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478 HARVARD BUSINESS REPORTS
a profit from the operation of theaters. Although it furnished an outlet for the films of the Universal Pictures Corporation, which company in turn assured it a steady supply of films, its policies were not subordinated to those of the Universal Pictures Corporation.
Commentary: Two distinct issues arise in this case: first, was it essential for the Universal Pictures Corporation to own its own theaters; secondly, if a chain of theaters was to be desired, what should be the primary object in such ownership and what type of theaters would best accomplish the desired end?
While it is true that a majority of large producer-distributors do control their own chain of theaters, it does not appear definitely proved that such ownership is necessary to the success of a producer. This was particularly true in 1925. Certain important companies even in 1929 owned practically no theaters. This was true, for example, of Pathe Exchange, Incorporated, the Columbia Pictures Corporation, and TifTany-Stahl Productions, Incorporated. It is true, on the other hand, that even in 1925 the larger companies had obtained control over a substantial number of theaters, either directly or indirectly.
Various reasons may be advanced why the Universal Pictures Corporation should have owned its own theaters. It is not clear that, in the minds of the executives, there was a definitely outstanding reason. It is indicated that at first the company was interested in securing a steady outlet for its films. This would suggest that theaters were to be acquired largely as an aid to the production department. Later in the case it is suggested that the theaters were to be obtained primarily for bargaining purposes. At another point it is indicated that the theaters were to be of value because they enabled the company to exploit its pictures more advantageously. Again it is indicated that the theaters were to be of some value in serving as a check upon the type of films the public desired to see, and, finally, it is suggested that the theaters were to be sought because it was believed that they would yield a profit in themselves.
If the object of theater ownership was to obtain exploitation, then the argument for the ownership of smaller neighborhood theaters is quite beside the point. Exploitation cannot be obtained in neighborhood theaters. While it is probable that the use of the theaters would serve as an added check on the type of pictures the public favored, it does not appear that this was at any time a major object of the company.
The argument that the ownership of theaters would provide an element of bargaining strength has on the surface greater weight. It