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7 Congress], SENATE COMMITTEE PRINT

ou Session

INVESTIGATION OF CONCENTRATION
OF ECONOMIC POWER

TEMPOBARY NATIONAL ECONOMIC
COMMITTEE

A STUDY MADE FOR THE TEMPORARY NATIONAL
ECONOMIC COMMITTEE, SEVENTY-SIXTH CONGRESS,
THIRD SESSION, PURSUANT TO PUBLIC RESOLUTION
NO. 118 (SEVENTY-FIFTH CONGRESS) AUTHORIZING AND
DIRECTING A SELECT COMMITTEE TO MAKE A FULL
AND COMPLETE STUDY AND INVESTIGATION WITH RE-
SPECT TO THE CONCENTRATION OF ECONOMIC POWER
IN, AND FINANCIAL CONTROL OVER, PRODUCTION AND
DISTRIBUTION OF GOODS AND SERVICES

MONOGRAPH No. 43

THE MOTION PICTURE INDUSTRY
A PATTERN OF CONTROL

Printed for the use of the
Temporary National Economic Committee

UNITED STATES

GOVERNMENT PRINTING OFFICE

WASHINGTON : 1941

TEMPORARY NATIONAL ECONOMIC COMMITTEE

(Created pursuant to Public Res. 113, 75th Cong.)

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman
HATTON W. SUMNERS, Representative fro,u Texas, Vice Chairman
WILLIAM H. KINO, Senator from Utah
WALLACE H. WHITE, Jr., Senator from Maine
CLYDE WILLIAMS, Representative from Missouri
B. CARROLL REECE, Representative from Tenne.ssee

THURMAN W. ARNOLD, Assistant Attorney General,
•HUGH COX, Special Assistant to the Attorney General,
Representing the Department of Justice
JEROME N. FRANK, Chairman

•SUMNER T. PIKE, Commissioner,

Representing the Securities and Exchange Commission
GARLAND S. FERGUSON, Commissioner,
•EWIN L. DAVIS. Chairman.

Representing the Federal Trade Commission
ISADOR LUBIN, Commissioner of Labor Statistics,

'A. FORD HINRICHS. Chief Economist, Bureau of Labor Statistics,
Representing the Department of LabT)r
JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel,
•CHARLES L. KADES. Special Assistant to the General Counsel.
Representing the Department of tlie Treasury
WAYNE C. TAYLOR, Under Secretary of Commerce,

*M. JOSEPH MEEHAN, Chief Statistician, Bureau of Foreign and
Domestic Commerce,
Representing the Department of Commerce

Leon Henderson, Economic Coordinator
Dewey Anderson, Executive Secretary
Theodore J. Kreps, Economic Adviser

•Alternates

Monograph No. 43
The Motion-Picture Industry— A Pattern of Control

DANIEL BERTRAND
W. DUANE EVAN'^
E. L. BLANCHARD

ACKNOWLEDGMENT

This monograph was written by
DANIEL BERTRAND

Administrative Assistant, Temporary National Economic Committee

W. DUANE EVANS

Senior Economist, Bureau of Labor Statistics, United States Department

oj Labor

E. L. BLANCHARD

Member, Temporary National Economic Committee Staff

The. Temporary National Economic Committee is greatly indebted
to these authors for their contribution to the literature of the subject
under reviev^

The status oJ the materials in the volume is precisely the same as that of
other carefully prepared testimony when given by individual witnesses;
it is information submitted for committee deliberation. No matter what
the official capacity of the witness or author may be, the publication of his
testimony, report, or monograph by the committee in no way signifies nor
implies assent to, or approval of, any of the facts, opinion, or recommenda-
tions, nor acceptance thereof in whole or in part by the members of the
Temporary National Economic Committee, individually or collectively.
Sole and undivided responsibility for every statement in such testimony ^
report, or monographs rests entirely upon the respective authors.

(Signed) JOSEPH C. O'MAHONEY,
Chairman, Temporary National Economic Committee.

Ill

TABLE OF CONTENTS

Page

Letter of transmittal ^^

Introduction ^i

Chapter I. The pattern *

Development of the pattern |

Crystallization of the pattern ^

Chapter II. The issues VV-V oo

Block booking, blind selling, and the forcmg of shorts ^^

Block booking *^

Forcing of short subjects ^°

Blind selling ^^

Designated play dates ^*

Other practices affecting distributor-exhibitor relationships ^o

Overbuying ^^

Selective contracts ^^

Clearance and zoning ,- ^V

Unfairly specified admission prices. ^. *^

Other practices affecting relationships between exhibitors 47

Chapter III. Observations ^^

APPENDIXES

I. The eight major companies — ^^

II. The Motion Picture Producers and Distributors of America, Inc., or

the Hays organization ^^

III. The consent decree ' '•*

TABLES

Page

1. Number of feature length motion pictures produced in the United

States by all producing companies, and by each oi the major pro-
ducing companies, by seasons, 1930-31 to 1938-39 9

2. Number of theaters operated by each of the major companies, 1940 10

3. Number of first-run metropolitan theaters operated by each ot the

major companies in 35 key cities, 1940 11

4. Cities with populations of 100,000 or more in which exhibition is con-

trolled by major companies 12

5. Control of exhibition facilities by a single major company in each of

four localities. 1939 13

6. Number of loans by major companies since 1933 14

VII

LETTER OF TRANSMITTAL

January 15, 1941.
Hon. Joseph C. O'Mahoney,

Chairman, Temporary National Economic Committee,

United States Senate, Washington, D. C.

My Dear Senator: The monograph, The Motion Picture Indus-
try— A Pattern of Control, is submitted for the information of the
Committee. It was prepared by Mr. Duane Evans, senior economist
in the Department of Labor, Mr. Daniel Bertrand, administrative
assistant to the executive secretary of the Temporary National
Economic Committee, and Miss Edna Blanchard, member of the
T. N. E. C. staff. The Department of Labor generously detailed
Mr. Evans 'temporarily to the Committee to assist in the preparation
of this report. The study grew out of the continued interest in the
economic problems of the industry of Mr. Evans and Mr. Bertrand
since the N. R. A. period, when both were connected with the admin-
istration of the code of fair competition for the motion picture industry.

This study gives a concise treatment of the economic development
of the motion picture industry and the problems raised by its rapid
growth and its present-domination by a few large companies. It is of
particular importance in the studies of the concentration of economic
power for the span of time involved is so short, and the events so recent,
that the pattern of control can be kept constantly before the reader.
Thus, the monograph offers evidence of the ways in which great aggre-
gates of economic power are created and the methods used in their oper-
ation. The struggle for dominance goes forward ruthlessly, with
ofttimes little regard for the motion picture industry's social responsi-
bilities. Finally, as power has become lodged in a few hands, it has
become necessary for the Department of Justice to take steps to protect
the public interest. After prolonged discussion and litigation a con-
sent decree has been entered into between that Department and the
industry. This decree is analyzed in the present report, together with
certain observations as to its eft'ect on the problems which it seeks
to solve.

The authors have been careful to present a factual description of
the motion picture industry as an important economic structure. They
do not moralize, nor make judgments concerning the events, good and
bad, which they describe. Conclusions are not recommendations but
summaries of the facts. The monograph, therefore, serves a very
useful purpose in its collection and condensation of data on the
motion picture industry. It should be of inestimable value to the
congressional committees vested with the duty of reviewing proposed
legislation which occurs each year.

Respectfully submitted.

Theodore J. Kreps,

Economic Adviser.

INTRODUCTION

An outstanding lesson of history is that -security, political or eco-
nomic, is perhaps best achieved through organization and coordinated
activity. The early economic theorists postulated numerous small
units struggling with each other under a rule of "free competition"
which required that those least fitted for the conflict, the " sub-marginal
establishments," should inevitably be the losers. This is not coinci-
dence, since these conditions characterized the more primitive forms
of business organization. But just as individuals learned that there
was safety in numbers, so business units learned there was safety in
size, and today economists must concern themselves with the conse-
quences of combination as well as those of competition.

In the United States at the end of the last century there was a rusn
to form huge combines. In the process of formation of these "trusts,"
huge business units sometimes clashed in economic warfare, with still
greater power the prize for the victor and absorption the consequence
to the vanquished.

In these battles of giants the consumer was in the position of inno-
cent bystander. During the warfare he frequently benefited, but
when the struggle ended the victor usually turned to him and
demanded tribute in the form of higher prices. Sometimes the con-
flict was ended or avoided by agreement; the result to the consumer
was the same.

When free competition prevailed, the consumer was the final
arbiter, the referee. After combination had run its course and a
monopoly or near monopoly was achieved, he lost this power. Once
strong and now weak, he could defend himself only collectively,
through the Government as his representative. The "trust-busting"
campaigns of the early 1900's, the Sherman Act and the Clayton Act,
all were efforts on the part of the Government to restore to the con-
sumer a measure of the protection which had previously been afforded
him by competition.

These legislative efforts were designed to break up the existing giant
combines and prevent the formation of new ones. They did not, how-
ever, strike at the cause of formation of these combines. Size still
conferred an advantage in the business struggle. The process of dog-
eat-dog was permitted to continue, but was halted one step short of
completion. The complex of economic forces brought about combina-
tion of business units into fewer and larger entities, but the rules laid
down by Government prevented ultimate combination into a single
industrial giant completely monopolizing one line of human activity.
Industry after industry then fell into a common and familiar pattern.
Instead of the multitude of individually small establishments visioned

XII INTRODUCTION

by the classical economist, the end product was an industry dominated
by a few large closely-organized corporations.'

Denied the prize of an ultimate monopoly, these industrial leaders
sought for "the next best thing."

It was early discovered that price competition was no longer desir-
able from the standpoint of these large companies. Price cuts were
necessarily met by competitors, so no permanent advantage in the
form of a larger share of the market was likely to result. The only
inevitable consequence was that the profits of all concerned would be
reduced. Price warfare was then seldom resorted to unless a specific
end, with reasonable surety of its attainment, was in view.^ Business
had now achieved the moral level of diplomacy.

Out of the realization that some forms of competition were mutually
disadvantageous was born a new era for business, symbolized by a
new watchword and battle cry. It is heard on every side, and it is
"cooperation."

Cooperation extends further than a recognition that price-cutting
gives no lasting advantage to the person instituting it. It extends to
preservation of the status-quo — the system under which the con-
sumer, no longer protected by constant competition in the matter of
prices, can be made to pay for all this industrial goodwill. Coopera-
tion is then seldom a positive force; it is generally aimed at preventing
change. Certain positive services may result. An example is the
reporting and publishing of prices which is done by many trade asso-
ciations. But here the objective is less to -provide the consumer with
a guide than it is to prevent the uninitiated or uninformed from
thoughtlessly quoting prices below the going level.

Less openly, cooperation frequently takes forms which are designed
to prevent the intrusion of new competitors into the business or in-
dustrial field. Consequently, there has grown up in a number of
industries a more or less clear-cut distinction between the major in-
terests, those large companies who virtually control and manage the
affairs of the industry for their mutual benefit, and the independents
(or outsiders). This has come about through the fear that the
smaller enterprises, in their attempts to capture a larger portion of the
business and so gain admittance to the inner circle, might in some way
disturb a situation deemed satisfactory by the controlling interests.

The picture drawn above is not an uncommon one. It gives a
rough outline of the development of the motion picture industry. In
its case some of the steps are clearer, since the motion picture industry
is in many ways a youngster among its industrial cousins. Accord-
ingly, in the space of a relatively few years it has changed from an
activity in the hands of a large number of small and financially weak
individuals to an industry controlled by a few large companies which
dominate its policies and control its actions.

' For an indication of the extent to which combination has been carried in American enterprise, cf. Tem-
porary National Economic Committee, Monograph 27, "Structure of Industry," Part V, "Concentration
of Production in Manufncturins," Walter F. Crowder, 1940.

' Cf. the action of the P. J. Reynolds Tobacco Co. in reducing the listed wholesale price of Camel cigar-
ettes from .$6.15 to $6 per thou.sand in April 1928, reported in the trade press to be the result of Reynolds'
determination to force another cigarette manufacturer to stop giving especially large discounts to mass
buyers. (United Tobacco Journal, April 28, 1928, p. 7, and Printers' Ink, May 3, 1928, p. 182.) The price
<;ut was rescinded by an increase to $6.40 per thousand in October 1929.

CHAPTER I

THE PATTERN

CHAPTER I

THE PATTERN

DEVELOPMENT OF THE PATTERN ^

The motion picture industry had its inception near the beginning
of the present century as a "peep show" form of entertainment confined
to backrooms and unused shops in a few. large cities. Immediately
popular and showing promise of large profits, it attracted the atten-
tion of entrepreneurs, speculators, investors, and other mid-wives of
business. With their not wholly disinterested assistance, the infant
industry was born.

As it grew up, it donned the outworn vestments of its not always
respectable older cousins — vaudeville and the legitimate stage — by
moving into closed or abandoned theaters formerly devoted to these
types of entertainment. But, lusty and vital, the infant soon out-
grew these hand-me-downs, and in 1-914 it made its first appearance
on Broadway in a theater built exclusively for showing motion
pictures.

Today in the billion-dollar class, the industry has passed through
a whirlwind development — rapid and successful. The meteoric rise
and fall of personalities connected with the industry have been as
vivid as any celluloid romance. Beginning as a flickering novelty,
the motion picture today lives, tells a story, dispenses news, and even
teaches in our schools. Once silent, it now sings, and the grey and
jerky images of its early days have been steadied and given color.

From its beginning the industry has been characterized by some
form of domination. It started in the hands of three companies —
Edison, Biograph, and Vitagraph — who owned the principal patents
covering the manufacture of equipment and film. These companies
at first derived their profits more from the sale of equipment than
from the sale of films.

The early motion picture films were produced on small budgets;
they were short and could be exhibited in a few minutes. Audience
turnover was rapid. The subject matter of these films was usually
trivial — prize fights, dancers, incidents on park benches, and the like.
Prints were sold outright, and their value depended principally on
their novelty.

As the popularity of this form of entertainment spread, increased
production became necessary to meet the public demand. A great
many small producers and film distributors entered the field, but these
newcomers at first constituted no immediate threat to the controlling
interests.

At this time a fundamental change in the business methods of the
industry took place. As matters stood, films lost value to an exhibitor

' The following sources have been freely consulted, in the preparation of this section: Lewis Jacobs, ''The
Rise of the American Film," Harcourt, Brace & Co., New York, 1939; Howard T. Lewis, "The Motion
Picture Industry," D. Van Nostrand Co., Inc., New York, 1933; Terry Ramsaye. "A Million and One
Niehts", Simon & Schuster, New York. 1926: National Recovery Administration, "The Motion Picture
Industry Study," Work Materials No. 34, 1936.

4 CONCENTRATION OF ECONOMIC POWER

as their novelty was exhausted, so exhibitors traded films with each
other. It was soon realized that the owner of a stock of films could
make a profit by renting a single print to a nurhber of exhibitors in
succession, -thus relieving these exhibitors from the necessity of
making a cash investment in films. Consequently, the original method
of outright sale of films to exhibitors was replaced by a licensing system.
Under this system, title to the film remained with exchange men, and
each film was licensed to various exhibitors until the print was no
longer usable. This method of film distribution is still in use today.

In 1908, mainly to escape the effects of a patent war conducted
chiefly by the Edison companies which held basic camera and projec-
tion equipment patents, the 10 leaamg interests in the industry
organized the first trust — the Motion Picture Patents Co.* All
patent interests and rights were pooled, and the cooperating companies
were licensed to manufacture and lease motion pictures. The East-
man Kodak Co. cooperated by refusing to supply raw film to non-
licensed manufacturers. Films produced by the "patents pool"
were handled by licensed exchange men who agreed to sell only to
theaters with licensed projectors, and the exliibitors were required
to pay for the right to use projectors in addition to film rentals.
Through this system of licensing, the pool attempted control of the
entire industry.

Resentment from those outside the "trust" took the form of
bootlegging of films and projectors; protective organizations were
formed and these organizations in turn prospered. Even licensed
exchanges violated their contracts.

To clieck this adverse trend, the patents pool in 1910 organized
57 of the 58 exchanges then in existence into the General Film Co.
to distribute the films of the 10 producers on a national scale. These
licensed exchanges agi^eed to buy only "trust" pictures.

Despite the attempt to monopolize production and control distri-
bution, the independent companies multiplied, flourished, and con-
tinued making pictures. By 1912 dozens of new producers and dis-
tributors, led by William Fox, operator of the fifty-eighth exchange,
were offering the trust keen opposition. In this year a lawsuit was
instituted against the trust as an imlawful conspiracy in restraint of
trade. With antitrust sentiment sweeping the country, the General
Film Co. was dissolved by the Federal courts in 1915. In 1917, the
United States Supreme Court held, after years of hearings, that the
patents company could not enforce exclusive use of licensed film on
patented projectors in theaters, and the trust was declared legally
dead.

Concomitant with the fight over patent rights was the controversy
between short and the newly introduced feature-length films. The
trust, interested primarily in quick and inexpensive production,
greeted feature-length films with distaste and refused to distribute
them. The independent companies, encouraged bj^ the trust's
reactionary policy, produced full-length features and sold exhibition
rights to individual distributors each representing one or more States.
These exchange men became known as "States' rights distributors."
They were so successful that in 1914 a number of them joined with a

* Edison, Biogranli, VitaEraph, Essanay, Selig, Lubin, and Kalem, domestic manufacturers; Melies
and Pathe, French oompauies; and George Kleine. distributor.

CONCENTRATION OF ECONOMIC POWER 5

few independent exhibitors to form tlie Paramount Pictun^s Corpora-
tion, which financed and distributed feature-length pictures produced
by affiUated independent studios. Tliis organization assured exhibi-
tors a steady supply of features and the studios a steady market for
their product.

The war years saw rapid growth of the industry. In 1914 America
supplied half of the world movie production; by 1917 nearly all the
world's motion pictures were produced in the United States. Increased
profits, increased costs, and expansion in every direction were part of
the war boom. Competition became more ruthless. Old corpora-
tions gave way to new ones. The industry had assumed the propor-
tions of a large-scale operation depending on a mass market.

Up to this time exhibitors had been interested primarily in having
a regular supply of new reels regardless of quality. The introduction
of the feature picture and the star system made equality a more
important factor, and the production of more pretentious films was
expanded.

A new problem arose to engage the attention of producers. Theaters
were numerous and widely scattered throughout the nation, and
producers had to rely on distributors for efficient distribution of their
product. But, since distributors handled the product of many
producers, the individual producer found himself at the mercy of the
distributor. With the recognition that full exploitation of their films
could be accomplished only through securing control of distribution,
the producers established affiliations for that purpose (see appendix
I). This period as well as the early years after the war can indeed
be described as one of large-scale economic warfare between powerful
organizations for control of the industry.

During the war years Paramount developed block booking, a plan
whereby exhibitors contracted in advance to buy a number of films to
be made within a stipulated time. This plan, helping in great part to
effect quantity distribution, was advantageous to producers since it
assured them of a steady outlet for their films.

Exhibitors were confronted with the necessity of depending on the
block-booking system controlled by the producer-distributors, much to
the economic disadvantage of the former. Consequently, this method
of sale was opposed almost from its inception by independent
exhibitors.

The animosity against block booking became so great that in 1917
27 large exhibitors controlling important theaters in key cities com-
bined and established their own distribution channel — First National
Exhibitors Circuit. This organization was established to combat
the high prices of big-star pictures and the selling policy of the
major producers.^ Production and distribution units financed by the
organization attempted to provide a constant supply of pictures to
members. Finally, First National established its own studios.

First National's entry into the production branch had important
consequences. The larger producer-distributors lost exhibitor-cus-
tomers and their market for pictures was threatened. In the case of
Famous Players Lasky, stars, directors, and other personnel left for

/ f "^'u "P^"^' ^^™°*^^ Players Lasky Corporation, which through its president, Adolph Zukor, had most
of the big name stars under contract and required exhibitors to purchase all their product in order to secure
Ihe more p6pular pictures, like those featuri-ng Mary Pickford.

2s;6782— 41— No. 43 2

Q CONCENTRATION OF ECONOMIC POWER

First National. The trade war extended to problems arising from
pricing of pictures, competition for desirable play dates, and the whole
problem of booking. In 1918 block booking was temporarily aban-
doned.

The struggle for supremacy in the industry, formerly based on
patent control and market monopoly, now emerged in a fierce battle
for theaters. Large theater holdings strengthened bargaining power,
and the fight for control of outlets became the order of the day.
(See appendix I.) Real estate developments requiring large-scale
financial operations led to the almost complete integration of the three
branches of the industry — production, distribution, and exhibition —
in the hands of the lafge companies.

By the early twenties, most of the important independent corpora-
tions and individuals were eliminated or submerged. The industry
had already passed from one of many small independent companies
to one controlled by a few relatively powerful organizations.

At this time, a series of Hollywood scandals involving motion
picture personalities gave impetus to militant reform groups who were
already sponsoring Federal censorship of the movies to reduce the
production of salacious pictures. In addition, members of the industry
were involved in constant and expensive litigation. The large com-
panies, to provide means for adjusting their internal disputes without
recourse to the courts and to combat the censorship movement, in
1922 formed the Motion Picture Producers and Distributors of
America, Inc.

The Motion Picture Producers and Distributors of America, Inc.,
better known as the Hays organization from the political figure
employed to be its head, is an illuminating example of the cooperation
of large business units for self-protection. It was then, and it is
today, supported exclusively by the large companies. It was con-
ceived in fear of regulation of the industry by the public and dedicated
to the proposition that outsiders should never dictate its policies.

By 1927, the industry was launched in a period of reckless spending
and extravagance which would have meant the inevitable wreck
of enterprises in more settled lines. Of necessity, financial depend-
ence on Wall Street increased enormously.

New competition centered on the building of elaborate theaters
and bidding in salaries for stars. Admission prices rose to meet
increased costs. At the same time, the assembly-line technique was
introduced in picture-making. Poor-quality pictures became fre-
quent, and the industry saw a sharp decline in profits.

The sound picture saved the day. Introduced in 1926 by Warner
Bros., on the verge of bankruptcy, this innovation received instant
approval by the public-, and was shortly adopted by the other major
companies.

The stock market crash of 1929, coming on the heels of the "talkies"
boom, played havoc with some parts of the motion-picture industry as
it did with the rest of the Nation. Strangely, though, box-office
receipts were not immediately affected.

Wall Street gazed in astonishment at what appeared to be a "depression-proof"
industry. The "resistance" of the movie to the stock-market debacle so impressed
Wall Street interests that during the following years they were to struggle with
more resolution than ever to gain control of che movie industry.'

« Jacobs, op, cit., p. 300.

CONCENTRATION OF ECONOMIC POWER 7

The battle for control of sound, started before the crash, now came
to its climax. For years, various groups had been experimenting
with sound. Warner Bros, developed Vitaphone; Fox developed
Movietone. Through alliances with Warner and Fox, Electrical
Research Products, Inc. (E. R. P. I.)' gained control of their patents.
The Radio Corporation of America (R. C. A.)^ with patent rights to
Photophone was E. R. P. I.'s main contender. E. R. P. I. was
successful in signing long-term agreements for the use of sound
equipment with five of the large producers (M-G-M, Paramount,
United Artists, First National, and Universal). These agreements
were so successful that R. C. A. was virtually eliminated from the
field.® Through the Radio-Keith-Orpheum Co. and its large theater
holdings, R. C. A. made some headway, but its field was still limited,

R. C. A. finally filed a complaint charging unlawful restraint of
trade by American Telephone & Telegraph and its affiliates. In
1935 a peaceful agreement was concluded between the two corpora-
tions which gave R. C. A. new and substantial rights.

The entire motion picture industry, therefore, through patent ownership is
indirectly under a monopoly control far beyond the early aspirations of the
Motion Picture Patents Corporation.'"

Despite lowered consumer purchasing power due to the depression,
sound was at first successful in keeping up the industry's box office
receipts. However, the installation of sound equipment in both
studios and theaters was a heavy financial burden. As the novelty
of sound wore off, box office receipts fell drastically, and the industry
finally felt the grip of the depression. The big theater holdings and
real estate investments of the motion picture companies swiftly
depreciated. Most of the large companies experienced financial
difficulties. In 1933 Paramount was adjudicated bankrupt; R-K-0
and Universal went into receivership; the Fox Film Corporation was
reorganized. Many of the theaters which had been acquired during
the earlier program of expansion were dropped. From 1930 to 1935
the number of theaters owned by the major companies declined from
3,600 to 2,225."

One of the consequences of the depression was the enactment in
1933 of the National Industrial Recovery Act. This law required
that codes of fair competition, including guarantees of minimum
wages, maximum hours, and collective bargaining for labor, and
provisions restricting unfair trade practices, be set up for the various
industries. The motion picture industry was obliged to adjust itself
to the restrictions of a code, but the essential framework of the
industry remained unclianged.

The Code of Fair Competition for the Motion Picture Industry,
approved November 27, 1933, provided for a Code Authority to
administer the code, consisting of five members representing the
affiliated interests, five representing unaffiliated interests, three repre-

' E. R. P. I. is a subsidiary of Western Electric, which is a subsidiary of American Telephone & Tele-
graph, Morgan-controlled.

> Subsidiary to General Electric, Rockefeller-controlled.

' !Jhese agreements made it impossible for exhibitors to use R. C. A. sound equipment in theaters with
E. R. P. I. equipment. In the fall of 1928. 90 percent of the sound pictures produced were recorded on
E R. P. I. equipment. By the end of 1928 only 95 theaters in the United States contained non- Western
Electric reproducmg apparatus, while 1,046 theaters had installed Western Electric equipment. (A. R.
Daniehan, A. T. A T., The Story of Industrial Conquest. Vanguard Press, New York, 1939 pp. 145-149.)

>o Jacobs, op. cit., p. 421.

1' "Standard Trade and Securities," published by Standard Statistics Company, "Theaters and Motion
Pictures," issue of February 20, 1935, p. TH-47.

g CONCENTRATION OF ECONOMIC POWER

sentatives of the Administration without vote, and labor representa-
tion when labor problems were to be considered. Despite this
appearance of unbiased character, the Code Authority, like the
industry, was dominated by the affiliated interests. The Darrow
Board report said :

It was indicated that of the 10 members of the Code Authority, 5 represent-
ing affiliated producers, distributors, and exhibitors, and 5 representing un-
affiliated producers, distributors, and exhibitors, that only 2 of them were not
connected in some way with the affiliated producers, distributors, and exhibitors
and could thus be classed as really independent. '^

To insure sympathetic administration of the code, the unusual ex-
pedient was adopted oi naming the members of the Code Authority
in the Code itself. In only two other Codes of Fair Competition
did this occur.

The same control was seen in the composition of the 31 local
grievance boards and 31 local clearance and zoning boards set up
under the code to adjudicate motion picture disputes of a local
nature.

