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644 HARVARD BUSINESS REPORTS
example, when he had paid for the right of exhibition at only one. Thirty-five to forty per cent of the total amount of rentals contracted for was never paid.
Distributors naturally undertook to protect themselves. It became a common practice for a distributor, at the time of the signing of the contract, to demand payment of an advance deposit amounting to 25% or more of the aggregate rentals to be paid under the contract, such deposits being applicable on account of any sums due the distributor or on account of any damage caused by the exhibitor's breach of contract. Prior to 1922 the distributors held, under these clauses, over $5,000,000 of the exhibitors' money paid in the form of advance deposits. The maintenance of this advance deposit system was obviously expensive for the exhibitor. It made him feel that he was financing the distributor unduly. Occasionally a distributor failed and the exhibitor lost his money. The situation became so serious that in several cases state legislatures enacted laws for the purpose of protecting the exhibitor deposits. Such statutes, however, were not generally very effective.
The contracts frequently authorized the distributor to terminate the contract or to withhold the delivery of pictures in the event of the exhibitor's defaulting in the performance of any condition specified therein. There were contracts which authorized the distributors to demand additional cash payment at any time. For instance, if there was a dispute concerning a play date or a damaged or lost print, the distributor might demand a cash payment, either withholding pictures or terminating the contract if it were not paid. Such clauses naturally created ill will and caused too much litigation, especially since the decision as to whether a part of the deposit should be withheld by the distributor on account of an alleged breach of contract by the exhibitor or whether the delivery of pictures should be suspended or the contract terminated, always rested with the distributor, to whom the contract gave arbitrary powers in these matters.
In some cities the local managers of distributors' exchanges had organized what were known as F. I. L. M. Clubs. These clubs constituted an agency through which the exchanges pooled their information concerning the credit standing and business practices of their customers. When it had proven that an exhib