Definition: Enterprises that plan, finance, produce, distribute, and exhibit motion pictures
Significance: The motion-picture industry, part of the greater entertainment industry, employs vast numbers of people in the creation and distribution of its products. The industry has spawned many other businesses and services, some related to the production of films and others related to their marketing and sales.
Nickelodeons (storefront movie theaters) were a popular entertainment for the working classes beginning in 1906. With increased urbanization due to the increase in factories in the cities, attendance grew steadily to the point where large movie theaters were built in place of the nickelodeons. Early studios, such as the New York Motion Picture Company, Mack Sennett’s Keystone Studios, and American Mutoscope and Biograph, eventually made way for the five major studios of the first half of the century, Metro-Goldwyn-Mayer (MGM; begun as Loew’s in 1910), Paramount (1916), Warner Bros. (1923), FOX (1915), and RKO (1928).
The American film industry was able to become the leader in releasing and distributing films during the early 1920’s thanks in part to World War I and the fact that the United States did not suffer the extensive physical damage and disruption that Europe did. Soon, the major studios were building their own large theaters in which to show their films.
The Studio Era
By the 1920’s, there were eight significant studios in the American motion-picture industry. In addition to the five major studios, three smaller studios (Universal, Columbia, and United Artists) were also producing and distributing films. Because of various scandals and fears of increased government regulation, a regulatory group was formed, the Motion Picture Producers and Distributors of America (MPPDA). The group, which later evolved into the Motion Picture Association of America (MPAA), hired former postmaster Will Hays to create a code of conduct for films. The Hays Code was released in 1930 but not really put into effect until 1934. The code remained in effect until 1966 and was replaced by the MPAA ratings system in 1968.
The theaters that the studios owned beginning during the 1920’s played a major role in their success. In addition to each studio running only its own films in its own theaters, the studios had a practice of “block booking” with independently owned theaters; this practice required theaters to book all of a studio’s current film titles on offer in order to exhibit any of them. Therefore, if a theater wanted the latest hit film from Paramount, it had to also book the studio’s three B-pictures as well. Block booking ensured that even the smaller pictures would make money for their studios. The practice had an added benefit: If a theater was fully booked with the films of one studio, it was impossible for it to book films from other studios.
In 1928, when Warner Bros. introduced modern sound films with the release of the Jazz Singer, the other studios realized they too would need to convert to sound. However, equipping both their film equipment and movie theaters to accommodate sound films was a major expense, and the film studios took on a lot of debt. Going to the movies had become an important part of most Americans’ lives, and in 1929, over 100 million people bought tickets to see films, making it the industry’s best year to that point.
The Great Depression did not hit the film industry hard during its first couple of years. However, by 1934, ticket sales were down by about 40 million annual sales, and the studios were feeling the pinch from the conversion to sound. Approximately one third of the movie theaters in the United States closed during the Depression. The ones that remained open lured viewers by slashing ticket prices, having giveaways, and—most popularly—through “bank nights,” when a ticket holder would win money through a drawing. Despite the Depression, the 1930’s were seen as the golden era of the studio system, with major successes such as Gone with the Wind (1939) making use of new technologies such as Technicolor. It was also seen as the era when the studio system was at its most efficient, with stars and technicians under long contracts and many films being produced cheaply.
In 1938, the three smaller studios sued the five major studios for violating the Sherman Antitrust Act of 1890 through their use of block booking and ownership of theaters. This lawsuit took ten years to make it through the court system, but its final ruling had a major impact on the industry. In the meantime, World War II helped bring movie ticket sales out of their slump, as people were beginning to do better financially.
Post World War II to the Late 1970’s
The end of World War II brought about a series of changes for the film industry, particularly for the major studios. The small studios won their antitrust suit. Studio-owned theaters and block booking were declared illegal. No longer able to count on the revenue from these practices, the studios began cutting costs by releasing actors and technical staff from their contracts. The anticommunist “red scare” and blacklist led to a further loss of talent in Hollywood, as well as smearing the industry’s public image when it could least afford it. The industry was faced with trying to win people back into downtown theaters, despite the growing popularity of television, with its increasingly suburban audience.
During the 1950’s, drive-in theaters’ ticket sales increased, but all other movie ticket sales went down. Studios tried to bring moviegoers back with big, all-star film spectacles such as Ben-Hur (1959), but for the most part it did not work. In 1957, RKO, one of the original major studios, went out of business. During this same period, other studios such as Warner Bros., MGM, and Universal diversified into television and music recording. During the 1970’s, major corporations began taking over film companies, such as Paramount, Warner Bros., and MGM, and studios sold off the big lots where they had previously shot their films.
