United States. Temporary National Economic Committ.

Investigation of concentration of economic power; monograph no. 1[-43] (Volume no. 43) online

. (page 1 of 11)
Online LibraryUnited States. Temporary National Economic CommittInvestigation of concentration of economic power; monograph no. 1[-43] (Volume no. 43) → online text (page 1 of 11)
Font size
QR-code for this ebook


*i»i!S«««il



muuiiuitimi:



mHp}



hi)''



Pi

m



:|il



pill



7 Congress], SENATE COMMITTEE PRINT

ou Session



INVESTIGATION OF CONCENTRATION
OF ECONOMIC POWER



TEMPOBARY NATIONAL ECONOMIC
COMMITTEE

A STUDY MADE FOR THE TEMPORARY NATIONAL
ECONOMIC COMMITTEE, SEVENTY-SIXTH CONGRESS,
THIRD SESSION, PURSUANT TO PUBLIC RESOLUTION
NO. 118 (SEVENTY-FIFTH CONGRESS) AUTHORIZING AND
DIRECTING A SELECT COMMITTEE TO MAKE A FULL
AND COMPLETE STUDY AND INVESTIGATION WITH RE-
SPECT TO THE CONCENTRATION OF ECONOMIC POWER
IN, AND FINANCIAL CONTROL OVER, PRODUCTION AND
DISTRIBUTION OF GOODS AND SERVICES



MONOGRAPH No. 43

THE MOTION PICTURE INDUSTRY
A PATTERN OF CONTROL



Printed for the use of the
Temporary National Economic Committee




UNITED STATES

GOVERNMENT PRINTING OFFICE

WASHINGTON : 1941



TEMPORARY NATIONAL ECONOMIC COMMITTEE

(Created pursuant to Public Res. 113, 75th Cong.)

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman
HATTON W. SUMNERS, Representative fro,u Texas, Vice Chairman
WILLIAM H. KINO, Senator from Utah
WALLACE H. WHITE, Jr., Senator from Maine
CLYDE WILLIAMS, Representative from Missouri
B. CARROLL REECE, Representative from Tenne.ssee

THURMAN W. ARNOLD, Assistant Attorney General,
•HUGH COX, Special Assistant to the Attorney General,
Representing the Department of Justice
JEROME N. FRANK, Chairman

•SUMNER T. PIKE, Commissioner,

Representing the Securities and Exchange Commission
GARLAND S. FERGUSON, Commissioner,
•EWIN L. DAVIS. Chairman.

Representing the Federal Trade Commission
ISADOR LUBIN, Commissioner of Labor Statistics,

'A. FORD HINRICHS. Chief Economist, Bureau of Labor Statistics,
Representing the Department of LabT)r
JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel,
•CHARLES L. KADES. Special Assistant to the General Counsel.
Representing the Department of tlie Treasury
WAYNE C. TAYLOR, Under Secretary of Commerce,

*M. JOSEPH MEEHAN, Chief Statistician, Bureau of Foreign and
Domestic Commerce,
Representing the Department of Commerce



Leon Henderson, Economic Coordinator
Dewey Anderson, Executive Secretary
Theodore J. Kreps, Economic Adviser



•Alternates



Monograph No. 43
The Motion-Picture Industry— A Pattern of Control

DANIEL BERTRAND
W. DUANE EVAN'^
E. L. BLANCHARD



ACKNOWLEDGMENT



This monograph was written by
DANIEL BERTRAND

Administrative Assistant, Temporary National Economic Committee

W. DUANE EVANS

Senior Economist, Bureau of Labor Statistics, United States Department

oj Labor

E. L. BLANCHARD

Member, Temporary National Economic Committee Staff

The. Temporary National Economic Committee is greatly indebted
to these authors for their contribution to the literature of the subject
under reviev^

The status oJ the materials in the volume is precisely the same as that of
other carefully prepared testimony when given by individual witnesses;
it is information submitted for committee deliberation. No matter what
the official capacity of the witness or author may be, the publication of his
testimony, report, or monograph by the committee in no way signifies nor
implies assent to, or approval of, any of the facts, opinion, or recommenda-
tions, nor acceptance thereof in whole or in part by the members of the
Temporary National Economic Committee, individually or collectively.
Sole and undivided responsibility for every statement in such testimony ^
report, or monographs rests entirely upon the respective authors.

(Signed) JOSEPH C. O'MAHONEY,
Chairman, Temporary National Economic Committee.

