Movies and Money: Financing the American Film Industry

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Movies and Money: Financing the American Film Industry

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MOVIES AND MONEY: F in an cin g th e A m erican Film In d u stry

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COMMUNICATION AND INFORMATION SCIENCE A Series of M onographs, Treatises, and Texts E d ite d b y M E L V IN J . V O IG T U niversity o f C alifornia, San Diego William C. Adams • Television Coverage of the Middle East William C. Adams • Television Coverage of International Affairs Hewitt D. Crane • The New Social Marketplace: Notes on Effecting Social Change in America’s Third Century Rhonda J. Crane • The Politics of International Standards: France and the Color TV War Herbert S. Dordick, Helen G. Bradley, and Burt Nanus • The Emerging Network Marketplace Glen Fisher • American Communication in a Global Society Edmund Glenn • Man and Mankind: Conflict and Communication Between Cultures Bradley S. Greenberg • Life on Television: Content Analyses of U.S. TV Drama Robert M. Landau, James H. Bair, and Jean H. Siegman • Emerging Office Systems John S. Lawrence and Bernard M. Timberg • Fair Use and Free Inquiry: Copyright Law and the New Media Robert G. Meadow • Politics as Communication William H. Melody, Liora R. Salter, and Paul Heyer • Culture, Communication, and Dependency: The Tradition of H.A. Innis Vincent Mosco • Broadcasting in the United States: Innovative Challenge and Organizational Control Kaarle Nordenstreng and Herbert I. Schiller • National Sovereignty and International Communication: A Reader Dallas W. Smythe • Dependency Road: Communications, Capitalism, Consciousness and Canada Dan Schiller • Telematics and Government Herbert I. Schiller • Who Knows: Information in the Age of the Fortune 500 In Preparation: William C. Adams • Television Coverage of the 1980 Presidential Campaign Mary B. Cassata and Thomas Skill • Life on Daytime Television Ithiel de Sola Pool • Forecasting The Telephone: A Retrospective Technology Assessment Oscar H. Gandy, Jr. • Beyond Agenda Setting: Information Subsidies and Public Policy Bradley S. Greenberg • Mexican Americans and the Mass Media Cees J. Hamelink • Finance and Information: A Study of Converging Interests Vincent Mosco • Pushbutton Fantasies Kaarle Nordenstreng • The Mass Media Declaration of UNESCO Jorge A. Schnitman • Dependency and Development in the Latin American Film Industries Indu B. Singh • Telecommunications in the Year 2000: National and International Perspectives Jennifer D. Slack • Communication Technologies and Society: Conceptions of Causality and the Politics of Technological Intervention Osmo Wiio • Information and Communication Systems Editorial Board: Robert B. Arundale, University of Alaska, Walter S. Baer, Times-Mirror, Jorg Becker, Philipps-Universitat Marburg, Erwin B. Bettinghaus, Michigan State University, Brenda Dervin, Univer­ sity of Washington, Nicholas R. Garnham, Polytechnic of Central London, George Gerbner, University of Pennsylvania, James D. Halloran, University of Leicester, Brigitte L Kenney, Infocon, Inc., Manfred Kochen, University of Michigan, Robert G. Meadow, University of California, San Diego, Vincent Mosco, Temple University, Kaarle Nordenstreng, University of Tampere, Ithiel de Sola Pool, Massachusetts Institute of Technology, Dieter Prokop, Frankfurt, Germany, Everett M. Rogers, Stanford University, Herbert I. Schiller, University of California, San Diego, Russell Shank, University of California, Los Angeles, Alfred G. Smith, University of Texas, Austin, Frederick Williams, University of Southern California.

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MOVIES AND MONEY: F inancing th e A m erican Film In d u stry JA N E T W A S K O Temple University

ABLEX PUBLISHING CORPORATION Norwood, New Jersey 07648

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Copyright © 1982 by Ablex Publishing Corporation.

