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AINSWORTH PICTURES, INCORPORATED 27
tributed pictures within a well-defined territory. Ordinarily these organizations were individually owned and were located in the important centers of their respective territories. State right exchanges did not confine their sales to the pictures of any one producer. On the contrary, they distributed all available films suitable to their wants.
As a rule, a state right exchange purchased from a producer the rights to distribute in its territory certain of that producer's pictures for a period of five years. It was customary for the exchange, in purchasing these rights, to pay to the producer a flat sum at the time of making the contract and before production of the pictures had been started. These deposits insured the producer a minimum income. The exchange later reimbursed itself for these advances by deducting twice their equivalent from the first sales. This amount offset the cost of distribution and allowed the distributor a fair return for his efforts. Any receipts over and above this amount were divided between the exchange and the producer in accordance with a stipulated percentage. The percentage received by the exchange usually varied from 25% to 55%. The following quotation explains this plan in practice. The contract from which this clause is quoted provided that the earnings of the pictures were to be divided 50% to the exchange and 50% to the producer.
Section 2 — The sale lessee (state right exchange) hereby agrees to advance to the lessor (the producer) the sum of $10,000 on each one of the said four pictures, it being the understanding, however, that on each one of the said four pictures the lessee is to retain the first receipts from the exhibitors up to the amount of $20,000, and that all the moneys received in excess thereof are to be divided equally between the lessor and the lessee.
At the time of its inception, Ainsworth Pictures, Incorporated, was not able to finance a national distributing organization and from 1917 to 1925 the company had distributed its pictures through 10 state right exchanges whose consolidated territories covered the entire United States. The company sold its products on the combined deposit and percentage basis, the amount of the advances, no part of which could be reclaimed by the distributor, being based upon the expected earning power of the several pictures contracted for. The percentage split varied between 75-25 and 65-35 in favor of the company.