The Film Daily (1923)

THE DAILY Tuesday^ September 11, 1 A Billion In Capital (Continued from Page 1) financial operations regarding motion pictures from an elementary viewpoint, hut among the interesting observations that lie makes ar> included the following: "The use of tin moiion picture industry from nothing '° eighth place among the industries of the country in about ten years, is one of the great business romances. * * ♦ "Today motion pictures are one of the principal recreations of over 30 per cent of the people, with capital invested in this country well over a billion, including over 20,000 theaters. Their value in spreading information can be contrasted with the fact that against these 20,000 theaters there are 2,500 daily newspapers and 4.000 public libraries. * * " "Experienced executive ability must begin at the very start in the selection of the story to be produced, for the public taste is tickle and must be gauged some months ahead. Sometimes western dramas are the vogue. with quick changes to society, Oriental, costume, or other types, and as a picture takes about four weeks in preparation, six weeks in filming, and another month or two before it is actually released, the decision to invest a large sum in its production must be based on good judgment." He says, "The question of expense is a vital one, for the cost of pictures has been steadily mounting from a few thousand dollars per picture until now the average is nearer two hundrded thousand. Several factors have caused this ; the increased cost of the 'rights,' which means of course larger remuneration to the author ; increased star salaries, cost of materials, etc. The high salaries paid to stars are not mythical, but as the situation now stands, are governed by the law of supply and demand. The public is still in the throes of hero or heroine worship and looks for and patronizes the pictures of its favorite stars. The addition to the list of stars is surprisingly small considering the number of candidates and this naturally keeps up the value of those who have attained public approval. The picture companies therefore protect themselves by contracts, the usual contract specifying future options at increased figures. This is also an inducement to the star to give satisfactory service and thus bring about the exercising of the option which misconduct would prevent. A large company with a number of stars is therefore better able to Withstand the loss of one or more without injury to its product. The answer to the star question will probably be more all-star plays, with a gradual cultivation of public taste toward the story rather than the individual player." And concludes by declaring that "the budget plan now in effect under which a certain sum is assigned for production of each picture, including story cost and overhead, together with a thorough understanding between the executives in charge and the director, is bringing about good results. • • • "W,. might say a word here about the general criticism of the pictures produced. Motion pictures are almost entirely an amusement for the masses or majority of people. They do not want 'high-brow' pictures but do appreciate good wholesome entertainment. Some critics rave over "better pictures," but when the Famous Players for example, produces a beautiful Peter Ibbetson or Sentimental Tommy the response barely pays for the production. There is a sincere desire on the part of the producers to respond to any helpful suggestions and, in their own hearts, there is the urge to put their industry at the top oi the ladder, but to produce only that class of picture would bring disaster to any company that tried it." A Danger Relative to Production Cost Saunders says: "There is a tendency on iiu pari "i BORtM directors to outdo other companies or other directors and make large and imposing spectacles. There is a market for a certain number of these, but they constitute one of the dangers oi the industry. If the cost of any picture is moderate it can nearly always be recovered whether the picture is a distinct success or not, but to recover on a high cost picture it must be a pronounced success. Bankers called upon for a loan on a negative, or to finance one picture only, may be amply protected it the picture has been properly made and the amount loaned is in reason. It should be remembered, however, that throughout the entire theatrical business there is a doctrine of averages. It used to be thought that if one out of five pictures was a 'knockout' it was a good average, but this has improved somewhat. No one can tell whether a picture will be a success or not, and money alone will not make it one. There must be an indefinable something about it that reaches the public. A large company, therefore, turning out a greater number of pictures is in a much stronger financial position, as not only can it more easily take care of a few mediocre pictures, but because of its experience, is mere likely to avoid the kind of picture that does not become a popular success. A large company is provided with statistics and charts showing the results by stars, by directors, by kinds of pictures and by groups and barring on occasional miscue, can avoid having many mediocre pictures, while at the same time, most of its product will achieve pronounced success. * The cost of this picture remains in the inventory until its "release,' which means the day on which it will be generally played throughout the country, which date is set by the distribution department on its 'release-schedule.' A 'pre-release' is often made, usually in a Broadway house. As soon as the picture is released the cost begins to be depreciated monthly — 50 per cent in ninety days, 80 per cent within a year, and 100 per cent in two years, this ratio being the same as the expected cash returns. However, the depreciation is made irrespective of the returns, and it follows that the inventory of a picture company need never be revised as it is reduced automatically." . . Relative to Distribution .Saunders says: "Sometimes the distributing is done Under a trade name ; for example, the T'antous Players use the name "Paramount." which to exhibitors and the public means more than the company name itself. The advertising and general excellence of the product have given the name 'Paramount' a value so large it would be difficult to overstimate it, but it certainly would run into many millions of dollars. "An interesting variation of the usual methods of pricing is that the value of a picture so far as its revenue is concerned does not depend upon the cost. A picture costing a hundred thousand dollars may conceivably bring in a revenue in excess of one costing twice that amount. The general method is for the experienced executives of the sales department, after careful study of each picture, to place a 'quota' upon it based upon what they believe the gross