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330 HARVARD BUSINESS REPORTS
when applied to specific situations. Whether this fact would seriously disrupt the use of such percentages became an important consideration.
A method which achieved results identical to those of the foregoing procedure was employed by a distributor who leased pictures on a percentage basis whenever possible. He sought to determine what percentage an exhibitor's average film rental was of his average gross receipts. He then attempted to persuade the exhibitor to play pictures on a percentage basis, using this average film rental percentage as the share of gross receipts which should go to the distributor, commencing with the first dollar received. Application of this method to the example given above shows that the rental of $300 would be 25% of the gross receipts of $1,200. Whatever the total in'come was, 25% of it would go to the distributor. If it were $1,740, the rental would be $435, as under the former method. No guaranty and no splits beyond a certain gross figure were involved in this arrangement and to this extent the basis of pricing was simplified. If exhibitors accurately set the percentage which their average rentals bore to average gross receipts, the necessity of estimating the additional income which sound pictures would yield was eliminated. Under this plan, also, both the distributor and the exhibitor shared in the success or failure of a picture beginning with the very first dollar of receipts.
The sales manager questioned the use of such a scheme on the ground that it involved persuading the exhibitor to play on a percentage basis but did not include the usual flat guaranty and split above a certain gross amount which such agreements regularly included. It was his belief that when an exhibitor did not have to guarantee a certain return to the distributor, the inclination was not to use aggressive sales promotion but to let the picture do its own exploitation work. This practice often had resulted in lower gross receipts than might otherwise be expected from percentage bookings. If a percentage arrangement was used, the sales manager was convinced that more could be secured for the distributor by a guaranty and split of gross returns above a specified amount than by the proposed method. This opinion may be substantiated by applying the most common percentage arrangement to the example previously cited. As a conservative estimate, a guaranty of only $250 may be assumed, a figure which