They are dominated by the distributors and first-run exhibitors, whose in-
terests are the same. There are only two independent subsequent-run exhibitors
provided for on the boards. The interests of distributors and first run theaters
being identical as opposed to subsequent-run independent theaters, it is obvious
that * * * the voting strength of the boards will be four to two again.st the
independent subsequent-run exhibitors.!^

Control of the industry remained undisturbed by the code. Never-
theless, independent exhibitors, because of Government intervention,
received under the code a number of concessions from the affiliated
interests in the way of trade practice reforms. Many of these re-
forms came to an end after the codes were declared unconstitutional
by the Supreme Court on May 27, 1935.

CRYSTALLIZATION OF THE PATTERN

The period of hectic growth and change in the motion-picture in-
dustry is over. The early pioneering days have given way to a
mature and stabilized business on a grand scale. The bitter com-
petition of yesterday is the close control of today.

All told, there are in the United States about 110 producers, nu-
merous distributors and a multitude of exhibitors. Nevertheless, the
industry is dominated by 5 major companies,^* all of which are
active in production, distribution, and exhibition, and 3 satellite
companies,'^ interested solely in production and distribution.

The production scene today is one in which about 70 percent of all
features produced in this coimtry are made by the 8 major companies.
Each of these companies produces from 40 to 60 pictures annuall}'
with the exception of United Artists which provides distribution fa-
cilities for a group of individual producers who all together make 20
or less.

'2 Report of the National Recover^ Review (Darrow) Board relating to the Motion Picture Industry,
Washington, 1934. Composition of Authority: Representing affiliates, M. H. Aylesworth, president,
R. K. O.; S. R. Kent, president, Fox; O. .T. Sehaefer, vice-president, Paramount; N. M. Schenck, presi-
dent, Loew's; H. M. Warner, president. Warner's. Representing unaffiliates. R. H. Cochrane, vice presi-
dent. Universal; W. R. Johnston, president. Republic; E. Kuykendall, president, Motion Picture Theatre
Owners of America (including affiliated and unaffiliated theater owners); C. L. O'Reilly, president, Theatre
Owners Chamber of Commerce, N. Y.; and N. Yamins, independent exhibitor.

"Ibid.

" Paramount Pictures, Inc., Loew'j, Inc. (Metro-Goldwyn-Mayer), Twentieth Century-Fox Film
Corporation, Warner Brothers Pictures, Inc., and Radio-Keith-Orpheum Corporation.

'5 Universal Corporation, Columbia Pictures Corporation, and United Artists Corporation.

CONCENTRATION OF ECONOMIC POWER

Table 1. — Number of feature-length motion pictures produced in the United Slates
by alt producing companies, and by each of the major producing companies, by
seasons, 1930-31 to 1938-39

Season >

All
com-
panies

Para-
mount

Loew's

Twen-
tieth
Cen-
tury-
Fox

Warner

Radio-
Keith-

Or-
pheum

Colum-
bia

Univer-
sal

United
Artists

All

other
com-
panies

1030-31

510
490
510
480
520
517
535
450
526

58
56
51
55
44
50
41
40
58

43
40
37
44
42
43
40
41
51

48
46
41
46
40
52
52
49
56

69
56
53
63
51
58
58
52
54

32
48
45
40
40
43
39
41
49

27
31
36
44
39
36
38
39
64

22
32

28
38
39
27
40
45
•45

13
14
.6
20
19
17
19
16
18

198

1931-32

167

1932-33

203

1933-34 -

'30

1934-35

206

1935-36

191

193&-37

208

1937-38

127

1938-39

141

' Beginning about Sept. 1 each year.

Source: United States v. Paramount Picture)^, Inc., et a!., Civil Action No. 87-273, in the District Court of
the United States for the Southern District of New York, amended and supplemental complaint, Nov. 14
1940.

It must be noted that the percentage given above vastly under-
states the importance of the major companies in the production
branch of the industry. The pictures produced by these companies
include practically all of the more pretentious films — those with pro-
duction costs of $250,000 or more ^ach. Features produced by inde-
pendent companies consist largely of "quickies," westerns and melo-
dramas which are not shown in first-class theaters.

The control by the large companies of distribution is even greater.
Of the high-quality features which yield the largest box-office returns,
during the past five years —

Fox, Loew's, Paramount, R-K-0, and Warner have * * * collectively
released about 80 percent * * * and Columbia, United Artists, and Uni-
versal * * * about 15 percent * * *. ' No other di.stributor has released
more than 1 percent of such features during any of said years and in no year have
all other distributors combined released more than 5 percent of such features.'^

During the same period the first-named 5 majors collectively
received about 70 percent and the other 3 about 25 percent of all film
rentals in the United States.

Since 1930 the major companies — -

have continued to maintain complete control of the distribution of such features,
although many of them have been produced by producers not employed by a
major company but pursuant to arrangements made preceding the production of
such films for release by a major distributor. Such arrangements generally
included the use of equipment owned by, or production talent under contract to,
one or more of the defendants [majors]. Thtse arrangements have often included
financing of the production directly by the major distributor involved or the
borrowing of capital by the producer upon its showing that it has been assured of
release through a major distributor. Ordinarily, no funds have been or are
available for this type of production in the absence of such an assurance."

Independent distributors, therefore, are limited to handling some
foreign importations and the "quickie" type of film mentioned above.

Ownership of theaters by producer-distributors has already been
indicated as the third link in the pattern of control. Nevertheless,
the number of theaters owned today by producer-distributors is not
large. Of a total of 17,000 theaters in operation, the majors own
or control about 2,800 theaters. About 2,600 of these are individually

i» U. S. V. Paramount Pkturen, Inc., et ah. Civil Action No. 87-273, in the District Court of the United
States for the Southern District of New Yorlc, amended and supplemental complaint, Nov. 14, 1940.
" Ibid.

CONCENTRATION OF ECONOMIC POWER

owned by the different companies, and about 200 are owned jointly by
two of the major companies.^*

Table 2. — Number of theaters operated by each of the major companies, 1940 ■

Region and State

Para-
mount

Loew's

Twentieth
Century-
Fox

Warner's

Radio-

Keith-

Orpheum

Total

New England:

Maine -'- . .- - -

39
10
8
82
3
6

26
3

122

16
5

10
20
14

New Hampshire

67
3
3

10
3

5
2

58
16

108

. 92

195

38
3
19

Middle Atlantic: .

201

114

Pennsylvania. -

270

East North Central:

Ohio --

21
6
53

165

Michigan

29'

Wisconsin

West North Central:

Minnesota - -

3
6

6
48

South Dakota

10
56

South Atlantic:

1
3
4
2

8
16

9
11

District of Columbia

Virginia

17
3
69
23
38
109

11
28
33
35

208

West Virginia ...

North Carolina

South Carolina

Oeoreia ...

Florida . . ....

.. . .

109

East South Central:

1
2

Mississippi

West South Central:

Louisiana ^--- .

23-

Texas

209

17
9
14
36

205

7
8
21

New Mexico .

Arizona ..,

Utah

Pacific:

Washington

3
2
12

California

226

Total-

1,273

122

538

557

132

2.622

' The table does not include the 200 or more theaters in which some of these companies have a joint
interest.

Source: United States v. Paramount Pictures, Inc., ef al., civil action No. 87-273, in the District Court
of the United States for the Southern District of New York, amended and supplemental complaint, Nov.
14, 1940.

'8 "Each of the producer-exhibitors * • * is jointly interested financially in one or more theaters with
one or more of the other producer-exhibitors • * * through profit sharing arrangements with respect to
particular theaters; through so-called pools where several theaters owned or controlled by two or more are
operated as a unit; through direct or indirect ownership of stock in a single theater operating corporation
by two or more of such defendants; or through arrangements where one owns or leases a theater and the
other manages it. * * * There are about 200 theaters in the United States in which such joint interests
are held, including a substantial number of metropolitan first -run theaters. In addition * • • there
are numerous other joint theater interests where executive employees, or managing agents of one producer-
exhibitor • ♦ * have direct or indirect stock interests in a "theater operating corporation in which
another producer-exhibitor * * * also owns a direct or indirect stock interest." (Ibid.)

CONCENTRATION OF ECONOMIC POWER

While these theaters represent but 16 percent of all theaters in
operation, they take on added significance when it is noted that
more than 80 percent of all metropolitan first-run theaters '^ are
affiliated; in 23 key cities all of the first-nm theaters are affiliated
(table 3)'; out of 92 cities with population over 100,000 the majors
control exhibition in 73 cities (table 4); in these same 73 cities the
majors "operate enough first-nni theaters in each to receive a sub-
stantial majority of the total film revenue supplied by each of these
cities"; there are 283 cities with populations between 25,000 and
100,000 in 200 of which the majors operate one or more theaters;
"by control of first-run theaters alone, affiliated exhibitors have been
able to secure as much as two-thirds of the total theater admissions
paid in cities as large as 250,000"; and the affiliates control exhibition
in all United States cities with populations of more than 1,000,000.^*^

Table ^.—Number of first-run metro'politajt theaters operated by each of the major
companies in 35 key cities, 19^0

City

Albany. NT. Y.i

Atlanta, Ga..

Baltimore, Md

Boston, Mass.'

Brooklyn, N. Y.'

Charlotte, N. C.

Chicago, 111.1

Cincinnati, Ohio >

Cleveland, Ohio '

Dallas, Tex.i_

Denver, Colo

Des Moines, Iowa '

Detroit, Mich

Houston, Tex.'

Indianapolis, Ind.

Kansas City, Mo.'

Los Angeles, Calif.

Memphis, Tenn.'

Milwaukee, Wis.'

Minneapolis, Minn.'...

Newark, N. J.'

New Haven, Conn.'

New Orleans, La.'

New York City

Oklahoma City, Okla.'.

Omaha, Nebr.'

Philadelphia, Pa.'

Pittsburgh, Pa

Portland, Oreg

Salt Lake City, Utah'.

St. Louis, Mo

St. Paul, Minn.'

San Francisco, Calif

Seattle, Wash

Washington, D. C

Total.

Para-
mount

Loew's

Twen-
tieth
Century-
Fo.x

Warner
Bros.

Radio-

Keith-

Orpheum

' In cities thus marked, all first-run theaters are operated by these companies.

Source: United States v. Paramount Pictures, Inc., et al., civil action No. 87-273, in the District Court of
the United States for the Southern District of N'ew York, amended and supplemental complaint, Nov. 14,
1940.

" A metropolitan theater is one located in a key city. A key city is one of such size and strategic location
that the first-run exhibition of a motion picture therein effectively advertises the film among exhibitors
and the public in a wide surrounding area; 31 such cities constitute the main distributing centers of the
major companies. A first-run theater is one which exhibits flrst-class features released by one or more of
the majorsonaflrst-run showing in the city or town in which it is located. An affiliated theater is one which
is either owned or controlled by 1 of the 5 major producer-distributor-exhibitor companies.

2» United States v. Paramount, 1940.

CONCENTRATION OF ECONOMIC POWER

Table 4. — Cities with populations of 100,000 or more in which exhibition is controlled

by major companies

City

Popula-
tion
rank '

Controlled by-

New York, N. Y

Chicago, 111

Phila-ielphia, Pa

Detroit, Mich

Los Angeles, Calif

Cleveland, Ohio

Boston, Mass -..

Pittsburgh, Pa

Washington, D. C

San Francisco, Calif..

Milwaukee, Wis

Buffalo, N. Y

New Orleans, La

Minneapolis, Minn...

Cincinnati, Ohio

Newark, N. J

Kansas City, Mo

Houston, Tex '

Seattle, Wash

Rochester, N. Y.

Denver, Colo

Portland, Oreg

Columbus, Ohio

Oakland, Calif

Atlanta, Ga

Jersey City, N. J

Dallas, Tex

Memphis, Tenn

St. Paul, Minn

Birmingham, Ala

San Antonio, Tex

Omaha, Nehr

Dayton, Ohio

Syracuse, N. Y

Oklahoma City, Okla

San Diego, Calif _

Worcester, Mass

Richmond, Va .

Fort Worth, Tex

Jacksonville, Fla

Miami, Fla.

Youngstown, Ohio...

Hartford, Conn __

Grand Rapids, Mich.

Long Beach, Calif

New Haven, Conn...

Des Moines, Iowa

Flint. Mich

Salt Lake City, Utah.

Springfield, Mass

Bridgeport, Conn
Norfolk, Va.. ..

Yonkers, N. Y

Scranton, Pa

Paterson, N. J

Albany, Isi. Y

Chattanooga, Tenn. .

Trenton, N.J

Spokane, Wash

Camden, N. J .

Erie, Pa

Wichita, Kans

Knoxville, Tenn

Wilmington, Del

Reading, Pa

Tampa, Fla

Sacramento, Calif

Peoria, 111

South Bend, Ind

Lowell. Mass ...

Utica, N. Y

Charlotte, N. 0

Duluth, Minn

Loew's, Paramount, R-K-0, Warner.

Paramount, R-K-0, Warner.

Fox, Paramount, Warner.

Fox, Paramount.

Fox, Loew's, Paramount, R-K-0, Warner.

Loew's, R-K-0, Warner.

Loew's, Paramount, R-K-0.

Loew's, Warner.

Loew's, R-K-0, Warner.

Fox, Loew's, Paramount, R-K-0.

Fox, Warner.

Loew's, Paramount.

Loew's, Paramount, Jl-K-0.

Paramount, R-K-0.

R-K-0.

Loew's, Paramount, R-K-0, Warner.

Fox, Loew's, Paramount.

Loew's, Paramount.

Fox.

Loew's, Paramount, R-K-0.

Fox, Loew's, R-K-0.

Fox.

Loew's, R-K-0.

Fox.

Loew's, Paramount.

Loew's, R-K-0, Warner.

Paramount.

Loew's, Paramount, Warner.

Paramount, R-K-0.

Paramount.

Paramount, Warner.

Paramount, R-K-0.

Loew's, R-K-0.

Loew's, R-K-0, Warner.

Paramount, Warner.

Fox.

Loew's, Paramount, Warner.

Loew's.

Paramount.

Do.

Do.
Warner.

Loew's, Paramount, Warner.
Pararoount, R-K-0.
Fox.

Loew's, Paramount, Warner.
Paramount, R-K-0.

Do.
Paramount.

Loew's, Paramount, Warner.
Loew's, Warner.
Loew's.

Loew's, Paramount, R-K-0.
Paramount.
Paramount, Warner.
R-K-0, Warner.
Paramount.
R-K-0.
Fox.
Warner.

Do.
Fox.

Paramount.
Loew's, Warner.

Do.
Paramount.
Fox.
Paramount.

Do.
Paramount, R-K-0.
Warner.
Paramount.

Do.

' All population figures are taken from 1940 census.

Source: Lniled States v. Paramount Pictures, Inc., et at., civil action No. 87-273, in the District Court
of the United States for the Southern District of New York, amended and supplemental complaint, Nov. 14,
1940.

CONCENTRATION OF EfCONOMIC POWER

More important than the percontago of theaters owned is the seat-
ing capaeity represented therein, estimated at about 25 percent of the
total seating capacity in the United States. This situation is illus-
trated by a tabulation of theaters and seating capacity in three large
cities — Philadelphia, Chicago, and Milwaukee — and the State of
Florida. Moreover, these seats in larger and better houses represent
an even larger proportion of potential box-office returns, since admis-
sion prices in these more important theaters are usually considerably
higher than in other theaters, and they operate a greater number of
hours per week than the smaller houses.

Table 5.-

-Control of exhibition facilities by a single major company in each of 4
' localities, 1939

Philadelphia, Pa

Warner Bros. Circuit Management Corporation
C h icago, 111

Balaban & Katz Corporation '

Milwaukee, Wis , . _ _

Fox Wisconsin circuit .-_

State of Florida

Paramount Pictures, Inc.'

Theaters >

Num-
ber

203
58

309
38
66
15

214

■ 68

Percent
of total

100.0

28.6
100.0

12.3
100.0

22.7
100.0

31.8

Seats

Num-
ber

203, 616
85, 019

328, 379
84,919
72, 186
18, 550

122, 172
54, 534

Percent
of total

100.0

41.8
100.0

25.9
100.0

25.7
100.0

44.6

Average
number
of seats

per
theater

1,003
1,466
1,063
2,235
1,094
1,237
571
802

' Those theaters are excluded which were closed or for which seating capacity was not given.

2 Balaban & Katz Corporation is 97 percent controlled by Paramount Pictures, Inc.

3 Includes only theaters operated by E. J. Sparks and S. A. Lynch. Paramount operates approximately
40 additional theaters in Florida.

Source: Compiled from data in the 1940 Film Daily Yearbook.

Thus integration in the motion picture industry is complete, from
the inception of an idea for a picture through to the actual exliibition
of the film. The importance of the integration of production, dis-
tribution, and exhibition lies in the accomplishment, not of more
closely knit operation but of virtual elimination of competition.

In the production field, competition between the major companies
has been minimized since 1930 by the device of loaning talent.

The major producers have preferred to loan and exchange the highest priced
technical and artistic talent which they may have under exciu.sive contract to and
with each other on standardized terms rather than drive the price of such talent
higher by competing for the privilege of placing it under contract in the first
instance. 2'

These same privileges have not been accorded independent pro-
ducers.

Even where such talent has been made available to independent producers, the
terms have frequently been discriminatory as compared to the terms upon which
it has been made available to major producers. 22

21 Ibid.
« Ibid.

14 CONCENTRATION OF ECONOMIC POWER

Table 6. — Number of loans by major companies since 1933

Major company

To major
producers

To inde-
pendent
producers

Major companj'

To major
producers

To inde-
pendent
producers

610
439
223
109

56
46
12
12

Fox - -._ .

251
175
198

Paramount.

Columbia

Universal _ .._

36
11

R-K-0

• Loans of stars, feature players, directors, writers, camermen, or other production talent under contract
to one major producer made to another producer.

Source: U. S. v. Paramount Picturis, Inc., et al., civil action No. 87-273, in the District Court of the
United States for the Southern District of New York, amended and supplemental complaint, Nov. 14, 1940.

Cooperation between the big producers is not limited to exchange
of talent. Through the Association of Motion Picture Producers,
Inc. (see appendix 2), which operates the Call Bureau and Central
Casting Corporation, the majors in effect have established a common
personnel department to provide themselves with extra and bit
players below the contract grade. These services are not extended
to non-members.

Production of pictures by independents is impeded by lack of good
distribution facilities. To obtain loans from banks in order to start
production, the independents must be assured good distribution.

If the producer ha.s a good distributing contract * * * and that picture
is distributed through a reputable distributing company that knows how to sell
the picture, I might loan as high as the entire cost of production. I do not do
that always, but if there is a good distributing contract in a good distributing
organization * * * j Yvill not hesitate to loan the entire cost of production.^^

A pretentious film, in order to be profitable, must be shown in at
least some of the better-class theaters controlled by the major com-
panies. The only way an independent producer can insure this is
through a distribution contract with one of the major companies.

It is difficult to believe that capital will readily enter a field of business where
conditional requirements exist, if aware in advance of restrictions which either
partiall}^ or entirely close the market to the products of the projected undertaking. 2*

Independent production and distribution of a first-class feature is
thus indeed rare. In fact, "more than 95 percent of the features
exhibited in metropolitan first-run theaters are released by" the major
companies.^^

In the beginning, when the major companies were acquiring theaters
at a rapid pace, these companies frequently found themselves in
competition in the exhibition field. Here, as elsewhere, it was decided
that cooperation is more profitable than competition. Each com-
pany acquired and relinquished interests in theaters, but in time there
was a tendency for one company to emerge as the dominant element
in a particular geographical area.

The affiliated companies have each retamed well-scattered interests
in large prior-run theaters in metropolitan locations, but have tended
less and less to compete in the operation of the smaller or subsequent-
run theaters. In some cases affiliated companies have withdrawn in
favor of the dominant element. In other cases conflicting interests

" "Story of the Films," edited by Joseph P. Kennedy, A. W. Shaw Co., Chicago and New York, 1927,
p. 87. Discussion by Dr. Attilio H. Giannini, then president. Bowery & East River National Bank,
formerly president of United Artists.

" W. H. S. Stevens, "Unfair Competition," University of Chicago Press, 1917, p. 76.

2» United States v. Paramount Pictures, Inc., 1940.

CONCENTRATION OF ECONOMIC POWER 15

have been resolved by joint operation agreements whereby one
company assumes the responsibility of operation but both share in
the profits. Gradually, the major companies have acquired rather
separate and distinct areas or spheres of control.

Paramount, operating more than 1,200 theaters, has the largest
exhibition holdings among the major companies. About half of
Paramount's theaters are located in the South. In that broad area
comprising the States of North Carolina, South Carolina, Georgia,
Florida, Tennessee, Alabama, Mississippi, Arkansas, Louisiana, and
Texas the other major companies operate but a handful of theaters,
and virtually every one of these is a large first-run theater in a key
city. A similar pattern is found in North Dakota, South Dakota,
Minnesota, Iowa, eastern Nebraska, northern Illinois, and Utah.
Paramount is the sole affiliated exhibitor in the New England States
of Maine, New Hampshire, and Vermont, and it operates an important
number of theaters in Massachusetts. Important groups of Para-
mount theaters are also found in Pennsylvania, Virginia, Indiana,
Ohio, and Colorado.

Fox has well over 500 theaters. These are primarily located in the
Pacific and Mountain States of California, Oregon, Washington,
Montana, Wyoming, and Colorado, and in this area there are rela-
tively few other affiliated theaters. Also, in the Middle West, Fox is
the sole affiliated exhibitor in Kansas and western Nebraska and has
the major share in Missouri and Wisconsin.

Warner's operates more than 500 theaters. These are located
principally in the Atlantic Coast States with the largest holdings in
Pennsylvania, New Jersey, New York, and Connecticut. It has an
appreciable number of theaters in Massachusetts, the District of
Columbia, Maryland, Delaware, and the Virginias. Warner's also
has important exhibition interests in Ohio, Illinois, Wisconsin,
Oklahoma, and Kentucky.

R-K-0 has over 100 theaters, more than half of which are in New
York and New Jersey. It has an appreciable number in Ohio and
Michigan and about 30 in 10 other States.

Loew's operates the smallest number of theaters of any of the
majors— 120-130. More than half of these theaters are in New York
City. There is also an appreciable number of Loew theaters in Con-
necticut and Ohio. The remainder are scattered throughout the
country and are among the best first-run theaters in large cities. ^^

A description of the theater holdings of the major companies in
such broad terms does not indicate clearly just how neatly the exhi-
bition interests of these companies are segregated. This is best seen
when the theater holdings of the major companies are mapped ac-
cording to their exact locations. If this be done, it is seen that although
both Paramount and Warner's have important exhibition interests in
the State of Pennsylvania, the theaters of each company are so located
as not to compete with one another. Warner's theaters are located
in the western part of the State around Pittsburgh and in the south-
eastern corner centering in Philadelphia. Most of the Paramount
theaters, on the other hand, are in the northeast section of the State,
in the Scranton and Wilkes-Barre area, with a few theaters clustered
together on the extreme west border of the State.

28 Loew's has always pursued a very conservative policy regarding theater acquisitions. "Outside of
New York, home of the big Loew neighborhood chain, there are only five Loew theaters that are not first-
run." (Fortune, vol. XX, No. 2, August 1939.)

IQ CONCENTRATION OF E'CONOMIC POWER

Warner's theater Loldings in the neighborhood of Philadelphia
extend into the northern tip of Delaware and across the Susquehanna
River into Camden and southern New Jersey. Warner's also operates
a number of theaters in northern New Jersey. The center of the
State, however, is dominated by K-K-0 which has about 15 theaters in
the neighborhood of Trenton.

Loew's and R-K-0 both have important chains of neighborhood
theaters in New York City. Neither of these companies, however,
has extended its holdings into the New York counties immediately to
the North. These are dominated by Paramount. Further upstate
the picture again changes, and there are groups of R-K-O and Warner
theaters. Paramount theaters again appear in pooled operation with
Loew in Buffalo and with R-K-O in Rochester.

Nor does the above indicate the number of situations in which two of
the major companies jointly operate theaters. In addition to the more
than 2,600 theaters which are individually operated by one of the
majors, there are, as previously mentioned, more than 200 others
operated jointly through pooling agreements. Each one of the major
companies has a joint operation agreement for at least one theater
with at least one of the other affiliated companies. A most important
instance of such operation is in Michigan. In the peninsula area,
outside the city of Detroit, Paramount and R-K-O are jointly inter-
ested in the operation of over 100 theaters. These theaters represent
practically the entire affiliated theater interests in this area.^^

This division of the exhibition branch of the industry into separate
areas of control has not only eliminated competition in exhibition
between the major companies, but also has made each major company
the dominant element in every territory in which it operates, even
where opposed by powerful independent interests. Acting as an
exhibitor, each of the companies is able to count upon the goodwill
of the other companies in meeting independent competition since it is
expected that preferential treatment will be reciprocated in areas
where these other companies act as exhibitors.

The granting of certain terms and privileges with respect to the exhibition
of one producer-exhibitor's * * * films in another producer-exhibitor's
* * * circuit is necessarily conditioned upon the granting of similar terms and
privileges by the latter with respect to the exhibition of its films in the circuit of
the former.^*

Competition in the motion picture industry today is far different
than when the industry was composed of a great many small units.
At the present time there is competition between the large producer-
distributor-exhibitor units, but it is limited. The problem of securing
name actors, actresses, and directors is to some extent solved by
mutual loaning of personnel. The producers have eliminated the
problem of marketing motion pictures by taking over into their own
control the most important theaters in the country — those from which
the major share of revenue comes. In general, competition between
the exhibition units of the largo companies has been avoided by a
division of the exhibition field into separate spheres of influence.

In lieu of competition between the leaders of the industry, there is
in many respects a very definite cooperation. This is illustrated by

" Ibid, and The Film Daily Yearbook, 1940.
" United States v. Paramount, -1940.

CONCENTRATION OF ECONOMIC POWER jy

the Hays organization, the avowed purpose of which is self-govern-
ment of the industry. Through the many divisions and services of
this organization, the major producer-distrihutor-exhibitors engage in
many common activities, and present a united front against any
influence which would tend to change the status quo. (See appendix

The state of competition in the industry is epitomized in the
utterance of Spyros Skouras, executive of one of the affihated exhibi-
tion companies and himself owner of a large theater chain. After
urging an increase of admission prices to a minimum of 50 cents in
all principal key cities, he added:

For we are no longer fighting each other, nor is there any longer such a thing
as competition, but a question of establishing solidarity or perishing.'^

2» Film Daily, June 7, 1940.

CHAPTER II

THE ISSUES

CHAPTER II

THE ISSUES

Wlien a few dominating elenients finally achieve substantial control
of an industry, they usually proceed to adopt and perfect methods
which will insure retention of that control. Such methods commonly
lead to protests of unfair advantage, not only from smaller elements
within the industry, but in some cases from consumers as well. It is
not siu-prising that, as in most instances where conflicts of interest
arise, a slogan summarizing the grievances of these parties usually
appears. In industrial warfare, the rallying cry frequently becomes
the name of some trade practice.

Every industry, as a normal consequence to the conditions under
wliich it operates, develops its own peculiar trade practices. How-
ever, frequent attacks on a practice do not constitute proof that it is
in itself vicious. Instead, the diflficulty usually lies in the way the
trade practice is employed. A practice, which under other circum-
stances might be wholly innocent, may provide a perfect instrument
of control when used as a tool in the hands of a dominating element
within an industry.

