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594 HARVARD BUSINESS REPORTS
$8,500. The rental paid accordingly was $2,225. Other pictures in the group, however, did not fare so well, several falling considerably below the average receipts which formed the basis of the agreement.
The manager held one objection to the arrangement. Under the straight rental plan, which permitted him to retain all the profits earned by a picture, the extra profit on an exceptional picture helped to compensate him for the poorer pictures. The percentage arrangement required the exhibitor to turn over to the distributor a large percentage of such extra profit on exceptional pictures, leaving him to bear the loss on the poorer pictures which were sure to be present in any group of pictures purchased.
To make the percentage plan equitable, the manager believed, final settlement should be made on the entire group of pictures so that the good pictures would help compensate for the poorer ones. He was endeavoring to inaugurate this policy but thus far had had no success.
Commentary: This case presents the problem of percentage pricing from the point of view of the exhibitor. The various objections to the checking of box office receipts by distributors have been covered in the case on the Shafer Pictures Corporation, and will not be repeated here.
In the present case, two particular issues may be noted. The first relates to the reasons why the manager of the Willard Theater was willing to accept a percentage pricing plan in spite of his previous opposition to it. There are probably two reasons which are applicable here as in other cases. One was that he had no experience which might serve as a guide to the box office value of sound pictures. The second was that the distributor practically refused to sell on any other basis, taking advantage of the exhibitor's belief that sound pictures were essential to his theater.
The other issue relates to the particular plan which the manager of the Willard Theater should accept. Three proposals were made. The first two do not differ in any essential particular. Whatever advantages might theoretically appear in either plan would undoubtedly be compensated for by a readjustment of the guaranty figures or of the percentage figures. The second plan does call for an itemization of the expenses of theater operation which the manager of the theater might be loath to reveal.
A distinct difference develops, however, as between either one of these two plans, on the one hand, and the third plan, on the other. In