Report regarding investigation directed to be made by the President in his Executive Order of November 27, 1933, approving the Code of Fair Competition for the motion picture industry (July 1934)

The various answers to this question can be found only in a close analysis of the fundamental characteristics of the motion picture industry and of the trade practices which have emerged from these rather unique conditions. The intangibles of human talent, not celluloid, constitute the basic ingredient of the entertainment service offered to the consuming public by the motion picture industry. Here, as in no other artistic field, the talents of unique personalities have, through the organization and sales ingenuity of the industry, been brought before vast audiences in every part of the world. The public following established by a director or star is the dominating element of sales appeal possessed by the distributor in offering a complete entertainment schedule to the exhibitor. Public popularity of a unique personality is the principal token by which the exhibitor, in the first instance, and the public, in the second, are induced to purchase the entertainment products offered by the producer. The exhibitor in the industry is in rather a peculiar situation in planning his business schedules. He must assure himself of the complete entertainment service offered to the public. He therefore contracts for most of his pictures before the actual production of these pictures is completed, and must gauge the drawing power of the prospective entertainment offered him largely on the basis of the public following which past performance has established for the star, director, or producer. To a limited degree the factors which control the value of artists and directors apply also to production executives. Exceptional ability to approximate public reaction to an offering, to single out new entertainment possibilities, and to combine artistic services in the production of successful entertainment features calls for unusual talent. The vision which leads a producer to pioneer in new fields of entertainment unquestionably springs from creative instinct. Then, too, the investment dependent upon the fickleness of public reaction is too great to speculate on unproved executive ability. Thus, the mere fact that unusual creative talent, unique in some cases, constitutes the bone and marrow of the motion picture industry, offers a natural explanation for the comparatively high compensation which is offered by the industry for these services. As in every other line of endeavor, unusual ability or talent commands a higher price by virtue of its scarcity. At the same time, under the normal operation of economic forces, the compensation commanded by those talents is in the long run determined by the appeal which they make to the consuming public. An artist may have a talent of infinite and lasting value to offer to the world, but from a strictly commercial standpoint that talent is worth only as much as it can earn for the producer in box-office receipts. The theory is simple. But in applying it to a determination of salary schedules for executives and various other employees in the motion picture industry, the existence of numerous imponderables reduces its application to little better than guess work. In the first place, and as a matter of principle, no salary is too high or excessive if the picture produced by the individual receiving the salary meets with unusual public favor as a result of unique direction or artistry. Such a picture may continue to earn large sums after the charges for the services which produced it have been absorbed. On the other hand, the reverse may be true. Public popularity of artists is a flimsy and perishable product. It is dependent upon the vagaries of public favor. A screen personality may be a popular hero today and forgotten tomorrow. Moreover, it is difficult for executives to determine with even a reasonable degree of certainty the extent of the contribution made to a motion picture by the author, director, actor, scenic artist, photographer, publicity agent, or any one of a large number of other individuals who contribute to its creation and final presentation to the public. These imponderables make it difficult but not inherently impossible for management to maintain a reasonable adjustment between income and outlay for salary payments to executives and artists. The difficulties encountered on this score are not limited to the motion picture industry; they are common in one degree or another in every commercial enterprise whose existence is dependent upon the whims of public favor. Granting all of the legitimate reasons that make for comparatively high salaries, as well as giving full weight to the difficulties encountered by management in setting proper salary standards in the industry, the fact remains that all available evidence indicates that primary gross salary ranges in the motion picture industry have gone beyond any rational standard of compensation, i.e., based upon a percentage of the receipts representing the contribution to the picture. The basic reasons for the failure on the part of management in the adjustment of salary payments must therefore be sought for in some other quarters. These reasons are to be found for the most part in trade practices which have developed in the production division of the industry. In the absence of accurate standards by which the value of the contribution made by the various contributors to a finished motion picture product may be gauged, foreign elements have entered into the methods of setting standards for compensation. Jealousy, ambition, and other destructive factors play their full part in the present system. All of these elements find their final expression in the competitive practices which have arisen in the industry in the development of artists and in a competitive bidding for their services. Two specific expressions of these practices are found in: (1) the star system in motion picture production, exploited in such a manner that the values created by