All rights reserved. No part of this book may be reproduced in any form, by photostat, microfilm, retrieval system, or any other means, without the prior permission of the publisher.

Printed in the United States of America.

Library of Congress Cataloging in Publication Data Wasko, Janet. Movies and money. (Communication and information science) Bibliography: p. Includes indexes. 1. Moving-picture industry—United States—Finance. I. Title. II. Series. PN1993.5.U6W38 1982 384’ .81 81-17610 ISBN 0-89391-108-9 AACR2

ABLEX Publishing Corporation 366 Chestnut Street Norwood, New Jersey 07648

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List o f T a b l e s ................................................................ vii

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List o f F ig u r e s ..............................................................

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F o re w o rd b y T h o m a s G u b a c k ..............................

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a A c k n o w le d g e m e n ts .................................................... xvii In tro d u c tio n ................................................................... xix T ie s B e tw e e n th e Film In d u stry 1E arly a n d B a n k in g .................................................................. 2

A N ew E ra in Film F in a n c in g (1919-1926)...........

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C a s e S tu d y : D. W. Griffith...............................................

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tro d u c tio n o f S o u n d a n d 3 TFhinea nIncial C ontrol (1927-1939)..................................

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C a s e S tu d ie s: A m erican Telephone & Telegraph C om pany....................................................... Fox Film and T heater Corporations........ Radio-Keith-Orpheum C orporation........

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60 70 77

T h e T ra n sitio n a l P erio d a n d th e G ro w th o f In d e p e n d e n t P ro d u c tio n (1940-1960)...................................................................... 103 C a s e S tu d y : The B ank of A m erica................................ 119

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e* T h e Film In d u s try a n d C o m m e rc ia l B a n k s O in th e 1970s..................................................................... C a s e S tu d ie s: W alt Disney P roductions............................ MCA Inc./U niversal P ictu res.................... Metro-Goldwyn-Mayer Inc......................... T w entieth Century-Fox Film Corporation.................................................... W arner Com m unications Inc.................... U nited A rtists Corporation (Transam erica C orporation)...................... P aram ount Pictures Corporation (Gulf & W estern Industries, Inc.)............ Columbia Pictures Industries, Inc........... Hollywood B anks in th e 1970s.................

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149 172 175 176 178 180 182 184 186 193

C o n c lu s io n ..................................................................... 215 A p p e n d ix A ................................................................... 221 A p p e n d ix B ................................................................... 223 S e le c te d B ib lio g ra p h y ............................................... 225 A u th o r I n d e x ................................................................. 237 S u b je c t I n d e x ................................................................ 241

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List of T ab les 2.1 Capital Invested in the Motion Picture Industry (19211930)......................................................................................... 2.2 New Stock and Bond Issues for Major Motion Picture Cor­ porations (1925-1929)............................................................. 3.1 Selected Motion Picture Firms’ Sources of Capital (19291940)......................................................................................... 3.2 Directors of Radio-Keith-Orpheum Corp. (1929).................. 3.3 Pathe Exchange, Inc., Board of Directors (1928 and 1930).. 3.4 Stock Held in RKO Corporation (January 1941)................. 3.5 Atlas Corporation Holdings (1941)........................................ 4.1 Selected Motion Picture Firms’ Sources of Capital (19411946)......................................................................................... 4.2 Bank of America Movie Financing (1936-1949).................. 4.3 Bank of America Motion Picture Loans in Default (as of March 31, 1950)...................................................................... 4.4 Motion Picture Production Financing: Percentage of Loans at Bank of America................................................................ 5.1 Major American Distributors’ Domestic Market Shares..... 5.2 Sources of Funds for Nonfarm, Nonfinancial Corporate Business (1964-1968).............................................................. 5.3 Long-Term Debt as Percentage of Total Liabilities for Man­ ufacturing Companies (1960-1970)....................................... 5.4 Selected Motion Picture Firms’ Sources of Capital (19471953)......................................................................................... 5.5 Selected Motion Picture Firms’ Sources of Capital (19541962)......................................................................................... 5.6 1978 Debt Structures for Six Major Motion Picture Corporations............................................................................

