Motion Picture Herald (Jul-Aug 1936)

July 2 5, 19 3 6 MOTION PICTURE HERALD 47 POINTS WAY TO SAVINGS AT STUDIOS (.Continued from page 44) from late 1929 until the fourth quarter of 1933 from 110,000,000 weekly average to 60,000,000, with receipts declining from approximately $21,000,000 to $11,000,000. "Thus, while general business was declining 44% during the depression, gross business of the moving picture industry, as measured by attendance at theatres, declined 45%, and receipts fell off 47^2%. Similarly, as to recovery; general business is up 58% from the low, and movie attendance is up over 51%, although receipts, due to lower admission prices, have been limited in recovery to 40%. "Altering operating conditions is suggested with a view to bettering the ratio of operating expenses to gross receipts as a necessary precedent to increased future profits. Certainly there is ample room for improvement because results could hardly be worse, and experimenting cannot do much harm. Meanwhile, the fact that less than half the expenses of the Picture Industry is represented by 'fixed' items, leaves a long list of items in which some real reductions seem possible. Company Dollar Analyzed "It is estimated that 18% cents of every dollar spent is for rent and like charges ; another 28 cents for repairs, lighting maintenance, etc. The remaining 63 cents is used in actual cost of film production and distribution. Salaries of actors, directors and cameramen constitute 40% of production cost. Studio overhead is the next largest item, averaging 20% to 35% of production expense. Cost of distribution is relatively small and offers little chance of savings. "Salaries and studio overhead, then, offer the only real hope of savings on picture costs and while everyone begins by saying these cannot be cut, the chief reason usually given is that actors will not stand for cuts and that the industry is being strangled by the death hand clutch which the actors' agents have upon the producer. This matter, however, is also one affecting every unit alike and is not the particular problem of any one unit. But when every allowance for agents is made, it still remains true that 19 cents out of every dollar of expense now goes to executives for salaries — to people not directly engaged in the actual work of production and distribution, a factor which brings studio overhead to an actual 35%45% instead of the theoretical 35% claimed. "It is doubtful if executives can justify their salaries but it is certain that the salaries paid to actors are paid to compensate for peculiar talents which cannot be recruited at will or pleasure. Furthermore such salaries are not 'permanent' as the indirect labor costs of executives are, and they bear at least some relation to box-office receipts. The value of executive efforts cannot be easily appraised. Therefore, the suggestion is here made that Paramount give some thought to adopting the salary-bonus basis of compensation so happily employed in the motor industry; nominal fixed salaries to executives plus bonus payments when and if net earnings exceed certain agreed upon totals. "Distrust Pervades Managements" "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 managements. 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. "There is no settled, dependable practice concerning film production costs and budgetary intentions to the contrary, probably never can REPORT BREAKS DOWN THE FILM DOLLAR The Joseph P. Kennedy report on the condition of Paramount Pictures corporation breaks down the motion picture dollar in the following language: "It is estimated that 18% cents of every dollar spent is for rent and like charges; another 28 cents for repairs, lighting, maintenance, etc. The remaining 6} cents is used in actual cost of film production and distribution. Salaries of actors, directors and cameramen constitute 40 per cent of production cost. Studio overhead is the next largest item, averaging 20 per cent to 35 per cent of production expense. Cost of distribution is relatively small and offers little chance of savings." be. Ever since the picture, 'Four Horsemen,' booked over $4,000,000, producers have justified growing costs of making pictures by trying for another 'Horsemen.' Usually, and almost inevitably, they are doomed to failure, but every once in a while a company picture 'rings the bell' with a 'House of Rothschild' or 'The Great Ziegfeld,' the pace of spending becomes furious and all budgets are disregarded. Recently Paramount's president returned from Hollywood with the announcement that thereafter all productions would havt to be confined to budgetary estimates of around $500,000, and immediately impartial critics of the industry say maybe that is why the 'Ziegfeld' film which cost MGM $1,800,000, is packing houses at top prices while Paramount cannot earn its expenses. And MGM indicates $2,100,000 for 'Romeo,' and $3,000,000 for 'Good Earth' ! "Big Job Is Yardstick" "No matter that 