The Blockbuster Era
With the release and major successes of Jaws in 1975 and of Star Wars and its toy merchandising in 1977, film studios began to realize the potential of blockbuster films with sequels, increased marketing, and related merchandising. Merchandising, such as toys for fast-food children’s meals, tie-in books, action figures, and even clothing became a requisite part of every blockbuster film release. Film studios had produced blockbusters and event pictures before, but instead of emphasizing the star power of the cast, studios began to pour money into marketing budgets and tie-ins. As film historian Joel Finler notes, “What big companies are now selling are not so much blockbuster movies as brands or franchises.” The marketing and advertising budgets for films have only increased over time, with more money being spent on advertising than ever before. During the late twentieth century, advertising budgets increased more than film production budgets.
During the 1980’s, Disney began to become a bigger player in the motion-picture industry, just as MGM and United Artists were declining. Foreign investment in film studios was also becoming a trend, with Rupert Murdoch buying Twentieth Century-Fox and Japanese companies Sony and Matsushita buying Columbia and Tri-Star, and MCA and Universal, respectively. During the late 1980’s and early 1990’s, many film companies either changed hands or merged with larger companies (Warner Bros. merged with Time, for example). At the same time, many smaller film companies that had made a dent in the film industry, such as Orion, were going out of business. During the period from 1985 to 1995, Disney was the only major studio to avoid a takeover or merger.
Top Ten Highest Grossing Films Within the United States
Source: Internet Movie Database, October, 2008
New Revenue Streams and Outsourcing
Merchandising and ticket sales came to account for only a portion of film companies’ revenues. During the 1980’s, the advent of the videocassette recorder (VCR), cable television, IMAX theaters, and pay-per-view channels gave film companies new ways to extend the revenue life of their films. With the arrival of the digital versatile disc (DVD) during the 1990’s, with its ability to contain extra features and commentary, the studios were able to realize new profits from their extensive film libraries by rereleasing classic films on DVD. The importance of film libraries can be highlighted by Ted Turner’s purchase of MGM’s movie library in 1986 for over $1 billion. Sales of films to foreign markets also became a major revenue stream. The viewing of films over the Internet is a potential new source of revenue (as well as of piracy).
In 1994, the latest major studio arrived with the creation of DreamWorks SKG. However, during the 1990’s fewer films were made by major studios than in previous decades. Many films, while financed in part by major studios, are produced primarily by subsidiaries, such as Miramax, a subsidiary of Disney. This sharing of the work in making a film has become a new way for the major studios to hedge their bets when creating a film. By collaborating with a smaller company (which usually handles the film production while the major studio handles the marketing and distribution), the studio is able to share any risks as well as profit with its partner.
In a move reminiscent of block booking, in the past couple of decades, film companies—with the cooperation of the cinema multiplexes that began cropping up during the 1970’s—have begun saturation booking, in which a film opens on three thousand screens or more. These saturation bookings tend to occur during times of peak movie ticket sales, such as summer or the Thanksgiving holiday. By filling multiple screens at each location, blockbusters reinforce their status as a destination or event film, while preventing smaller films from sharing the same theater.
Acheson, Keith, and Christopher J. Maule. “Understanding Hollywood’s Organization and Continuing Success.” In An Economic History of Film, edited by John Sedgwick and Michael Pokorny. London: Routledge, 2005. Compares the Hollywood studio system to those of England and Europe, accounting for its initial and continued successes.
Bergman, Andrew. We’re in the Money: Depression America and Its Films. New York: Harper, 1971. Focuses on films and the film industry during the Great Depression. Good coverage of “bank nights” and other attempts to get people into movie theaters.
Casper, Drew. Postwar Hollywood, 1946-1962. Malden, Mass.: Blackwell, 2007. Section 2 of the book, “Business,” provides a good overview of the fallout from the Paramount antitrust lawsuit.
Dickenson, Ben. Hollywood’s New Radicalism. New York: I. B. Tauris, 2006. Looks at Hollywood during the transition from the twentieth to twenty-first centuries, mainly from a liberal perspective.
Finler, Joel W. The Hollywood Story. 3d ed. New York: Wallflower Press, 2003. Includes an opening chapter on Hollywood finance; each section on a major studio includes financial details as well. This is the book to read for a concise historical overview of motion-picture industry finances.
Mintz, Steven, and Randy Roberts. Hollywood’s America: United States History Through Its Films. St. James, N.Y.: Brandywine Press, 1999. Provides analysis of early studio practices, as well as good primary source material related to film finances, such as the Supreme Court’s 1948 opinion on the antitrust case and a 1907 review of nickelodeons from Harpers.
See also: American Society of Composers, Authors, and Publishers; copyright law; Walt Disney; Films with business themes; Howard Hughes; Music industry; Photographic equipment industry; Radio broadcasting industry; Television broadcasting industry; Video rental industry.