Ill



TABLE OF CONTENTS



Page

Letter of transmittal ^^

Introduction ^i

Chapter I. The pattern *

Development of the pattern |

Crystallization of the pattern ^

Chapter II. The issues VV-V oo

Block booking, blind selling, and the forcmg of shorts ^^

Block booking *^

Forcing of short subjects ^°

Blind selling ^^

Designated play dates ^*

Other practices affecting distributor-exhibitor relationships ^o

Overbuying ^^

Selective contracts ^^

Clearance and zoning ,- ^V

Unfairly specified admission prices. ^. *^

Other practices affecting relationships between exhibitors 47

Chapter III. Observations ^^

APPENDIXES

I. The eight major companies — ^^

II. The Motion Picture Producers and Distributors of America, Inc., or

the Hays organization ^^

III. The consent decree ' '•*



TABLES

Page

1. Number of feature length motion pictures produced in the United

States by all producing companies, and by each oi the major pro-
ducing companies, by seasons, 1930-31 to 1938-39 9

2. Number of theaters operated by each of the major companies, 1940 10

3. Number of first-run metropolitan theaters operated by each ot the

major companies in 35 key cities, 1940 11

4. Cities with populations of 100,000 or more in which exhibition is con-

trolled by major companies 12

5. Control of exhibition facilities by a single major company in each of

four localities. 1939 13

6. Number of loans by major companies since 1933 14

VII



LETTER OF TRANSMITTAL

January 15, 1941.
Hon. Joseph C. O'Mahoney,

Chairman, Temporary National Economic Committee,

United States Senate, Washington, D. C.

My Dear Senator: The monograph, The Motion Picture Indus-
try — A Pattern of Control, is submitted for the information of the
Committee. It was prepared by Mr. Duane Evans, senior economist
in the Department of Labor, Mr. Daniel Bertrand, administrative
assistant to the executive secretary of the Temporary National
Economic Committee, and Miss Edna Blanchard, member of the
T. N. E. C. staff. The Department of Labor generously detailed
Mr. Evans 'temporarily to the Committee to assist in the preparation
of this report. The study grew out of the continued interest in the
economic problems of the industry of Mr. Evans and Mr. Bertrand
since the N. R. A. period, when both were connected with the admin-
istration of the code of fair competition for the motion picture industry.

This study gives a concise treatment of the economic development
of the motion picture industry and the problems raised by its rapid
growth and its present-domination by a few large companies. It is of
particular importance in the studies of the concentration of economic
power for the span of time involved is so short, and the events so recent,
that the pattern of control can be kept constantly before the reader.
Thus, the monograph offers evidence of the ways in which great aggre-
gates of economic power are created and the methods used in their oper-
ation. The struggle for dominance goes forward ruthlessly, with
ofttimes little regard for the motion picture industry's social responsi-
bilities. Finally, as power has become lodged in a few hands, it has
become necessary for the Department of Justice to take steps to protect
the public interest. After prolonged discussion and litigation a con-
sent decree has been entered into between that Department and the
industry. This decree is analyzed in the present report, together with
certain observations as to its eft'ect on the problems which it seeks
to solve.

The authors have been careful to present a factual description of
the motion picture industry as an important economic structure. They
do not moralize, nor make judgments concerning the events, good and
bad, which they describe. Conclusions are not recommendations but
summaries of the facts. The monograph, therefore, serves a very
useful purpose in its collection and condensation of data on the
motion picture industry. It should be of inestimable value to the
congressional committees vested with the duty of reviewing proposed
legislation which occurs each year.

Respectfully submitted.

Theodore J. Kreps,

Economic Adviser.



INTRODUCTION



An outstanding lesson of history is that -security, political or eco-
nomic, is perhaps best achieved through organization and coordinated
activity. The early economic theorists postulated numerous small
units struggling with each other under a rule of "free competition"
which required that those least fitted for the conflict, the " sub-marginal
establishments," should inevitably be the losers. This is not coinci-
dence, since these conditions characterized the more primitive forms
of business organization. But just as individuals learned that there
was safety in numbers, so business units learned there was safety in
size, and today economists must concern themselves with the conse-
quences of combination as well as those of competition.

In the United States at the end of the last century there was a rusn
to form huge combines. In the process of formation of these "trusts,"
huge business units sometimes clashed in economic warfare, with still
greater power the prize for the victor and absorption the consequence
to the vanquished.