The motion picture industry has perhaps developed more than its
share of odd trade practices. Many of these arise from the unusual
circumstance that the industry operates basically under the copyright
laws rather than the laws of purchase and sale. In most industries
the manufacturer (producer) sells his product to a wholesaler (dis-
tributor) who in turn sells it to a retailer (exhibitor), and the retailer
finally places the product in the hands of the consumer. Title to
the product in such circumstances has thus changed hands several
times during the transit of the goods from the manufacturer to the
consumer.

In the motion picture industry, on the other hand, the producer
makes a negative film from which are reproduced a number of positive
prints. The film is protected by copyright, and both this copyright
and title to the actual films seldom change hands. Since the producer
and distributor are usually a part of the same company, it is immaterial
which holds the actual title. The film is rented to the exhibitor who is
simultaneously licensed under the copyright privilege to exhibit the
film to the public. No physical exchange of goods for money takes
place between the exhibitor and the consumer. The film is shown,
and the print is returned to the distributor who ships it on to another
exhibitor. Each film is thus used many times, crossing and recrossing
State lines as it is leased and shipped to one exhibitor after another.

Since actual title is never acquired by the exhibitor, the distributor
is able under the copyright laws to exercise control over the use of the
print by the exhibitor. He is able to determine at what time and to
a large extent under what conditions the exhibitor shall show the
pictures to his audiences. This contrasts with the retailer in most

286782— 41— No. 43 3 * 21

22 CONCENTRATION OF ECONOMIC POWER

lines of enterprise who is generally less restricted in the disposition of
his product.

Another unusual circumstance in the motion picture industry is the-
perishableness of the product handled. The necessity or desirability
of showing a picture to the public while it is still new makes freshness-
or priority in vending the product to the public a most important
factor.

Thus, it is found that most of the unusual trade practices of th&
industry, and coincidentally most of its controversies, arise either
from the special legal privileges accorded a copyright holder or from
the efforts to show the product while it is still new.

The principal objective of the industry is, of course, to show films
to the consumer, and this takes place through the medium of the
exhibitor. Naturally, therefore, it is the exhibitor — the Unk between
the producer-distributor and the consumer^ — who is involved in most
of the controversies of the industry.

Each exhibitor has two important relationships with other elements
in the industry. One concerns his contact with the distributors from
whom he must secure supplies of film. The other affects the exhibitors-
with whom he is in competition for a supply of film and for priority
of showing.

Looking first at the distributors, we find that virtually all first-
quality feature films produced in the United States are distributed
through eight companies. Thus, where the supply of films is con-
cerned, the exhibitor faces a high degree of concentration.

With respect to relations between exhibitors, it is found that most
theaters are operated singly or in groups of two or three. In other
cases, however, a great many theaters may be tied together under
common management and control to form a single large chain exhibi-
tion organization. The number of theaters acting together as a.
single bargaining unit in this way may run into the hundreds. The
small exhibitor is thus frequently in competition with a large and
financially powerful organization, which perhaps is still further rein-
forced by affiliation with one of the major producer-distributors.

Claims of unfair business tactics are most usually advanced by the
smaller elements within an industry. The very size of the larger
units gives them power, and this power is their protection. The
controversies usually involve claims by the smaller elements that the
larger organizations misuse the power granted them by their size to
stifle or eliminate competition.

Accordingly, most of the controversies of the motion picture in-
dustry may be divided into two general classes. One class includes
those practices which, according to small exhibitors, are used by the
large distributor organizations to maximize their profits at the expense
of the exhibitors and the public. In this category may be placed
block booking, blind selling, forcing of short subjects, and designating
of play dates. The other class comprises those practices which small
exhibitors contend have been used by large exhibitor organizations to
drive them out of business or place them in subordinate competitive
positions. Under this heading are such practices as overbuying,,
setting of admission prices, and clearance and zoning.

Of course, not all aspects of these practices may be so neatly divided
into two such general classes. Since the five largest companies in the
industry act not only as the most important producers and distributors

CONCENTRATION OF ECONOMIC POWER 23

of motion pictures but also as the operators of a large number of the
best and most profitable theaters in the United States, these categories
to some extent merge. Nevertheless, the distinction is useful in
analyzing the problems and controversies of the industry.

BLOCK BOOKING, BLIND SELLING, AND THE FORCING OF SHORT SUBJECTS

Block booking. — This practice has been defined as the simultaneous
sale by a distributor to an exhibitor of a number of motion pictures for
release and delivery over a period of time. The pictures are offered
in a group, and the aggregate price is in part determined by the
quantity taken.

A distinction is sometimes made between block booking as such and
compulsory block booking. In the latter case, an exhibitor is offered
the entire group of films handled by a distributor during a single season.
He is required to purchase the entire block under some designated
terms or is given to understand that he will be unable to license any.
In some cases, while the pictures may not be offered on an "all or
none" basis, the price of pictures selected individually may be placed
so high as to make purchase of anything less than the entire block not
feasible.

Perhaps more than any other trade practice of the motion picture
industry, block booking has been brought before the public and de-
bated as an evil or a blessing. It has been attacked by independent
exliibitors, by independent producers, by the Federal Trade Commis-
sion, and by consumer groups. It has been discussed in legislatures
and reviewed in the courts.

The most persistent attacks on block booking have come from inde-
pendent exhibitors. In the first place, each of the major producer-
distributors (excepting United Artists, which distributes a smaller
number of high-quality films) makes and attempts to seU from 40 to
60 or more feature pictures each year. The exhibitor, depending on
his pohcy with respect to changes of program and double features,
may use during a single year as many as several hundred features.

Ideally, the exhibitor would prefer to select from the offerings of
each distributor those pictures he considers most in keeping with his
exhibiiion requirements. Where compulsory block booking is exer-
cised, however, this is not possible. The exhibitor finds it necessary
to contract for the entire output of several distributors, regardless of
the quality or desirability of the individual pictures making up each
block. In this way, independent exhibitors are effectively prevented
from developing individuality for their theaters, based on their per-
sonal tastes and knowledge of their audiences.

Further, because of the necessity of contracting for films in large
blocks, exhibitors on some occasions are compelled to contract for
more pictures than they can profitably show. It is important to note
that once a contract has been executed, it is economically necessary
for the exhibitor to show the films, since whether they are shown or
not, he must pay for them.

Contracts between distributors and exhibitors usually contain the
following stipulation under the heading "Liquidated Damages":

If the Exhibitor shall fail or refuse to exhibit during the term hereof, any of
said motion pictures, the Exhibitor shall pay as liquidated damages a sum equaJ

24 CONCENTRATION OF ECONOMIC POWER

to the fixed sum or sums herein specified as the rental for each such motion
pioture * * *.'

In addition, fh.e complete preemption of playing time after a few
block purchases- nave been made limits the ability of the exhibitor to
contract for desirable films of other producers should they be made
available to him. It is important to point out that exhibitors do not
object to block booking as such, since assurance of a continuous supply
of film is an important consideration. Rather, it is the compulsory
nature of the practice which they oppose.

The independent exhibitors have been supported in their opposition
by religious, civic, and public welfare groups. These groups oppose
block booking because it interferes with community selection, or local
cJ^nsorship activities. It is the experience of these groups that an
fei<thibitor will meet their objections to the showing of an unsuitable
film with the statement that he is economically obliged to play it since
\i6 must pay for it, or alternatively that failure to show it might involve
him in a breach of contract action.

The practice is attacked by independent producers who, in trying
to sell their product to independent exhibitors, find playing time
preempted by block pm'chases, leaving little or no screen time for
their product. This same reason tends to discourage the entry of new
t)l:*oducers into the industry.^

On the other side, block bookmg has been defended by the affiliated
producer-distributors as a method of wholesaling which reduces their
distribution costs. Further, they allege that the definite income
assured them by the practice enables them to make better pictures
than they could otherwise.

The present interest is not in the claims of these conflicting industry
■gltyups; rather it is in determining whether the practice adversely or
beneficially affects the public.

The consumer usually patronizes the theater convenient to him.
Gteographically, therefore, he is limited in his choice of pictures. If
the theater is under block-booking contracts which prevent the
proprietor from selecting pictures he feels are suitable for his audience
or which require him to show inferior pictures, the interests of the
d6iisumer are not served.

The system assures an income on many pictures which can by no
standard be called excellent. The economic reason for the curtail-
ment of low-quality productions is thus weakened. It may be
assumed that a system of free licensing would give additional impetus
to the production of higher-quality pictures.

It is alleged that block booking is used as one of the devices of
control whereby competition between producers in the licensing of
lectures is to sonie extent lessened. Such competition as exists at
present is, for the most part, confined to a brief selling season in the
late summer or early fall of each year. Year-round competitive sales
efforts and the fluctuating market prices that are thus implied are not
found in this industry. Moreover the sale of pictures in large blocks
obviates a good deal of the price competition between pictures which
might take place were each film's probable box-oifice attractiveness to
be weighed against its asking price. It may be assumed that under a

' Hearings before the Committee on Interstate and Foreign Commerce, House of Representatives, pur-
suant to S. 280, 76th Congress, third session, "Motion-Picture Films," Part I, Paramount Exhibition Con-
tract, p. 230.

' Ibid. See testimony of I. E. Chadwick, pp. 344-368.

CONCENTRATION OF ECONOMIC POWER 25

system where each picture would have to stand on its individual
merits, there would be greater price competition in film rentals.

The preemption of industry playing time by large block purchases
to a large extent hmits the market for new independent producers.
However, it must be pointed out that the control of the more im-
portant exhibition outlets by the producer-distributors is probably a
more important factor in limiting the entrance of new producers of
quality pictures into the market than is block booking.

If the producer contention that block booking is an economical
method of distribution which reduces distribution costs is. valid, this
is to the advantage of the consumer. Jt is unquestionably true that
sale of pictures in smaller groups than the total offered by a distrib-
utor during a single season would entail greater sales expense. How-
ever, distribution costs in to to are relatively small, and sales expense
is but a fraction of distribution cost.^ The savings in sales expense
achieved by block booking may thus represent a doubtful economy
for the consumer if the system entails even minor disadvantages of
other types.

Likewise, it is advantageous to the consumer, if, as producers con-
tend, assured income permits the production of better pictures. It
might be argued that conspicuous success in this direction has not
yet been achieved, although block booking has been in effect for
more than 20 years. Moreover, the large box-office returns from
some pictures produced on small budgets, compared with occasional
expensive box-office failures, indicates that success in satisfying the
consumer is not wholly to be measured in terms of income available
for production.* To the contrary, there is strong reason to believe
that a more competitive system of sales would tend to discourage the
production of poor pictures, in contrast to the present system which
insures a return on even the least satisfactory films of the major
producers.

A weighing of these pros and cons leads to the conclusion that block
booking as practiced today is, on the whole, disadvantageous to the
consumer. It is necessary, however, to examine the alternatives.

The most frequent proposal has been that contpulsory block booking
be completely eliminated. In practically every Congress in the last
15 years bills to that effect have been introduced,* but none has
passed both Houses. The latest of these was. the Neely bill, which
states in section 3:

It shall be unlawful for any distributor of motion-picture films in commerce to
lease or offer to lease for public exhibition filiijs in a; block oT group of two or more
films at a designated lump-sum price for; th« entire block or group only and to
require the exhibitor to lease all such films ol- permit him to lease none; or to lease
or offer to lease for public exhibition films in a block or group of two or more at a
designated lump-sum price for the entire block or group and at separate and
several prices for separate and severgil films, or for a number or numbers thereof
less than the total number, which total or lump-sum price and separate and
several prices shall bear to each such relation (a) as to operate as an unreasonable

3 According to the industry, distribution costs amou nt to 10 percent of the motion-picture dollar. ("Film
Facts," published by the Motion Picture Producers and Distributors of America, Inc., New York, 1940.)
Recent data are not avaUable, but in 1929 motion picture distributors alBliated with producers reported
total expenses of $31,700,000. Of this amount $9,^)0,000 was accounted for by salaries and exper>ses of
salesmen. (U. S. Dept. of Commerce, Census of Distribution ,1929.) In this year, then, direct sales ex-
pense amounted to less than ons-third of total distribution expenses. There is no repson to assume that
the proportion has materially artered since that time.

* For example, "The Great McGinty" and "It Happened One Night," produced on relatively small
budgets, were financial successes, while "Marco Polo," produced on a lavish scale, was a failure.

» Among them are: 3. 1667,70th Cong., 1st sess.; S. 3012, H. R. 4757, H. R. 8877, and H. R.6472, 74th Cong.,
2d sess.; S. 280, 76th Coijg., 3d sess.

2g CONCENTRATION OF ECONOMIC POWER

restraint upon the freedom of an exhibitor to select and lease for use and exhibition
only such film or films of such block or group as he may desire and prefer to procure
for exhibition, or (6) as tends to require an exhibitor to lease such entire block or
group or forego the lease of any number or numbers thereof, or (c) that the effect
of the lease or offer to lease of such films may be substantially to lessen competition
or tend to create a monopoly in the production, distribution, and exhibition of
films; or to lease or offer to lease for public exhibition films in any other manner or
by any other means the effect of which would be to defeat the purpose of this Act.*

The major difficulty which such a provision would face in practice
is that the magnitude of the price differential which would constitute
an unreasonable restraint upon an exhibitor's choice of pictures or
which would substantially lessen competition is not explicitly defined.
The interpretation of the provision would thus be left to the courts.
A variety of judgments not necessarily in consonance with each other
might well arise, and there is little doubt that both the industry and
the already crowded courts would be plunged into a new period of
extensive and costly litigation.

The Federal Trade Commission in 1927 attempted to outlaw the
practice by issuing a "cease and desist" order against Famous Players-
Lasky Corporation ^ in which it declared that block booking was an
unfair and improper practice. The ruling was later reversed by the
Federal courts.^ Trade practice hearings conducted by the Federal
Trade Commission in 1927 resulted in little change as the Commission
was unable to secure agreement between all factions in the industry.

Another alternative to block booking which has been proposed is
the cancelation privilege. It has been suggested that many of the
disadvantages of block booking would be eliminated if the exhibitor
were given the privilege of canceling a stated proportion of all films
bought in groups without having to make payment therefor. One
of the early proposals of this type was the "5-5-5" clause, so called
because under it exhibitors were permitted to cancel 5 percent with-
out payment, 5 percent with half payment, and 5 percent with full
payment (but with extended playing time on other features) of all
pictures bought in block, provided the block included all features
released by the distributor during a season. This clause was drawn
up as a result of meetings between distributors and exhibitors during
1928 and 1930; it was not, however, extensively adopted. It was
superseded in 1933 by a 10 percent cancelation clause incorporated in
the Code for the Motion Picture Industry set up under the National
Recovery Administration.^

Under the Code provisions, exhibitors were given the privilege of
canceling without payment up to 10 percent of all films bought in
blocks. Exercise of the cancelation privilege was, however, hemmed
about with many restrictions which, according to exhibitor testimony
before the Darrow Board and House and Senate hearings, made the
privilege of little value to them.^° Some form of cancelation clause
has remained in the licensing agreements of many of the companies
since the N. R. A. codes were invalidated. The following illustrates
the type of provision usually found at the present time.

* * * If the total number of feature motion pictures offered to the Exhibitor
by the Distributor, at one time, shaU have been licensed by the Distributor here-

• S. 280, 77th Conp., 1st sess.

' Federal Trade Commission. Docket No. 835, July 9, 1927.

' Federal Trade Commission v. Paramount Famous-Lasky Corporation, Adolph Zukor, and Jesse L. Lasky,
In the United .States Circuit Court of Appeals for the Second Circuit, April 4, 1932.

• National Recovery Administration, Code of Fair Competition for the Motion Picture Industry, article
V-F, Part 6, of the approved Code, 1933.

" See National Recovery Administration, Work Materials, No. 34, 1936, pp. 93-96.

CONCENTRATION OF ECONOMIC POWER 27

'Under, the Exhibitor shall have the right to exclude from this license not to exceed
ten (10%) percent of the total number of feature motion pictures so licensed
hereunder provided the Exhibitor shall give to the Distributor written notice of
the Exhibitor's election to exclude any of said motion pictures within ten (10)
days after the mailing by the Distributor of notice of availability thereof. Upon
the exclusion of each feature motion picture the licenvse therefor and all rights
thereunder shall terminate and shall revert to the Distributor."

The intent of such a clause is that exhibitors have the right to a
10-percent cancelation of undesirable pictures if certain conditions
are adhered to: They must contract for the whole block offered; they
must not be in default of their contract (any default making them
liable for the amount involved in those pictures already canceled);
they must give the distributor notice of cancelation in the time
specified; they must have paid for nine pictures before canceling one
(the cancelation privilege being cumulative).

There is reason to believe that insertion by distributors of a can-
celation clause in film contracts has been largely a political gesture.
The clause has permitted producer-distributors to contend at the
repeated Congressional hearings on block booking that they have
taken steps to correct any abuses with which the practice might be
charged — that they have, in fact, been more liberal in their treatment
'of exhibitors under block contracts than strictly necessary.

It may be noted, in the first place, that cancelation does not cost the
industry any playing time. The screen time allotted a canceled pic-
ture must be filled by some other attraction. But beyond this, ex-
hibitors have repeatedly alleged at House and Senate hearings on block
booking that such cancelation privileges as have been voluntarily
extended to them by distributors have by various means been rendered
wholly ineffective.

One method of circumvention considered particularly obnoxious
has been that of reallocation. Pictures are customarily classified
according to quality, and become known as "A" pictures, "B" pic-
tures, and so on. The classification is subject to the control of the
distributor, and the rental asked for a film is made according to the
class allocation. At the time he executes a block contract, an ex-
hibitor may know only that he has contracted for a specified number
of A, B, and C pictures. After he makes known his intention to
cancel a particular film, he may find that it is reallocated to the lowest
price group while some other film in a lower class has increased in price.

In one case cited, an exhibitor canceled a picture in the A class
because the women in his community did not want it shown. This
picture, originally allocated, at $138, was reallocated at $23 in the
lowest bracket. Another picture, eighteenth in quality and showing
bad box office returns was then reallocated to this exhibitor at $138
in place of the cancelation.^^

An exhibitor, after canceling a -poor picture, may be told that the
print of a desirable attraction is unavailable; it may be intimated that
the print will later become available if the cancelation is withdrawn.

To avoid promiscuous use of the cancelation privilege and to hurry
the playing of undesirable films, use has been made of the "stop"
picture. The "stop" picture is any attraction which has been shown
successfully in the first-run houses and is much in demand among
theatergoers. It is employed by distributors primarily to force

" Hearings. House of Representatives, pursuant to S. 280, p. 433.
" Ibid, p. 428, also contracts showing renllocaticn on pp. 439-440.

2g CONCENTRATION OF ECONOMIC POWER

exhibitors to "fulfill their contractual obligations" (that is, to send,
immediately a check for any film rentals which may be due), but it is
also used to induce exhibitors to play undesired films.

I screened The Tower of London and because of the horror it contained, I
deemed the picture unfit to show at the Lyric Theater * * * j^ thereupon,,
called the Universal naanager * * * and attempted to cancel it out. He
assured me I would mak,e a lot of money and I had better play the picture.
I, however, still did not wish to play it and so I wrote him * * * attempting
to cancel.

That letter * * * yt^m gjve you a summary and story of his reaction to my
attempts to cancel. Finally, I had to pay for the picture in order to get Destry
Rides Again, and not play it. I did this and still have not played the picture,
nor do I intend to play it.'^

It has also been alleged that distributors can easily circumvent a
cancelation privilege by including with releases a few definitely unsat-
isfactory and cheap pictures, knowing that the privilege will be used
up on these films.

The significance of the cancelation privilege as a remedy to block
booking is succinctly stated by Nathan Yamins, a leading independent
exhibitor.

* * * the cancelation privilege offers no remedy to the evils of block booking.
These provisions still enable the producer-distributor to maintain their monopoly
on the screen, it still enables the distributor to pass on his mistakes to the exhib-
itor, and with the exception of the top group pictures offers no inducement for
improvement in quality.

It is a temporary provision offered and will endure only where the industry is
faced with legislation and litigation, and as practiced now is so hemmed in with-
numerous restrictions as to be worthless."

An additional alternative to straight block booking is contained in
the recent consent decree signed by the five affiliated companies. It
is agreed in the decree that these companies, for a limited period after
August 31, 1941, will sell their features in groups of not more than
five each, and the purchase of any one group will not be made contin-
gent on the purchase of any other group. Provision is also made for
the cancelation of any feature considered offensive on "moral, religious
or racial grounds." The consent decree is discussed in full in appendix
III.

It may be mentioned that the affiliated companies in buying each
other's pictures are not, on the whole, troubled by the compulsory
"aspects of block booking. Instead, these companies usually negotiate
selective contracts with each other. Under this system a company
may contract for all the pictures distributed by another company, but
retain the option of accepting for use only those which are later con-
sidered desirable. Continuity of film supply — a very desirable fea-
ture— is thus assured. At the same time, the affiliated companies
acting as exhibitors assume no obligation to show films which after a
preview are considered unsatisfactory.^^

Forcing of short subjects. ^Another aspect of block booking, though
it is usually treated as a separate practice, is the forcing of short
subjects — news reels, comedies, travelogues, etc. Short subjects are
presumably used to complement features in filling out a program.
Exhibitors allege that not only must tjiey in many cases contract for

"Ibid., pp. 407-408. Letters on pp. 408-409. A similar case on pp. 261-265.

'* Ibid., Testimony Nathan Yamins, p. 441.

'« The selective contract not only substitutes for block booking so far as the affiliated exhibitor iseoneemed;
it also has certain unsatisfactory connotations in connection with the delay of play dates in independent^
theaters. This side of the question will be discussed in a later section.

OONCKNTRATION OF ECONOMIC POWER 29

•all the feature pictures offered by a single company in order to secure
-any; they must in addition agree to pay for and show all short sub-
jects released by the same company.

Forcing of shorts is vigorously attacked by independent exhibitors.
They contend that shorts are dated to theaters without regard to
their suitability with the features shown. Moreover, as a consequence
• of having to book with several distributors, exhibitors contend that
they are frequently obliged to book a greater number of shorts than
they require to round out their programs. In some cases, this results
in several news reels being shown simultaneously. Even if short
suljijects are not shown, the exhibitor must pay for them. Failure to
pay for shorts may result in the shutting off of all film supplies.

For example, in one of Paramount's short-feature exhibition con-
tracts 85 short subjects, exclusive of news reels, are offered.

Beginning with the first play date thereof * * * but subject to the avail-
abihty of the respective one reel motion pictures licensed hereunder, the Exhibitor
agrees to exhibit seven (7) one reel motion pictures each month, until the com-
pletion of the exhibition thereof. The total license fees payable for the one reel
motion pictures licensed hereunder is the sum of $255. .50, which total sum the
Exhibitor agrees to pay in 51 consecutive weekly installments. * * * It is
agreed that the Distributor may at its option deliver to the Exhibitor c. o. d. any
motion picture deliverable hereunder, and may add to said c. o. d. the amount of
any past due indebtedness owing under this or any other agreement by the
"Exhibitor to the Distributor. '«

Independent producers oppose the forcing of short subjects for
practically the same reasons they oppose block booking. The prin-
cipal objection is that the market is closed to them through preemption
of playing time.

The practice is defended by the producer-distributors on the grounds
that it eliminates waste in selling expense and that the common sale
of shorts and features results in savings to exhibitors. They also
claim that from their background of experience they are at least in
some cases better able to judge what constitutes a well-balanced
motion picture program. It is sometimes contended that the prac-
tice was born from the desire to provide appropriate shorts to com-
plement the showing of their features, thereby encouraging greater
theater attendance.

An additional reason why the practice is favored by the producer-
distributors is one less frequently advanced by them. The short
subject in some cases provides a try-out for talent which may prove
suitable at some later period for use in feature pictures. Stock
short subjects also constitute a relatively inexpensive training ground
for directors and technicians. The cost of these beginners' efforts is
then at least partly defrayed by booking the shorts into independent
theaters.

It may be pointed. out that in the operation of their own theaters the
affiliated companies have in general worked out mutually satisfactory
arrangements providing for selection of short subjects. This parallels
the selective contract arrangement with respect to features.

To the consumer the exact suitability of short subject material for
use with particular feature pictures is probably not of great moment.
It does appear, however, that the exhibitor, in direct contact with his
audiences, should be in a better position to judge this factor. The
consumer is not indifferent, however, to the contention that mor^
shorts than are necessary may be forced on the exhibitor, if more

w Hearings, House of Hepresentatives, on S. 28o, p. 249.

3Q CONCENTRATION OF ECONOMIC POWER

are booked than shown, the consumer is required to pay for something
he does not get, since his purchase of tickets must support the process.
The alternative is sometimes no more desirable. The consumer who
goes to the theater to see a certain feature and then sits through a
number of shorts and several dated news reels is pardonably bored or
irritated. It may also be pointed out that some of the shorts which
reach the screen do not tend to make the consumer appreciate the
advantages of using these one- and two-reel subjects for try-outs and
training.

Forcing of shorts, when accompanied by block booking, is equivalent
to full-line forcing. Orders of the Federal Trade Commission,
enforced by the courts, have held full-line forcing to be an unfair
trade practice. In the 1927 trade practice conferences conducted by
the Federal Trade Commission it was agreed that shorts should not
be forced. However, no change in industry practice followed these
conferences, either because of the Commission's inability to enforce
its rulings, or because of difficulty in proving the compulsory nature
of the practice.

Another effort to eliminate me practice was made under the N. R. A.
Code of Fair Competition for the industry:

No Distributor shall require as a condition of entering into a contract for the
licensing of the exhibition of feature motion pictures that the Exhibitor contract
also for the licensing of the exhibition of a greater number of short subjects
(excepting newsreels), in proportion to the total number of short subjects required
by such Exhibitor, than the proportion of the feature pictures for which a contract
is negotiated bears to the total number of feature pictures required by the ex-
hibitor.'^

This provision was criticized as making possible the forcing of
shorts to the full extent of an exhibitor's playing time. Moreover —

Distributors evaded the provision by supplying short subjects on a weekly
program basis, charging the exhibitor a sum equal to an average of the payments
made during the previous year. In effect the exhibitor paid an amount equal to
his previous year's cost, even though the number of shorts might have been
decreased.'*

Another weakness of the provision, that of excepting news reels,
was pointed out by the Independent Theatre Owners Association, Inc.,
of New York.

The provision does not more than recognize the existence of an evil and in
no way remedies the same. In the first place, it exempts newsreels from the
operation of the provision and practice has shown many exhibitors over-stccked
in newsreels, having been forced to purchase four or five newsreels from different
companies. With respect to this type of short, the evil is even greater, since only
one company's reels can be used under any circimistance, as they usually cover
the same important news points."

Under the recent consent decree, the five affiliated companies have
agreed to abandon short subject forcing during the period the decree
is in effect (see Appendix III).

Blind selling. — A trade practice which has raised much hue and cry
in recent years is blind selling (or blind buying). It is part and
parcel of the block booking system.

