with $300,000,000 in assets and a 1930 profit of $18,000,000. In 1932 it was bankrupt, with its Publix theatres and its Paramount producing unit alike in a state of complete chaos. Zukor had invested $50,000,000 of his personal fortune in Paramount, but he didn’t know where. His company had become too big for him. He couldn’t tell where his money was, what it was being used for, actually, but he knew that it was ‘there.’ In 1934, Elihu Root, Jr. (says Fortune Magazine for March 1937) stated as counsel to the trustees of the bankrupt Paramount Publix Corporation: ‘A railroad receivership is child’s play compared t o this vast multiheaded company which could have lost its business overnight to its competitors if mishandled.’

‘Fifty-three different law firms,’ Fortune continues, ‘banks, protective committees, and experts yammered and bled for two and a half years over the sick giant and its 500 subsidiaries.’

A few motion-picture companies have always dominated the field, and Zukor, the grand old man of the movies, was not the only entrepreneur who chewed off more than he could digest. In fact, it is quite unfair to blame the Zukors alone for the conditions of the silver screen. Bankers conditioned to think in terms of millions or tens of millions had much to do with the debacle. And behind all these figures stood the great American public, which time and again dropped its savings into Hollywood enterprises in the high hope that the Biggest was ine vitably the most profitable. And for short — very short — periods this was true. But in the long run Bigness has brought more confusion than security, more corruption than intelligence, more false standards of values and salaries than profits

Warner Brothers is the present Mammoth. First established in 1915, it was incorporated in Delaware, the state of Bigness of Incorporations, on April 3, 1923. Two years later, it acquired control of Vitagraph, sole survivor of the ill-fated General Film Company.

By 1926 it had jumped the gun in exploiting the benefits of talkies while Zukor and the others were asleep at the starting line. Zukor in 1926 spurned the talkies because they would never be good enough for the mass of theatregoers. The magnates of General Film had dismissed Zukor and other independents, scorning their new ideas, their daring innovations. Now Zukor, himself a magnate, surrounded by myriad yes-men, was no longer close enough to audience reactions to perceive that the talkies were the instrument to lift the movies out of their mid-twenties slump and revolutionize the screen.

In 1928 Warners obtained dominant positions in large theatre chains. Producing pictures and distributing them were not enough. The control of theatres seemed essential. If enough theatres were owned, then pictures, no matter how bad or inept, had a sure market. They acquired the Stanley Chain of America in the East and Skouras Brothers enterprises in the West. This process of owning the customers continued until Warner Brothers owned circuit and independent theatres in about twenty different states, reaching a total of well over 400 separate theatres.

But that wasn’t enough. The Warner Brothers felt that they didn’t have enough to do in just buying stories, hiring actors, directors, cameramen, and scenic artists — that is, in producing profitable movies. Off they went into an industry only vaguely allied to their own business. In 1929, they invaded the field of music publishing by purchasing M. Witmark and Sons, Harms, Inc., and Remick Music Corporation. A decade later they gained control over the Associated Music Publishers, Inc., and AMP Recording Studios.

The Warners invested upwards of $11,000,000 in the music business and have been collecting at the rate of $400,000 a year on their ASCAP (American Society of Composers, Authors and Publishers) royalties. In 1935 they did not feel this was suflicicnt, so they told ASCAP that unless they were guaranteed $1,000,000 a year they would pull out and operate as competitors. At this time Warners were trying to get hold of Leo Feist and Mills, which would have given them domination of ASCAP, and of course of all radio music business as well as of songs used in the motionpicture industry. M-G-M,instead,bought Leo Feist for $450,000, thwarting this particular drive toward Warner monopoly of the ASCAP setup.

However, in December 1935, Warners resigned from ASCAP, jacked up rates over the air lines for use of any music they controlled, and later brought suits totaling $2,000,000 for alleged infringements. National Broadcasting Company and Columbia Broadcasting System barred Warner songs from broadcasts over their chains during this war; among the barred Warner-owned songs were those composed by George Gershwin, Victor Herbert, Noel Coward, Rodgers and Hart, Jerome Kern; and all one hundred and eleven of Harry Lauder’s Scotch burrings. Yet the Warner Putsch for complete dominion of ASCAP had not yet ended. Said the New York Herald Tribune of May 14, 1938: ‘Warner Brothers . . . has strengthened its commanding position in the music and music-publishing Held through the acquisition from North American Company of certain subsidiaries, information filed with the SEC yesterday reveals.’