In these battles of giants the consumer was in the position of inno-
cent bystander. During the warfare he frequently benefited, but
when the struggle ended the victor usually turned to him and
demanded tribute in the form of higher prices. Sometimes the con-
flict was ended or avoided by agreement; the result to the consumer
was the same.

When free competition prevailed, the consumer was the final
arbiter, the referee. After combination had run its course and a
monopoly or near monopoly was achieved, he lost this power. Once
strong and now weak, he could defend himself only collectively,
through the Government as his representative. The "trust-busting"
campaigns of the early 1900's, the Sherman Act and the Clayton Act,
all were efforts on the part of the Government to restore to the con-
sumer a measure of the protection which had previously been afforded
him by competition.

These legislative efforts were designed to break up the existing giant
combines and prevent the formation of new ones. They did not, how-
ever, strike at the cause of formation of these combines. Size still
conferred an advantage in the business struggle. The process of dog-
eat-dog was permitted to continue, but was halted one step short of
completion. The complex of economic forces brought about combina-
tion of business units into fewer and larger entities, but the rules laid
down by Government prevented ultimate combination into a single
industrial giant completely monopolizing one line of human activity.
Industry after industry then fell into a common and familiar pattern.
Instead of the multitude of individually small establishments visioned



XII INTRODUCTION

by the classical economist, the end product was an industry dominated
by a few large closely-organized corporations.'

Denied the prize of an ultimate monopoly, these industrial leaders
sought for "the next best thing."

It was early discovered that price competition was no longer desir-
able from the standpoint of these large companies. Price cuts were
necessarily met by competitors, so no permanent advantage in the
form of a larger share of the market was likely to result. The only
inevitable consequence was that the profits of all concerned would be
reduced. Price warfare was then seldom resorted to unless a specific
end, with reasonable surety of its attainment, was in view.^ Business
had now achieved the moral level of diplomacy.

Out of the realization that some forms of competition were mutually
disadvantageous was born a new era for business, symbolized by a
new watchword and battle cry. It is heard on every side, and it is
"cooperation."

Cooperation extends further than a recognition that price-cutting
gives no lasting advantage to the person instituting it. It extends to
preservation of the status-quo — the system under which the con-
sumer, no longer protected by constant competition in the matter of
prices, can be made to pay for all this industrial goodwill. Coopera-
tion is then seldom a positive force; it is generally aimed at preventing
change. Certain positive services may result. An example is the
reporting and publishing of prices which is done by many trade asso-
ciations. But here the objective is less to -provide the consumer with
a guide than it is to prevent the uninitiated or uninformed from
thoughtlessly quoting prices below the going level.

Less openly, cooperation frequently takes forms which are designed
to prevent the intrusion of new competitors into the business or in-
dustrial field. Consequently, there has grown up in a number of
industries a more or less clear-cut distinction between the major in-
terests, those large companies who virtually control and manage the
affairs of the industry for their mutual benefit, and the independents
(or outsiders). This has come about through the fear that the
smaller enterprises, in their attempts to capture a larger portion of the
business and so gain admittance to the inner circle, might in some way
disturb a situation deemed satisfactory by the controlling interests.

The picture drawn above is not an uncommon one. It gives a
rough outline of the development of the motion picture industry. In
its case some of the steps are clearer, since the motion picture industry
is in many ways a youngster among its industrial cousins. Accord-
ingly, in the space of a relatively few years it has changed from an
activity in the hands of a large number of small and financially weak
individuals to an industry controlled by a few large companies which
dominate its policies and control its actions.

' For an indication of the extent to which combination has been carried in American enterprise, cf. Tem-
porary National Economic Committee, Monograph 27, "Structure of Industry," Part V, "Concentration
of Production in Manufncturins," Walter F. Crowder, 1940.

' Cf. the action of the P. J. Reynolds Tobacco Co. in reducing the listed wholesale price of Camel cigar-
ettes from .$6.15 to $6 per thou.sand in April 1928, reported in the trade press to be the result of Reynolds'
determination to force another cigarette manufacturer to stop giving especially large discounts to mass
buyers. (United Tobacco Journal, April 28, 1928, p. 7, and Printers' Ink, May 3, 1928, p. 182.) The price


1 3 4 5 6 7 8 9 10 11

Online LibraryUnited States. Temporary National Economic CommittInvestigation of concentration of economic power; monograph no. 1[-43] (Volume no. 43) → online text (page 1 of 11)