One century ago this week, the September 20, 1924 edition of “Exhibitors Trade Review” announced an ambitious plan on the part of Warner Brothers to buy into the exhibition end of the business in a big way.
This was a business move that, just a few years earlier, would have seemed distinctly odd. After all, the natural order of the business would seem to be that studios make the films and theaters show them, which makes the theaters, in effect, the customers of the studios. This relationship was made more efficient by the emergence of middleman companies called “exchanges” (later to be called “distributors”), whose function was to lease prints to the exhibitors. It was not uncommon for studios and exchanges to merge into a single entity, but exhibition continued to be seen as a separate enterprise. The exhibitors were the retailers who sold the final product directly to the general public, which was not regarded as a part of the studios’ business model. It would be like Pfizer or Johnson & Johnson owning a chain of drugstores.
By the end of the 1910s, however, this wall of separation began to break down. The Famous Players-Lasky studio, headed by Adolph Zukor, had already merged with its exchange, Paramount, which would ultimately lend its name to the company as a whole. Zukor had pioneered the practice of signing big-name stars to exclusive contracts and then using the public’s demand for their films to leverage favorable terms with exhibitors. A film starring, for example, Mary Pickford would be unavailable for booking as an individual title. An exhibitor could only book it as part of a package of titles, most of which would have lesser box office appeal. Thus, in order to get the films that their patrons were clamoring for, the exhibitor would have to also book a series of less lucrative offerings. For Zukor, it meant a guaranteed market for every title released, but for the exhibitors it meant uneven earnings, alternating high-return star pictures with the mediocre box office returns from more pedestrian fare. This practice was known in the trade as “block booking.”
Zukor even enlisted the public’s assistance in prompting theaters to consent to the practice by running ads in mass market publications, like this one from a 1917 issue of “Saturday Evening Post”:
Note that the industry term “block booking” has been replaced by the friendlier-sounding term “open booking.” Exhibitors, however, knew all too well that there was nothing friendly about being strong-armed into booking films that they otherwise would not be inclined to purchase. Zukor effectively had exhibitors over a barrel. No single exhibitor was in a position to take a stand against his tactics, but in 1917 a group of exhibitors banded together to form a collective organization called the First National Exhibitors’ Circuit. The new entity was announced in the May 12, 1917 edition of “Moving Picture World”:
It was hoped that their combined purchasing power might serve as a countervailing force against the Famous Players-Lasky juggernaut. They began modestly enough by making a distribution deal with the Essanay studio for its picture ON TRIAL, as reported in the June 9, 1917 edition of “Moving Picture World”:
But soon they set their sights on a more frontal assault on Zukor’s power base. If he was going to deny them films featuring the top stars of the day unless they met his draconian terms, maybe they could use their collective buying power to make deals with major stars directly. They began with a deal that was guaranteed to make a splash in the industry. They approached Charlie Chaplin, the pre-eminent comedy star of the day, and offered him a $1,075,000 deal, under which he would, in effect, become an independent contractor with an agreement to allow First National to distribute his subsequent films. Although not as immediately lucrative as other offers that Chaplin might have been able to consider, it was an attractive proposition because it gave him complete creative and business autonomy, and because the deal provided for all rights to his films to revert to him after seven years. He would be able to make his films any way he wished and would end up owning them outright. Moreover, he was to receive 50% of the distribution profits. Chaplin took the deal, as reported in the July 14, 1917 edition of “Moving Picture World”:
Here, at last, was a major star whose films could not be withheld from the First National exhibitors on the whim of Adolph Zukor.
But First National didn’t stop there. Their next big move would strike at the very heart of Zukor’s empire. The November 23, 1918 edition of “Moving Picture World” carried the news that Famous Players-Lasky’s biggest star had been lured away:
The loss of Mary Pickford to First National was a devastating blow to Zukor. If this trend continued, he could see his plan for dominating the industry unraveling. Being a canny businessman, Zukor was well acquainted with the old adage, “if you can’t beat them, join them.” And sure enough, rumors soon began to surface of a possible merger between Famous Players-Lasky and First National. A headline in the January 18, 1919 edition of “Moving Picture World” prominently mentioned the rumors by way of citing a denial from First National:
Within the article, the denial was amplified:
The denial, as it turned out, was genuine. The rumored merger never occurred. (Even so, the rumors were taken seriously enough to prompt Chaplin and Pickford, along with Douglas Fairbanks, D.W. Griffith, and, briefly, William S. Hart to start their own independent company, which they called United Artists).
With the prospect of a merger with First National off the table, Zukor still had the problem of how to solidify his dominance of the industry without relying entirely on star power. The solution that he decided on was to expand his company into the exhibition business. If you own theaters, then of course they have to play whatever films you send them. Also, it seemed a fair enough reciprocation. If this theater group was going to horn in on the production business by facilitating the making of Chaplin and Pickford films, why shouldn’t he likewise intrude on their turf by operating theaters?
A column published in the June 19, 1920 edition of “Moving Picture World” under Zukor’s by-line seeks to explain that although his company initially had no intention of entering the exhibition market, his hand had been forced by the actions of a “group of exhibitors” whom he declined to mention by name:
This was a momentous step. It made Famous Players-Lasky the first Hollywood studio to consolidate movie production, movie distribution, and the exhibition of movies to the public under one corporate roof. A company that manufactures a product, distributes the product, and retails the product to the buying public is known as a vertically integrated company. The decision by Zukor to vertically integrate set his company apart in a distinctive way.
Naturally, the other big studios took notice of this. Consequently, in an effort to match Zukor’s aggressive business expansion, every studio that had sufficient working capital to do so hastened to also begin buying up theater properties. The result was a new stratification within the industry. The studios that owned theaters were now the major players, while those that did not were relegated to a secondary status. Vertical integration was now the bright-line distinction between the two tiers. (This was also the period when Wall Street investment in Hollywood began to ramp up in a big way. The acquisition of large quantities of theater real estate demanded the kind of massive infusions of capital that could only be had from the big investment banks.)
The article cited above represents the Warners’ bid to join the ranks of the majors. One of their flagship properties would be the Warner’s Hollywood Theatre at Hollywood Boulevard and Wilcox, as announced in the August 27, 1925 edition of “The Cinema News and Property Gazette”:
Years later, in the 1950s, a young employee of this theater named Carol Burnette would be fired from her job as an usherette. When she was later honored with a star on the Hollywood Walk of Fame, she requested that it be placed in front of the theater’s location.
The era of studio-owned theaters and vertical integration would end in 1948, when the U.S. Supreme Court, in the case of U.S. v. Paramount, et al., ruled that the vertically integrated major studios were engaged in business practices that represented an illegal restraint of trade under the terms of the Sherman Antitrust Act. To remedy this, the court ordered the major studios to cease the practice of block booking and to divest themselves of their theater holdings.
But that’s not the end of the story. Times change, business environments change, and what was once a just and necessary verdict may eventually become unnecessary, or even counterproductive. In November of 2019, the Department of Justice formally petitioned the courts to terminate the “Paramount decrees” that had outlawed theater ownership by studios. In August of 2020, U.S. District Court judge Analisa Torres signed an order granting the petition.
This judgment was, in part, an acknowledgement of the fact that in today’s world of cable TV, Netflix, and Roku, theater chain ownership is no longer the industry leviathan that it once was. If there is to be any future regulation of the movie industry, the one sure bet is that the ownership and operation of your local multiplex will not be a significant factor.