31 31 50 80 83 88 89 104 131 133 136 152 153 154 154 155 156 vii

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5.7 1975 Debt Structures for Six Major Motion Picture Corporations............................................................................ 5.8 Interest Expenses Reported for Six Motion Picture Corpo­ rations (1974-1978)................................................................. 5.9 1978 Revolving Credit Agreements and Lines for Six Mo­ tion Picture Corporations....................................................... 5.10 1975 Revolving Credit Agreements and Lines for Six Mo­ tion Picture Corporations....................................................... 5.11 1978 Additional Loans for Six Motion Picture Corporations............................................................................ 5.12 1975 Additional Loans for Six Motion Picture Corporations............................................................................ 5.13 1978 Funded Debt for Four Major Motion Picture Corporations............................................................................ 5.14 Commercial Bank Trust Departments’ Holdings of Four Major Motion Picture Corporations’ Stock(1972)................ 5.15 Board Directors with Financial Interlocks or Backgrounds for Six Major Motion Picture Corporations (1978)............... 5.16 United Artists’ Debt Information (1969-1973)..................... 5.17 Major Movie Banks Ranked by Assets of Holding Compa­ nies (1979)................................................................................

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156 161 163 164 166 167 168 170 171 184 193

List of F ig u res 1 2 3 4 5

Indirect Dependence Through Sound Equipment Control........ 58 Direct Financial Control or Backing (1936)............................... 59 Radio-Keith-Orpheum Corporate Structure (1928).................... 81 Radio-Keith-Orpheum Corp. Interlocks (1941)........................... 91 Columbia Pictures Financial Picture (1970-1978).................... 192

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F o rew o rd Scholarly writing about film displays a curious imbalance that few people seem concerned about redressing. Even a superficial survey reveals that most studies deal with aesthetics, theory of one sort or another, genres, and personalities. Some studies also treat film his­ torically, examine it as a social document, or conceptualize it as a medium that affects its audience. These approaches share, more or less, the assumption that what there is worthwhile to study about film can be grasped with research tools and techniques not unlike those used in literature. Necessarily, differences do exist because of the na­ tures of these media, but film ultimately is seen as text. Although that scholarship has illuminated many aspects of cin­ ema, down to parts on frames in some cases, it has not come to grips with the basic character of film in capitalist society. Film is a com­ modity, and exchange value sets the broad parameters that determine not only how the medium will be used, but also the shape of the in­ dustrial structure that makes, distributes, and exhibits it. The film industry is at the core of the American entertainment business. The industry is thought of mainly in terms of its feature films made for theatrical exhibition, but these also are released to commercial television and constitute almost the entire content of pay TV. Hollywood’s companies also produce series for television and fea­ ture films especially for that medium. Indeed, a couple of the majors receive more revenue from television than from theaters. Beyond that, film corporations have cross media ownership links with the recorded music business, radio and TV broadcasting stations, book publishing, cable and pay TV systems, video game manufacturing, and the pro­ duction and distribution of materials for the home video market. A long history of international expansion has made the foreign theatrical market just about as important a source of revenue for American com­ panies as the domestic market. Necessarily, this has consequences for the viability and vitality of foreign film making. It would be impossible to offer a realistic assessment of, say, the Canadian or British film industries without also taking into account the export strategies and foreign policies adopted from time to time by the American industry. xi

