Motion Picture Daily (Jun-Aug 1931)

MOTION PICTURE DAILY Monday, June 1 , 1931 $102,004,009 Gross of Fox Film ill 1930 (Continued from faiic 1) April 17. 1930. .After deducting .'^1.040.3'J2 of non-recurring expenses, part of wliich were incurred prior to n>30, there remained S().205.435 avail ab'e for dividends. Tiiis was e(|ual to S3.(>4 a sliare on tiie stixrk and compares witii a net profit of $9,469,051 in tlie previous year. Production was put under budget control for the first time late last vear and savings of at least $3,000,000 are expected to result this year, the report states, while in 1930, administration a"d distribution costs w-ere more than 45 per cent, lower in compari.son with film rentals than they were in 1925. I'orei.gn business, wdiich increased 55 per cent, in 1929, now accounts for 3i per cent, of the gross film rentals received, the report continues. .Vewsreel business increased 21 per cent, in 1930 over 1929 and 14 per cent, during the Tirst three months of 1^31, as ct)mpared with the first quarter in 1930. Theatre receipts of direct subsidiaries in 1930 arc placed at $51,414,(K)2, as compared with $39,962,044 in 1929. .Vmortization of fihu for 1930 amounted to $27,305,357, as compared to $24,158,544 in 1929. and depreciation on plant and e(|uipment, exclusive of studio pro|)ertv. was $3,873,560. as compared to $2,678,761. The rei)ort shows not on'y the earnings of the company, as certified by the firm of public accountants which has aiidited its books in the past, but indicates what earnings would have been under the system of accounting emI)loyed in the audit made for the purpose of financing completed in .April. Ccnsiderable interest has been aroused over the methods of auditmg on which the I'ox report is based. Harley I-. Clarke, in the annual statement, goes into considerable detail to outline the differences between Ihc Price, Waterhouse and the Touche, N'iven system, the latter being the i)lan used by Fox. He says : There has recently developed some diver-ily of opinion respecting the details of the method of writing oflf the cost of pictures, the discussion having arisen primarily because of the advent of sound films. Previous to sound fi ms. your company wrote off its picture costs according to a schedule prepare-l by Messrs. Price, Waterhouse & Co.. in 1926. According to this schedule, part of the gross rentals received from the picture were set aside each week to amortize its cost. In the early weeks after the release of a picture, the percent?.t!c of cost was large and it gradually decreased over a period of 78 weeks. Though this schedule proved fu ly satisfactory in experience, the present method of write-off of your company is more drastic. In fact, the actual write-off for the 52 weeks endeti December 27. 1930, and made a part of this rejKjrt. exceeds by $1,487,176 that which would have been written off under the schedule of 1926. With respect to the sound pictures released in 1929. it was agreed, on the advice of the auditors, to set aside weekly 50 per cent, of the rentals for writing off their costs. Tonscfiuently. at the c'ose of 1919, that is. at the beginning of the period covered by this rei)ort, the situation stowl as follows: The costs of all silent pictures had l>een entirely written off. whatever the date of their release: the costs of sound pictures released during the year had ^een in part written off by applying to their amortization .tO per cent, 'f all the gross rentals received from them: and the inventory of the company as of December 28, 1929, had been estab Spent $187,810,297 on Product in 16 Years Cost of Gross Ratio of Costs year ..j Negatives Rentals to Rentals I''H 4 J Si.J.SO $ J7-.iri 19..S% ly.^ 3(, 7(,r.-M,! ,;.jis.j,n 2.^.9 l'l'> 52 1,289.78.S 4.244.658 .W.4 " 1917 70 2,964,696 7,118.172 41.6" ■918 7.! .>.212.f^84 7..mU0I 44.0" 19191 (,9 2.929 0 9 9,.?8().8a! .U.2 " 19;0 71 4..!17.40.i 12.6(R72S .H.2 " 1921 65 4.78.!.210 1.!. 715.000 .M.9 " 1922 f« 4..iSO,08.> 12..127.957 ,!5..i " 192.! 51 4.821.456 11,242.629 42.9" 1924 46 .1.610.4.!.! 9.926.025 .!6.4 " 1925 4,! 5.226.809 11.7.50,515 44.5" I92h 51 8..!28,252 14.274.2.!4 58.J " 1927 46 8.5.58.101 17.012.875 50.3" 1928 .55 10,.OT.365 22.626,747 45.9" 19:9 53 16.142,216 30,80.