The American Film Industry

Part III: A Mature Oligopoly, 1930-1948

PartIII A Mature Oligopoly, 1930-1948 Structure of the Industry By 1930, the motion picture industry had become, in economic terminology, a mature oligopoly. The merger movement had run its course, with the result that five companies dominated the screen in the United States. The largest was Warner Bros. with its one hundred subsidiaries; the wealthiest was Loew's, Inc. (ch. 13), the theater chain that owned Metro-Goldwyn-Mayer (ch. 12); and the most complex and far-flung was Paramount. These and two other giants with equally formidable holdings, RKO and Twentieth Century-Fox along with their allied theater enterprises , became known as the Big Five. All were fully integrated : they produced motion pictures, operated worldwide distribution outlets, and owned chains of theaters where their pictures were guaranteed a showing. Operating in a sort of symbiotic relationship with the Big Five were the Little Three: Universal, Columbia, and United Artists. Universal and Columbia had their own studios and distribution facilities and were useful to the majors during the 1930s and 1940s in supplying low-cost pictures to facilitate frequent program changes and double features. United Artists, the smallest of the eight, was unique; it was solely a distribution company for a small group of elite independent producers. These major companies held monopolistic control of a type that is "frequently hard to trace and appraise, and though more or less consistently evolved, that varies endlessly in methods or application and degrees of effectiveness ," in the words of Robert A. Brady. "One might regard the movie industry as dominated by a semicompulsory 253 254 Part III / A Mature Oligopoly, 1930-1948 cartel," Brady adds "or even a 'community of interests' of the type that typically stops short of the more readily indictable offenses under usual Anti-Trust procedure."l By pooling their interests, acting in concert, and establishing a market cartel, the majors succeeded in holding onto their power until the Supreme Court in 1948 and television brought this era of the movies to a close. With stables of stars, writers, directors, producers, cameramen , and other artists and technicians, each of the majors (with the exception of UA) produced from forty to sixty pictures a year. Although in total their productions represented around 60 percent of the industry's annual output, practically all the class-A features, the ones that played in the best theaters and generated the most revenue, were made and distributed by these eight companies. Competition among the companies in the area of production was minimal. They vied with each other in acquiring story rights and creating stars, but not for the services of the established talent. They regularly loaned one another highpriced stars and technicians on mutually satisfactory terms. Independent producers, for the most part, were not accorded this right or had to pay premium rates. The eight majors exercised even greater power in distribution ; they collected about 95 percent of all film rentals paid to national distributors. This oligopolistic situation further helped to keep independent producers in a subordinate position. In order to secure financing from banking institutions, independents had to guarantee national distribution and access to better-class theaters. Only then could their pictures stand a chance of making a profit. But the Big Five, which owned extensive theater chains, gave preferential treatment to one another's pictures and closed an important segment of the market to outside product. Moreover, through the use of such trade practices as block booking and blind buying, the majors preempted the playing time of the key theaters nationwide. It was in the area of exhibition that the Big Five had the greatest strength. Of the eighteen thousand theaters operating in the United States in 1945, the five integrated com1 . Robert A. Brady, "The Problem of Monopoly," Annals ofthe American Academy ofPolitical and Social Science 254 (November 1947): 125. Part III / A Mature Oligopoly, 1930-1948 255 panies either owned or controlled only three thousand, but this number represented the best first-run houses in the metropolitan areas. The ownership of these first-run outlets carried overwhelming economic power in that they accounted for nearly 70 percent of the nation's box office receipts. The Big Five competed with one another at the first-run level in the large cities, but in the neighborhoods and smaller towns, the situation was different. In building their chains, the Big Five acquired theaters in different regions of the country-Fox's...