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24 HARVARD BUSINESS REPORTS
resulted in the protection of the company against outside interests. The franchise and sub-franchise system proved satisfactory and operated to the profit of all concerned. In most cases the franchise holders had realized substantial profits from the sale of stock in the local companies. There were, however, a number of exhibitors holding sub-franchises who were dissatisfied. The two principal reasons for such dissatisfaction were, first, that the percentages allocated to the theaters for the determination of the prices to be set upon pictures were too high and, second, that certain exhibitors did not like to be forced to take all the pictures released by the company. Between 1920 and 1922 the number of sub-franchises in force dropped from about 3,400 to about 2,700. The executives of the company, however, were of the opinion that the sub-franchise system was working in a satisfactory manner and that the decrease was to be expected. No efforts were made during that period to recruit new sub-franchise holders.
Commentary: This case illustrates some of the difficulties which confront those who attempt to form a cooperative organization as a means of strengthening their buying position. First National Exhibitors' Circuit, Incorporated, was organized to accomplish three definite purposes: first, that of securing better pictures than were available through the usual channels; second, that of forming a definite protest against the restrictive measures which the exhibitors felt were being imposed by the more powerful producers and distributors; and third, that of obtaining pictures at more attractive prices. It is interesting to note that these same three motives have been influential in bringing into existence most of the other cooperative buying organizations that have been attempted.
It is noteworthy, however, that in the case of this company the attempt was a notable success, whereas in most other instances, exhibitors' cooperative organizations have failed to accomplish their major purpose. The ultimate success in this instance is probably due to three factors. The first is the adoption of measures to prevent those who might be interested in the company's failure from acquiring control through stock purchase. The second factor is the establishment of definite control over the exchanges. Centralized control and uniform policies were believed essential to success, and rightly so. It is true that some real measure of success was achieved prior to the reorganization. It is to be doubted, however, whether the original policy would have been permanently successful as the industry became more definitely organized and competitive conditions changed.