>,974 52.4" Total 851 $81,734,055 $187,810,297 43.5% In the foregoing talile the column "Gross Rentals'' includes all rentals from pictures released during the respective years, regardless of the fact that these rentals were received over a period of about two years. The table does not include the pictures released in 1930 because they are still being exhibited. On the date of this report 20 pictures had not been released in foreign countries, from which Fox states it receixes 33 per cent of its gross rentals. Fox Interested in 1,013 Houses On December 27, 1930, Fox i'ilni owned or had an interest in 1,013 operating theatres, 532 of which are in this country, 395 in England and 86 in .Australia. In tlie domestic market, Fox expansion is evidenced by the following chart: Year No. Tlieatres Gross Receipts 1927 2 $2,054,700 1928 249 ,!3,923,783 1929 455 39.962,044 1930 532 51,414,002 The company's annual statement carries this explanatory note in connection with the above figures : "The second column gives the number of theatres controlled by your compan\ at the close of the respective years, but does not include the theatres operated by Fox Theatres Corp., an affiliated company. The last column includes the receipts only from the dates of control of the various theatres and hence not necessarily the total receipts of the theatres during the year." Tax Profit Jumps $782, 776 52 Weehs 52 Weeks Ertded Dec. Ended Dec. 27, 1930 28, 1929 Total income from all sources $102,004,009 $83,184,112 Operating expenses 54.563,268 42,7,>9.674 Write off of film costs, etc 27.305,357 24,158,544 Depreciation .^.873,560 "-^^H^l Interest on funded debt 1,548,3.!0 1,672,652 Net profit applicab'.e to minority mterests 790,057 1,199,430 Interest on one-year gold notes 2,290.250 Discount on one-year gold notes 1,133.106 Provision for Federal taxes 248.254 Net operating profit • 10.251.827 Ncn-reeurring expenses 1.046..-.92 The last item includes a number of matters cleared up during the year. One item, totaling $382,622, consists of abandoned, unprofitable theatres leases. The remainder covers ''organization expenses, salaries in discontinued departments, fire losses, legal fees, and royalty and contract settlements of prior years." 1.266,000 9.469.051 lished by .Messrs. Touclie. Niven & Co.. the auditors of your company, with the concurrence of Messrs. Price. Waterhouse & Co.. who represented banking interests in connection with certain financing and who were consulted with respect to the inventory, as well as with respect to all other questions pertaining to the ba'ance sheet and the statement of profit and loss. Your company accepted this inventory and this audit in full. It was a part of the report filed by your company with the New York Stock Exchange: it was printed in its annual report for the 52 weeks ended December 28. 1929; it was the basis for the financing in April. 1930: and it has been made the basis for all subsequent interim reports issued by your company. Your company continued to write off its inven•ory during 1930 in exact harmony with the method recommended and accepted by the iiuditors for the sound films released in 19 9. In connection with the recent refunding • f maturing notes of your comjiany, Messrs. Pr=ce. Waterhouse &• Co. were invited to make a special audit for an interim report as of September 27. 19.10. In this audit they ignored the inventory which had been established as of December 28. 1929 (which included the write-off of all silent pictures. amounting to $4,764,362), and determined one for an earlier date (September 28. 19-9) which is inconsistent witji it. Moreover, their ca'culations of write-off were en the basis of a new schedule which was made retroactive for 52 weeks to Septeml;er. 28, 1929, or to a date three months prior to the period that had been closed in the audit of December 28, 1929. This new schedule amortizes film costs much more rapidly than any heretofore used; according to it. more than 93.5 per cent, of the domestic allocations of negative costs are written off in 26 weeks. The new proposed write-off schedule was based on the rental history of the first 29 sound pictures released, four of which were originally planned as silent pictures and were only partially dialogue i)ictures. .At the beginning of 1929 there were only 1.046 theatres in the I'nited States and ("ana la that were equipped with sound reproducing apparatus, and a much snia'ler number were equipped in foreign countries. C'onsequcntly. the early sound i>ictures were a novi.'lty. and being shown largely only in rie luxe theatres had a rehitiveiy short life. But by August. 