Hollywood vs. The Law

A week or so back a momentous decision probably passed you by. The United States Government repealed the Paramount Consent Decree of 1948. That was the law that forced studios to shed their chains of theaters. The unforeseen result was that it ended the studio system on which Hollywood had based its operational model, threw thousands of actors and hundreds of directors out of work and put the business in financial jeopardy for over a decade. Why it took so long for the Government to change its mind is anybody’s guess.  

By the 1960s it was clear the Government’s action had been, to say the least, misguided. Without the guaranteed profits from exhibition, Hollywood could not afford to make so many pictures. And with no financial interest in exhibition, studios no longer felt any obligation to provide picture houses with the three or four hundred a year that some required to survive.

It only took 15 years for legal minds to consider a rethink. When, in 1963, the second largest theater chain in the country –  National General – decided to take a stab at making movies, it was granted a three-year window to do so. National General, which had bought up half the Twentieth Century Fox circuit in 1951 and now also owned real estate and supplied equipment for concerts, set up Carthay Center Productions with a four-picture slate including Divorce American-Style.

The only people who objected to this development were the studios. The exhibitors who had been the driving force to get the Paramount Decree over the line welcomed the move. And for a simple reason – the collapse of the old Hollywood system had seen a substantial drop in output. There were not enough pictures to go round. Worse, the shortage meant the movies that were being made took much longer to reach the hinterlands. Big city center theaters held on to movies for far longer than when there had been more pictures to choose from. The arrival of roadshow had exacerbated the problem, tying up the biggest cinemas for months at a time thus preventing ordinary films from being released.

Prior to National General, there had been a few low-budget or regional attempts by cinema owners to enter production business, but not at a sufficient level to alarm Government. Howco, which owned 60 theaters, made a small number of B-films like Jail Bait (1954) and Girl with an Itch (1958). McLendon Theaters, which also owned a radio station, made the low-budget The Killer Shrews (1959 and My Dog Buddy (1960) mainly as a filler for its own cinemas.  

It took more than three years for National General to get its act together and required a further three-year waiver, granted in 1966, going on to fund Divorce American-Style (1967) and Gregory Peck western The Stalking Moon (1968) among others.  CBS Television entered the production arena with Cinema Center and carved out a deal with NGC that greenlit  John Wayne in Rio Lobo (1970) and Big Jake (1971), Lee Marvin in  Monte Walsh (1970), Pocket Money (1972) and Prime Cut (1972), and Steve McQueen in The Reivers (1969), Le Mans (1971) and Sam Peckinpah’s The Getaway (1972).

Meanwhile, American Broadcasting-Paramount Theatres, the largest circuit in America, had  already bypassed the strictures of the decree with a quartet of low budget films such as The Beginning of the End (1957) and Eighteen and Anxious (1958) before setting up the more ambitious ABC Pictures in 1965, its first production Good Times (1967) followed by pictures as diverse as Charly (1968), The Straw Dogs (1971), Robert Aldrich’s The Grissom Gang (1971), historical epic The Last Valley (1971), Ingmar Bergman drama The Touch (1971) and Oscar-winning musical Cabaret (1972). ABC also owned Palomar which made The Killing of Sister George (1968), Shalako (1968), and The Stepford Wives (1975).

The 1948 Decree, the result of embittered exhibitors egging on ambitious politicians, was probably the craziest decision the Government made in over 30 years of interference in the movie business. The first bit of interference was theoretically justified – the antitrust action of 1914. But the background to this was at the very least murky. The companies that actually invented the film and equipment from cameras to projectors realized a) that their patents could easily be pirated and b) that they could potentially be excluded from the massive revenues their ideas had created. As the business swiftly changed more money was being from exhibition than production.

Initially, movies were shown in peepshows in America, individual booths where the customer inserted a coin and saw flickering images for a few minutes. The booth owner would buy the movie outright. But then they came to realize that once interest in that particular movie had died away they would be left with a dud. So someone came up with the idea of renting movies rather than selling them outright. This was, in effect, a film library. These were called exchanges. The theater owner would rent a movie one week and take it back the next and pay far less than it cost to purchase a movie outright.

A group of manufacturers – known as the General Film Company – created a consortium and set about buying up all the exchanges. This would have resulted in a monopoly of distribution. And if the distributors were also the producers then they could guarantee that exchanges gave priority to the movies their companies. 

One exchange owner challenged this in court. And won. That was the first anti-trust action against the industry and technically not against the Hollywood arm of film-making since Hollywood had not been invented at that point with most movies being made around New York.

Then, in sweet irony, exchange owners and exhibitors worked out that the GFC was right – you had to control all aspects of the business. Vertical integration became the basis of the Hollywood system. Studios made movies, distributed the movies through their own exchanges and owned chains of cinemas. In the 1920s a lot more money was made from exhibition than production, in part because rental percentages were heavily weighted in favor of the exhibitor.

No studio actually had a nationwide chain, they tended to be strong in a region, and the number of cinemas they owned was far from being monopolistic but in general they were in charge of operations in the centers of big cities rather than mom-and-pop picture houses in the hinterlands.