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As Janet Wasko demonstrates in this book, the film business has had a continuous and important relationship with the financial com­ munity. This is to be expected because capital intensity is a distinc­ tive mark of the industry. Commercial banks, investment bankers, venture capitalists, and insurance companies have allied themselves at one time or another with the various sectors of the industry, and thus have helped to condition and shape the way the industry and the companies in it have behaved. A crucial point is control—that is, the power to influence or man­ date a corporation’s structure or conduct. This involves, of course, the ability to determine how assets will be used, who is elected to the board of directors, or what corporate expansion will be approved or obstructed. But particularly important for cultural industries, of which film is one, is the ability to control what is produced, by whom, and how. This is directional, or strategic level control that is concerned with the structure and development of an enterprise, as well as the scale and scope of its activities. Decisions on this level lay out basic corporate policy, decide which executives will manage the company, and determine what lines of business the company will pursue. As this study reveals, the financial community has been especially influential on this level, and its authority necessarily carries through to the op­ erational or tactical level. But directional control is ultimate control. The financial community, and particularly the banking sector of it are crucial to an understanding of how the film business functions. What comes to mind immediately is the role banks play as lenders; that is, providing debt capital for various purposes (among them film production). On this point, the bank has awesome potential for control because through its lending policies it can validate or disapprove a company’s plans for future operation. The decisions of the banking community, therefore, can channel not only the activities of individual companies, but also the development of business lines or commercial sectors. Individual banks or consortia of banks are the suppliers of loan capital, and in exchange for it, lenders routinely demand certain rights beyond collateral security and payment of interest. A review of loan agreements executed between banks and motion picture productiondistribution companies reveals that these powers are broad and sig­ nificant. They can include: review of scripts and production projects; limitations on production budgets and money spent to acquire films made by outside producers; approval of management performance; ap­ proval of the sale of assets or the incurring of further debt; regulation

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of the amount of dividends a company pays to stockowners; and the right to inspect the company’s financial accounts. In addition, lenders may insist that they be represented by a member or two on the board of directors, or have a person of their choice installed in a prominent management position. Representation on the board of directors places the financial com­ munity in a pivotal position to control corporate behavior and policy. The board, of course, has the primary responsibility to govern the corporation in the interests of stockowners. However, conflict of objec­ tives may develop for a lending bank. As a creditor, it should work to protect its own interest, but its representative on the board of directors should work to protect the stockowners’ interest. Of course, the num­ ber of shares in the hands of typical owners is so tiny that they are reduced to impotence as concerns having an effective voice in company conduct. For Warner Communications at the beginning of 1981, the proportion of outstanding common stock possessed by the typical shareholder was .006%, and this is not appreciably different from the situation in other companies. A few major stockholders and principal J creditors, therefore, can exert substantial influence over what a cor­ poration does. The board establishes the basic objectives and the broad j policies of the corporation. It also hires officers, sets their salaries and bonuses, and advises them on courses of action. The board, in addition, oversees the use of the corporation’s assets and has the right to ap­ prove how money is spent—including such things as acquisition of the theatrical film rights of literary properties owned by others. In sum, the board has the authority to pass on which films are made, by whom, and for how much. This is power with enormous social, cultural, po­ litical, and economic consequences. A bank also exercises control through voting power it acquires when stockowners turn over to the bank trust department the man­ agement of shares they own in companies. This practice separates beneficial ownership from investment discretion, and gives a bank power to influence a corporation’s behavior even when it is neither owner nor creditor. Among the powers of stock voters in corporations are election of the board of directors and the approval of major acqui­ sitions, mergers, or sale of assets. Because the trust department of a major bank manages the investments of many clients, it accumulates proxy votes from these stockowners, and this confers on it a collective strength that can be considerable. Consequently, determining who v ' owns the stock of a corporation is only part of the equation. The next questions have to be: who holds it, and who votes it?