1930. there were 12,534 theatres in the I'nited States and Canada equipped for sound reproduction, which the normal number of positive prints Released 851 Pictures in 16 Years can serve only in the course of many months, and consequently since that time the revenue life of a film has been greatly prolonged by its exhibitfon in second -run and third-run theatres. Moreover, there has been a corresponding jiro'.ongation of the life of films exhibited in foreign countries. The position taken by your company is that 29 pictures, four of which were not original sound pictures, are too few to provide a solid statistical basis for an amortization schedule, and that the results for these few pictures do not justify abandoning Price, Waterhouse & Co. schedule of 19i6. and ignoring and contradicting the experience of your company in producing and releasing 851 pictures over a period of 16 years. Moreover, it is the position of . your company that the first sound pictures produced do not furnish a valid statistical basis, because they were released during the exceptional conditions in which theatres were in the process of being wired for sound reproduction. A write-off schedule based on films now being released would undoubtedly approach the Price, Waterhouse & Co. amortization table of 1926. for sound pictures have taken the place of silent pictures, being distributed by the same producers, exhibited in the same theatres, and viewed by the same public. As a consequence of the lack of unanimity of opinion respecting the matter of j treating the write-off of film costs, your company asked its auditors, Messrs. Touche. Niven & Co.. to determine its film inventory as of December 27. 19,W. This Messrs, Touche, Niven & Co. have done in a certified report which your company accej)ts and includes in its balance sheet printed <m page 12. The basis of the write-off is j OS follows: Since 67 per cent, of current " film rentals are from domestic sources and i.^ per cent, are from foreign, 67 per cent, of feature picture costs are written off from domestic rentals and 33 from foreign. Fifty per cent, of the gross domestic rental received from each film is set aside for amortization for 52 successive weeks following its first release. If the amount thus set aside exceeds 67 per cent. of the cost of the film, a credit for the difference is taken into the income account. If it falls short of 67 per cent, of the costs, the deficiency is at once charged against the income account of the company. All subsequent rentals from a completely amortized film are taken into the general income of the company. The portion allocated to amortization from foreign rentals is treated in the same way after making allowance for the later release dates and for the fact that these positives are produced in foreign countries. It fol'ows that the cost of every negative film is necessarily completely written off in 52 weeks after its domestic and foreign release dates, instead of in 78 weeks after the domestic release date as under the 1926 write-off schedule of Messrs. Price. Waterhouse & Co, Oi the 76 sound pictures wdiich so ?5r have been released, the domestic portion of the costs of 22 were entirely written off before the expiration of 52 weeks after their release and several were completely amortizerl much earlier. For example, the entire domestic allocation of cost of one picture was complete'y written oft' in less than 5 weeks, but your company continued to set aside 50 per cent, of the rentals received from it up to the end of the 52nd week, at which time more than twice its cost had tieen amortized. The average percentage of cost written off in 26 weeks for all sound pictures that have had both domestic and foreign rentals for this perio I is 73.5. If the four pictures arc omitted which were not original sound pictures, the percentage written off in 26 j weeks i* 77.6. As has been stated, the re ] cenlly proposed Price. Waterhouse & Co. ' schedule writes off more than 93.5 per cent, of domestic allocation of costs witliin 26 weeks. Cast for "Silence" HoLLvwooD — Marjorie Rambeau and Charles .Starrett have been cast ill ".Silence." Seek Free Shows PiTTSBURcH — Free Sunday night pictures in (^lympia Park are being urged here.