But independent exhibitors didn’t think this was fair and towards the end of the 1920s began to harass their local political representative to change what was known as “block booking.” This was where a cinema signed up with one studio for its entire annual output of 50 or 60 films, sight unseen. Exhibitors complained they had no idea what they were going to get. The contract they signed might simply point to three films with Joan Crawford, two from Greta Garbo and so on. Exhibitors conveniently ignored the fact that it was impossible for a studio tasked with making so many pictures to plan so far ahead. Studios would have to be working or two or three sets of 50-60 movies every year just to meet exhibitor demand.

Generally, however, Hollywood with its free-wheeling attitudes tended to mightily annoy politicians. Producers had become too casual in attitudes to morality. In the 1920s, there were hundreds of censorship bills being lined up to go through legislators while in towns and cities movies could be banned for a variety of reasons. Largely to the save money from defending itself against proposed bills and local censorship, Hollywood decided to go down the self-regulation route. An independent censorship body known as the Production Code was established in 1930.

Hollywood wealth also aggravated the government. Top stars could earn $300,000 a year at a  time when millions were unemployed – amounting to 18 per cent of the working population in 1930 – and the average annual salary was $1,368. So in 1934 hoping to shame the industry to reducing salaries the Government forced studios to reveal the actual earnings of every star. It  hoped  a public backlash would produce a boycott that would make the industry see sense. However, although the bill afforded those inclined to demonstrate moral superiority the opportunity for outrage, the public did not take against the movie industry. (You can find out more about this in my book When Women Ruled Hollywood.)

But the Government plowed ahead in its intent of bringing the industry to heel. This time politicians returned to the original source of contention – block booking. And in 1939  Government legislation prevented companies forcing exhibitors to sign contracts for a year’s supply of movies sight unseen.

There were two major outcomes of the new law. Firstly, movies could not be released until seen by exhibitors. That resulted in studios at great expense setting up trade shows in cities all over America. While theoretically this was a good idea since now exhibitors would know what they were getting, in reality it was plainly preposterous. If an average movie house changed programs twice a week and showed double bills as was the norm then they would have to allocate around six hours a week, plus travelling time, to attend the trade shows. More time, in fact, because the studios did not run a stack of films back-to-back in a tidy preview; rather previewing one film at a time.

The second rule, to prevent studios lumping a heap of bad movies in with a smaller number of good ones was to limit the maximum number of films that could be sold in a block to five. The assumption was that in order to attract interest each block would have to contain one or two good pictures. And that a studio’s biggest-budgeted pictures would be included in such blocks.

But the legislators had left a couple of loopholes, so it didn’t go the way they expected. In the first place, there was nothing to prevent a studio putting one picture in its own block. That meant studios could protect their biggest productions, forcing exhibitors to pay far more for them from the outset than before. The second, and more serious point, was that the need to trade-show created a supply drought and studios showed no signs of speeding up the supply chain since in effect they had to make two years’ worth of movies in one year.

So they held back movies until they felt any batch had realized its potential. By the mid-1940s each studio was sitting on a back catalog of about 20-30 movies. To fill the gap, studios took to reviving old films, but charging top dollar for them. Whenever it looked like exhibitors were opting for cheaper older films rather than more expensive films, the studios simply cut off the supply of reissues.

Studios and cinemas faced a multiplicity of problems during the war, from the Government limiting the amount of raw stock to make prints to enforcing blackouts on front-of-house marquees , but even so there was full employment and theaters had to remain open for longer periods in order to cope with demand.

The fact that studios had taken everything the government could throw at them and still came up smiling enraged the powers-that-be. Now exhibitors were agitating for greater freedom to show films i.e not be told when they could and could not show a film and not have to wait a specified period of time as a movie shuttled down the food chain. Lawsuits were piling up. The studios had operated a self-regulating arbitration system since the 1920s, often paying out millions of dollars in reparation to hard-done-by exhibitors, but that system was rapidly descending into chaos.

Studios just had too much power, as far as the Government was concerned, and would have to choose between making movies and showing them. That resulted in the 1948 Decree. Interestingly, the exhibitors were not all pro-change. Some foresaw the potential devastation that lay ahead and complained that this was the kind of victory that put exhibitors out of business.  The decree had been intended to create equality of opportunity, but it had the opposite effect as exhibitors battled with each other to obtain product from a steadily-diminishing supply. Most exhibitors came off worse as a result of a change in the law that they had instigated.

Getting rid of the law entirely now will open the doors for the likes of Netflix and Amazon to move big time into cinema ownership. This will help them fight any plans by the Oscar ruling class to stop their films being considered for these valuable statuettes. But it might also strengthen the potential for films initially intended for streaming to be given a longer or simultaneous run in theaters. At some point Netflix, which has been built entirely on debt, will see the value of a billion-dollar hit and what it can add to the bottom line while still benefiting from getting first bite at streaming. Most films made for streaming drop into the made-for-television feature film category that has been around since the 1960s. The Killers (1964) with Lee Marvin, for example, was shown first in cinemas though originally made for television. But just as television companies found then, the public just does not want to stay at home all the time watching the small screen, even when the movies have decent stars, and hopefully a similar sort of sanity will prevail today.