At the beginning of the selling season, exhibitors are showered with
glittering prospectuses from the several motion picture companies.
These point in glowing terms to last season's successes and foretell

" National Recovery Administration, Code of Fair Competition for the Motion Picture Industry, art.
V-D, Part 5.

'•National Recovery .Administration, Work Materials No. 34, 1936, p. 100.

'• Hearings before Senate Finance Committee, Investigation of National Recovery Administration,
74th Cong., 1st sess., pursuant to S. Res. 79, p. 1320.

CONCENTRATION OF ECONOMIC POWER 31

the even greater achievements to come. The exhibition contract,
however, contains only what is known as a schedule of contract. A
few pictures which have been completed or are nearly complete may
be listed on this schedule. Several may be described as containing
some particular star or featured player. The stories from which
several others are to be made niay be given. However, many of the
pictures and in some cases all of them may be designated only by a
number and a note as to the price class m which they are to fall. In
accepting the contract for the block of pictures, the exhibitor in
general knows no more than that he will get a certain number of
pictures and that these pictures will fall in certain price classifications.
Following the schedule of contract is a paragraph which illustrates
how blind selling is effected.

It is expressly understood and agreed that the Distributor does not license
hereunder to the exhibitor any particular motion picture but only those motion
pictures are licensed hereunder which shall be generally released by the Distributor
as provided in the schedule above; that the announcement book, work sheet, press
sheet, or any other announ'cement issued by the Distributor is issued for the pur-
pose only of indicating what the Distributor plans to produce and does not con-
stitute any warranty or representation that the motion pictures therein referred
to or described will be generally released during the period provided in the
Schedule. 20

As indicated above, then, a few pictures are highlighted, some
idea of the plots, names of stars, directors, or other attractive points
being mentioned. On the whole, however, this is limited to a few
top pictures. Then a disclaimer is included which relieves the dis-
tributor from the necessity of complying with his statements. It
follows that the exliibitors must buy largely upon the reputation and
past performance of a particular distributor's product. In effect,
insofar as the independent exhibitors are concerned, it can be cate-
gorically stated that this is the only industry in which the buyer,
having no idea of what he is buying, underwri^^es blindly all the
product offered him.

The objections of independent exhibitors to blind selling are similar
to their objections to block booking. The necessity of buying pictures
sight unseen prevents the exhibitor from selecting out of all those
features eventually released the particular ones he might consider to
be most suitable for showing in his theater. As has been previously
indicated, affiliated theaters have solved the problem through the
device of the selective contract.

It is understandable that in selling films under the present system
the actual productions sometimes fail to measure up to pre-season
announcements. From this factor have arisen many complaints by
independent exhibitors against distributors.

Blind selling has consistently been opposed by organizations inter-
ested in improving the moral standards of film entertainment. These
groups have found that blind selling, combined with block booking,
has prevented them from bringing pressure on the local exhibitor to
permit some form of community selection of pictures.

The consumer standpoint on blind selling parallels that of the inde-
pendent exhibitor. Any limitations on the ability of an exhibitor to
license and show the best available productions and especially any
restriction making it necessary to show undesirable pictures is to the
consumer's disadvantage.

20 Hearings, House of Representatives, pursuant to S. 280, Paramount schedule, p. 235.

32 CONCENTRATION OF ECONOMIC POWER

The proposed remedies to blind selling have included use of the
cancelation privilege. It is assumed that, in order to maintain his
position in the industry, each producer will attempt to maintain
a generally high standard of quality in his releases. Occasional
failures are presumably taken care of through cancelation. The
weakness in this system has already been indicated.

Once having secured an exhibition contract, it is to the distributor's
interest to reduce cancelations to a minimum. The various means of
discouraging use of the cancelation privilege, even where this has been
granted by contract, go far beyond simply writing letters extolling
the drawing power of the film which the exhibitor desires to cancel.
This is especially so in the case of the small independent exhibitor
who may have experienced difficulties in assuring himself of a Qontin-
uous film supply.

An alternative proposal has been that each film included in an
exhibition contract be fully described as to players, story, director, and
essential situations. Such a proposal is usually accompanied by some
prohibition against compulsory block booking to insure that the
exhibitor may first select only those pictures he wants and then be
sure of getting those pictures and no others. This is the remedy
proposed in section 4 of the Neely bill.

It shall be unlawful ."o'* any distributor of motion-picture films in commerce to
lease or offer to lease for public exhibition anj^ motion-picture film or films over
two thousand feet in length unless such distributor shall furnish the exhibitor
.at or before the time of making such lease or offer to lease an accurate synopsis
of the contents of such film. Such synopsis shall be made a part of the lease and
^all include (a) a general outline of the story and descriptions of the principal
characters, and (b) a statement describing the manner of treatment of dialogs
concerning any scenes depictmg vice, crime, or suggestion of sexual passion. It is
'the purpose of this section to make available to the exhibitor sufl^cient information
concerning the type and contents of the film and the manner of treatment of ques-
tionable subject matter to enable him to determine whether the film is fairly
described by the synopsis.^'

Some difficulty mighTltrise here through lack of agreement as to
what constituted an accurate synopsis. The interpretations brought
out in the House and Senate committee hearings afford a glimpse of
the misunderstandings and litigation which might result from such a
provision. Beyond this, however, it must be recognized that if the
principle of sale in advance of production is to be continued, some
flexibility in description is probably desirable from the consumer
standpoint. It is quite possible that unsuspected weaknesses in a
scenario may develop during production or even after a preview show-
ing. It is probably undesirable to make correction of such weaknesses
contingent, among other tilings, on the possibility of noncompliance
with contract agreements.

Finally, it has been suggested that distributors be required to trade
show or preview each picture before making any exhibition contracts.
Here also it is evident that some provisions regarding block booking
are necessary. It would avail the exhibitor little to have a report on
the film shown if he was required to contract for it regardless of his
opinion as to its desirability.

Prescreening or trade showing has always been opposed by tiie
affiliated interests. It has been their claim that prescreening would
result in serious dislocations in their long-established methods of doing

" S 280, 76th Cong., 3d sess.

CONCEJSTRATION OF ECONOMIC POWER 33

business and would impose on them additional financial burdens. It
is, therefore, interesting to note that the subject of blind selling is
disposed of in the recent consent decree by provision for prescreening
of all feature pictures. Assent to this provision by the five affiliated
companies marks a complete reversal of their former position. ^^

We have considered various aspects of the practices of block
booking, bhnd selling and forcing of short subjects. One fact stands
out in each case. It is that each of these practices is unequally applied.
So far as the affiliated interests themselves are concerned, a satisfac-
tory answer to the problems created by the industry's selling system
has been found. Insistence on any one of these practices by one of
the affiliated companies in its relations with another would invite
retaliation. Since the companies are generally not in competition
with each other in the exhibition field, it has been found mutually
more profitable to extend to each other the privilege of selection.

The three satellite producer-distributors are perforce required to
grant preferential treatment in the matter of selection to the five
affiliated companies. Their continued existence depends in no small
part on their ability to show their pictures in the important theaters
controlled by the affiliated companies.

Those who have felt the weight of block booking, blind selling and
the forcing of shorts have been in the main the independent ex-
hibitors. The very fact that the unsatisfactory features of these
practices have been avoided by the dominant elements within the
industry and have remained to affect, over many years, those outside
the controlling group suggests very strongly the basic cause of discord.
In the final analysis, the difficulty does not inherently lie in the par-
ticular method of selling which happens to be in vogue. Rather, it
rests in the control exercised by the few large integrated companies
over the feature films on which the industry depends for its existence.
To see this more clearly, let us create an imaginary situation.
Instead of 8 large producer-distributors marketing an average of
about 50 pictures each, let us suppose that there are 50 separate
producer-distributors, each marketing about 8 pictures. In this
hypothetical situation the number of features produced each year is
roughly the same as at present. How long under such circumstances
would one of these small producers remain in business if he tried to
foist unsatisfactory features, at a fancy price, on his market in compe-
tition with other producers, each striving for a share of the business?
Reflection reveals that the undesirable features of the present system
of film sales are indissolubly connected with the high degree of control
by a few companies which exists in the motion-picture industry-
today.

It has been contended that any change in the present system ol
marketing of films would result in financial losses to the major pro-
ducer-distributors. This argument has been advanced by these com-
panies themselves as a reason why various legislative remedies affect-
ing these practices should not be enacted. It is quite evident that if
pictures were not sold in blocks but were sold according to merit, severe
losses might be incurred on unpopular pictures. Yet, there is no enter-
prise that would long stay in business if the goods offered for sale were
not liked by the consumer. There can be no good reason why the
motion picture industry should prove an exception in this respect.

" The provisions of the consent decree are discussed in detail in appendix III.

34 CONCENTRATION OF ECONOMIC POWER

Dr. A. Lawrence Lowell of Harvard University, when refusing to
accept an appointment on the Code Authority for the motion picture
industry under the National Recovery Administration, stated:

* * * The five large producing companies have, by their business methods,
obtained a controlHng grip upon the business and are able to put forth upon the
community any films that they please. ^^

The remedy for this situation was succintly stated in 1935 by Mr.
Walter Lippmann.

Effective reform depends * * * on a clear understanding of what, given
the American traditions of freedom and the variety of American tastes and
American moral standards, reform ought to aim at. I would rest reform of the
movies on this basic principle: That audiences shall have greater freedom to
choose their pictures and that artists and producers shall have greater freedom
to make pictures. * * * ^^e best regulation would be that exercised by the
■customers at the box office of a theater. The best way to improve the movies
would be to open the door to intense competition by independent and experiment-
ing producers.

If the customers had freedom of choice, each community would be able to
enforce the moral standards it believes in. Each exhibitor would have to take
the business risk of estimating correctly the tastes of his customers * * * This
is the system under which theaters, books, magazines, and newspapers operate
and it is not an unsatisfactory system. Anyone, who can find a little capital, can
produce what he chooses. But then he has to submit his production to the test
of circulation. The highbrow and the lowbrow, the libertine and the puritan,
tend to find their own audiences."

DESIGNATED PLAY DATES

Through block booking and forcing of short subjects and other
features, the producer-distributors have assured themselves a steady
market for their product. But a steady market in itself is not enough.
Along with steadiness must go profitableness. And this has in part
been effected through the practice of designating play dates.

The amount of film rental to be paid for a picture may be specified
in several different ways. It may be agreed that a definite flat fee
will be charged for a particular showing. In another case, the dis-
tributor may accept as his rental a proportion of the box-office receipts
taken in during the exhibition of a pictm-e. Alternatively, some
combination of these methods may be employed. In the usual small-
theater agreement most of the features are licensed on a flat rental
basis, but it is usually specified that some of the pictures, those con-
sidered likely to be the best box-office attractions, shall be paid for on
a percentage basis.

All days of the week do not bring the same revenue to the box office.
Attendance is greater on weekends and holidays, and admission prices
are commonly higher at such times. The following table illustrates
how various days of the week are usually judged from their potential
box-office standpoint.^*"

Percent Percent

Saturday 20

Sunday 25

Total 100

Monday 10

Tuesday _- 10

Wednesday 10

Thufsuay 10

Friday 15

23 National Recovery Administration, Work Materials No. 34, p. 80.
2< New York Herald Tribune, January 12, 1935.

2'''' Bureau of Foreign and Domestic Commerce, Department of Commerce, Motion Pictures Abroad,
March 15, liHO.

CONCENTRATION OF ECONOMIC POWER 35

Because of these differences, distributors are interested in seeing
that percentage pictures play on those days of the week when box-office
returns are likely to be greater. This is accomplished by designating
that the percentage pictures shall be exhibited on holidays or weekends.

The small exhibitor frequently opposes this practice. Primarily,
he objects to any restriction which keeps him from operating his
theater as he pleases. In some cases, the small theater operator would
prefer to use a less satisfactory picture on a weekend, knowing that
in any case attendance is likely to be satisfactory at that time, and
use a stronger drawing attraction to bolster midweek returns. The
practice may maximize the distributor's revenue without performing
a like function for the exhibitor.

Consumer interest in the practice of designating play dates is
probably small. Where an exhibitor shows the more desirable pic-
tures in midweek, the consumer, who usually has less leisure at that
time, may find that his interests lie parallel to those of the distributor.
On the other hand, control of play dates by distributors may result,
for example, in weekend bookings for sophisticated features in a
theater whose audiences in the aggregate may prefer films more
suited for general family entertainment.

The ability to designate play dates is another indication of the
large distributors' control over the Sources of supply of the industry
and of the unequal bargaining strength of exhibitors and distributors.

On the whole, however, the practice is primarily an industry rather
than a consumer problem.

OTHER PRACTICES AFFECTING DISTRIBUTDR-EXHIBITOR RELATIONSHIPS

The practices discussed up to this point by no means exhaust all
sources of friction between distributors and exhibitors. A minor one
which may be mentioned is the practice of making score charges.
The score charge is a fossillized remnant of the pre-sound days of the
industry. Before the development of sound, distributors usually
supplied with each film an appropria't^« musical accompaniment. The
fee charged for this service was known as a score charge. In the first
sound films, the sound was supplied by discs which were played in
synchronization with the film, and the score charge was attached to
these disks. Today, sound is recorded directly on the film. Never-
theless, distributors continue in many cases to make a score charge.
This irritating and apparently useless appendage of an earlier era
serves constantly to annoy exhibitors who find this extra charge in
their license agreements.

More important in point of distributor-exhibitor relationships is a
practice charged to affiliated distributors by independent exhibitors.
It has been alleged that exhibitors have been coerced into paying
higher film rentals or into relinquishing an interest in a profitable
theater by threats that the distributor would build or acquire a com-
peting theater. Such a threat is powerful indeed, since the inde-
pendent exhibitor is well aware that a competing affiliated theater
will usually receive a choice of the available pictures by virtue of the
cooperative arrangements existing between the major companies.

In this field it is difficult to distinguish between the operations of the
affiliated company as an exhibitor or as a distributor. Powerful
independent theater chains have found the means to enter localities

Qg CONCENTRATION OF ECONOMIC POWER

and take over the businesses of competing exhibitors by means whichi
will be subsequently discussed. The exact method whereby a similar-
result has been achieved by an affiliated company is sometimes diffi-
cult to ascertain. The possibilities are illustrated by a contempt
citation against the Fox West Coast Theatres Corporation — the-
exhibition branch of the Twentieth Century-Fox organization. This-
charge states:

As a result of the practices and activities described in this Petition and
Information, many unaffiliated exhibitors in the Los Angeles Exchange Territory
have been unable either to contract for first or second run or first suburban run
pictures, or to contract for pictures to exhibit in competition with defendant
Fox West Coast, and therefore have been impelled either to sell their theaters.'
outright to Fox West Coast, or to enter into profit-sharing agreements, or pooling
arrangements, so-called, under which the unaffiliated exhibitor has granted Fox
West Coast a controlling interest in his theater or has poofed the theater with a
theater operated by defendant Fox West Coast, which receives an equal or con-
trolling interest in the venture.^^

The charge then names 26 unaffiliated theaters which were turned
over to Fox West Coast or pooled with its theaters between 1932 and.

1936. , . ,

While it is quite true that a similar result might have been achieved
by a powerful independent exhibition chain, it is nevertheless reason-
able to assume that the affiliation of the exhibition organization with-
one of the major producers was no hindrance to these activities.

The Code of Fair Competition for the Motion Picture Industry,
promulgated under the N. R. A., declared it to be an unfair trade
practice for any distributor to threaten, coerce or intimidate any
exhibitor into entering a contract for the exhibition of motion pictures
or into paying higher film rentals by the commission of any overt
act evidencing an intention to build or acquire a competing theater.^^'
It was added, however, that this should in no way abrogate the right
of a producer or distributor to build or acquire in good faith a theater-
in any location. The efJect of this proviso was to nullify the entire
clause, since it was incumbent on the aggrieved party to prove the;
act was not in good faith.

That both of these practices — making score charges and coercion
of exhibitors into entering film contracts, into paying higher film
rentals or into relinquishing control of their theaters — still constitute
sources of discord in the industry is seen from the fact that these
practices are included among the charges made by the Government
against the major companies in the recent antitrust suit.^^ The con-
sent decree recently entered as a result of this suit, however, contains
no stipulation with respect to either of these practices.

OVERBUYING

Overbuying of films is a practice whereby an exhibitor licenses more
features than are strictly necessary for the operation of a theater,
with the express intention of preventing a competitor from securing"
enough good pictures to permit normal operations. It is a constant
threat to the small exhibitor competing with a powerful opponent.

2» United States of America v. Fox West Const Theaters Corporation, et al., in the District Court of the United
States for the Southern District of California, Central Division, information charging criminal contempt
and petition for rule to show cause, No. 14048-C, filed Aug. 31, 1939.

^ National Recovery Administration, Code of Fair Competition for the Motion Picture Industry, art. V,.
dtviBion D, Part 1 of the approved code, 1933.

" United States v. Paramount, Inc., 1940.

CONCENTRATION OF ECONOMIC POWER 37-

The fear aroused by this practice may be judged from the fact that
about 85 percent of the complaints submitted to the N. R. A. before'
formulation of the code for the motion picture industry dealt with
some form of overbuying. ^^

Overbuying manifests itself in many ways. In its simplest form,
an exhibitor buys more pictures than he can use, simply to prevent
their use by a competitor. Overbuying may also take the form of
unnecessary and too frequent changes of program which, as in the
first instance, results in a shortage of films available to competing
exhibitors. In still another form, an exhibitor, as a condition to
entering into a contract, may require that a distributor refrain from
licensing pictures to a competitor. Such an agreement, which gives
the exhibitor sole exhibition rights in his locality, is known as an
''exclusive rights" contract.

The effect of overbuying on the consumer is so obvious that it
hardly needs to be depicted. In the first place, if the number of
operating theaters is actually reduced, there is an economic loss to the
community, since no new enterprise enters the field to take the place
of that deposed. The practice may result in the absolute reduction
of the number of films shown in the locality where an exhibitor makes
them unavailable to a competitor but does not use them himself.

As an alternative to this practice, the offending exhibitor sometimes
attempts to show the pictures by resorting to a policy of frequent
changes of program. This not only limits the consumer in his choice of
a place and a time to see particular films. It may mean complete loss
of opportunity to see particular features since in the localities in -vyhich
overbuying is most common, a teature is seldom shown more than once.
Finally, if the practice succeeds in its objective of eliminating all
competition, the protection afforded to the consumer by this com-
petition is wholly lost. The consumer remains with only the choice of
seeing pictures on terms offered by the exhibitor or not seeing them
at all.

Overbuying, when undertaken with the express purpose of elimi-
nating competition, is almost certainly a violation of the Federal anti-
trust statutes. Consequently, a number of complaints against over-
buying have from time to time been filed in the Federal courts. A
case pending at the present time may be used to illustrate the general
tenor of such suits. '^

The complamant states that he started operating the Palace Theater
in St. Johnsbury, Vt., in the fall of 1926. Shortly after, another inde-
pendent, the Star Theater, was opened in the same town. Both thea-
ters operated on a policy of 3 to 4 films weekly, and each secured about
one-half of all the major distributors' product. For profitable opera-
tion each theater needed approximately 200 films annually.

In August 1935, the Interstate Theater Corporation, an extensive
New England chain, leased the Star through a subsidiary. The oper-
ator of the Palace alleges that Interstate then made contracts wjth
the major distributors whereby the Star was granted special privileges,
including price concessions, priority in play dates, rights of selection
of pictures and cancelation privileges, and that due to the strong bar-
gaining power of Interstate, the major distributors refused to license

" National Recovery Administration, Work Materials No. 34, p. 70.

" Tegu's Palace Theatre, Ivc. v. Interstate Theatre Corporation, et al., Civil Action No. 25, District Court
of the United States, District of Vermont.

286782 — 41— No. 43 4

38 CONCENTRATION OF ECONOMIC POWER

quality films to the Palace Theater. Finally, the operator of the Palace
claims that in the fall of 1935 Interstate changed the operating policy
of the Star Theater from showing 3 or 4 pictures weekly to approxi-
mately 6, thus absorbing most of the desirable films produced. The
complainant asks an injunction against the continuance of the alleged
discrimination and liquidated damages to the extent of three times
the loss he has suffered.

The failure of the antitrust statutes completely to check overbuying
perhaps lies primarily in the difficulty of determining whether in any
particular instance contracts are made with the express intention of
eliminating competition or simply as a normal consequence of com-
petitive conditions.

The Code of Fair Competition for the Motion Picture Industry
recognized the existence of the practice and incorporated a provision
expressly forbidding overbuying in any form, no matter how accom-
plished.^ Moreover, it was a function of the 31 grievance boards
set up under the code in the different exchange areas to hear com-
plaints with respect to overbuying and to grant affirmative relief in
cases where the practice had been used. These grievance boards,
set up shortly after the code became operative on December 7, 19313,
reported that 164 overbuying cases had been considered by April 1,
1935. While exact information is not available, it is known that
overbuying was found to have existed in a number of cases.

Overbuying is usually found only in the smaller communities.
The primary objective of the practice is to stifle and, if possible, to
eliminate competition by preempting the film supply. This is
generally possible only when the number of competing theaters in
the area is small. In the larger communities, a picture will usually
sustain several showings, and the exhibitor unable to secm-e pictures
on some preferred run, may generally show them at a later date and
at a lower admission price. In such situations, the powerful exhibitor
may use selective contracts, extended clearance, or unfairly specified
admission prices (q. v.) to restrict the opportunities of smaller com-
petitors.

There is an even more necessary limitation on the use of overbuy-
ing. The exhibitor resorting to the practice must by some means
secure the cooperation of the important distributors — not a few of
them but aU or nearly all. It follows that these distributors must be
offered some consideration of greater importance to them than the
rentals which might be paid by the theater unable to secure films.
This requirement wiU seldom, if ever, be fulfilled where two exhibitors
compete on relatively even terms; the overbuying exhibitor is nearly
always found to be operating a chain of theaters. Each distributor
is moved to cooperate by the tlireat that failure to assist in the dis-
establishment of the exhibitor against whom the practice is to be used
will be followed by a boycott of the distributor's films in some of the
chain's theaters, with a consequent loss in revenue. Where two
affiliated companies are involved, the promise of mutual assistance
in similar situations may also be a factor.

The intent of overbuying is to achieve a local monopoly in the
exhibition of pictures by eliminating all competition. To attain this
end, the buying power of large numbers of theaters, located perhaps

30 National Recovery Administration, Code of Fair Competition (or the Motion Picture Industry, art.
VI, Part 2, sec. 1 of the approved code.

CONCENTRATION OF ECONOMIC POWER 39

in many States, is brought to bear on a single local competitive situa-
tion. Overbuying may be practiced by a large independent theater
organization, but an affiliated theater has an additional advantage in
that it can usually count on the cooperation of the other large dis-
tributors. The practice is clearly a manifestation of the power of
the large bargaining unit in the exhibition field.

SELECTIVE CONTRACTS

Results similar to overbuying are achieved in large cities through
selective contracts. By means of this device, the large exhibitor may
contract for all the pictures released by a distributor, but obligate
himself to use and pay for only a part of these. The features to be
used are selected after release, and after the pictures have been tested
for box-office value. Under these contracts the large exhibitor is also
allowed extended playing time on hit pictures, which tends to make his
requirements unpredictable. Nor are rejected pictures made avail-
able to competing exhibitors soon after national release. Instead,
selection may be delayed so as to hold up exhibition of pictures in
competing theaters. Since much of the value of pictures depends on
their timeliness, this may operate alike to the disadvantage of com-
peting exhibitors, consumers, and the cooperating distributors.

Use of selective contracts as an unfair competitive device was
recognized in the N. R. A. code for the industry. A provision of the
code required that pictures bought on a selective basis be accepted or
rejected within 21 days after their availability in the exhibition terri-
tory where the theater was located was announced by the distributor.^'^

The effects of selective contracts may be illustrated in Chicago,
where the Balaban and Katz theater chain, affiliated with Paramount,
dominates the exhibition field. In the 3-year period from November
1935 to November 1938, Balaban and Katz had exclusive choice of all
features released by Loew's, Warner's, Paramount, and Fox for first-
run exhibition in its "Loop" theaters. These companies released a
total of 670 features in this interval, exclusive of reissues, and of these
only 388 were shown by Balaban and Katz in the ''Loop" theaters.
During the same period, United Artist's released 57 features, 47 were
hcensed by Balaban and Katz, and 4G were shown in these houses.^^

The control by Balaban and Katz of the product of four of the five
major companies resulted in a delay in the first showing of many
pictures until they could conveniently be booked into one of the
''Loop" theaters. Motion picture patrons in Chicago thus had their
first opportunity to attend many popular features more than two
months after the pictures had been nationally released. ^^ Because of
the prior playing position of the Balaban and Katz "Loop" theaters,
these delays were likewise forced upon the customers of all theaters
in the entire Chicago exchange area.

" Ibid., art. V, division E, Part 1.

^ United States v. Balaban, et at., criminal action No. 31,230, in the District Court of the United Stains for
the Northern District of Illinois, Eastern Division, proposed findings of fact submitted on behalf of the
Government, p. 50. During this period R-K-O and Universal features were shown in a first-run theater
operated by R-K-O.

" Among many, these features were first shown in Chicago the following number of days after national
release: "Tovarich," 68 days; "Rembrandt," 63 days; "Topper," 60 days; "Captains Courageous," 56
days' "A Night at the Opera," 60 days.

40 CONCENTRATION OF ECONOMIC POWER

CLEARANCE AND ZONING

In the early days of the industry (as pointed out in ch. I) distrib-
utors made a number of prints of each film and sold them outright
to exhibitors. The prints were released for simultaneous exhibition
in a number of theaters in the same territory. It was soon discovered
that consecutive showing of films by the several exhibitors in a com-
petitive situation was more economical and this method of distribu-
tion became general.

Since the potential market of the first exhibitor of a film was the
greatest, a higher rental fee was asked for the earlier showings. In
consideration of the higher rental paid, a prior run exhibitor was
granted "protection" over competing theaters. This consisted
of a stipulation that no competing theaters should show the same film
until a specified period of time had elapsed after the completion of the
particular showing licensed. This period of time came to be known
as "clearance." The term "zoning" was adopted to designate the
area over which clearance was effective, and "run" to indicate a
theater's playing p' sition. The theater first showing films in a zone
is known as the firs'u-run theater. Correspondingly, there are second-
run theaters, third-run, and so on.

In the early stages of development, clearance systems were far from
uniform. The protection and run enjoyed by an exhibitor might
vary with the identity of the distributor from whom films were
licensed. Largely by trial and error, clearance arrangements began
to fall into a pattern in which each theater occupied a definite place.
Today, a theater usually negotiates similar run and protection terms
from each distributor that supplies him with films.

The establishment of clearance schedules is an intricate procedure.
It involves a complex bargaining process and the balance of a variety
of opposing economic interests. It may be stated initially that the
primary objective of the distributor is, of course, to maximize his
total revenue from each picture. This aim gives him a very direct
interest in clearance periods. The higher rental fees paid by the
prior-run exhibitor are directly conditioned on the extent of the pro-
tection which he is granted, and in general the longer the clearance
period before subsequent showing, the higher the rental fee the prior-
run exhibitor will pay.