In time, Warners purchased First National Pictures, and then sallied forth in other directions to acquire Brunswick Radio Corporation and only recently the Muzak Corporation, which operates a wired radio-transmission service.

Genius of a sort Jack Warner seems to have, but the history of his empire is not a finished chapter. It is doubtful if he or any other human being can long keep on an even keel as mammoth an enterprise as Warner Brothers Pictures. The mere list of the Warner subsidiaries is staggering. It includes some thirty-seven wholly owned companies, sixteen others that are at least 50 per cent Warnercontrolled, and another twenty-eight that handle the Warner products abroad. The line covers everything from films and real estate to sheet music and cellulose, television and radio. It has assets of about $180,000,000. Its working capital in 1937 was over $5,000,000; yet. it was less than half that amount in 1932, when even the Warners must have had temporary qualms and possible secret wishes that they hadn’t grown so very, very big. Eighteen thousand people are directly employed by this corporation. That’s not many people as industry goes nowadays, but this is a custom-made-toorder business.

Warner Brothers are in many ways the wisest of the movie magnates. No outside banker sits on their board of directors. Ironically enough, the directors of Warners are really engaged in the entertainment business, and are not primarily interested in stocks, bonds, discounts and refundings. Moreover, the drive of Jack Warner has permitted the elimination of internal company committees. In Warner Brothers, action is direct, without little groups pondering as a committee on the purchase of a story or the hiring of a star. This setup makes for speed of decision and absence of red tape. In order to maintain some semblance of action, all vital decisions rest in one man. That may make money for a while. It may make big money. But it is still doubtful if any movie concern of such proportions is a sound, durable economic structure.

The Warner Brothers financial jungle is by no means unique. Hollywood is cluttered up today with half a dozen other equally fantastic combinations, and it is a temptation to explore all of them, for, excepting only a few of our fancier utility holding companies, there is probably no industry in the country which affords a richer field for the study of bigness run riot. Most of the companies are overgrown and have interests sprawled over the map from New York to Los Angeles and from Canada to Texas, not to mention their European ramifications; most of them are involved in enterprises that have little or nothing to do with the production or distribution of film.

Good pictures arc made in Hollywood, but they are made despite the top-heavy unwieldy system and not because of it. If Schenck, Kent, and Jack Warner — just to mention a few— could escape from the myriad corporate problems with which they spend nearly all of their time hopelessly struggling, and concentrate on making a dozen pictures each, they would turn out a better and cheaper product. Others could adequately distribute their pictures, others exhibit them. Present concentration from retail box office to cameras has led inevitably to mismanagement and extravagance. Goldwyn, Wanger, and Disney stand as representatives of small, well-coordinated organizations — the maximum which a single individual can adequately handle. Universal, as an example, shows what happens when creators like Pasternak are in control rather than when groups of exhibitors man the studios.

Loew’s, number-two Titan in the industry, has assets of $142,544,024. Its seventy-odd subsidiaries, foreign and domestic, control, among other things, the M-G-M studios, 157 theatres, a music-publishing house for which it paid $450,000, radio station WHN in New York, and a vaudeville booking agency. In all this welter of scattered and sometimes conflicting interests, the lost motion is so enormous it is a miracle that any films are produced at all. M-G-M buys vast quantities of stories that are never produced. On its shelves lie literally millions of dollars’ worth of unused material, some bought readymade, some written to order by M-G-M’s own staff. All companies the size of M-G-M pay tens of thousands of dollars for a play, only to discover that after it. has been filmed the only material used was the title. They buy and leave on their shelves costly properties such as It Can’t Happen Here, and The Forty Days of Musa Dagh.

Such incidents occur daily on all the big lots. M-G-M has no monopoly in this type of wastage. Even movie magnates, running their companies while flitting on airplanes between Hollywood and New York, where the main offices are located, have yet to devise a method of decentralization and delegation which will reduce such errors. No wonder the overhead of the motion-picture industry runs up to such unbelievable sums.