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This power is often camouflaged by the use of street names and nominee names. Among the holders of Twentieth Century-Fox com­ mon stock in 1979 were Gerlach & Co. and Monroe & Co., street names, respectively, for First National City Bank (New York) and First Na­ tional Bank of Chicago. These blind registrations mask the identity of institutions in the financial community that may have important voting power in corporations. Use of nominee names is widespread. Morgan Guaranty Trust and Manufacturers Hanover Trust each have about three dozen such street names, and Chase Manhattan Bank has about two dozen. A quick inspection could give the impression that voting power in a corporation is dispersed among many nominees, when in reality these names may be fronts for only a handful of the same trust departments or investment bankers. Consequently, even though stock ownership in a typical large corporation may be spread very widely, pockets of voting power can continue to exist, and even small percentages can wield enormous influence. A study published in 1978 by the U.S. Senate Committee on Governmental Affairs disclosed that the top 25 stockholders of East­ man Kodak Company voted almost 16% of all outstanding shares. At the time, the typical owner possessed only about .0004% of the common stock. Among the top voters were 17 banks, including Citibank, Mor­ gan Guaranty Trust, First National Bank of Boston, Manufacturers Hanover, and Chase Manhattan. (At the beginning of 1981, Kodak owned close to $200 million of certificates of deposit issued by these five banks.) Aside from lending money and voting stock, the investment com­ munity acts as facilitator in a variety, of capacities. It may help com­ panies raise capital through stock or bond issues, and in this way acts to endorse what it considers to be worthwhile business opportunities. Beyond that, banks may identify merger or acquisition prospects and bring partners together. The role of the Chase Manhattan Bank has been well documented in enabling Gulf & Western Industries to ac­ quire Paramount Pictures. A management consulting firm may advise a client against acquiring a theater circuit, but strongly recommend absorbing a production-distribution company, given the likely futures of these sectors of the film business. The investment community, more­ over, can help establish commercial and political contacts, provide specialized intelligence, and through interlocking directorships, create a climate of understanding among principal contenders in an industry. Indeed, new securities could not be issued, and mergers and acquisi­ tions hardly could be consummated, without the active encouragement and participation of the centers of finance.

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Consolidation of economic power and diversification of companies are certainly spurred by the investment community. It appreciates the desires of businesses to control their markets and to level out the fiscal volatility characteristic of firms that depend for revenue and profit upon a single business line. Understandably, motion picture produc­ tion-distribution companies either have been absorbed by larger fish, or have branched out themselves to such an extent that film constitutes only a small share of their total revenue. The financial community is among the forces propelling the American economy toward increasing centralization. It would be naive to believe that because bankers do not take a direct interest in the production of each film, they do not exercise any control in the industry. It would be misleading as well to think that relations between the investment community and the industry are typified by antagonism. Bankers, indeed, may exercise immediate con­ trol over a company in some instances, but it is usually the case that they do not have to be so blunt. The expertise of the banker is to manage money; they select others to manage people. As long as the performance of executives is acceptable, bankers can be silent part­ ners, resting with the confidence that the store is being kept well. When company officers are faithful surrogates, the investment com­ munity need not be visible. This book by Janet Wasko makes an important contribution to illuminating an aspect of film that has been overlooked for too long. It fills a void in our selective ignorance, and hopefully will stimulate further inquiries into what really is the foundation of the industry. There is an old debate whether the motion picture business is controlled by finance capital or industrial capital. The issue may be quite moot. What matters ultimately is that the film business is con­ trolled by capital. T hom as G uback