On the other hand, the distributor's revenue from subsequent-run
exhibition is also important to him ; this income may mean the differ-
ence between black or red ink on his ledgers. But the longer the
clearance period, the smaller will be these returns— not only because
more customers will have attended the prior showing rather than wait
for subsequent exhibition, but also because the effects of the adver-
tising and exploitation efforts made when the picture was released
will have been vitiated over this time. In general, the greater the
total box-office return earned by a film in all showings, the greater
will be the distributor's revenue.

Opposed to the distributor in the bargaining processes are the
theater operators in a particular competitive location. The first
factor to be settled is the run enjoyed by a particular theater. This
is primarily determined by the amount of sales which the theater can
be expected to make. This in turn is a function of the theater's
seating capacity, its location, the newness and desirability of its

CONCENTRATION OF ECONOMIC POWER 41

facilities, and the admission prices which it can charge. First-run
showings are usually booked into the theaters having the largest
potential box-office receipts, since such theaters can pay the highest
film rentals. Such theaters are, of course, the largest houses centrally
located in cities so as to draw audiences from an entire metropolitan
area.

The objective of the operator of a first-run theater is to bargain for
as much protection over subsequent showings as possible since in this
way he tends to increase his total revenues. The length of the clear-
ance period must, however, be balanced against the higher film rentals
which will be charged by the distributor for extended protection.
The operator of a subsequent-run theater may have to consider not
only the protection over still later showings, but also his position with
respect to prior exhibition.

The admission price charged by a theater is always an important
element in setting clearance periods. It is the universal practice for
the distributor to stipulate in each exhibition contract the minimum
admission price at which films may be shown. This is not done simply
to protect the distributor's interest in pictures which may be licensed
on percentage terms. Customarily, each subsequent showing of a
film in a competitive area is made at a lower admission price. The
subsequent sale value of a film may-, therefore, in large part be deter-
mined by the admission prices which have been charged in the prior-
run theaters.

The relation between clearance and admission is quite flexible. In
general, the higher the admission price charged by any particular
exhibitor, the longer the clearance period which will be granted by the
distributor. Conversely, admission prices can generally be reduced
only at the expense of less satisfactory protection terms. Clearance
and admission prices can thus not be considered separately. It may
well be that the location of a theater will determine the admission
prices which it can charge, and this in turn will fix the theater's
clearance period.

The complex bargaining involved makes the establishment of clear-
ance schedules difficult indeed, but these difficulties rise almost
wholly in urban areas. Clearance presents few problems in small
towns or isolated areas where not more than two or three theaters are
in direct competition. Such theaters may play behind the prior-run
houses in the large cities, but this is not likely materially to afi^ect
their revenues. Moreover, even in the large cities, it is the establish-
ment of equitable clearance periods between the first-run and subse-
quent-run theaters which is most difficult. The longest clearance
period is usually set between the first showing of a film in the large
downtown theaters and any subsequent showing. Clearance between
subsequent runs is frequently quite brief.

The relation between run, clearance and zoning, admission price,
seating capacity, and rental fees is indeed a complex one. The range
covered by these factors is indicated by this fact: a license fee amount-
ing to many thousands of dollars may be paid for the first showing of
a film in a large metropolitan theater, and within a year the same
film may be exhibited in some small theater in the same city for a fee
of less than $20.

A further indication is given by the experience of the feature
"Gorie With the Wind." This picture was released early in 1940 for
showing at substantially advanced admission prices. At this time it

42 GONOENTRATION OF ECONOMIC POWER

was advertised that the film would not be shown again at lower prices
before 1941. Nevertheless, despite the advanced admission prices,
public interest in the picture was so great that record-breaking num-
bers of persons paid $1 or more each rather than wait until the film
was available at a lower figure. It is reported that the receipts frotn
this single showing at advanced prices more than covered the entire
production and exploitation costs of the picture, though these wer^
large. Because of the high admission prices originally charged, the
picture will continue to bring in revenue for some time to come.
Nor will admission prices soon be reduced to those usually charged for
subsequent-run showing. It may be parenthetically noted that the
rental fees charged exhibitors for this showing were likewise record-
breaking in many instances. This case is an unusual one, but it never-
theless indicates the important relationship between clearance,
admission price, and film rentals.

In the idealized situation where all the elements of the industry
are in active competition with one another, the clearance pattern
resulting may be considered to come from a balancing of the conflicting
objectives of each of the elements. A clearance system of this type
probably represents the best method for distribution of motion pic-
tures which could be devised. It permits the distribution of films
both rapidly and economically. Moreover, the resulting exliibition
pattern is relatively stable, in itself an advantage to the consumer.
But, like many other systems which in an economic sense may be
basically sound, the clearance system is subject to abuse by dominating
elements within the industry.

Powerful exhibition interests competing with weaker rivals have
demanded extended clearance periods from distributors, and have
insisted that they be granted protection over geographical areas larger
than could be warranted in any economic sense. In view of the larger
aggregate rentals paid by these dominating exhibition units as com-
pared with their smaller competitors, and the fear that these rentals
might be reduced or withdrawn, distributors in many cases have ac-
quiesced to these demands.

The primary reason for the negotiation of extended protection has
been, of course, the simple desire to hear the cheery ring of the bell in
the cash register. A theater able to negotiate extended clearance
without being required to pay correspondingly higher rentals tends to
draw patronage away from competing subsequent-run exhibitors.
That this practice may render the competitor's business wholly un-
profitable may not be an undesirable aspect of the situation. If
the large exhibitor is able to acquire cheaply the properties of his
competitors, he may achieve a local monopoly of the exhibition field,.
In this case the admission prices and clearance periods which are
established will be designed solely to enhance his profits at the expense
of all motion picture patrons in the locality, so far as this may be
permitted by the distributors.

The consumer interest in unfair clearance is quite clear. Th&
consumer desires to see each picture as promptly as possible and at the
lowest admission price compatible with continued desirable service.
It is quite evident that unfair clearance, whether present as such or
carried through to the ultimate objective of a local monopoly, directly
contravenes the interests of the consumer.

Unfair clearance is not primarily a question of producer-distributor
control of exhibition. It has been employed repeatedily by large

CONCENTRATION OF ECONOMIC POWER 43

independent theater organizations. Nevertheless, the practice has
been closely identified with the theater operations of the major
companies. As has been already indicated, the five major companies
control and operate a great number of large prior-run theaters through-
out the United States. Since unfair clearance is most usually insti-
tuted by such theaters over subsequent-rim competitors, this control
is most significant. Moreover, since these major companies in
general do not compete with each other in their theater operation
activities, the mutual advantages to be derived from reciprocal
permission to enforce unfair protection terms on subsequent-run
exhibitors must not be disregarded.

Indicative of the different types of situations which may develop
contingent upon the control of theaters by one of the affiliated com-
panies is the practice with respect to clearance between first and
subsequent-runs in Washington, D. C, and in Atlanta, Ga. In
Washington six downtown theaters are operated by three major
companies, but the majority of the neighborhood houses throughout
the city are owned and operated by Warner Bros. In general, the
clearance of the first-run theaters over Warner's neighborhood houses
amounts to about 28 days. Obviously, in Washington it is to the
advantage of Warner Bros, to arrange clearance schedules to maximize
the revenue of their neighborhood .theaters, so far as this does not
conflict with reasonable profits in the first-run houses.

Contrasting with this, five first-run theaters are operated by two
affiliated companies in Atlanta. No one of the major companies
operates subsequent-run theaters in this city. The interests of the
two major companies operating these first-run theaters are obviously
best served by extending clearance periods so as to divert as large a
share as possible of exhibition revenue into the first-run houses.
The clearance period in Atlanta on first-quality pictures is in the
neighborhood of 60 days or more.

Because of the disadvantageous position of the small independent
exhibitor in negotiating clearance, as compared with the affiliated
exhibitors and the large independent circuits, unfair clearance has
become one of the most frequent and the most serious complaints by
independent exhibitors. There has indeed been a strong basis for
their claims. Where they have been subject to unfair protection
restrictions, their profits have soon become losses. More than one
exhibitor has seen his theater investment depreciated in value until
he decided the only thing to do was to close its doors. Practically
every legal action filed by an independent exhibitor or by the Govern-
ment against an affiliated company or an independent theater circuit
has contained charges of inequitable clearance and zoning.

Peculiarly enough, the interests of the distributor without theater
connections in a particular locality to some extent parallel those of
the consumer and the independent exhibitor. Unfair clearance is
granted by a distributor to theaters affiliated with another distributpr
or forming part of an independent chain not primarily to obtain
increased revenues, but rather from fear of reduced revenues if he
fails to comply.

Fears of loss of revenue in other B & K situations if its requirements in the loop
were not met were expressed by representatives of two of these defendants [major
distributors] in conversation with other exhibitors. ^^

" United States v. Barney Balaban, et al., op. cit.

44 CONCENTRATION OF ECONOMIC POWER

The curious conflicts of interest within the industry caused by the
question of unfair protection have resulted in a queer half-conviction
on the part of even those using the practice that it might be better all
around if equitable clearance and zoning schedules generally applicable
throughout the industry might be developed. The establishment of
equitable protection arrangements, while it has an easy sound, is most
difficult of attainment. Large theater investments have in many
cases been made on the basis of existing clearance arrangements. The
question as to whether these clearances are now equitable is likely to
be considered somewhat beside the point when a change may vastly
depreciate values. Nevertheless, efforts have been made by the
industry to rationalize the clearance system.

Discussions which were intended to lead to uniform clearance and
zoning schedules were inaugurated in about IQSO" through the film
boards of trade. These film boards of trade represent the local organ-
izations of the major distributors in each of the key cities. Exhibitors
and distributors conferred on the establishment of these schedules.
It was intended that each theater in an exchange area would be
allotted a definite playing position, and that all distributors would
adhere to the schedule adopted. Uniform clearance and zoning
schedules were set up for about 10 exchange areas for the 1930-31
season. However, in 1 of these territories, an independent exhib-
itor, feeling that the schedules discriminated against him, instituted
legal action under the antitrust statutes. The court declared the plan
to be illegal under the Sherman Act, and it was abandoned. ^^

The establishment of uniform schedules was again attempted under
the N. R. A. Code for the Motion Picture Industry. Clearance and
zoning boards, consisting of representatives of distributors and exhib-
itors, were set up in each of 31 exchange cities. However, only 1
major schedule was approved during the life of the code — ^that for the
Los Angeles territory — and in this case a number of the protests were
outstanding at the time of approval. Nevertheless, the local clearance
and zoning boards considered 875 individual complaints of inequitable
protection arrangements and in many of these relief was ordered.

No further attempts to set up uniform schedules have been made
since invalidation of the code. However, it must be noted that exist-
ing protection arrangements with respect to any theater are sub-
stantially the same for all major distributors.

The subject of unfair clearance is recognized in section VIII of the
recent consent decree signed by the five major companies. It is
stipulated that the reasonableness of the protection applicable to an
exhibitor's theater shall be subject to arbitration. With certain
restrictions the question of the run to be enjoyed by a theater is also
subject to arbitration under the consent decree. The provisions of
the consent decree are discussed in greater detail in appendix III.

Presumably, the exhibitor subject to unfair clearance can bring a
successful action under the antitrust laws, alleging arbitrary and
concerted action to limit competition and injure his business. As in
the case of overbuying, the principal difficulty is in determining
whether the particular conditions obtaining have resulted from the
complex economic forces involved or from an express intent to exploit
unfairly the advantage of greater buying power. It must be agreed
that in any particular situation, even with all the facts, it is most

3i Youngclaus v. Omaha Film Board of Trade, 60F (2d) 538, July 2, 1932.

CONCENTRATION OP ECONOMIC POWER 45

difficult to establish exactly what equitable protection should be.
The consumer generally lacks such resources, and his protection from
the effects of unfair clearance must come principally from the forces
of competition.

The clearance developed between a number of theaters, wholly
independent of affiliation with other theaters or with distributors, and
competing with each other for ffims and protection terms, is likely to
approximate the conditions most desirable from the consumer stand-
point. Where none of these elements is in a position to exact un-
warranted profits at the expense of his competitors or the consumer,
the consumer's interests are probably well protected. It is when
large numbers of theaters are joined together into a single bargaining
unit that unfair clearance is likely to develop. It is apparent that
the problems arising from unfair clearance and zoning, like those
developing from overbuying, are almost wholly a result of large-scale
combination of interests in the exhibition field.

UNFAIRLY SPECIFIED ADMISSION PRICES

As mentioned in the preceding section, minimum admission prices
are specified in each exhibition contract and constitute an important
feature of the license agreement. Inserted originally for the protec-
tion of the distributor, admission prices, like clearance and zoning
restrictions, have in some cases been converted by strong exhibition
interests into a weapon against weaker competitors. This power has
resulted in the setting of minimum admission prices in the contracts
of subsequent-run exhibitors at higher levels than warranted by the
clearance and zoning restrictions negotiated. The effects of this
practice are, of course, identical with those of, unfairly extended
clearance and zoning and are equally vicious from the consumer
standpoint.

An interesting illustration involves the Interstate Circuit and the
Texas Consolidated Theaters, both affiliated with Paramount.^*
Through ownership of about 131 theaters, about half of which are
first-run theaters (there are 1,073 theaters in operation in Texas and
New Mexico at present) ^^ these two circuits dominate exhibition in
Texas and New Mexico,^* and have been successful in dictating to the
various distributors the terms at which the latter may license films
to independents.

The following letter was sent by Interstate to each of the major
distributors:

Gentlemen: On April 25th the writer notified you that in purchasing product
for the coming season 34-35, it would be necessary for all distributors to take into
consideration in the sale of subsequent runs that Interstate Circuit, Inc., will not
agree to purchase produce to be exhibited in its "A" theaters at a price of 40
cents or more for night admission, unless distributors agree that in selling their
product to subsequent runs, that this "A" product will never be exhibited at any
time or in any theater at a smaller admission price than 25 cents for adults in
the evening.

In addition to this price restWctjion, we also request that on "A" pictures which
are exhibited at a night admission price of 40 cents or more — they shall never be
exhibited in conjunction with another feature picture under the so-called policy
of double-features.

« U. S. V. Interstate Circuit, Inc., et al., Equity No. 3736-992, 1938.

" 1940 Motion Picture Yearbook.

3' Their domination in the cities where their theaters are located is indicated by the fact that at the time
of the contracts in question, Interstate and Consolidated each contributed more than 74 percent of all the
license fees paid by motion picture theaters in their territories. (Opinion, Supreme Court of the United
States,' Nos. 269, 270, p. 3.)

4g CONCENTRATION OF EiCX)NOMIC POWER

At this time the writer desires to again remind you of these restrictions due to
the fact that there may be some delay in consummating all our feature film deals
for the coming season, and it is imperative that in your negotiations that you
afford us this clearance.

In the event that a distributor sees fit to sell his product to subsequent runs
in violation of this request, it definitely means that we cannot negotiate for his
product to be exhibited in our "A" theaters at top admission prices.

We, naturally, in purchasing subsequent runs from the distributors in certain
of our cities, must necessarily eliminate double featuring and maintain the maxi-
mum 25 cent admission price, which we are willing to do.

Right at this time the writer wishes to call your attention to the Rio Grande
Valley situation. We must insist that all pictures exhibited in our "A" theaters
at a maximum night admission price of 35 cents must also be restricted to subse-
quent runs in the Valley at 25 cents. Regardless of the number of days which
may intervene, we feel that in exploiting and selling the distributors' product,
that subsequent runs should be restricted to at least a 25 cent admission scale.

The writer will appreciate your acknowledging your complete understanding
of this letter.

Sincerely,

(Signed; R. J. G'Donnell.s*

Conferences between the Circuit and the distributors resulted in the
latter's agreement to impose the restrictions outhned.

Prior to the 1934-35 season, subsequent-run exhibition contracts
generally provided for a minimum admission price of 15 cents, in some
cases 10 cents. The new price restrictions thus represented a large
increase. In those low-income areas where the independent exhibitors
could not meet the new restrictions, the members of the community
were furnished with only the poorer products of the industry. The
pictures denied the theaters with a lesser admission price were played
at the first-run theaters with admission prices of 40 cents or more,
and those patrons who formerly waited for subsequent runs could,
after the change, see desirable pictures only at first-run theaters.
Attendance was thus diverted from the subsequent-run theaters to
Interstate's first-run theaters, and the income of the former was
reduced.

How the process was viewed by an independent exhibitor in this
territory, as well as the close connection between clearance and admis-
sion price, is illustrated by the following testimony at a congressional
hearing.

I have here the clearance schedule for the Interstate Circuit in Texas. It is
written by the Interstate people, also their affiliated Texas Consolidated, covering
some of the smaller towns, and it is laid down by all of the film companies, who
abide by it. It lays down the rules that they expect to have followed, regarding
the clearance of their theaters * * *.

If you will notice this, there is a provision that a neighborhood theater in Dallas
* * * which charges 25 cents, shall wait 90 days after the downtown first
run, before it can get its picture * * *. If the charge is 20 cents, it must
wait 120 days. So, there is the place where the control of prices comes in, because
if I am running the 25-cent theater and elect or choose to reduce my admission
price to 20 cents, I automatically force myself back 30 days further in clearance.
My people must wait 4 months instead of 3 months after the picture has been
shown downtown before they can see it. Naturally that afi"ects my box office.
Naturally that drives away some customers. I have to figure for myself as to
whether the reduction in price will bring me more customers than the lengthening
of the time, the older the age of the picture,'will lose me customers * * *.*"

This particular case is especially interesting as showing that one of the
major companies was successful in securing the cooperation of the

" Interstate Circuit, Inc., el nl. v. The United State* Of America (No. 269), appeals from the District Court
■of the United States for the Northern District of Texas, February 13, 1939.
*» Hearings, House of Representatives, pursuant to S. 280, testimony H. A. Cole, p. 387.

CONCENTRATION OF ECONOMIC POWER 47

•other large distributors in inaugurating a radical change in practice —
a change, by the way, which they felt was counter to their own best
interests. Universal's branch manager, in forwarding the letter
quoted above to his home office, wrote:

I am sure this will give you some idea as to how tough these fellows expect to
be in the Dallas territory, and it looks to me like a sales policy that should be
"nipped in the bud" in New York for after all, a policy of this sort is extremely
dangerous to everyone concerned and cannot help, in the long run, but cost us
all plenty of money.

R-K-O's branch manager, in forwarding the same letter to his home
office, wrote:

In view of the fact that this letter requests us to set up a definite sales policy as
outlined by them, I would appreciate your advising me if under our national sales
policy, we would be within our rights to agree to any such set-up even if we agreed
with tliem. They are automatically trying to set up a model arrangement for the
United States without giving us anything to say about it.

Metro's branch manager wrote to his home office:
In my opinion Bob is making some unfair demands, imposing conditions on us
of which he is a flagrant violator. This has particular reference to the fifth para-
graph of his letter, as he is playing double features in Ft. Worth, San Antonio, and
plenty of other situations.^'

The Supreme Court in its opinion found that the activities outlined
were the result of an agreement which "constituted a combination and
conspiracy in restraint of interstate commerce in violation of the
Sherman Act.""

In this particular case a clear-cut decision against the practice,
endorsed by the Supreme Court, was obtained. However, in this
instance there was clear and incontrovertible evidence that admis-
sion prices were deliberately set to restrict competition from sub-
sequent-run exhibitors. In many other cases it will be uncertain
whether an equivalent result has not been achieved by indirect means.

Other Practices Affecting Relationships Between Exhibitors

Various means have been indicated whereby a powerful exliibitor
may limit the competition of a less powerful opponent or even drive
him from business. However, in many cases it may not even be neces-
sary to use methods which tend to place the competitor's business on
an unprofitable basis. The mere threat of employment of one or more
of these devices where the smaller exhibitor has the certain knowledge
that the power to carry out the threat is available may provide a
sufficient inducement to the small exhibitor to relinquish part or all
of his exhibition interests to the more powerful competitor.

Other practices may be used to the same effect. The larger ex-
hibitor may threaten to acquire a competing theater or he may
actually acquire such a theater and operate it at a loss until the smaller
exhibitor is forced to meet his terms. The variety of means which

^1 17. S. V. Interstate Circuit, Inc., et al., op. cit,

*' Interstate Circuit, Inc. v. U. S., op cit.

"• • * the distributor appellants agreed and conspired amotig themselves to take uniform action upon
the proposals made by Interstate • • • that they carried out the agreement by imposing the restrictions
upon their subsequent-run licensees in those cities, causing some of them to increase their admission price
to 25 cents • • * thattheeffectof the restrictions upon 'low-income members of the community' patron-
izing the theaters of these exhibitors was to withold from them altogether the 'best entertainment furnished
by the motion picture industry;' and that the restrictions operated to increase the income of the distributors
and of Interstate and to deflect attendance from later -run exhibitors who yielded to the restrictions to the
first-run theaters of Interstate • • • The court concluded * • • the agreement • • * consti-
tuted a combination and conspiracy in restraint of interstate commerce in violation of the Sherman Act."
<n)id.)

48 CONCENTRATION OF ECONOMIC POWER

may be employed in this type of situation are illustrated in a com-
plaint instituted against a powerful independent exhibitor chain. The
complaint states in part:

By reason of the control by defendant exhibitors of the most desirable motion
pictures as hereinbefore set forth, defendant exhibitors have been able practically
to eliminate the competition of independent exhibitors in the Crescent towns.
Independent exhibitors have been induced to sell their theaters to defendant
exhibitors under the threat, express or implied, that if they refused to sell, defend-
ant exhibitors would open competing theaters in the same town and prevent
the independent exhibitor from procuring desirable pictures. In a number of
instances, independent exhibitors attempting to compete with defendant exhibitors
have found it impossible to procure sufficient pictures to keep their theaters in
operation. In addition, defendant exhibitors have lowered their prices, giving
away large sums of money as prizes, and operated some of their theaters at a loss
with the purpose and effect of driving their competitors out of business and giving
defendant exhibitors a monopoly in the exhibition of motion pictures in the area
in which they operate. By the use of such tactics defendant exhibitors have
forced a large number of independent exhibitors in the States of Tennessee, Ken-
tvicky, Alabama, Mississippi, and Arkansas out of the motion-picture business
and, unless restrained and enjoined by this court, will continue to do so in the
future until they have complete control of the motion picture exhibition business
in the area in which they operate.''^

The bill of particulars stated, among others, 26 instances in which
the chains took over or closed out small independent theaters during a
period of 5 years.

A second case, while not strictly concerned with the treatment of
an exhibitor by a more powerful competitor, nevertheless illustrates
how domination of an exhibition territory may be used. The case
concerns the Balaban & Katz Corporation, the exhibition outlet of
Paramount in Chicago.

The Oriental Theatre in Chicago was constructed, as part of a
larger project, expressly for first-run exhibition of motion pictures.
Before the building was completed, the Balaban & Katz Corporation,
on August 25, 1924, executed a lease for the building, to run for 50
years at a rental of $327,000 per year. It was specifically provided in
the agreement that the lease might not be reassigned to any corpora-
tion having capital and surplus of less than $1,000,000 at the time of
assignment.

On February 29, 1932, John Balaban, Barney Balaban, and Sam
Katz, representing the Balaban & Katz Corporation, formed the
Oriental Theatre Co. This company had a capital and surplus of
$1,013,132.97, of which $1,013,020.81 consisted of accounts receivable
from the Balaban & Katz Corporation. The lease for the Oriental
Theatre was assigned to this corporation on March 5, 1932. Five
days later the stockholders of the Oriental Theatre Co. met and
declared a dividend of $903,485.21.

This maneuver was preliminary to a demand in October or Novem-
ber 1932 by the attorney representing both the Balaban & Katz
Corporation and the Oriental Theatre Co. that the owners of the
building reduce the amount of the rental for the theater. Since the
Balaban & Katz Corporation controlled the Chicago exhibition field,
the owners recognized the inevitable, and on December 14, 1932,
agreed to a reduction in the rental to $200,000 per year. In July
or August 1935 a request for a further reduction in rental was made,
but this was not granted. Finally, after some intervening negotiations,.

" United States v. Crescent Amusement Company, Inc., et al., in the District Court of the United States-
tor the Middle District of Tennessee, Nashville division, complaint, civil action No. 54, filed August 11, 1939.

CONCENTRATION OF ECONOMIC POWER 49

the Oriental Theatre Co. defaulted on the rent and discontinued oper-
ation of the theater on May 26, 1938. As a consequence of this
action, the lease was canceled on September 22, 1938.

At this time Balaban & Katz offered to lease the theater for $125,000
per year, with a percentage of any profits made above a certain figure.'**
When this offer was refused, the owners were informed by the repre-
sentatives of Balaban & Katz conducting the negotiations that they
might as well lease to B. & K. since "they are the only people that
can get pictures for the house." This statement appeared justified,
since negotiations with a number of independent exhibitors for oper-
ation of the house were unsuccessful. After examination of the
possibilities, each of these concluded that they would be unable to
secure sufficient first-quality prior-run product to make the operation
of the theater successful. Finally, the theater was leased to an
unaffiliated exhibitor for 25 years, commencing November 1, 1938,
on percentage terms with a guaranteed rental of $150,000 a year
after the first 2 years.

This case was summarized by the Government as follows:

The theater was built and opened as a first-run house under B. & K. manage-
ment, at a rental of $327,000 a year. After 6 years of such operation, it was
assigned to a subsidiary without financial responsibihty as a preliminary to
negotiations which reduced the rental to $200,000 a year. B. & K. then de-
faulted again shortly after the new lease was made, finally closed the theater,
and then offered to lease it again for $125,000 a year. B. & K. could default
the lease and close the theater without having to consider the possibility of first-
run competition from that theater in other hands only because it controlled the
supply of first-run pictures necessary to operate that theater on the policy for
which it was built. In so doing, it ruthlessly depreciated the investment repre-
sented by that theater in a manner which the owners were helpless to combat.**

** United States v. Barney Balahan et ah, op. cit. For purposes of compari.son the figure agreed upon
in the Loew ."i-year franchise as the rental assigned to the Roosevelt Theatre in Chicago, owned by the
B. & K. Corporation, in computing film rentals on percentage pictures was $188,295.64 per year. Seating
capacity of the Oriental was 3,800 as against 1,540 for the Roosevelt.

" Ibid.

CHAPTER III

OBSERVATIONS

CHAPTER III

OBSERVATIONS

The production and distribution branches of the motion picture
industry are domhiated by five large companies. These are flanked
by three satelhte organizations unable in their own economic interests
to oppose the policies of the controlling five.

It has been made extremely difhcult, if not impossible, for important
new competition to enter production or distribution. The present
companies tlirough contract agreements control the motion picture
players and directors of established reputation, as well as other persons
of high technical ability. Production personnel and production equip-
ment may be jointly used through mutual loans. Facilities are not
generally available to others on these terms.

