Harrison's Reports (1949)

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A REVIEWING SERVICE FREE FROM THE INFLUENCE OF FILM ADVERTISING Vol. XXXI SATURDAY, MARCH 26, 1949 No. 13 THE FACTS BEHIND THE FACTS In his "On the March" column in the March 19 issue of Motion Picture Herald, Red Kann states that it is "standard practice in the bulletins of exhibitor associations, notably Allied, to concentrate a high order of firing power on the kind of film deals which producer owned, or operated, theatres make with their companions-in-arms." Meaning, Red explains, the producer-distributors with whom these circuits are affiliated. Red goes on to point out that, aside from the "formalized attention" accorded the matter by the exhibitor units, theatremen in general have long suspected that the affiliated theatres receive "favored nation" treatment with regard to film rentals, and that many of them were convinced of it when it became known recently that subsequent-run houses operated by Paramount-Richards bought Paramount pictures at 15 per cent whereas Paramount sought to sell the same product to subsequent-run independents for 30 or 35 per cent. But, continues Red, "many qualified observers, sufficiently disinterested to be accepted as reasonably impartial, take the position (that) the affiliated chains have been kicking in." In an apparent effort to substantiate the thinking of these "qualified observers," Red gives a breakdown of the theatre admissions received and the film rentals paid by the RKO theatre circuit for the years 1945-46-47 and nine months of 1948. Basing his figures on the information contained in the RKO proxy statement issued recently to the stockholders in connection with the consent decree separating the company's producing and distributing activities from its exhibition interests, Red shows that the percentage of film rentals paid by the circuit for the different years ranged from 31.18 per cent to 34.04 per cent. "Regardless of whether too much or too little," states Red, "the figures — and they are official — clearly show this circuit, at any rate, paid prices generally in tune with today's market." He then concludes with the observation that many of his readers will know that they are not paying as much. Red Kann's figures are correct insofar as they concern the total film rental paid by the RKO circuit for the films it exhibited, but his percentages do not reflect an accurate picture of what the circuit paid for its films to producerdistributors other than its own parent company. And these are the percentage figures that count for comparative purposes, for the RKO circuit was in no position to bargain with its parent company as to how much it should be charged for RKO product. If Red had examined page 14 of the RKO proxy statement, he would have found that the amounts paid by the circuit to its parent company as film rental represented the following percentages of total film rentals paid by it to all the distributors: 1945, 39%; 1946, 46%; 1947, 38%; and 1948 (9 months only), 34%. Even these figures, however, although taken from the statement, do not accurately reflect the true percentages paid to the parent company in relation to the theatre receipts drawn by its product. But before we analyze these percentages let us examine Red's figures. He states: "RKO and subsidiary companies reported $39,391,233 in theatre admissions in 1945, spent $12,383,688 on film service. That's 31.44 per cent. "In 1946, theatre admissions totaled $46,673,540 and film service $15,889,653. And that's 34.04 per cent. "The following year, theatre admissions bulked $45,087,661, whereas film service cost $14,896,437. The film buy, therefore, ran to 33.04 per cent. "In the 39 weeks to October 2, 1948, theatre admissions were $30,747,515. The film buy was $9,588,149, or 31.18 per cent. "The average for these three years and nine months was 32.59 per cent." Let us now analyze the 1945 figures. According to a table submitted by RKO in one of its briefs to the Federal District Court in New York, during the anti-trust trial, 23.1 per cent of the product shown in 92 of the circuit's wholly-owned 106 theatres was furnished by its parent company, while 76.9 per cent was supplied by other distributors during the 1943-44 season. In view of the fact that RKO released 38 pictures during the 1943-44 season, and has released a fewer number in the several seasons that followed, it is reasonable to assume that, for the period from 1945 to 1948, it did not furnish more than 23.1 per cent of its circuit's product requirements. If anything, the percentage may have been lower. But assuming that the 23.1 per cent held true for 1945, a breakdown of the figures for that year would be something more like the following: Theatre admissions for 1945 were $39,391,233.71. Since RKO furnished 23.1 per cent of the product, such a percentage of the total product should have drawn $9,099,374.99 of the total theatre admissions. Likewise, the 76.9 per cent of the total product supplied by the other distributors should have drawn $30,291,858.72 of the total theatre admissions. Film "service" for 1945 amounted to $12,383,688.98. Since RKO admits in its proxy statement that 39% of this sum was paid to it by the circuit, this amounts to $4,829,638.68, leaving a balance of $7,554,050.30 that was paid to all the other distributors. Broken down into percentages, this means that the circuit paid as film rental to its parent company 53.08 per cent of the gross receipts appli' cable to RKO product, and only 24.94 per cent of the gross receipts applicable to the other distributors' product. The figure of 24.94 per cent is the one exhibitors must use in comparing their rentals with those paid by RKO, not the 31.44 per cent figure arrived at by Red Kann. And even the 24.94 per cent figure is too high as will be shown later in this article. If we were to use the same method of calculation for the other years analyzed by Red Kann, the results would show that in 1946 the circuit paid its parent company a film rental of 67.81 per cent as compared with 23.91 per cent to the other distributors. Kann's overall 1946 figure is 34.04 per cent. In 1947, the circuit paid RKO 54.45 per cent as compared with 26.87 per cent to the other distributors. Kann's 1947 figure is 33.04 per cent. For the nine months of 1948, the circuit paid RKO 45.90 per cent as compared with (Continued on bac\ page)