World Film News and Television Progress (Apr 1936-Mar 1937)

JOHN D. ROCKEFELLER J. CHEEVER COWDIN A. H. GIANNINI J. P. MORGAN Among the other companies Universal and Columbia rose to second-rank importance by a careful production policy and by abstaining from too extravagant theatre acquisitions. From the financial point of view this phase is marked by the entry of Wall Street into the movie world. The policy of financing film enterprises from their own profits, which had sufficed for the earlier stages of the industry's development, proved inadequate in face of the vast new capital demands arising from the costly star-feature films and the theatre acquisition campaigns of the post-war years. The Famous Players-Lasky group (Paramount) were the first to enlist the support of a Wall Street banking firm, and until their last reorganisation Kuhn, Loeb & Co. acted as their main banking affihation. Within a few years Loew, Pathe and Fox shares were listed on the New York stock exchange, and by 1 924 the securities of many movie corporations were handled by Wall Street bankers. Other financial groups lined up with the film industry during this phase included : — Hasley, Stuart and Co.: Fox, Harden, Stone and Co.: First National, Goldman, Sachs and Co.: Warner, M. H. Flint (Los Angeles) : Warner, etc., S. W. Straus and Co.: Universal, Roxy, etc., John F. Dryden — Prudential Life Insurance: Fox, Dillon, Read and Co.: Loew, Shields and Co.: Universal, A. H. Giannini: J. Schenck, W. G. McAdoo, /. Millbank (Allied to Chase National Bank, Blair and Co., etc.): W. W. Hodgkinson, F. J. Godsol (Allied to Dupont family): Samuel Goldwyn, W. R. Hearst: News and Feature fibn units at various times associated with M.G.M., Fox, and Universal. We can summarise the financial developments of the 1912-29 phase as follows: After an initial move towards decentralisation, when the industry emerged from the clutches of the Patents Trust, the foundations were laid for its concentration on a very much higher plane. After releasing the undreamed-of possibilities for the development of the film as a popular form of entertainment, the eight major companies slowly emerged as powerful groups controlling the most important positions in all the three spheres of the industry and intimately Unked with prominent Wall Street banking interests. It is important to note, moreover, that towards the end of this period all the pioneer film executives, except W. Fox and C. Laemmle, had allowed the financial control of their enterprises to slip out of their hands into those of their backers. As yet, however, the latter, in the main, represented the leading investment and merchant banking houses, and did not include, except indirectly, the peak figures in the American financial ohgarchy. THE THIRD PHASE, SINCE 1929 The third and present phase of American film finance was heralded by two events of the first magnitude. It opened with the coming of sound, a technical revolution that not merely transformed the whole nature of film production, but also proved to have so unexpectedly stimulating an effect on the box oflSce that for a considerable time it was able to delay the impact of the crisis (then in its first violent phase) on the film industry. The second event was the crisis itself, which was rendered so much the more devastating when at last it did hit the movies, by the enormous cost involved in scrapping perfectly good equipment and product and replacing it by even more expensive soimd installations. In their joint effects these two sets of events revolutionised the financial, no less than the technical, basis of the American movie industry. The adoption of sound led to the emergence — after violent struggles, as we shall presently see — of a new patents monopoly very nearly as complete in fact, if not in form, as the old patents trust of the pre-war years. At the same time the financial results of the crisis led to a transformation in the sphere of direct stock and banking control that reinforced the hold over the industry of the powers behind the new patents groups. The problem of movie control to-day is therefore a double one: (1) the power of indirect control over the industry through monopoly of essential equipment; (2) direct financial control over the eight major companies through majority holdings of voting stock or monopoly of executive key-positions. The key to the former problem (chart 1 ) is provided by the control of the most important American patents in the sound equipment field by Western Electric Co. (subsidiary of the American Telephone and Telegraph Co.) and R.C.A. Photophone (a subsidiary of the Radio Corporation of America). The former group of concerns is almost wholly Morgan controlled, while in the latter the Rockefeller interests appear at the present time to be as strong as, if not stronger than, those of the Morgan group. Since 1930 this American monopoly has been extended into a world monopoly by an agreement between the American groups and the most important German patentees, A.E.G., SiemensHalske and Klangfilm. The cash value of this monopoly is measured by the licence fee of 500 dollars per reel charged imlil recently by Electrical Research Products Inc. (the sound equipment subsidiary of Western Electric known in the trade as Erpi) for all films produced on the Western Electric system. The net revenues obtained by this concern from the sale and licensing of sound equipment during eight years (including the early phase when sound was not yet generally adopted) amounted to 20,900,000 dollars. The establishment of this monopoly was not achieved without violent opposition involving prolonged litigation. Both Warners and Fox had done a considerable amount of pioneer work before the telephone and radio interests decided to enter the sound film sphere on a large scale. In the case of Warner Bros, a long law suit between that company on behalf of the Vitaphone Corp. and Erpi was settled in 1935 with the payment by Erpi of back royalties on sound equipment and its release from further royalty obligations. Tlie struggle with Fox was even more dramatic. It involved not merely the personal ownership by William Fox of the American Tri-Ergon patents (the patents used in the continental Klangfilm system), but also his retention, up to the period under discussion, of personal control over his film companies. Litigation concerning the TriErgon rights was not settled until 1935, when the Supreme Court annulled Fox's patents, reversing the findings of all the lower courts by its decision. While there was still a possibility that W. Fox's Tri-Ergon claims might be corroborated, the vast market represented by the Fox companies might, however, be conquered for the Western Electric interests, if Fox were removed from their control. 25