The control of production and distribution by these companies is
confirmed by their ownership of a most important segment of the
motion picture theaters of the United States. A pretentious inde-
pendent production in order to be profitable must be shown in at
least some of these theaters, and in general this can be achieved only
by entering into a distribution contract with one of the major com-
panies. This fact makes it extremely difficult to finance any inde-
pendent production unless such arrangements have already been made.

In their relationships with exhibitors these companies have demon-
strated similarity in policy and action. Various practices have been
developed to maintain their control over this field and to render it
profitable. Where competition has proved counter to the joint in-
terests of these companies, cooperation has been substituted. Many
of the practices initiated and perpetuated by these companies must
be considered definitely inimical to the interests of the consumer.

The motion picture industry is not imique in the sense that it is
dominated by a few large companies. An even higher degree of con-
centration may be found in some other industries. But in many of
these industries it can be demonstrated that combination has resulted
in real economic benefits to the consumer. It is, therefore, pertinent
to inquire what economic advantages have accrued to the consumer
from the degree of concentration which exists in the production and
distribution branches of the motion picture industry today.

A full and adequate discussion of this question would require
information which is not available to the authors of this rep'ort.
However, a few significant items may be considered. So far as pro-
duction is concerned, the question to be answered is whether a larger
number of producing units, each making a smaller number of pictures,
would increase unit costs of production or lower the standard of film
entertainment.

In this connection the experience of the United Artists Corporation
is perhaps suggestive. The pictures distributed by this company
almost uniformly meet a high standard of quality. Moreover, the

286782— 41— Xo. 43 5 53

54 COXCENTRATION OF ECONOMIC POWER

number of pictures produced each year is not large. In the
1930 and 1931 -seasons this company released 13 and 14 features,
respectively; in the 1937 season the number was 16. Beyond this, -it
may be pointed out that most of the productions distributed by the
United Artists Corporation are carried through by completely separate
and individual producing organizations.

Wliile this example is far from conclusive, since manj^ important
factors have been omitted from consideration, it nevertheless suggests
that efficiency in production may perhaps be achieved on a much
smaller number of pictures than the 40, 50, or 60 produced annually
by each of the major companies.

It is not irrelevant in this connection to point out that Hollywood
has been the target of repeated charges of extravagance and economic
waste. It is unnecessary to detail these here. But inefficiency or
extravagance of the type ordinarily alleged is seldom possible except
in very large organizations. One must admit the possibility, then,
that unit costs of production might actually be less if the producing
companies were of smaller average size.

In the distribution branch of the industr}'^, it must be admitted
without question that there is a real cost advantage in having each
distributor handle as large a number of pictures as possible. An
increase in the number of distributing organizations would un-
doubtedly result in duplication of personnel and facilities. However,
distribution costs are in general a rather small factor in this industry,
and they do not increase in direct ratio as the number of prints released
by each distributor is reduced.

Certain entries must be made on the other side of the ledger. The
concentration existing in the production and distribution branches
of the industry has permitted the concerted use of practices which
insure a return from the consumer on all products, regardless of quality.
The large business units existing are generally unresponsive to con-
sumer pressure, and the economic forces tending to produce steady
improvement of the goods offered have to some extent been vitiated.

For the production and distribution branches of the industry
together, then, there is no strong evidence to show that the existing
degree of concentration has resulted in economic savings for the
consumer. The motion picture industry may be contrasted in this
respect with the manufacture of automobiles. Here there is no
question but that a high degree of integration exists. But it is
equally true that this integration has been followed both by substan-
tWl and persistent reductions in unit costs of production and by steady
improvements in quality.

Concentration is likewise an important factor in the exhibition
branch of the industry. Individual theaters have been combined
mider comrnon ownership and welded into huge chains of enormous
pooled buyii.L, power. The economic strength of these chains has
been used to enhance their profits and extend their sway nt the expense
of consumers and the smaller elements in the industry. Various prac-
tices have been developed and used when necessary to destroy the
possibility of successful competition. Overbuying of films, unfair
and unwarranted clearance imd zoning agreements, and a variety of
other pract'-^es have been actively employed in this way.

Thise practice?, represent more, however, than a simple abuse of the
power conferred by size. They form a p.a-t of the larger problem of

CONCENTRATION OF ECONOMIC POWER 55

local monopoly in the exhibition field. Distributors of motion pic-
tures frequently describe themselves as wholesalers. By inference
"•ihibitors are to be likened to retailers. On closer examination,
however, the parallel vanishes. Virtually any retail article sold at a
nominal price may be marketed in a variety of retail outlets. Motion
pictures, on the other hand, can be offered to the public only in motion
picture theaters. Each -theater represents a large investment and
unlike the usual retail establishment it can be used only for a single
specialized purpose.

Control of all theaters in a locality, therefore, gives the possessor
the means of monopoly. A retail outlet of one type may in most
cases be transformed almost overnight to an outlet for an entirely
different commodity. An additional outlet for motion picture exhibi-
tion, on the other hand, cannot be found so readily. Control of all
theaters in an area is as surely a monopoly as a local electric power or
telephone company. Competition is absent simply because other
facilities for the business are not available. The major difference is
that the charges made by utilities are limited by public regulation.

It is assumed that whoever may wish to do so is free to construct a
new theater. It may be said, therefore, that there can be no local
monopoly of exhibition since inordinate profits would draw compe-
tition. Let us examine this prospect more closely.

It has already been pointed out that the construction of a new
theater entails a considerable investment in property which will have
but one use and which will be of little value if not put to that use.
An investor would be foolish indeed if he did not examine the risks
before embarking on such a prospect. It may be assumed, then, that
the investor before constructing a new theater will insure that when
it is completed an adequate supply of suitable pictures will be available
for use. How frequently will this condition be satisfied in a locality
where the control of existing theaters is in the hands of a large chain
exhibition organization? Such organizations must feel secure indeed
in their local monopolies since in general they have to fear competition
only from organizations as powerful as themselves. Especially secure
are the theater-operating subsidiaries of the major producer-distribu-
tors since every dictate of self-interest moves them to cooperate
rather than compete with one another.

Here again one may inquire whether real economies to the consumer
may not result from chain operation. The most significant answer to
this question is given by the fact that acquisition of a theater by a
chain is seldom followed by a reduction in the charged admission price.
Rather, the reverse has more commonly been the case. The spread
of chain exhibition organizations has accomplished a steady increase
in the number of local exhibition monopolies, the effect of which has
been graduall}^ to' strip the consumer of the protection formerly
accorded him by competition.

Concentration in both production and exhibition has been linked
through the five major companies which operate in both branches of
the industry. The activities of these companies in each of these fields
have been used to extend their control and enhance their profits in
the other. In the exhibition as well as in the production field, coop-
eration has been substituted for competition where this was jointly
advantrgeous, without consideration of the interests of the consumer.
The theater interests of these companies have been so located as to-

55 CONCENTRATION OP ECONOMIC POWER

provide a minimum degree of friction of one with the other. Con-
flicting interests have been resolved where this seemed mutually
desirable by simply pooling theater operations.

It has been stated that the degree of concentration existing in the
motion picture industry is not greater and in some cases is less than
that obtaining in many other important lines of enterprise. It may
be asked, then, why this industry requires any special consideration.
One answer to this question has been given above. In some lines of
enterprise, concentration confers cost advantages which in turn bene-
fit the consumer. In the motion picture industry, on the other hand,
there is reason to believe that exactly the opposite has been the case.
In at least one other important aspect the motion picture industry
displays significant differences.

The motion picture commenced as a novel and pleasing type of
entertainment, but it has evolved into an important social and cultural
force. In some senses it provides a common denominator to the
feelings and aspirations of an entire people. Its importance must
then be measured in terms other than the conventional one of dollars
and cents.

Readers of economic reports of this type have come to expect a
diagnosis of sickness, to be followed by the author's pet patent medi-
cine for the cure of all troubles. In the present case the authors are
content to indicate the cause without attempting to make a sale on
some particular cure. However, one thing may be definitely stated.
Any remedy or solution to the problems of the motion picture industry
in its relations with the consuming public will not be a simple one.
It is a mistake to assume that any such cure-all as "divorcement of
exhibition from production" or "restoration of competition in the pro-
duction field" or any other single proposal will resolve all the difficul-
ties of all the elements with an interest in this industry. Any single
step might well ameliorate the effects of some of the undesirable prac-
tices of the industry as they affect the consumer, the exhibitor or some
other interested group. The motion picture industry exhibits symp-
Itoms which are common to manytJ^ our great enterprises. Its prob-
lems are part of the larger problem of the development and direction
of American industry. More than anything else, perhaps, intelligent
and sympathetic study is indicated.

APPENDIX I

THE EIGHT MAJOR COMPANIES

APPENDIX I

THE EIGHT MAJOR COMPANIES

The following are brief sketches of the development and integration
of the five major prodiicer-distributor-exhibitor companies and the
three satellite producer-distributor companies.

The extent of the financial holdings of these companies is of neces-
sity understated. For instance, interests in real estate, radio, and
music companies among others are not included.

The material in the skeicnes is taken from the amended and sup-
plemental complaint, November 14, 1940, U. S. v. Paramount Pictures,
et al., civil action No. 87,273, in the District Court of the United
States for the Southern District of New York.

PARAMOUNT PICTURES, INC.

Famous Players-Lasky Corporation was incorporated on July 19,
1916. In 1917 twelve producing companies merged with it. At the
same time the corporation integrated production and distribution by
acquiring a national distribution system through a merger with
Artcraft Pictures Corporation and Paramount Pictures Corporation.

In 1919 the corporation started its theater acquisition program. It
acquired stock interest in Southern Enterprises, Inc., with 135
theaters in the South; in 1920 it acquired stock interest in New
England Theatres. Inc., with 50 New England theaters; in the Butter-
field Theatre Circuit with 70 theaters in Michigan about 1926; in
Balaban & Katz w^ith 50 theaters in Illinois at the same time. Later
numerous theaters in the West and Middle West were acquired.

In April 1927 the corporate name was changed to Paramount
Famous Lasky Corporation, and in April 1930 to Paramount Publix
Corporation. In 1933 Paramount Publix Corporation was adjudi-
cated a bankrupt in the Federal District Court for the Southern Dis-
trict of New York. In June 1935 it was reorganized under sec. 77B
of the Bankruptcy Act under the name of Paramount Pictures, Inc.

Today Paramount operates 63 first-run metropolitan and 1,210
other theaters, and has exchanges in 33 key cities. It produces from
45 to 60 pictures annually and ordinarily distributes each season a
substantial number of features produced by others for release by it;
it produces an average of 45 short subjects and 104 news reels annually.

Its gross assets are approximately $90,000,000, and for the fiscal
year ended in 1939 its consolidated gross income was in excess of
$100,000,000.

LOEW'S INCORPORATED

Loew's Consolidated Enterprises, organized in 1910 was succeeded
in 1911 by Loew's Theatrical Enterprises. Beginning in 1911 the
company, through subsidiary corporations, extended its activities
in the operation of theaters in New York City, among other cities.
By 1919 it had financial interests in approximately 56 theaters.

, 59

go CONCENTRATION OF ECONOMIC POWER

In October 1919 Loew's Incorporated was organized and acquired
all the outstanding stock of Loew's Theatrical Enterprises. The
extent of its theater business has increased gradually since.

In 1920 Loew's Inc., entered the production and distribution field
by acquiring the outstanding stock of Metro Pictures Corporation.
In 1924 Metro merged with Goldwyn Pictures Corporation under the
name of Metro-Goldwyn Pictures Corporation. As a result of the
merger Loew's became the owner of all of Metro-Goldwyn's common
stock. About the same time certain assets of Louis B. Mayer Pic-
tures, Inc., were turned over to Metro-Goldwyn. The business of
Metro-Goldwyn was subsequently assumed by the Metro-Goldwyn-
Mayer Corporation. In December 1937, the Metro-Goldwyn-Mayer
Corporation ceased to do business and its production activities were
taken over by Loew's Incorporated.

Today Loew's operates 24 first-run metropolitan and 98 other
theaters and has exchanges in 31 key cities. It produces from 40 to
50 pictures annually and ordinarily distributes each season a substan-
tial number of features produced by others for release by it; it produces
an average of 36 shorts annually.

Its gross assets are approximately $150,000,000, and for the fiscal
year ended in 1939 its consolidated gross income was in excess of
$100,000,000.

TWENTIETH CENTURY-FOX FILM CORPORATION

On February 1, 1915, this organization was incorporated under the
name of Fox Film Corporation. In August 1925 it acquired about
one-third the common stock of West Coast Theatres, Inc., with
theaters in California and other Western States. In March 1928 it
purchased all the common stock of Wesco Corporation, a holding
company for theater operation.

In 1933 Wesco went into receivership, but in 1934 readjusted its
capital structure, and the Chase National Bank of the City of New
York acquired 58 percent of its stock, the Fox Film Corporation
retaining 42 percent.

In August 1935 the Chase Bank acquired a substantial stock interest
in Twentieth-Century Pictures, Inc., a producing and distributing
company, and the name was changed to Twentieth Century-Fox Film
Corporation. The name of Wesco was changed to National Theatres
Corporation.

In 1937 the corporation acquired all the common stock of Roxy
Theatre, Inc., which owns Roxy in New York.

Today Twentieth Centnry-Fox operates 30 first-run metropolitan
and 508 other theaters; it has exchanges in 31 key cities. It produces
annually from 50 to 60 pictures and distributes a substantial number
of features produced by others for release by it; it produces an average
of 20 short subjects and 104 news reels annually.

Its gross assets are approximately $60,000,000, and for the fiscal
year ended in 1939 its consolidated gross income was about $50,000,000.

WARNER BROTHERS PICTURES, INC.

Warner Bros, was incorporated in 1923 for the purpose of producing,
distributing, and exhibiting motion pictures. At the time it had no
theaters, but in December 1924 it entered the exhibition field with one
theater in Youngstown, Ohio. In 1925 it acquired Vitagraph, Inc.,

CONCENTRATION OF ECONOMIC POWER Ql

which operated 34 exchanges in the principal cities of this country and
Canada; it also acquired two other affiliated companies operating
foreign exchanges.

In 1925 it acquired 13 additional theaters and in December 1928 it
acquired the majority stock of Stanley Co. of America with 182
theaters and partial stock in other theater companies which owned or
leased 51 theaters in the Middle Atlantic States and District of
Columbia. Subsequently it acquired theater interests in 11 other
States.

Warner Bros, operates 35 first-run metropolitan and 522 other
theaters; it has exchanges in 34 cities in this country and Canada.
It produces more than 50 features each season and ordinarily dis-
tributes some features each season produced by others for release by it.

Its gross assets are approximately $150,000,000, and for the fiscal
year ended in 1939 its consolidated gross income exceeded $100,000,000.

RADIO-KEITH-ORPHEUM CORPORATION

The Keith-Albee-Orpheum Corporation was organized January
28, 1928. In February 1928 it acquired all the outstanding stock of
the B. F. Keith Corporation, with a large number, of theaters in
the East, and approximately 90 percent of the outstanding stock of the
Orpheum Circuit, Inc., with theaters in the Midwest and West. It
incorporated October 25, 1928, as Radio-Keith-Orpheum Corpora-
tion, after securing control of Keith-Albee-Orpheum and the cor^-
trolling interest in other companies engaged in exhibition, the most
important ones being R-K-0 Proctor Corporation (a New York
circuit) and R-K-0 Midwest Corporation (Ohio and Michigan
theaters) .

F-B-0 Productions, Inc., the principal producing company taken
over by R-K-0, was later renamed R-K-0 Radio Pictures, Inc.
In January 1931, it took over the news reel and other production
facilities of Pa the Exchange, Inc., and later those of the Van Buren
Corporation.

On January 27, 1933, the R-K-0 Corporation went into an equity
receivership, and the Irving Trust Co. was appointed receiver.
On June 8, 1934, R-K-0 Corporation filed a petition for reorganization
under section 77B of the Bankruptcy Act in the District Court for the
Southern District of New York. The Irving Trust Co. was appointed
trustee in reorganization. A plan of reorganization was approved
January 17, 1939, confirmed April 11, 1939, and affirmed by the Cir-
cuirt Court of Appeals for the Second Circuit on September 8, 1939.

Today R-K-0 operates 29 first-run metropolitan and 103 other
theaters; it has exchanges in 32 cities. It produces over 40 pictures
annually and ordinarily distributes a substantial number of features
produced by others for release by it; it produces an average of 91—
shorts and 104 news reels annually.

Its gross assets are approximately $70,000,000, and-for the fiscal year
ended in 1939 its consolidated gross income was about $40,000,000.

UNITED ARTISTS CORPORATION

United Artists was organized in 1919 by a group of producers for the
purpose of distributing the features produced by its organizers. The
corporation is o^vned by four stockholders: Samuel Goldwyn,' Mary
Pickford, the estate of Douglas Fairbanks, and "Alexander ^vorda.

Q2 CONCENTRATION OF ECONOMIC POWER

It releases not quite 20 pictures yearly and maintains exchanges in
26 cities.

It issues no public statement of gross assets or business done. For
the fiscal year ended in 1939 its consolidated gross income was over
$10,000,000.

COLUMBIA PICTURES CORPORATION

Columbia was incorporated January 10, 1924. Early the following
year it acquired the assets of C. B. C. Film Sales Corporation, and
continued buying up various exchanges throughout the country. In
1928 it acquired, through merger, Screen Snapshots, Inc., Hall Room
Boys Photoplays, Inc., Starland Revue, Inc. — all short subjects
producing companies. By 1929 its distribution system was organized
on a national scale, and in 1930 it secured exchanges in foreign coun-
tries. In 1931 it secured 50 percent of the capital stock of Screen
Gems, Inc., producer of shorts, and in 1937 secured the remaining
50 percent.

Today it produces from 35 to 55 features annually and ordinarily
distributes a substantial number of features produced by others for
release by it. It produces an average of 61 short subjects annually.
It operates 32 exchanges in key cities.

Its gross assets are approximately $15,000,000, and for the fiscal
year ended in 1939 its consolidated gross income was about $20,000,000.

UNIVERSAL CORPORATION

Universal Pictures Corporation, formerly Universal Film Manu-
facturing Co., was incorporated in New York in 1912. On January
10, 1925, Universal Pictures Co., Inc., was formed and about the same
time purchased the entire outstanding capital stock of Universal
Pictures Corporation.

In January 1926 Universal Pictures Corporation secured sub-
stantial stock interest in Universal Chain Theatres Corporation —
exhibitors. In 1928 this exhibition corporation and its affiliates
operated 315 theaters in Canada, the District of Columbia, and 20
States, including the Griffith Amusement Co., with 40 theaters in
Oklahoma and Texas, and the Schine chain, with 90 theaters in New
York and Ohio. Between 1929 and 1931 it disposed of a substantial
number of theaters. In 1933 it went into receivership and the remain-
ing theaters were sold by the receiver.

From 1925 to 1936 Universal Pictures Corporation was the produc-
tion branch of Universal Pictures Co., Inc. In December 1936
Universal Pictures Corporation was dissolved and its assets were
transferred to Universal Pictures Co., Inc. Universal Corporation,
organized in April 1936, acquired the controlling stock interest of
^Universal Pictures Co., Inc. (producer), and the Big U Film exchange
(distributor) .

Today Universal produces 40 to 45 pictures annually and ordinarily
distributes each season some features produced by others for release
by it. It distributes extensively through the Big U Film Exchange,
Inc., and Universal Film Exchanges, Inc.

Its gross assets are approximately $12,000,000, and for the fiscal
year ended in 1939 its consolidated gross income was about $20,000,000.

APPENDIX II

THE MOTION PICTURE PRODUCERS AND
DISTRIBUTORS OF AMERICA, INC.

THE HAYS ORGANIZATION

APPENDIX II

THE MOTION PICTURE PRODUCERS AND DISTRIBUTORS
OF AMERICA, INC., OR THE HAYS ORGANIZATION

Early in the 1920's there was great pubhc disapproval of a wave of
salacious films. Aggravated by a series of scandals involving motion-
picture personalities, this indignation resulted in widespread public
agitation for censorship of motion pictures both locally and by the
Federal Government. Considering censorship undesirable in itself
and fearing such action might be the first step to further governmental
control, the industry attempted to put its own house in order. Thus
in 1922 it formed the Motion Picture Producers & Distributors of
America, Inc. Perhaps not solely because of his abilities as an
administrator, the industry hired to head this organization a promi-
nent political figure, Will H. Hays, then Postmaster General and chair-
man of the Republican National Committee.

This organization successfully combated the censorship drive of the
period, primarily by voluntary restraint in production. However,
the ma-iy pictures narrowly skirting the borderline of decency which
have been released since then vpry clearly illustrate that the interest
of the organization was not in cleaning up motion pictures from a pure
moral standpoint; rather, it was to keep motion picture entertain-
ment at a level which would not so far violate the mores of the time
that renewed censorship activities would come into play.

A gradual disregard of pledges following the initial clean-up finally
led to the formation of the Legion of Decency early in 1934 as a re-
ligious crusade against immoral films. This was followed on July 1,
1934, by a new and more stringent Production Code of Ethics which
successfully resisted the renewed attempt to write censorship clauses
into the law. It was directed by Joseph I. Breen, whose findings
were "subject to review only on appeal to the company presidents of
member companies in New York." ^

Although the Hays organization was created primarily in answer
to the threat of censon hip, it quite naturally extended its field to resist
other activities which might lead to control over the industry by
Government. Today it is a regular function of the Hays organization
to represent the larger companies before State and Federal legislative
bodies. Nor have the activities of the organization been limited to this
simple field. The interests of the organization have spread thrqilgh
a number of activities which the large companies felt could be profit-
ably and legally entered into on a cooperative basis. The following
paragraphs briefly outline some of these activities.

' 1935-36 Motion Picture Almanac, p. 800.

QQ CONCEJS'TRATION OF ECONOMIC POWER

PRODUCTION CODE ADMINISTRATION

The Prpduction Code consists of a rather detailed statement of
undesirable scenes or situations or methods of production which the
members of the Hays organization have pledged themselves to avoid.
Since a simple pledge of this kind is more likely to be honored in the
breach rather than the observance, a Production Code Administration
has been formed to implement it. The Production Code Administra-
tion reviews all completed films submitted by members or nonmembers.
It will review scripts, but does not give prior approval merely from
the reading of a script.

Objectionable material in a photoplay must be removed before the
Hays office places it seal of approval on the film. The code has
definite teeth, in that the members of the Hays organization have
agreed to pay a $25,000 fine to the organization for the exhibition in
any affiliated theater of any picture which lacks the seal of approval.

It is evident that refusal of the seal of approval to a fu'st-class inde-
pendent production would immediately make it a financial failure
because it could not be shown in any of the 2,800 theaters controlled
by the large companies. It might not even be necessary flatly to
refuse the seal of approval. Granting the seal might be made con-
ditional on the deletion of small parts of the film which nevertheless
served to destroy the essential appeal of the picture.

It is true that few complaints have been made by independent pro-
ducers regarding the activities of the Production Code Administration.
But, even granting that the powers of the code administration have
in every case been wisely and equitably used, there remains a definite
question as to whether such control of the business of potential or
prospective competitors can properly be lodged in the hands of an
interested industry group. The motion picture industry has over the
years consistently opposed governmental censorship of films jargely*
on the grounds that the power of censorship might not be wisely
exercised. How much more assurance is there that this power will'
always be wisely exercised by a nongovernmetal group?

ADVERTISING ADVISORY COUNCIL

This council, organized in 1933, performs the same functions with
respect to motion picture advertising as the Production Code Admin-
istration exercises with respect to a photoplay's content. Members
of the Hays organization are required to use advertising approved
by the council exclusively. Nonobservance is punishable by a fine
of from $1,000 to $5,000. ' The implications of the control of advertis-
ing are perhaps less serious than the censorship activities, since these
do not appear to limit to the same extent the activities of persons
outside the association.

TITLE REGISTRATION BUREAU

This bureau was set up for the purpose of registering motion picture
titles to avoid the unintentional use of similar or identical titles.

CONCENTRATION OF ECONOMIC POWER 57

THEATER SERVICE DEPARTMENT

This is an affiliated exhibitors relations department. Among its
activities it assists "trade associations of theater owners in develop-
ing in constructive ways their own usefulness and service to ifee local
theater owners in their own state and zone * * *" ^ >

FOREIGN DEPARTMENT

Through this department, "the Association assists members in
securing fair treatment in the distribution of American films abroad.
In the 17 years, the Association has taken a loading part in successful
negotiations to solve difficulties due to. restrictive legislation. The
department keeps member companies closely informed on legislative
and economic developments in foreign markets." ^

MISCELLANEOUS

Among the other activities are the Conservation Department, whose
function it is to eliminate fire hazards in film exchanges; the Com-
munity Service Department, whose function it is to stimulate public
interest in and patronage of film^ of the higher type; the general
Counsel, who represents the organization before the legislative bodies ;
the Legal Department, which is adviser to the Association and its mem-
bers; the Public Information Department, the Treasury and Accounting
Department; and the Office of the President.

The function of this bureau is to ferret out violations of copyrights.
It is contended to be separate from the Hays organization, but is
financed by the same companies.

FILM BOARDS OF TRADE

These boards of trade were established in various key cities by and
for the producers and distributors.

The film boards of trade undertook to settle disputes between exhibitors and
chains of producers. Attached to each film board of trade was a credit committee.
If a credit committee reported adversely to an exhibitor, all of the member pro-
ducers and distributors withdrew their product from the affected theater. The
Untied States v. First National Pictures et al. (282 U. S. 44) decreed that certain
acts of the credit committee constituted an illegal restraint of trade. ■*

It is denied by the Hays organization that there is any connection
between it and the film boards of trade, but they are financed by
the same organizations and both groups have the same general counsel
and general attorney,^

ASSOCIATION OF MOTION PICTURE PRODUCERS OF CALIFORNIA, INC.

This is an association of the California producers. Its composition
is similar to that of the Hays organization. It operates the Central
Casting Bureau, which supplies the members of the association with

» "Film Facts," published by the Motion Picture Producers and Distributors of America, New York,
1940.

3 Ibid.

< Cit. from hearings before a subcommittee of the Committee on Interstate Commerce, U. S. Senate,
pursuant to S. 3012, "Compulsory Block-Booking and Blind Selling in the Motion Picture Industry,"
74th Cong., Feb. 27 and 28, 193G, p. 16.

« Ibid.

63 CONCENTRATION OF ECONOMIC POWER

actors above extra grade, and the Call Bureau which supplies members
with extra players. These services are not supplied to nonmembers.

Officers, f)iRECTORS, and Members of the Motion Picture Producers and
Distributors of America, Inc.^

officers

President _,-_,. - Will H. Hays.

Secretary . Carl E. Milliken.

Treasurer Frederick L. Herron.

Assistant treasurer and assistant secretary, George Borthwick.

DIRECTORS

Will H. Hays, Chairman

Barney Balaban, Paramount. S. R. Kent, Twentieth Century Fox.

Nate J. Blumberg, Universal. Sol Lesser, producer and exhibitor.

Jack Cohn, Columbia. Hal E. Roach, United Artists.

Cecil. B. de Mille, producer. G. J. Schaefer, United Artists.