The history of most of the other giant companies is too similar to be worth dwelling on, and their organizations are too complex to be unscrambled here. RKO, a super-holding company find a banker’s dream, is alone worth a book. It started out in 1929 with a consolidation of theatre chains, branched into production, vaudeville, and news reels, then went through a fabulously complicated bankruptcy and reorganization, and finally wound up in the lap of the Radio Corporation of America. RCA was already so badly tangled up in its own myriad affairs that it had never managed to pay a dividend on its common stock, but this did not deter it from taking over a movie company the size of RKO. It was not until the fall of 1935 that RCA decided it probably had more of RKO than it needed, and proceeded to sell half of its holdings to Lehman Brothers, Atlas, and a few others for $5,000,000 cash, with an option on the balance. Oddly enough, Lehman Brothers are also represented on the board of Paramount, so we have the curious situation of one banking firm deep in the affairs of two supposedly desperate rivals.

And so bankers in New York City continue to produce movies. These bankers seldom get to Hollywood, and I would wager a dinner with any fair screen star that the Wall Street directors of RKO — men who direct — do not go to see even 25 per cent of the pictures that RKO turns out each year. But they can tell in a jiffy what is wrong with the output by looking at statistics, dollars and cents of box-office receipts. At times they may see that something is wrong, but I defy even these wizards to correct the errors without seeing the studios, viewing the pictures, in fact spending time in informing themselves about the business itself—a luxury which Big Men can’t afford.

IV

With a weekly attendance of eightyeight million men, women, and children, this industry is in a sense a bread-andbutter business. The public demand should have made it foolproof. But the banker control has produced waste dramatized in the salary schedules of executives for one year.

I make no point about these salaries’ being excessive in themselves. There is no scientific method of appraising Thalberg’s great contribution to the wealth of M-G-M. But surely compensation in such sums, irrespective of the dividends on these individuals’ stock holdings, must inevitably negate their outbursts against the top star salaries. Moreover, it sets the pace for the companies’ extravagance, waste, and disregard for even a semblance of business thrift. And on the other side of the medallion we find that, out of 15,322 actors, 13,209 earned on an average only $6.48 per week during 1938. The industry is encumbered with confusion, intrigue, and that form of business madness which always accompanies excessive size. Sensitive not to morals but only to criticism of its morality on the screen, it retains Will Hays as a sort of bishop of Hollywood to give a pretense of toadying to any small group of vocal censors. Integrity of author, director, or actor can seldom survive. The product is built, on the dishonest thesis that life is cither black or white. Big Hollywood sees no grays. To it, the penalty of sinning is perforce and always suffering. What it lacks in simple honesty it attempts to conceal behind elaborate sets and extravagant productions.

The most severe concrete indictment of the affairs of Hollywood is to be found in the pronouncements of the Screen Directors Guild. In July 1938 that, body of movie creators lashed out at the ‘complicated and expensive system of supervision.’ It charged: —

That studio ‘overhead,’ a great part of it wasteful, swallows 40 per cent of the cost of Hollywood picture making;

That duplication, uncertainty, mixed signals, immeasurably increase the remaining 60 per cent actually spent in production;

That ten years ago nearly twice as many pictures were made with one eighth, on the average, the number of producers, supervisors, associates, special assistants, and so forth, currently employed;

That millions of dollars have been invested in screen stories that will never see a lens, and that directors have not been asked to examine this material for salvage and reconstruction;

That producers prepare stories with ‘ situations, stunts, and scenes’ impossible to film, or monstrously costly, whereas directors if consulted could suggest various alternatives;

That executives by the gross are unqualified, inexperienced, lacking in creative ability, owing their posts to nepotism, and offering ‘a virtual proscription against originality and freshness in pictures’;

That there should be a ‘closer unity’ between the ‘real producer and the director,’ especially men who have been on the lots and locations and know their way around, instead of banker-picked emissaries who clutter up payrolls;

And finally that the entire industry needs ‘not just a suggestion but a housecleaning.’

Only the government can save the industry from its consistent circle of ruin. Segregation of production from exhibition may bring these giants down to earthly, human dimensions. Then care, attention, knowledge, might find room in the operating heads once more. Directors might be called upon to build movies which they care about producing. Without the power over theatres to make them buy pictures, the producers may stand on their toes, eager, competitive, aware of their own affairs. Even stockholders may find corporations in the movie field worthy of investment, not as a wild gamble, but as an essential part of the leisure diet of an eager public.

In our lifetime we can see in this one industry the urges, the greed, the sledgehammer use of power, the substitution of power for ingenuity, that appear in the case history of practically every Big unit in American life.