One century ago this week, the January 21, 1922 edition of “Motion Picture News” carried a small news item noting that Marcus Loew had been elected president of Metro Pictures. This was hardly startling news since he already owned a controlling interest in the company.
The article reports that this news should “disprove the recent rumors in the industry of Metro’s merging with any other picture company.” But within a couple of years this assertion would prove to be spectacularly wrong.
Like many moving picture moguls, Loew had gotten into the business by way of exhibition. He quickly realized that the most profitable way to monetize this new entertainment medium was not through penny arcades, or even the comparatively crude storefront venues known as “nickelodeons,” but rather through theatrical exhibition. He got into the movie theater business early and quickly became a dominant figure in that arena, operating more than 30 theaters in New York City, and more than 100 all told.
Loew would undoubtedly have been content to remain just the owner of a powerful theater chain but for the fact that the market could not always be relied on to supply his theaters with a steady inventory of quality product. Adolph Zukor at Famous Players-Lasky had recently made a move to expand from production and distribution into theater ownership, thereby changing the industry dynamic in a fundamental way. By making the product and distributing it and also retailing it to the public, FP-L had become a “vertically integrated” company. Other big production companies were sure to follow that lead.
Loew did not care for this industry trend toward vertical integration, and certainly had no desire to pursue it himself, but at the same time he could read the tea leaves as well as anyone. The fact that theaters were now being bought up by major studios could only exacerbate his problems with booking a steady supply of quality pictures for his theaters. If production companies were determined to get into the exhibition business, Loew reluctantly concluded that he, in turn, would need to get into the production business.
Rather than start a new studio, the most efficient course of action was to buy a controlling interest in a going concern. And so Loew went studio shopping — looking for a studio that was sufficiently large and well-established to be a source of saleable product, but not so large as to be among the elite studios looking to buy into the exhibition market on their own hook. The Metro studio seemed to be a good fit, and in its January 17, 1920 edition, “Exhibitors Herald” announced the acquisition:
Eventually, as noted above, Loew, the inveterate theater man, would move into the position of president of Metro. There is no real reason to doubt the sincerity of his protestations at that time that the company had no designs on further studio mergers and acquisitions. He could not have known that lurking around the corner was a change of fortune that would force his hand.
The acquisition of Metro started off propitiously enough. The infusion of capital permitted needed enhancements to Metro’s facilities, as reported in the February 21, 1920 edition of “Motion Picture News”:
Moreover, as the articles noted, Metro would benefit from having a reliable market for their product while Loew’s theaters would benefit from having a reliable stream of product available to them.
Unfortunately, Metro’s output ultimately proved to be less reliable than anticipated. The distribution division of Metro was robust enough to keep pace with Loew’s expansionist plans, but the production division lagged behind. Then, to compound the problem, 1923 turned out to be a bad year for the industry generally. Ballooning production costs, driven in part by huge salaries paid to the big-name movie stars, threatened to outpace the earning potential of studio releases — especially the big-budget extravaganzas that were increasingly being mounted.
The economic downturn came to a head with this startling announcement in the October 26, 1923 edition of “The Film Daily”:
If Famous Players-Lasky, the juggernaut of the industry, was shutting down production operations, the industry was clearly in dire economic straits. The announcement, predictably, sent shock waves through the industry, as “The Film Daily” reported two days later:
The same issue of “The Film Daily” offered this clear-eyed and hard-nosed breakdown of the nature of the problem:
With Metro’s production arm already underperforming for him, this economic downturn left Loew in a bind. Should he cut his losses and just get out of the production end of the business? Or should he seek to expand his production interests by doing the very thing he had publicly proclaimed he would not pursue? The answer came in 1924 when Loew was presented with an opportunity to acquire the Goldwyn company. This was an attractive deal because with the Goldwyn company came an exceptional asset — the venerable Culver City studio facility that had once been the workplace of Triangle partners Thomas H. Ince, Mack Sennett, and D.W. Griffith. The May 3, 1924 edition of “Exhibitors Herald” announced the deal:
One piece was missing, however, in the Metro-Goldwyn combination. The Goldwyn company may have had the Culver lot to offer, but Loew found their management lacking. He had created a massive new merger, but he needed a firm hand to manage it for him. For this he turned to Louis B. Mayer. By bringing Mayer into the deal, Loew also acquired the services of Mayer’s stellar lieutenant — the industry wunderkind Irving Thalberg, who had proven himself to be a skilled and adroit production manager during his earlier tenure with Carl Laemmle at Universal.
The terms of Mayer’s contract obligated the company to prominently attach his name to its product. Early on this was done by designating releases with credit lines like “A Metro-Goldwyn picture, supervised by Louis B. Mayer” or “A Louis B. Mayer Production for Metro-Goldwyn.” Eventually, however, it was decided to dispense with this sort of verbose wording through the simple expedient of adding Mayer’s name to the company itself. From that point on, Loew’s creation would go by the name Metro-Goldwyn-Mayer.
The path from the Loew’s theater chain to the creation of Metro-Goldwyn-Mayer is an object lesson in why, particularly in business, one should never say “never.” Even a canny businessman like Loew could hardly have foreseen that his demure protestation, upon assuming the presidency of Metro in early 1922, that rumors of further mergers and acquisitions were groundless, would culminate, some two years later, in what “Exhibitors Herald” referred to as a “mammoth deal — undoubtedly the largest in the history of motion pictures.”