95% of all pictures will fall far short of the total predicted by the ruthless spending producer, the fact that the ace producers of the industry spend from $1,500,000 to $2,000,000 on a big job is the yardstick for every small producer in the industry, most of whom never have, and probably never can produce a box office hit, regardless of expenditures. It is of no avail as argument that you can count upon the fingers the pictures costing over $1,250,000 that have made big money. Deferred hope makes the unsuccessful producer persist in his efforts for 'just one big hit,' but it makes the expense account look sick. "This is the real danger to the industry. "You are reminded by defenders of extravagance that Columbia Pictures Corp. was 'made' for all time through the good fortune of one picture 'It Happened One Night.' The fact that the very next year the same company repeated with another prize picture, 'One Night of Love,' suggests that its success was not just due to luck and a big expense. Twentieth Century Films owes its good start to Zanuck's luck with 'Rothschild,' and Warner Bros, were helped greatly by the lucky break of '42nd Street' making $1,500,000 for them just at the right moment. "And the fact that any company at any time is apt to 'strike gold' in a picture lends some support to this argument. "Indeed, where business methods have been most rigorously adopted the best results have not necessarily followed. Take, for instance, the policy of amortization. For years auditors and accountants imbued with instructions from business men and bankers upon the directorates of picture companies have struggled with the problem of standardized and business-like writeoff policies and a settled practice has been evolved. "Charge-Off Policy Conservative" "Paramount's practice for instance in charging off picture costs — amortizing 82% in 20 weeks — has been commendably conservative, but it has not created profits. Thus far at least, settled amortization practices have resulted in little else than equitable distribution of costs over a period of time. Frankly, something more than business-like bookkeeping methods is needed to create profits and that 'something' is positively and definitely good pictures. "Another serious threat to the industry should be pointed out before considering Paramount's particular problem — foreign quotas. Estimates of receipts from exhibitions abroad run as high as 30% of all film rentals. If the current move to limit exhibition of films in England, largely to English made films is carried out, not only will be imitated in other countries, but in some instances, it might make all the difference between profitable and unprofitable operations for American units. "Some American companies, notably 20th Century-Fox, have been keenly aware of the danger and have made recent affiliations abroad to offset the consequences of an embargo. Paramount is thus faced with the necessity of further investment abroad as an additional operating expense, and a further threat to income. "We think the danger is real. There is good opinion in London that the quota figure may be set as high as 35%. Recent events seem to foreshadow a determination on the part of British authorities to take important action. "British Planning Regulation" "Obviously the British Government is planning real regulation of the industry, but the thought is also suggested that this information may be sought as a basis for decision as to the measure of aid the government may give the British film producers. English insurance companies, banks and investment trusts are now large holders of securities in British film concerns and the known tendency of Great Britain to subsidize its industries gives color to the fear that when the new quota is announced, it will reveal further difficulties for American made films." Mr. Kennedy also points out that of the total overhead expense at the studio last year about 40% represented provision for losses in respect of stories purchased and scenarios written and later abandoned, and in respect of artists' salaries for idle time and excessive time spent on pictures. It is not easy to appraise the 1936 situation as to these reserves, partly because the auditors have not finished examining the first quarter's provision for losses and partly because the amounts reserved cannot directly be matched against write-offs for a short period. However, up to the present time it does not appear likely that the write-offs for the full year 1936 can be kept within the total charged to the operations for such losses in 1935. Discussing sound equipment contracts, the report says : "Paramount has a contract with Electrical Research Products whereby Paramount is licensed to record sound pictures under patents owned by Electrical Research Products, for a period ending December 31, 1944, in return for which Paramount pays specified fees. Paramount guarantees that the fees so paid will (Continued on following page)