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i42 HARVARD BUSINESS REPORTS
revenue, particularly because of the fact that they were mostly first-run theaters with larger rentals per picture. The rental for a first-run showing averaged approximately five times the rental for a second-run showing.
The company realized that difficulty would be experienced in procuring literary material which was adaptable for the combined silent and sound production. It also realized that a feature picture of high quality in both sound and silent versions would prove more expensive than in either version alone. The production department was thought competent, however, to produce a number of feature pictures of the desired quality. It was decided, therefore, to endeavor to secure, in so far as possible, literary material primarily adapted to silent pictures but which provided an opportunity to introduce sound and dialogue.
In accordance with this policy, the company decided to purchase rights to reproduction of dialogue, songs, and music from the dramatic successes, "Show Boat" and Broadway." The motion picture rights to these stories had been purchased in 1928 at a cost considerably in excess of that of the average story material. The additional expenditure for material was believed to be justified by this material's suitability for combined silent and sound pictures and by the exploitation already received by these dramatic productions, which had been shown for a considerable time in Broadway theaters.
Commentary: This case presents a problem on which a decision was necessary before all the theoretically desirable facts were known. The issue, in short, is whether or not a producer with a large established business is justified in committing himself more or less entirely to a frankly experimental product, especially prior to a time when that product is technically perfect.
There are various arguments as to why such a policy might have been adopted in the present instance. The production of sound pictures made it possible to capitalize largely on the novelty demand for sound. It might be hoped, moreover, that by the time the novelty feature had worn off, technical improvements would have been made of sufficient worth to overcome the inadequacy of the earlier product. Again, of the theaters that were wired for sound pictures the greater percentage were the larger theaters. These theaters were naturally the first-run houses in key centers, and returned to the distributor by far the largest percentage of his total return on any picture. In