E. W. Hammons, Education Pictures. N. M. Schenck, Loew's.

E. B. Hatrick, News of the Day. Maurice Silverstone.

Frederick L. Herron. Maj. A. Warner, Vitaphone Corporation,

Walter Wanger, United Artists. Harry M. Warner, Warner Bros.

MEMBERS

Bray Productions, Inc. Pioneer Pictures, Inc.

The Caddo Co., Inc. Principal Pictures Corporation.

Columbia Pictures Corporation. RCA Manufacturing Co., Inc.

Cosmopolitan Corporation. R-K-0 Radio Pictures, Inc.

Cecil B. deMille Productions, Inc. Reliance Pictures, Inc.

Walt Disney Productions, Ltd. Hal Roach Studios, Inc.

Eastman Kodak Co. Selznick International Pictures, Inc.

Educational Films Corporation of Amer- Terrytoons, Inc.

ica. Twentieth Centurj'-Fox Film Corpora-
Electrical Research Products, Inc. tion.

First National Pictures, Inc. United Artists Corporation.

Samuel Goldwvn, Inc. Universal Pictures Co., Inc.

D. W. Griffith^ Inc. Vitagraph, Inc.

Inspiration Pictures, Inc. Walter Wanger Productions, Inc.

Loew's, Inc. Warner Bros. Pictures, Inc.
Paramount Pictures, Inc.

Officers, Directors, and Members of the Association of Motion Picture
Producers of California, Inc."

officers
President 'L Y. Frank Freeman, vice-presi-
dent. Paramount.

First Vice-President Edgar J. Mannix, producer at

M-G-M.

Second Vice-President Cliff Work, executive, R-K-Ov,

Executive Vice-President and Secretary-Treas- Fred W. Beetson.
urer.

directors

Harry Cohn President, Columbia.

Y. Frank Freeman Vice president, Paramount.

Samuel Goldwyn Producer and executive United

Artists.

Edgar J. Mannix Producer at M-G-M.

J. R. McDonough Vice president, R-K-O.

' "Film Facts," published by the Motion Picture Producers and Distributors of America, New York,
1940.

CONCENTRATION OP ECONOMIC POWER gg

Hal E. Roach Producer, member United Artists.

James Roosevelt

Joseph M. Schenck Executive, Twentieth Century-
Fox.

Walter F. Wanger Producer, member United Artists.

J.L.Warner . Executive, Warner Bros., First

National Studios.

Cliff Work Executive, R-K-0.

MEMBERS

Columbia Pictures Corporation. Hal E. Roach Studios, Inc.

Globe Productions, Inc. Twentieth Century-Fox Film Corpora-
Samuel Goldwyn, Inc., Ltd. tion.

Loew's, Incorporated. Universal Pictures Company, Inc.'

Paramount Pictures, Inc. Walter Wanger Productions, Inc.

RKO-Radio Pictures, Inc. Warner Brothers Pictures, Inc.

286782 — 41 — No. 43-

APPENDIX III

THE CONSENT DECREE

APPENDIX III

THE CONSENT DECREE

"And the return of an industry to the competitive design is so rare a product
of litigation. * * *" i

After years of charges and counter charges of unfair trade practices
by members of the motion picture industry and the theater-going
pubhc, the Department of Justice on July 20, 1938, filed a petition
in equity ^ against the five major producer-distributor-exhibitor com-
panies (Paramount, Loew's, Radio-Keith-Orpheum, Warner Bros.,
and Twentieth Century-Fox) and the tlu-ee large producer-distributors
(United Artists, Columbia, and Universal) charging them with com-
bining and conspiring to retrain trade and commerce in the production,
distribution, and exhibition of motion pictures in the United States,
and with attempting successfully to monopolize such trade and com-
merce in violation of the Sherman Act. In this petition and in its
amended and supplemental complaint of November 14, 1940, the
Department of Justice listed the various ways by which it allege these
purposes were accomplished.

The following were among the offenses charged against the eight
companies :

Mutual loaning of production personnel and equipment without extending these
privileges to independent producers on the same terms.

Fixing of license terms in contracts before licensees have the opportunity to
estimate the value and character of films and before trade .showing or completion
of films.

Fixing of run, clearance, and minimum admission price terms.

Conditioning the licensing of one group of films on that of another.

Conditioning the licensing of films in one theater upon licensing in other theaters
under common ownership or control.

Discrimination with respect to license terms granted to theaters in large circuits
because they are part of a circuit.

In discriminating between circuits and independent theaters, it is alleged that
these companies^ —

Make exclusive contracts with circuit theaters in some localities.

Withhold prints to give circuit theaters clearance not agreed to in contracts.

Permit negotiation of unfair clearance by circuits.

Set minimum admission prices of independent exhibitors so that they cannot
successfully compete with circuit theaters.

Prohibit independent exhibitors from playing on a double-feature program a
picture previously played by a circuit theater.

Grant selective contracts to circuit theaters but not to independents.

Designate play dates.

Force short subjects aJid newsreels on independent theaters.

Charge independent theaters higher film rentals than circuits in equivalent
situations.

Partially defray advertising costs of circuit theaters, but not those of inde-
pendents.

Require that independent theaters, but not circuit theaters, pay score charges.

' Temporary National Economic Committee, Monograph 16, "Antitrust in Action," Walton Hamilton
and Irene Till, 1940, p. 57.
* United States v. Paramount Pictures, Inc., et al., op. eit.

74 CONCENTRATION OF ECONOMIC POWER

Permit circuit theaters to modify contract terms with respect to film rentals,
transfer of pictures from one theater to another, cancelation of some pictures to
permit extended run on more successful features, and the like, without extending
similar privileges to independent exhibitors.

The following additional charges were made against the five pro-
ducer-distributor-exhibitor companies:

Conditioning licensing of films distributed by one in the theaters of the other on
the licensing of films of the other in the theaters of the former.

Excluding independent productions from affiliated theaters.

Excluding independent exhibitors from operating first-run theaters where
affiliated theaters are located.

Excluding independent exhibitors from the same subsequent-run as affiliated
theaters in cities where both are located.

Using affiliated theaters to control film supph', run, clearance, and admission
prices.

Coercing and intimidating independent exhibitors into licensing films on
arbitrary terms by threatening to build or acquire competing theater.

Coercing and intimidating independent exhibitors into relinquishing part or
whole interest in a theater to one of the affiliated companies by threatening to
build or acquire competing theaters.

Eliminating competition by jointly operating theaters.

Dividing available films between two or more affiliated theaters in the same
competitive area, thus eliminating competition.

Refraining from competition with each other in the exhibition field.

To end these conditions, the Department of Justice asked of the
court:

* * * That each of the contracts, combinations, and conspiracies in restraint
of interstate trade and commerce, together with the attempts to monopolize and
the monopolization of the same, hereinbefore described, be declared illegal and
violative of the Sherman Act.

* * * That the defendants herein, their subsidiaries * * * be per-
petually enjoined and restrained from continuing to carry out, directly or in-
directly, expressly or impliedly, the attempts at monopolization, the monopolies
and all restraints of said interstate trade and commerce in the production, distribu-
tion, and exhibition of motion pictures described herein, and from enteri?ig into
and carrying out, directly or indirectly, expressly or impliedly, any monopolies or
restraints of interstate trade and commerce similar to those alleged herein to be
illegal.

* * * That a nation-wide system of impartial arbitration tribunals or such
other means of enforcement as the court may deem proper be established pursuant
to the final decree of this court in order to secure adequate enforcement of whatever
general and nation-wide prohibitions of illegal practices may be contained therein.

* * * That the integration of the production and exhibition branches of the
industry by the producer-exhibitor defendants herein, and each of them, be
declared to be unlawful as an instrumentality of monopoly and restraint upon
interstate trade and commerce, and violative of the Sherman Anti-Trust Act.

* * * That the defendants Paramount Pictures, Inc., Twentieth Century-
Fox Film Corporation, Warner Bros. Pictures, Inc., Loew's, Inc., and Radio-
Keith-Orpheum Corporation, and each of them, under the direction and super-
vision of the court be ordered and directed to divest themselves of all interest and
ownership, both direct and indirect, either in theaters and theater holdings or in
production and distribution facilities and that they, and each of them * * *
be permanently enjoined from acquiring, directly or indirectly, any other interests
in the branch of the industry divested or in any persons, firms, or corporations
which are engaged or may engage in that branch of the industry; said divestiture
to be accomplished and carried out upon such terms and conditions as the court
may deem proper.

* * * That the defendants Paramount Pictures, Inc., Twentieth Century-
Fox Film Corporation, National Theatre Corporation, Warner Bros. Pictures, Inc.,
Warner Bros. Circuit Management Corporation, Loew's, Inc., Radio-Keith-
Orpheum Corporation, Keith-Albee-Orpheum Corporation, R. K. O. Proctor
Corporation, and R-K-O Midwest Corporation and each of them * * * be
ordered and directed to divest themselves of all inteiests and ownership, both
direct and indirect, in any theaters which the court shall find have been u.sed by
one or more of them to unreasonabv restrain trade and commerce in motion

CONCENTRATION OF EIOONOMIC POWER 75

pictures in violation of section 1 of the Sherman Act or to monopolize trade and
commerce in motion pictures in violation of section 2 of the Sherman Act. * * *

The parties to the suit went through the usual prehminary maneu-
vers appropriate to such a situation. The actual trial, orio:inally
scheduled to begin earl}' in 1940, was postponed several times. Finally,
on October 29, the Department of Justice announced that the five
major producer-distributor- exhibitor companies had agreed to a
consent decree. The decree, entered by the court on November 20,
1940, ended the suit for the five affiliated companies, but continued it
for the three producer-distributor companies who refused to assent
to it.

With respect to the demand of the Department of Justice that
exhibition and production be separated (see the last three of the para-
graphs quoted above from the complaint) the consent decree provided
in section XXI:

Petitioner, by its counsel, has represented to the Court that the public interest
requires that the provisions of this decree shall operate for a trial period of three
years from the date of entry hereof. Petitioner has further represented to the
Court, and each of the consenting defendants has consented to the entry of this
decree upon the condition, that Petitioner will not for a period of three years after
the entry of this decree, either in this action or any other action or proceeding
against any such defendant seek either the relief or any thereof prayed in * * *
the Petition filed herein July 20, 1938, o» in * * * the Amended and Sup-
plemental Complaint filed herein November 14, 1940, or otherwise seek to divorce
the production or distribution of motion pictures from their exhibition; or to
dissolve any such defendant or any corporation in which any such defendant has,
directly or indirectly, a substantial stock interest and which is engaged in the
exhibition of motion pictures or holds directly or indirectly a substantial stock
interest in any corporation so engaged, or to dissolve or break up any circuit of
theaters of any such defendant or of any such corporation, or to require any such
defendant, corporation or circuit to divest itself of its interests or any thereof,
direct or indirect, in motion-picture theaters in which it had an interest at the
date of the entry of this decree.

This particular demand, then, that exhibition and production be
separated, was thus withdrawn.

The decree embodies a number of agreements intended to modify
or eliminate the undesirable features of certain industry practices.
With respect to block booking, the consenting distributors agree that
after August 31, 1941, they will sell films in blocks of not. more than
five pictures each, and will make sale of each block in no way contin-
gent on the sale of any other block. To eliminate blind selling, it is
agreed that after the same date all pictures will be previewed in each
exchange area prior to sale. The distributors further agree: To cease
forcing shorts, reissues, westerns, newsreels, and the like; to consider
only the theaters in each exchange area in contract negotiations with
a circuit; to submit to arbitration any questions of unfair clearance;
to permit cancelation of features for cause; and to cease acquiring new
theaters as part of anj'- general program of theater acquisition.

The decree also contains several escape clauses. These have special
reference to the agreements to sell in blocks of not more than five
pictures and to trade show all features. The most important of these
stipulates that, if prior to June 1, 1942, restrictions at least as stringent
have not been placed on the activities of the three producer-distributors
not consenting to the decree, these provisions shall become inoperative
after September 1, 1942, with respect to the consenting defendants.

On November 14, 1940, before the consent decree was entered, a
formal hearing on it was held by the court. At this time, other per-

76 CONCEJVTRATION OF E'CONOMIC POWER

sons interested in the outcome of the Government's suit were per-
mitted to express their opinions. Representatives of virtually every
important exhibitor association in the industry and of the three non-
consehtirtg defendants expressed opposition to the decree. The
opposition was so unanimous that one of the Government's attorneys
said: "The court seems to have more friends than the decree." ^

Soon after this, the Motion Picture Research Council and various
groups interested in improving the moral standards of motion picture
entertainment also condemned the decree.

The press release in which the Department of Justice originally
announced the filing of an antitrust suit against the major motion
picture companies stated:

Suit may develop need for congressional action. — Until thg evidence is produced,
it is too early to state whether the antitrust laws by themselves are sufficiently
effective to restore competitive conditions. If it appears from such evidence that
further aid is needed, the results of the investigation and trial will be brought to
the attention of Congress.

The Department desires that this suit result in the clarification of the- antitrust
laws with respect to the motion picture industry.

The application of the general principles of the antitrust laws to particular
industries demands distinctions which cannot be drawn in advance of the produc-
tion of actual proof. They can only be staked out with respect to particular
industries through the clarifying process of judicial action. This is the purpose
of this suit.'*

Nevertheless, section I of the consent decree reads in part as follows:

The Petitioner not having offered any proof of its allegations that defendants
have violated the antitrust laws, and defendants having denied each and every
such allegation, this Court has not determined or adjudicated and by this decree
does not determine or adjudicate, and this is not a decree to the effect that any of
said defendants has violated or is now violating any of such laws, or any other
statute; and this decree relates solely to future conduct herein below specified and
is not based upon any finding, determination, or adjudication that any right or
statute has yet been or is now being violated.

The entrance of the consent decree thus insures that any proof
which the Department of Justice may have had of evidence of violation
of the antitrust laws by the five major companies will not be presented
to the court and will not become available to the general public or to
the Congress. Moreover, any evidence which might indicate that the
problems of the industry cannot be met within the existing framework
of the antitrust laws is likewise not disclosed. The efforts of the
Department of Justice in gathering and sifting information over a
period of years are thus nullified. Neither the Congress nor other
interested parties are able to draw on this experience in order to
appraise: (a) The extent or validity of complaints of combination in
the industry; (b) the extent to which a consent decree will correct
these conditions; (c) the extent to which additional or different rem-
edies are necessary to restore a healthier competitive situation.

A further aspect of the consent decree may be indicated. The
provisions of the decree with respect to trade showing and block
booking represent a major concession on the part of the five affiliated
companies. As stated, however, these provisions are to become
inoperative after August 31, 1942, unless prior to that time conditions
at least as restrictive have been either consented to or imposed by the
court on the three satellite producing companies — Columbia, Universal,
and United Artists. The continuation of these concessions is thus in

\3 "Variety," November 20, 1940.
* Release, Department of Justice, July 20, 1938.

CONCENTRATION OF ECONOMIC POWER 77

no small part contingent on the strength of the Government's case
agaiS these three companies. None of these companies owns or
operates theaters. Each is smaller than any of the five affiliated
companies It is obvious that many of the complaints of unfair
prSs which might be made and provecl with respect to the five
affiliated companies are in no way applicable to t^icse three

The Government's case against these threo companies is. therefore
necessarily very much weaker than it is against any one of the other
five pri lucer-distributor-exhibitors. In one sense then the major
companies by making certain concessions, have been able to negotiate
a s^^sin of the Government's suit for a period of at least 3 years
while at the same time the extent of these concessions is limited by the
siiccess of the Government in prosecuting a much weaker case

Ffnally it has been shown in the body of this report that the
misise of economic power attained by linking together numerous
^parate operating units into large and powerful organizations has
b?en Responsible for many of those features and practices of the indus-
trv which are undesirable from the consumers' standpoint. It is
efevin tP point out, then, that the decree does not create any new
competing units; rather, it freezes the present competitive situation.
r^mTtir of fact, onl. of- the escape. clauses is designed to reheve
the consenting companies from certain of the restrictions ol the
decree should any marked change in present relationships occur.

The remaining pages of this appendix are devoted to a brief analysis
of the rektlon of various provisions of the decree to certam industry
practices.

* *

BLOCK BOOKING AND BLIND SELLING

With respect to blind selling, section III of the consent decree
provides: * * *

No consenting defendant engaged in the distribution of motion pictures
^hflll license or offer for license a feature motion picture * . ^^r P; "V^

exh b fon witWn the United States of An.erica at whi^oh ^" f "--^"J^district
be charged, until the feature has been trade shown within the exchange district
in which the public exhibition is to be held.

The purpose of this section is to enable exhibitors and interested
public welfare groups to learn about pictures before contracts for

^^The"" decree's answer to the problems raised by block booking is
contained in section IV (a), which provides:

No distributor defendant shall offer for license or shall license more than five
fealres'ina'sTngle' group. In offering its features f-. l-^^^ f,,^^t'may from
distributor may change the combinations of features m groups ^^J^* ^fJ^^^^^J
time to time determine, and may license or offer ^^^ li«\n«^.^f^I"l^"^ns|'o^
features as it may from time to time determine provided that ^he hcense or oner
for license of one group of features shall not be conditioned upon the licensing
of another feature or group of features.

This provision does not eliminate block booking. It merely limits
the size of blocks to 5 or less rather than 40 or 50 features^

It will be noted that the distributor is specifically left free to deter-
mine which features shall be grouped to form these .bfo^ks^nd that
he is not required to offer blocks of identical composition to difterent
or competing theaters. Each exhibitor, of course, is free to negotiate
for such combinations of pictures as he may desire out of all those

78 CONCENTRATION OF ECONOMIC POWER

released by a distributor. At the same time, it may be assumed that
the distributor will try to use a good picture of proved box-office merit
to ''carry" four others that lack sufficient appeal to sell themselves.

Moreover, it is probable that even such cancelation privileges as
the exhibitor previously received will be eliminated by this method of
selling. It is true that section VII of the decree provides machinery
for cancelation of certain pictures, but only on the grounds that they
are generally offensive on moral, racial, or religious grounds in the
particular localities in which the theaters are located, and only then
after an arbitration hearing, if this is requested by the distributor.

There is thus a real question as to whether the ability of the exhibi-
tor to select exactly tJiose pictures he desires will be materially
improved by this method of marketing. It is because of this that the
decree has been uniformly opposed by the groups interested in im-
proving the moral standards of film entertainment.

The provision has another feature which exhibitors consider
undesirable. It will be remembered that continuity of film supply is
an important factor to each exhibitor, and that the exhibitor generally
does not oppose block booking as such but only its compulsory
aspects. This provision, exhibitors fear, will jeopardize the con-
tinuous flow of product on which stable operation depends. The
independent exhibitor associations which appeared before the Court
before the decree was entered attacked the blocks-of-five provision
principally for this reason, and stated that an unrestricted 20 percent
cancelation privilege would be far more useful to them.

The exact effect which this method of sale will have on film prices is
uncertain. Films will now be sold not only in the fall when attendance
is high, but also during the box-office doldrums in the summer and in
Lent. Also, the distributor will be impelled to make contracts
promptly after previewing, since the price of features tends to decline
with time. Moreover, with greater control of their playing time
exhibitors may feel more free to fill in with occasional satisfactory
independent productions. By shrewd trading exhibitors may be able
to improve their position. On the other hand, the distributor may
use uncertainty regarding future film supply to drive a hard bargain
with the exhibitor. It is also quite probable that this method of
selling will to some extent increase sales expense and that this will be
reflected in higher prices.

There is one definite result. The independent exhibitor has com-
plained that because of having to purchase the full output of several
distributors, he occasionally has been required to license more features
during the year than actually needed to operate his theater. Under
the present system the exhibitor cannot be confronted at the end of
the season with a bill for a number of unplayed, unpaid for features
except as a result of his own actions.

Sections III and IV (a) are considerably weakened by an escape
clause (sec. XII) which, depending on a number of eventualities,
relieves the five major companies from these restrictions after August
31, 1942. In the first place, these sections will become inoperative
if, before June 1, 1942, the three other defendants in the suit —
Columbia, Universal, and United Artists — are not subject to similar
conditions. If any difl'erent conditions are imposed on these three
companies, any one of the five ittajor companies may elect to observe
similar restrictions, if it so desires.

OOX'CENTRATION OP BOONOMIC POWER 79

Subdivision (g) of section XII assumes that all eight companies
will have been brought under the decree by June 1, 1942, since these
paragraphs only become operative after September 1, 1943. Sub-
division (g) relieves the signatories from the trade showing and
blocks-of-five provisions of the decree if 25 percent or more of the
features released for exhibition in the United States are distributed
by other means, or if 12}^ percent or more of the total gross income
from film rentals, excluding the gross income of States' right exchanges,
is derived frojn pictures licensed otherwise than in accordance with
sections III and IV (a).

Subdivision (h) goes into eft'ect after September 1, 1942. After
this date sections III and IV (a) become inoperative if the competition
of those using methods of sale contrary to these provisions "has
substantially and adversely affected" the business of any one of the
consenting defendants.

Subdivision (g) and (h) together agree, in effect, that if the pro-
visions with respect to block booking and blind selling are successful
in permitting new competition to the major producers to develop,
these companies will be free to return to these methods in order to
stifle this new competition.

Finally, the signatories are released from the trade showing and
blocks-of-five provisions of the decree if at any time an Act of Congress
requiring trade showing or limiting the number of feature pictures
which may be licensed in a block is passed. Considering all these
avenues of escape, it seems improbable that these provisions will be
in effect for a very long period of time.

FORCING OF SHORTS AND FOREIGNS

Section IV (b) of the consent decree states:

No distributor defendant shall require an exhibitor to license short subjects,
Tiewsreels, trailers, or serials (* * * collectively referred to as shorts) as a
condition of licensing features. No distributor defendant shall require nn ex-
hibitor to license reissues, westerns, or foreigns (* * * collectively referred to
as foreigns) as a condition of licensing other features.

On the surface this appears to be an unequivocal response to the
exhibitors' complaint against forcing of shorts, news reels, serials or
westerns. However, there is no requirement regarding the way in
which such subjects shall be licensed. Presumably, sales will be
made in as large a block as possible and at the beginning of a season.
Features, on the other hand, will be almost necessarily sold throughout
the year. There is no assurance that a distributor wall view sympa-
thetically the feature-picture requirements of an exhibitor who has
failed to contract for short subjects.

Claims that licensing of features has been made conditional upon
execution of a short subject contract may be arbitrated. But it will,
be a most difficult matter to relate the price paid for feature pictures
during a season to a contract which may or may not have be«n
entered into for short subjects at some previous time.

BUYING POWER

Section V is aimed at decentralization of circuit buying power,
inasmuch as it requires a circuit with theaters in more than one
exchange area to make individual contracts for its theaters in each

80 CONCENTRATION OF E'CONOMIC POWER

district, and it requires that the contract in one area not be conditioned
on a contract in another. However, circuit contracts can still be
negotiated at the main office of the circuit.

It may be mentioned that an exchange area is not a small territory.
Thirty-one exchange areas cover the entire United States. The buy-
ing power of all the theaters of a single circuit located in one exchange
area is thus likely -to be no small factor in contract negotiations. This
provision, therefore, stops a long way short of requiring bargaining for
films on a local basis.

EXCLUSIVE EXHIBITION RIGHTS

Section VI provides that no major distributor shall refuse to license
pictures to an exhibitor on some run "upon terms and conditions fixed
by the distributor which are not calculated to defeat the purpose of
this section." The. exhibitor must be able to "satisfy reasonable
minimum standards of theater operation" and "be reputable and
responsible." The provision is qualified in that the distributor may
refuse to grant a run to an exhibitor if this "will have the effect of
reducing the distributors total film revenue in the competitive area in
which such exhibitor's theater is located." The burden of proof that
granting such a run has reduced the distributor's total film revenue
in the area rests on the distributor.

This provision is an attempt to answer exhibitors' charges that in
some areas, independent theaters have been unable to operate in com-
petition with circuit theaters because the major companies have
refused to provide them with any pictures. The distributors' answer
to this charge has been that pictures have been refused only when
operation of an additional theater was uneconomical and tended to
reduce their entire revenue from the area. It will be noted that in
the actual application of this provision, the prospective exhibitor
must be prepared to bid more than the difference between the circuit's
offer for exclusive exhibition rights and for first-run privileges only,
since relief is subject to the condition that the distributor's total
revenue be not reduced.

CLEARANCE

■ Section VIII of the decree provides that —

Controversies arising upon the complaint of an exhibitor that the clearance
apolicable to his theater is unreasonable shall be subject to arbitration under the
following provisions:

It is recognized that clearance, reasonable as to time and area, is essential
the distribution and exhibition of motion pictures.

In determining whether any clearance complained- of is unreasonable, the
arbitrator shall take into consideration the following factors and accord to them
the importance and weight to which each is entitled, regardless of the order in
which, they are listed:

(1) The historical development of clearance in the particular area wherein the
theaters involved are located; (2) The admission prices of the theaters involved;
(3) The character and location of the theaters involved, including size, type of
entertainment, appointments, transit facilities, etc.; (4) The policy ot the theaters
involved, such as the showing of double features, gift nights, give-aways, pre-
miums, cut rate tickets, lotteries, etc.; (5) The rental terms and license fees paid
by the theaters involved and the revenues derived by the distributor defendant
from such theaters; (6) The extent to which the theaters involved compete with
each other for patronage; and (7) AH other business considerations, except that
the arbitrator shall disregard the fact that a theater involved is affiliated with a
distributor or with a circuit of theaters.

CONCENTRATION OF ECONOMIC POWER gl

When an arbitration proceeding is instituted, the arbitrator must
first decide if clearance is unreasonable. If his decision is in the
affirmative, he is then empowered to fix the maximum clearance
period which may be granted in subsequent licensing agreements.

The clearance granted by a distributor to theaters in which he has a
financial interest is not subject to arbitration. Clearance on so-called
"specials" which includes pictures which may be roadshown at
advanced prices is also exempted from arbitration.

Any distributor or exhibitor affected by an arbitration award may
institute new proceedings at any time on the grounds that conditions
have changed so as to require modification of the original award.

This provision represents a very real -concession to exhibitors who
have complained of unfair clearance restrictions. It probably reflects
an opinion by the major companies that their long run interest is best
served by equitable clearance schedules.

WITHHOLDING DELIVERY OF PRINTS

Section IX of the decree provides that distributors shallnot withhold,
from an exhibitor delivery of prints available in its exchange in order
to give a competing exhibitor a prior playing date not provided for in
his license. A strict interpretation of this provision would indicate
that it applied only as between two exhibitors playing on the same
run. It would not apply, for example, to delay in delivery to give a
prior-run exhibitor a longer clearance period. Whether this strict
interpretation was intended or whether it will be adopted i* uncertain.

RUN

Section X provides that:

Controversies arising upon a complaint by an independent exhibitor that^a
distributor defendant has arbitrarily refused to license its features for exhibition
on the run requested by said exhibitor * * * shall be subject to arbitration.

This provision is hemmed about with so many restrictions as immedi-
ately to limit its application to a very small number of cases. In
many situations it will be meaningless.