Institute of Communications Research University o f Illinois March 1982

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A c k n o w le d g e m e n ts Many people in many places deserve my sincere thanks and grat­ itude for their help, support, and encouragement during the prepara­ tion of Movies and Money. Valuable assistance was provided by many archivists, especially John Donofrio (Bank of America Archives), Eileen Bowser (Museum of Modern Art), Steve Masar (State Historical Archives, University of Wisconsin, Madison), Dave Smith (Walt Disney Productions Archives), Joel Buckwald (Federal Archives & Records Center, Bayonne, New Jersey), and Linda Edgerly (Chase Manhattan Bank Archives). Most importantly, Tom Guback continuously offered advice and invaluable support. The standard of excellence provided by his work, as well as his confidence in my work are truly appreciated. Many other colleagues stimulated ideas and gave essential moral support when necessary: Dan Schiller, Vinny Mosco and Sari Thomas (at Temple University), and Fred Fejes, Jennifer Slack, Mary Mander, Carolyn Marvin and Eileen Meehan (from the Institute of Communication Re­ search at the University of Illinois). Bruce Austin contributed helpful comments and editing suggestions at crucial points, while Bob Roberts went beyond the duties of a librarian in relentlessly supplying infor­ mation and sources. Graham Murdock nudged me on during the final stages, generously providing invaluable resources (including a lovely spring garden). And, along the way, Mostafa Khaleghi challenged me to ask difficult questions, and, for awhile, helped struggle for the an­ swers. Finally, loving encouragement came (as always) from Paul and Carlena Wasko.

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Introduction There has always been an intimate relationship between American movies and money. Indeed, Hollywood represents not only glamour, romance, and adventure, but dollars and cents. Consequently, the enormous profits possible from recreating images and sounds on cel­ luloid have lured many fortune seekers to the tinsel town in southern California, where countless millions have allegedly been made (and sometimes, lost) in the movie business. Historically, movies have played a key role in distributing Amer­ ica’s myths, dreams, legends, and ideals, serving as significant rein­ forcement for dominant social norms, values, and ideology, But with its strong and extensive links to the American public and to the world, the film industry has also provided the foundation for many of today’s multinational, diversified communications conglomerates. And despite the continuous introduction of new forms of entertainment and com­ munication technology, American movies and the film industry re­ main as important components of the information/entertainment sec­ tor in the United States and abroad. Unquestionably, then, the American movie has evolved not purely as art or communication, but as a commodity which is produced, dis­ tributed, and exhibited under market conditions that inevitably influ­ ence the kinds of films made, who makes them, and how they are distributed to the public. Film must be viewed in light of this tension between products and profits, and, thus, film financing plays a vital role in the history of American film. In the United States, the novelty of moving pictures immediately attracted the attention of speculative investors, entrepreneurs, and a few bankers interested in developing the commercial potential of the new technology. By the turn of the century, a small-scale, decentral­ ized movie business existed, making quick profits possible with only a small investment. Early film entrepreneurs could rely on their own funds (or minimal financial backing from friendly supporters) to fi­ nance the production of short, inexpensive films which were then sold outright to theater owners or vaudeville circuits. However, as the film business grew and developed along standard industrial lines, a specialized need for capital also evolved. The prox ix

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duction of more elaborate and longer films manufactured at specialized studios demanded increasingly larger amounts of money to be invested long before box office revenues were received. And there was not al­ ways the guarantee that such revenue would actually recoup initial costs, much less produce surplus profits. Thus, film production some­ times became a risky affair. The evolution of an industrial structure based on the distribution of films on a rental basis to specialized, and often quite extravagant, theaters also required funds beyond those received from the box office. This was true even when the studio, dis­ tribution facilities, and box office were owned by the same company. As with other capital-intensive commercial enterprises, the American film industry looked to, and came to depend upon, external sources of financing. Some of the more common sources of revenue relied upon by other media or communications industries (i.e., adver­ tising or outright sale of products) have generally not been utilized or have been inapplicable to film’s unique industrial structure. Various financial arrangements, such as exhibitor advance systems, have also been attempted, but abandoned over the years. Not suprisingly, individual investors, wealthy capitalists from other industries, and assorted entrepreneurs have always been active in film financing and investment. However, their contributions have been irregular and unreliable, fluctuating with changes in tax and investment laws and the general economic climate, as well as with the perceived profitability of the film industry and the personal whims and fancies of individual investors. More importantly, however, as the film business developed as a viable commercial enterprise dominated by large corporations, tradi­ tional sources of capital have been called upon by Hollywood indus­ trialists. Although not anxious at first to extend credit to an unstable and uproven business, investment and commercial banks inevitably became involved with the financing of the American film industry. The profitability and gradual legitimation of the industry eventually attracted the attention and financial support of reputable bankers and important financiers as the emerging film moguls came to depend on debt and equity financing for the rapidly expanding film trade. And, as with other industries, bankers and financiers went beyond merely providing capital, gradually adopting a more active role in the devel­ oping industry, especially during the 1920s when sizable amounts of real estate became part of many film companies’ assets. The adoption of sound in the late 1920s and early 1930s finally attracted the largest and most prestigious banking groups in the country; these bankers contributed to increased concentration and enhanced monopolistic trade practices which lead to financial control of the American film industry. Major adjustments have been made in this relationship over