returns will be. "Prices are also rated according to 'first run.' etc,, the larger revenues coming from first run productions in the larger cities. Regard is also paid to the different sections of the territory, but the sales department conscientiously tries on the one side to bring in sufficient revenue to the company, and on the other, to so price the pictures that the exhibitor will be satisfied with the profit he , makes. Sometimes a picture will prove much more popular than originally anticipated and the exhibitors will 'clean up.' "Long before the release date the exchange salesmen have been visiting the theaters and contracting with the exhibitor for one or more pictures, for which a contract is signed and a cash deposit made. Could these contracts be recorded in the company's financial statement as 'receivables,' they would make a formidable item, for as a rule they are considerably more than the company inventory. Many hundreds of contracts are signed before a picture is even started. Many exhibitors take a producer's entire product, which they are only too glad to do as it insures their getting a constant flow of pictures from a producer in whom they have confidence, attached as it generally is, with national advertising. The picture industry now ranks nineteenth among national advertisers. • * *" As to Exhibition Saunders then relates at some length the various problems of distribution and distribution charges, touches upon the foreign situation and then gets into the question of the exhibition phases of producing and distributing companies, saying in part : "The chief reason why a production or distribution company is interested in the ownership or control of a limited number of theaters is the very natural one in all corporations of being able to be sure of an outlet for its diversified product. By controlling theaters in key cities there is an influence upon all the exhibitors in the vicinity that seems to be necessary, and a successful run in such key city increases the value of the picture to the local exhibitor considerably. It should be noted, however, that a monopoly is hardly possible in this business because no producer can deal with all exhibitors. One theater in each place must be given the first run privilege and after the run is over a certain time elapses before any theaters can have the second run. This means, of course, that the other theaters must secure their first run product elsewhere, and this fact alone would seem to be a positive and natural protection to all exhibitors." In conclusion Saunders says : "There are a few other points of which bankers should have knowledge, one being the definition of 'residual value.' The inventory consists of (1) pictures in process, (2) those finished awaiting release, and (3) those released which have not yet been depreciated 100 per cent, in the manner referred to above. Some of the latter will have been released one month, others twenty-three months, and the sum total of these released pictures makes up the 'residual value.' Each month some part of each of these will be depreciated, although of course, new pictures will continue to be added, but at the end of two years each individual picture has been fully depreciated. In the inventory also are the (4) positive prints, which are depreciated within one year. While the life of a picture is thus indicated as two years, revenue keeps coming in sometimes for five or more years. This asset, which does not appear on the books, may easily run to a very large figure. "It has been often said, and with reason, that if a picture company composed of production and distribution departments decided to liquidate, it could cut off its production and in time, through the continued rental of the pictures already made, work out its complete liabilities. There is a lot of truth in this statement. "This brief summary of the scope of the industry will enable us to understand the accounting and executive sides. It is not too strong a statement to state that any strong motion picture company compares in its organization with that of any other modern business. They have freely drawn upon banking and other lines for executives, consult freely with their executive and financial committees, make use of charts and other statistical data, use machines for tabulating sales, compare prices, and in their auditing, checking and all other work, make use of all successful modern devices. Tax experts are employed and accounting firms like Price, Waterhouse & Company, whose senior partners have had much to do with the construction of the accounting methods, are freely consulted. * * * No Longer a Gold Mine "It is not, however, any longer to be regarded as a gold mine with tremendous earnings. It is now on a proper business basis with a reasonable earning power, which it is hoped will be strengthened as methods of faster 'turn-over' and other improvements are made. There will need to be adjustments between the producer and exhibitor and more than all there will need to be a better understanding between them, but just as soon as they do reach a common ground of discussion and realize that each is perfectly willing that the other should make a reasonable return and that they are both working for a common goal, the chief unsettled conditions which exist at the present time will 'have been avoided. To all appearances this is not far distant, and the work of Mr. Will Hays and others who have the industry at heart is now beginning to bear fruit. "What is really needed in the industry today is for producers, distributors and exhibitors to trust each other a little more. Now that bankers are becoming interested more and more, their level headed conservatism is bound to have its influence." "Woman of Paris" Premiere S (Special to THE FILM DAILY Los Angeles — Charles Cha first dramatic film, "A Woma Paris," featuring Edna Purviance have its premiere at the openir the new Criterion. F CARBONS CO BE MADE BETT "BIO" WOULD STILL I THE BEST M. G. Felder Sale. DISTRIBUTORS 1540 BROADWA NSW YORK, N. Y FOR SALE Burke and James camera wit six magazines, tripod and a: light. Apply H. SILVERMAN 729 7th Ave. QUALITY ART TITLES The Waller Studio* Fred Waller— Grace Waller 11 East 14th Street Stuyvesant 2652 Executive Available Well known executive leaving shortly for coast points il available for additional com missions for all branches of th industry. Box S-ll, c/o The Film Daily 71 W. 44th St., New York 17836 U.S. THEATRES SHOWING PICTURES Under 250 seats, 30%; under '.{ 70%; under 800, 85%; over 800, 1!., The most economical method of read | theatres is our ADDRESSING SERVI , $4.00 PER M UP. Lists if desired. 3d SO' > saved in postage, etc.. through elim ion of dead and duplicate theatres osu ' listed. Multigraphing — Mimeographing Folding — Enclosing — Mailing. MOTION PICTURE DIRECTORY • 244 West 42nd St., Near Broadway •Phone Bryant 8138