In the first place, it applies only to theaters which were in existence
or which replaced a theater in existence on the day the decree was
entered — November 20, 1940. Secondly, complaints may be entered
only by independent exhibitors who are defined in this clise as exhibi-
tors "wholly ind.ependent of any circuit of more thaii five theaters."
Beyond these restrictions, it is expressly stipulated that no arbitration
award shall be entered unless:

The distributor refused to license pictures on the run requested for
a period of not less -than 3 successive months; the run desired was
enjoyed by a circuit theater (a circuit is defined as consisting of not less
than 15 theaters) ; features sufficient in nature and quantity to enable
the complainant's theater to. operate on the run requested were not
available; the complainant operated his theater on the same run or
an earlier run than the one requested between July 20, 1935, and
July 20, 1940, or subsequent to July 20, 1940, and during the two con-
secutive motion-picture seasons immediately preceding the complaint
the complainant operated his theater on the same run as or on an earlier
run than that enjoj^ed by the circuit theater and during such period
exhibited substantially all the features released during the period by the

g2 CONCENTRATION OF ECONOMIC POWER

distributor, or subsequent to July 20, 1935, and prior to July 20, 1940,
the complainant demanded from the distributor the particular run or
an earlier run, in writing, or filed a similar complaint with a local
clearance and zoning board under the N. R. A. which was not disposed
of by administrative decision under the code prior to May 27, 1935
(a similar complaint by a prior operator of a theater is acceptable
provided the present complainant operated the theater specified for
at least 1 year prior to the entry of the decree) ; and iinally refusal to
license pictures on the run requested by the complainant was in fact
because the run had been given to a circuit theater.

After listing all these preliminary restrictions on the exact char-
acter of the exhibitor who may be entitled to file a complaint, the
consent decree goes on to list those factors which should be taken into
account by the arbitrator in making his award. These are the usual
considerations which one might expect would wholly determine the
playing 'position of a theater. The many restrictions listed would
appear to serve no useful purpose beyond one of limiting the exhibitors
who might request proceedings to improve their run.

Finally, if the arbitrator decides that a complaint is justified, he
may enter an award against the distributor, but this does not guar-
antee any improvement over past procedure. The award simply
requires that in the future the distributor shall not license pictures to
the circuit theater on the run in question unless the contract or agree-
ment is separate and not a part of any contract or agreement for the
licensing of features in any other theater. This, of course, does not
guarantee that the complainant will get the run he desires.

After a final award has been made, the complainant is permitted to
file another arbitration proceeding on the grounds that "such award
has not been complied with in good faith by the distributor against
whom it was entered." If the arbitrator in this proceeding finds that
the distributor has failed to comply with the previous award, the
arbitrator may . award compensatory damages to the complaining
exhibitor for any loss he has suffered because of the distributor's failure
to comply with the original award. This new arbitration proceeding
must be instituted within 60 days after the alleged violation has
occurred, and the damages which may be awarded can apply only to
losses in the 60-day period.

The extremely careful restrictions with which the possibility of
arbitration of nm has been hedged about contrast most curiously with
the forthright treatment accorded arbitration of clearance. In this
connection, it may be recalled that most of the afiiliated-theater
interests are in prior runs. Since some clearance must always exist
between runs (it is recognized in section VIII that "clearance reason-
able as to time and area is essential in the distribution and exhibition
of motion pictures"), it appears that the affiliated interests were
willing to make some concessions with respect to clearance, but were
most reluctant to admit the possibility of any widespread disturbance
of their control of the profitable prior runs.

FURTHER ACQUISITION OF THEATERS

As stated earlier in this appendix, one of the declared objectives of
the antitrust suit filed against the major companies was to compel
them to divest themselves of their theater holdings. The consent
decree makes no such proposal; instead ui section XI it provides that:

CONCENTRATION OP ECONOMIC POWER §3

For a period of 3 j^ears after the entry of the decree herein each of the consenting
defendants will notify the Department of Justice immediately of any legally
binding commitment for the acquisition by it of any additional theater or theaters.

During such period each such defendant will also report to the Department of
Justice * * * the changes in its theater position, if any * * * as
follows, together with a statement of the reasons for such changes.

(o) Theaters contracted to be built, or under construction; (6) theaters lost
or disposed of; (c) theaters acquired; (d) interests in theaters acquired, with a
statement of the nature and extent of such interests.

* * * For a period of 3 years following the entry of this decree, no con-
senting defendant shall enter upon a general program of expanding its theater
holdings. Nothing herein shall prevent any such defendant from acquiring
theaters or interests therein to protect its investment or its competitive position
or for ordinary purposes of its business.

This last provision, requiring a decision as to whether one of the
defendants has acquired a theater "for ordinary purposes of its b\jsi-
ness," or for some other purpose, renders the whole provision vague
if not meaningless.

Proceedings based on a violation of this subdivision * * * shall be only by
application to the Court for injunctive relief against the consenting defendant
complained against, which shall be limited to restraining the acquisition, or
ordering the divestiture, of the theaters or interests therein, if any, about to be
acquired, or acquired, in violation of this section.

ARBITRATION

The decree deals with a number of points of friction which have
arisen between the major companies and independent exhibitors. In
most of these cases arbitration of any disputes is stipulated. Accord-
ingly, the decree sets up elaborate arbitration machinery. The Amer-
ican Arbitration Association is appointed administrator of the arbi-
tration system. The association is required to set up a panel of not
less than 10 impartial arbitrators, and a clerk in each city in which
3 or more of the defendants maintain exchanges.

Elaborate and detailed rules of arbitration are given. In any case
subject to arbitration, proceedings may be instituted by filing a
demand accompanied by a fee of $10 with the appropriate local arbi-
tration tribunal. Each party in an arbitration proceeding must de-
posit for every day or part of a day that the hearing lasts an amount
equal to the arbitrator's per diem fee which is not to exceed $50 per
day. The expenses are to be paid by the party against whom the
award is made. Extensive powers are awarded the arbitrator to in-
sure the attendance of witnesses, to examine books and records, and
to secure such information as he may deem necessary to guide him in
making a decision.

An appeals board is to be set up consisting of three members of
"known impartiality and distinction" to be appointed by the court.
The decision of any arbitration proceeding may be taken to the appeals
board by filing with the local secretary a fee of $25 and three copies of
the record of the arbitration hearing. The cost of obtaining the
record must be borne by the appellant.

The arbitration system is to be financed in part by the filing fees
and expenses collected in the arbitration hearings. The principal
burden of the system, however, will be shouldered by the five major
companies. Each of these will be assessed proportionately to their
annual gross receipts from film rentals. The budget for the first year
is set at not more than $490,000.

g4 CONCENTRATION OF ECONOMIC POWER

All provisions of the consent decree dealing with trade practices are
to be enforced solely through arbitration proceedings instituted by an
injured party. Only in the case of a general program of theater
acquisition in violation of the decree is it provided that reference will
be taken directly to the court. In this case the Department of Justice
is limited to a request for injunctive relief to consist of an order pro-
hibiting the acquisition of particular theaters or divestiture if an
agreement has been consummated.

The defendant companies and their agents in section II are enjoined
from violating any of the provisions of the degree. However, section
XVI states:

. No consenting defendant and no officer, director, agent or employee of any
such defendant, shall be deemed to have violated Any provision of this decree
if the arbitration of disputes or controversies arising relative to the subject matter
thereof is herein provided for, unless such defendant has refused to arbitrate such
a dispute or controversy in the manner and under the conditions specified in this
decree and in the Rules of Arbitration and Appeals which are filed herewith, as
amended from time to time, or has failed or refused to abide by and perform the
final award made and entered in such an arbitration proceeding.

Tlxns, while the consenting defendants are prohibited from certain
actions by one part of the decree, a second section permits them to
continue these practices unless in a particular instance the}^ refuse to
submit to arbitration or to abide by an award following arbitration.

Ordinarily, enforcement of a consent decree is assumed by the
Department of Justice. When the Department feels that a pro-
vision of a decree has been violated, the Department can ask that
the violator be adjudged in contempt of court and request that an
a^jpropriate penalty be imposed. It appears that in this case the
Department has specifically resigned these powers. Enforcement
of the decree is instead imposed on the members of the industry
and to a considerable extent on the weaker members of the industry.

It is true that the fee required to file a case is not large. However,
the necessity of depositing each day an amount equal to the per diem
expense of the arbitration proceeding may impose a real financial
burden on the sn^all exhibitor; a not inconsiderable sum may be in-
volved if extended hearings are required. Moreover, the provision
that the loser in an arbitration proceeding must pay for the expenses
of the hearing will certainly tend to discourage any smaller members of
the industry from filing a complaint ot doubtful validity, and some
element of risk will always be involved.

Moreover, any award may be appealed by either of the parties to
the appeals board which may at its option order oral hearings. The
appeals board will be located in New York City, and hearings will
be held only n that place. The expense of defending an appeal may
thus be not inconsiderable.

The extent to which the various provisions of the decree will be
enforced thus depends to some extent on the willingness of small
exhibitors to risk amounts of money which to them may be relatively
quite important. And in many cases the financial gain to be expected
even from a favorable a^ward may be quite small.

In connection with enforcement of the decree through' arbitration
proceedings, it hiay be noted that the power of the arbitrator in mak-
ing awards is quite limited. In most cases the arbitrator can do no
more than find that a provision of the decree has been violated and
require that the violator discontinue the practice. In onlv two cases

CONCENTRATION OF ~E<X)NOMIC POWER 85

is the arbitrator empowered to impose a fine on a distributor violating
the decree, and this fine in either case is not to exceed the sum of
$500. Fines may be imposed where a distributor has made the sale
of features contingent upon the sale of short subjects or foreigns or
other features, and where the buying power of a circuit in more than
one exchange area has been considered by the distributor in film
negotiations.

In only one case can the arbitrator award damages to an exhibitor
and then only to the extent that the exhibitor can prove financial loss
during a 60-day period by reason of the distributor's failure to comply
with the previous award. In most cases, then, the distributor in
continuing a practicfe in violation of the decree has only to fear finan-
cial loss to the extent of the expenses of an arbitration hearing. In
no case can he be faced by contempt proceedings in a Federal court.

On the other hand, the contempt procedure method of enforcement
of a consent decree is time-consuming and sometimes awkward and
expensive. The application of this method to the enforcement of a
decree affecting many thousands of transactions occurring in every
part of the United States each year might prove wholly unsatisfac-
tory. The limited resources and personnel available to the Depart-
ment of Justice for work of this character is not to be ignored. More-
over, the record of the contempt procedure method as a device for
securing enforcement of a consent decree is not wholly impressive.*
There is thus room for argument that as between enforcement of the
decree by contempt procedure or by arbitration, the latter, while it
leaves much to be desired, is to be preferred.

' Cf. Temporary National Economic Committee, Monograph 16, pp. 88-97.

286782—41 — No. 43-

INDEX

lage

Aircraft Pictures Corporation 59

American Arbitration Association 83-85

American Telephone & Telegraph Co 7

Association of Motion Picture Producers of California, Inc 67-69

Call bureau 68

Central Casting Bureau 67

Officers and members 68, 69

Association of Motion Pictures, Inc 14

Aylesworth, M. H ^' 8

Balaban, Barney 48, 68

Balaban, John 48

Balaban & Katz Corporation 13,39,43,48,49,59

Beetson, Fred W 68

Bertrand, Daniel m. ix

B. F. Keith Corporation 61

Big U Film 62

Biograph 3, 4

Blanchard, E. L -- ni, ix

Blind selling. {See Motion-picture industry.)

Block-booking. {See Motion-picture industry.)

Blumberg, Nate J 68

Borthwick, George 68

Bowery & East River National Bank 14

Bray Productions, Inc 68

Breen, Joseph I 65

Butterfield Theatre Circuit 59

Caddo Co.. Inc 68

Call Bureau. {See Association of Motion Picture Producers of California,
■ Inc.)

Call Bureau and Central Casting Corporation 14

C. B. C. Film Sales Corporation . 62

Cecil B de Mille Productions, Inc 68

Censorship. {See Motion Picture Producers and Distributors of America.

Inc.)
Central Casting Bureau, {See Association of Motion Picture Producers of

California, Inc.)

Chadwick, S. E.. 24

Chase National Bank of the City of New York 60

Circuits. {See Motion-picture industry.)

Clayton Act . xi

Clearance. {See Motion-picture industry.)

Cochrane, R. H - |

Cohn, Harry 68

Cohn, Jack 68

Cale HA _ -- - 4o

Columbia PictuVeVCorporatYonV_lIII'I'"IIIIIIir8,'9,l4,'62^ 68, 69, 73, 76, 78

Conclusions. {See Motioji-picture industry, observations.)

Contracts. (See Motion-picture industry.)

Control. (<See Motion-picture industry.) •

Cosmopolitan Corporation - ----- "°

Crowder, Walter F.: Concentration of production in manufacturing (1940);

ciijGci _ ._«.- — .-. — - - — — - — — — — - XI

Danielian, A. R.: A. T. & T., the story of industrial conquest; cited 7

"Darron Board." {See National Recovery Review Board.)

INDEX

Page

D. W. Griffith, Inc . . 68

de Mille, Cecil B_-: .._ 68

Eastman Kodak Co 4, 68

Edison Co 3, 4

Educational Films Corporation of America 68

Electrical Research Products, Inc 7, 68

Essanay . 4

Evans, W. Duane - iii, ix

Exhibitors. {See Motion-picture industry.)

Famous Players-^ Lasky Corporation-- 5, 26, 59

Fairbanks. Douglas j 61

F-B-0 Productions, Inc 61

Federal Trade Commission : Docket No. 835 ; cited 26

Federal Trade Commission v. Paramount Famous-Lasky Corporation; cited. 26

Film daily (June 7, 1940); cited 17

Film Daily Yearbook : ■_.._ 13, 16

Film facts (1940); cited 25, 67, 68

First National Exhit?itors Circuit 5, 6, 7

First National Pictures, Inc . 68, 69

Forcing. (See Motion-picture industry.)

Fortune (August 1939); cited 15

Fox, William 4

Fox Film Co 7,8,9, 12, 14, 15,39,60,74

Fox West Coast Theatres Corporation 36

Fox Wisconsin circuit 13

Freeman, Y. Frank . '. 68

General Electric Co . 7

General Film Co i.- 4

Giannini, Attilio H 14

Globe Productions, Inc 69

Goldwyn, Samuel ^ 61, 68

Goldwyn Pictures Corporation 60

Griffith Amusement Co - 62

Hal Roach Studios, Inc ■ 68, 69

Hall Room Boys Photoplays, Inc ^ 62

Hamilton, Walton and Till, Irene: Antitrust in action (1940); cited 73

Hammons, E. W . . .. 68

Hatrick, E. B 1 68

Hays, WillH 65,68

"Hays organization." (See Motion Picture Producers and Distributors
of America, Inc.)

Herron, Frederick L ^ 68

Independent Theatre Owners Association, Inc 30

Inspiration Pictures, Inc 68

Interstate Circuit, Inc. 45, 46

Interstate Circuit, Inc., et al. v. The United States of America; cited 46, 47

Interstate Theater Corporation 37

Irving Trust Co 61

Jacobs, Lewis: The rise of the American film (1939); cited 3, 6, 7

Johnston, W. R 8

Kalem . 4

Katz, Sam 48

Keith-Albee-Orpheum Corporation 61, 74

Kennedy, Joseph P.: Storv of the films (1927), cited 14

Kent, S. R \ . 8,68

Kleine, George 4

Korda, Alexander 61

Kreps, Theodore J ix

Kuykendall, E 8

Legion of Decency 65

Lesser, Sol i 68

Lewis, Howard T.: The motion-picture industry (1933); cited 3

Lippmann, Walter : 34

Loew's Consolidated Enterprises - 59

Loew's, Inc 8-16, 39, 49, 59, 60, 68, 69, 73, 74

Loew's Theatrical Enterprises 59, 60

INDEX 89

Page

Louis B. Mayer Pictures, Inc 60

Lowell, A. Lawrence 34

Lubin , 4

Lynch, S. A 13

Lyric Theater . 28

McDonough, J. R 68

Mannix, Edgar J _ 68

Melies 4

Metro-Goldwyn-Mayer Corporation 7, 47, 60

Metro-Goldwyn Pictures Corporation 60

Metro Pictures Corporation 60

MilHken, Carl E 68

Motion Picture Almanac (1935-36); cited 65

Motion-picture industry:

Arbitration 83-85

Blind selling ._ 22,30-34,77-79

Block-booking . 22-26, 77-79

Charges against- 73, 74

Circuits passim

Clearance and zoning 40-45, 73, 80, 81

Consent decree 73-85

Consumer consideration 23, 24, 29, 45, 56

Dates of exhibition fixed 22, 34, 35

Distribution to exhibitors 3-6, 9-16, 19-47, 73-85

Expansion ^ 5, 6

Forcing of short films 22-30, 74, 79

Geographical spheres of control 14-16, 74

Hays organization. {See Motion Picture Producers and Dis-
tributors of America, Inc.)

Independent exhibitors 1 passim

Major companies 8, 59-62, 73, 74

Monopolistic practices ^ passim

Nature of study ix

Number of companies ^ .. 8

Observations : 53-56

Origin 3

Overbuying 36-39

Run 81,82

Score charge ^ 35, 73

Selective contracts 39, 73

Sound pictures 6, 7, 35

Specified admission prices 40, 41, 45-47, 73

Talent exchange 13, 14, 16, 73

Theater ownership _.•- __ 6-16, 35, 73, 74, 82, 83

Trade practices 21-49, 73, 74

Motion Picture Patents Co . 4, 7

Motion Picture Producers and Distributors of America, Inc 6, 17, 25, 65-69

Advertising Advisory Council ^--- 66

Community service department 67

Conservation department 67

Film boards of trade ^ 67

Foreign department 67

Generai counsel 67

Legal department 67

Office of the president 67

Officers and members 68

Production Code Administration , 66

Public information department *67

Title registration bureau 66

Theater service department 67

Treasury and accounting department . 67

Motion Picture Research Council ^ 76

Motion Picture Theatre Owners of America 8

Motion Picture Yearbook (1940); cited 45

Movietone 7

9Q INDEX

Page

National Industrial Recovery Act 7

National Recover}^ Administration:

Code of Fair Competition for the Motion Picture Industry 7,

8, 26, 30, 34, 36, 38, 39, 44

The motion-picture industry study (1936) 3, 26, 30, 34, 37

National Recovery Review Board: Report relating to the motion-picture

industry (1934); cited 8, 26

National Theatres Corporation 60, 74

Neely bill 25, 32

New England Theatres, Inc . 59

New York Herald Tribune (January 12, 1935); cited 34

Observations on motion-picture industry. (See Motion-picture industry.)

O'Donnell, R. J 46

O'Mahoney, Joseph C ix

O'Reilly, C. L . . .- 8

Oriental Theatre Co. 48

Orpheum Circuit, Inc 61

Overbuying. (See Motion-picture industry.)

Palace Theater 37, 38

Paramount-Famous-Lasky Corporation 59

Paramount Pictures Corporation 5-16, 39, 45, 48, 59, 68, 69, 73, 74

Paramount Pictures, Inc 59

Paramount Publix Corporation 59

Path6 Exchange, Inc . 4, 61

Photophone 7

Pickford, Mary 5, 61

Pioneer Pictures, Inc ' 68

Prices. (See Motion-picture industry.)

Principal Pictures Corporation 68

Printers' Ink (May 3, 1928) ; cited xii

Production Code of Ethics 65

Protection. (See Motion-picture industry, clearance and zoning.)

Radio Corporation of America . 7

Radio-Keith-Orpheum Corporation. _^ 7-16, 47, 61, 73, 74

Ramsaye, Terry: A Million and One Nights (1926); cited 3

R. C. A. Manufacturing Co., Inc 68

References to literature and sources:

1. Crowder, W. F.: Concentration of Production in Manufacturing

(1940); cited xi

2^Danielian, A. R.: A. T. & T., the Story of Industrial Conquest;

-^ cited XI

3. Federal Trade Commission: Docket No. 835; cited 26

4. Federal Trade Commission v. Paramount-Famous-Lasky Corpora-

tion; cited 26

5. Film Dailv (June 7, 1940); cited 17

6. Film Daily Yearbook 13, 16

7. Film Facts (1940); cited 25,67,68

8. Fortune (August 1939); cited 15

9. Hamilton, W. and Till, I.: Antitrust in Action (1940); cited 73

10. Interstate Circuit, Inc., et al. v. The United States of America; cited. 46, 47

11. Jacobs, L.: The Rise of the American Film (1939); cited 3,6,7

12. Kennedy, J. P.: Story of the Films (1927); cited 14

13. Lewis, H. T.: The Motion-Picture Industry (1933); cited 3

14. Motion-Picture Almanac (1935-36) ; cited 65

15. Motion-Picture Yearbook (1940); cited 45

16. National Recovery Administration: The Motion-Picture Industry

Study (1936) 3,26,30,34,37

17. National Recovery Review Board: Report relating to the motion-

picture industry (1934) : cited 8, 26

18. New York Herald Tribune (January 12, 1935); cited 34

19. Printers' Ink (May 3, 1928); cited xii

20. Ramsaye, T.: A Million and One Nights (1926); cited -... 3

21. Standard Trade and Securities (Febuftrv 20, 1935); cited 7

22. Stevens, W. H. S.t Unfair Competition (1917); cited. -.._.-. 14

23. Tegu's Palace Theatre, Inc. v. Interstate Theatre Corporation, et al.;

cited . .. 3*7

INDEX 91

References to literature and sources — Continued.
Temporary National Economic Committee:
Monogra}:-!! No. 16. {See Hamilton, W.)
Monograph No. 27. {See Crowder, W. F.) Page

24. United States Congress: Resolutions; cited 25,26

25. United States House of Representatives, Committee on Interstate

and Foreign Commerce: Hearings; cited 24, 27, 28, 31, 33, 46

United States Senate:

26. Committee on Interstate Commerce, subcommittee: Hear-

ings ; cited 67

27. Finance Committee: Hearings; cited 30

28. United States Department of Commerce, Bureau of Foreign and

Domestic Commerce: Motion pictures abroad (March 15, 1940) ;

cited 34

29. United States Department of Justice: Press release (July 20, 1938) ;

cited 1 76

30. United States Supreme Court: Opinion; cited 45

31. United States v. Balaban, et al 39, 43, 49

32. United States v. Crescent Amusement Company, Inc., et aL-. 48

33. United States v. First National Pictures, et al 67

34. United States v. Interstate Circuit, Inc., et al 45, 47

35. United States v. Paramount Pictures, Inc., et al 9-16, 36, 59, 73

36. United States of America v. Fox West Coast Theaters Corporation,

et al 36

37. United Tobacco Journal (April 28, 1928) ; cited xii

38. Variety (November 20, 1940); cited 76

39. Youngclaus v. Omaha Film Board of Trade; cited 44

Reliance Pictures, Inc 68

Republic I 8

R. J. Reynolds Tobacco Co ^ xii

R-K-0 Midwest Corporation 61, 74

R-K-0 Proctor Corporation 61, 74

R-K-0 Radio Pictures, Inc 61,68,69

Roach, Hal E . 68, 69

Roosevelt, James 69

Roosevelt Theatre-- ^ 49

Schaefer, G. J 8, 68

Samuel Goldwyn, Inc 68, 69

Schenck, Joseph M 69

Scbenck, N. M 68

Sckenck, R. H.. 8

Schine chain 64

Screen Snapshots, Inc 62

Selig ---- 4

Selznick International Pictures, Inc 68

Sherman Act ix, 44, 47, 73-75

Silverstone, Maurice - 68

Skouras, Spyros 17

Southern Enterprises, Inc 59

Sparks, E. J 13

Standard Statistics Co 7

Standard trade and securities (February 20, 1935); cited 7

Stanley Co. of America 60

Star Theater 37

Starland Revue, Inc 62

Stevens, W. H. S.: Unfair competition (1917); cited 14

Tegu's Palace Theatre, Inc. v. Interstate Theatre Corporation, et al.; cited.. 37
Temporary National Economic Committee:

Monograph No. 16: Antitrust in action (1940); cited 73, 85

Monograph No. 27: Structure of industry (1940); cited xi

Terry toons, Inc 68

Texas Consolidated Theaters 45, 46

Theaters. {See Motion-picture industry.)

Theatre Owners Chamber of Co'nmerce, N. Y 8

Till, Irene, joint author. {See Hamilton, W.)

Trade practices. {See Motion-picture industry.)

INDEX
^^ Page

XI, XII

Trusts --^-''^Vrr: WnVr^nVfltion ■ r 8-i i, 36, 60, 68, 69, 73, 74

Twentieth Century-Fox Film Corporation o ^^

Twentieth Century Pictures, Inc _ _; j_^^

United Artists Corporation 14 '23 '39 '53 'm, 60, 62, 68, 69, 73, 76, 78

United States Congress, House R^solutiorg,;^S^^^^^^^ I^Sl^^nd Domestic ''' ''

United States Department "^ Commerce Burea^^^^^^ 34

Commerce : Motion pictures abroad (March lb ly^uj ^.^^^ ^^

United States Department of ^^^^'f.l'^'^'cTm^^^^^^ and

United States House of Representatives, L^ommittee o ^^^ ^^^ ^^^ ^^ ^^ ^^

Un^?etl?at?rSre?Co^mSe=oflnte.Ta^^^^ ,,

UiSsSe^^:^; Fh^c^ Committee: Hean^ - f.

United States Supreme Court: Opinion ; cited '. . 39, 43, 49

United States v. Balaban, et at - - - - - -, 4g

fSSi States V. Crescent Amusement Company, Inc., et al

uJted States v. First National P;ct-res,etal ] : : 1 1 '_ "_ ] — 45, 47

United States v. Interstate Circuit, Inc^,et at ^^ ^^^ 73

United Tobacco Journal (April 28, 1928) . cited ^2

Universal Chain Theatres Corporation g2

Universal Corporation --- _ _ 62

Universal Film Exchanges, Inc 62

Universal Film Manufacturing Co 62

Universal Pictures Co, Inc 72q'ir28'47,'62, 68, 69, 73, 76, 78

Universal Pictures Corporation / y, it, ^o, - - ' g^

Van Buren Corporation 76

Variety (November 20, 1940); cited 3,4,60,68

Vitagraph, Inc , .///..- J.

Vitaphone - - " _ 68

Walt Disnev Productions, Ltd 68,69

Walter Wanger Productions, Inc 68, 69

Wanger, Walter ' "' _ 68

Warner, A 6^i6'39, 43, 60, 61, 68, 69, 73, 74

Warner Brothers Pictures, Inc o-io, oy, t , . ggg

Warner, H. M 69

Wrr^erBrotes Circuit Management CorpoVa^^^^ ::::::::::::: '^60

Wesco Corporation 60

West Coast Theatres, Inc 7

Western Electric Co " 68,69

Work, Cliff 1 - 8,28

^r^^0UVF^[n.-W^^7Vade/

Zoning. {See Motion-picture industry.) __ 5

Zukor, Adolph

...iiiii ,

3 9999 06351 930 8

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