Motion Picture Herald (Jul-Aug 1936)

44 MOTION PICTURE HERALD July 2 5, 19 3 6 WALL STREET GETS FIRST VIEW OF KENNEDY REPORT Text Denied Stockholders Is Made Public; Substantiates Forecasts; Advises Company to Concentrate on Product The bitter, stubbornly contested battle of Wall Street long waged in the background of the Paramount situation resulted last weekend in publication by the Wall Street Journal of the preliminary and final reports on the condition of the company made to the board of directors by Joseph P. Kennedy on June 12th. Coinciding substantially with forecasts of their contents which had gained currency in informed quarters, the Kennedy reports recommend concentration of company control in the hands of experienced motion picture showmen and set forth the opinion that ultimate restoration of the corporation to a profitable operating status comparable to its own condition in past years and that of certain competitors today must depend on the production and distribution of good motion pictures. Release of the text of the report, minus certain portions withheld from press and stockholders alike as relevant to operating details of a competitive nature, followed repeated refusals on the part of Stanton Griffis, chairman of the executive committee, to make the document available. Stockholders attending the annual meeting on June 16th were told, after repeated demands for information regarding its contents, that a summary of its recommendations would be made available to individual stockholders on application. Various individuals subsequently making such application were unsuccessful in their quests. Suggestions Acted Upon Meanwhile certain suggestions contained in Mr. Kennedy's report were being acted upon. Barney Balaban was elected to the presidency of the company succeeding John E. Otterson. Floyd B. " Odium of Atlas corporation resigned from the board of directors. Adolph Zukor established permanent residence in Hollywood in order to devote his whole time to production, singled out by Mr. Kennedy as the department most acutely in need of experienced management. E. V. Richards, veteran exhibitor and head of Saenger Amusement company, Paramount affiliate in New Orleans, was added to the board of directors. Although not specifically called for in the Kennedy recommendations, each of these steps was in direct alignment with suggestions offered in the report for which Paramount paid a total of $80,000 to Mr. Kennedy and the men who assisted him in his investigation. They are Arthur B. Poole, former treasurer of Pathe, Clinton J. Scollard, former Pathe executive vice-president, John J. Ford, general manager of the Maine and New Hampshire circuit, James A. Fayne and Joseph R. Sheehan, associated PAY CUT TALK "PIOUS GESTURE": KENNEDY Competition among producers for the services of stellar players is called uncontrollable by Joseph P. Kennedy in his Paramount report. He says: "It is unfortunate that the 'talent' of the industry is organized and in consequence the actors and producers, writers, et al, are strengthened in their salary grabbing methods. Meanwhile, disunion, distrust and competition pervades management. As long as there is intense and uncontrollable competition among the executives of various companies for the services of the 'artists' of the industry, so long will all talk of lower salary scales remain mere pious gestures." with Mr. Kennedy in his chairmanship of the Securities and Exchange Commission, Lucius P. Ordway, investment banker, and Isidore J. Kresel, financial attorney. "Drastic and courageous revision of management is called for," says Mr. Kennedy in his report, which declares that "with quality business men at the helm and on the directorate for a year, starting with $20,000,000 cash and no current obligations pressing, the company is at a crisis." He adds the conclusion, "It would seem that Paramount's present problems cannot be solved by merely condemning the practices of the picture industry and calling in big names." Solution In Hollywood Bearing on the relative importance of home office and studio activity, the report reads, "The fact is that Paramount's problem must be solved outside of New York. That is where the overcosts arise — that is whence big money pictures must come. Other companies derive profits consistently from production and therefore the task is not insuperable, even if the trick is not easy. "Thalbergs and Zanucks cannot be bought or manufactured. Such artists are born few and far between. If lucky, Paramount may discover a sure fire money making producer, but while waiting for such a miracle, some ordinary methods of improving conditions may be profitably considered." Summary of Report The Kennedy report is summarized as follows : (a) Major failures in recent studio operations are: (1) Loss on 1935-36 feature pictures; (2) Lack of progress on the 1936-37 feature pictures program. (b) Causes of these failures are: (1) Adding to the original 1935-36 studio production program without due consideration of the result. (2) Large expenditures on stories, scenarios and artists' salaries subsequently written off. Excessive Executive Expense Scored; Theatre Branch Is Declared Sound; Comparison With Other Companies Drawn (3) Extravagance in completing acceptable scenarios. (4) Failure to prepare scripts, final cost estimates and shooting schedules on time. (5) Failure to keep shooting schedules; extravagance in "takes." (6) Excessive charge for combined New York production department and New York administrative expense. (7) Excessive total studio overhead expense. (8) Unfortunate experiences with producers and directors. (9) Ineptitude in dealing with stars and production problems. (10) Defects in organization. (11) Influence of board of directors on studio operation. (c) Other studio items calling for comment: (l) "Back Lot" and accounting departments are functioning well. (2) General studio reputation and artists' contract list have strength. (3) There is no trend toward improvement of the conditions noted under "B" above. (4) Forward commitments on personnel. (d) Conclusion: Drastic and courageous revision of management is called for. Cites Earnings The report is quoted : "The Paramount's earnings statement for the first quarter of 1936 furnishes a convenient starting point of discussions since it is comparable with the statements of the other major units. "It shows a nominal 'bookkeeping' profit figure. Earnings of approximately $781,000 are shown before interest and administrative charges, plus a small contingency reserve. After such charges, which are necessary charges against income, a deficit of $81,078 results, which deficit is avoided in the final showing by transferring to profit and loss surplus account $800,000 out of a special inventory reserve of $2,500,000 appropriated by the directors as of December 28, 1935. This transfer, minus the $81,000 deficit above referred to, makes possible the addition to profit and loss of $718,000, the amount actually reported as net income. "Incidentally, it is interesting to note that this operating deficit resulted in spite of the fact that the theatres division earned, after interest, taxes, depreciation and subsidiary dividend charges, a net profit of $1,073,000. "Charges Eat Into Capital" "The showing makes inevitable the conclusion that Paramount's management which took over the affairs of the reorganized company less than a year ago has never succeeded in getting started during a period when other companies have made ample profits. In consequence, the rigid charges incident to a large scale business operation, threaten to eat into Paramount's capital before earning power can be re-established. "Fortunately the record shows that we can count upon prosperity in our industry whenever there is prosperity in general business. The fortunes of the film business have varied in the same degree and direction as the fortunes of general business. "The highest average weekly attendance in the moving picture theatres of the country was 110,000,000 reached during the fourth quarter of 1929, with receipts estimated at about $21,000,000. "Motion picture attendance fell off steadily (Continued on page 47)