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the years, especially since the transitional period of the 1940s and early 1950s. And, although control is exercised quite differently, many of the same banks are involved in the film industry today, providing financing for corporations and filmmakers and participating in the industry in a number of different ways. So, while Hollywood continues to have many sources of financing, the primary focus of this book is on the historical and current role of banking institutions, not only because of their intimate historical re­ lationship with the American film industry, but also because of their key positions of power within the American economic and political structure. Those banks involved with Hollywood are among the largest and most powerful in the world, providing capital for large corpora­ tions and playing key roles in vital economic and political decision­ making. At first glance, the significance of the film industry may ap­ pear to be minimal when compared to the banks’ other corporate cus­ tomers or to the worldly affairs of these mighty institutions. Yet, banks certainly continue to profit from their interaction with the major film corporations—those diversified, multinational conglomerate organiza­ tions which are often active domestically and internationally in busi­ nesses other than the production and distribution of motion pictures. Indeed, the interaction between banks and film corporations must be situated within the overall structure of industry, finance, and state relations, with banking alliances connecting the film industry in at least one direct way to the network of personal and structural rela­ tionships which contribute to the overall complex, interlocking nature of monopoly capitalism. This link becomes particularly important as film cannot be viewed as just another unit of production or industry, as for examble, the manufacture of automobiles, shoes, or widgets; movies also contribute to the reproduction and perpetuation of domi­ nant ideology—as ideological as well as economic components of the capitalist system. And although the relationship and determining fac­ tors between these roles are complex and controversial, a more thor­ ough examination of this interaction between finance capital and film provides the possibility for further exploration of this dynamic process. The significance of this relationship, then, is not merely the fi­ nancing of filmmakers and film companies by banks. A more extensive, historic interaction is involved with the potential for corporate control and conflict as well as for creative influence and intervention. Inherent in this interrelationship, as well, is the opportunity for reciprocal and corespective alliances which intensify corporate and financial concen­ tration, and attempt to build dominant class solidarity. Consequently, the role of finance capital in the American film industry must be more carefully explored and understood—not only in analyzing the historical significance of the production and consumption of American movies,

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but for a more complete analysis and critique of monopoly capitalism. This book is not another general history of the film business, but an examination of the historical relationship between the American film industry—specifically, the production, distribution, and exhibition of theatrical motion pictures—and banks. To present these interrela­ tionships realistically, analyses involving a number of film companies and banks are included to provide detailed, documented case studies. The book provides an overview of how the relationship has evolved, what specific interactions have been involved, and what consequences have resulted. Among the questions answered are: • What type of financing has been provided to the film industry? • How much money has been involved in this financing? • Under what terms and with what restrictions has financing been arranged? • How much and what kind of involvement has there been by bankers in the American film industry? • Which banks and bankers have been involved in these rela­ tionships? • How much control and/or influence have banks had on the film industry? • What effect, if any, has there been on films, filmmakers, and the structure of the American film industry? • What are the political, economic, and cultural implications of this relationship? Chapter 1 discusses the basic relationships existing between cor­ porations and banking institutions, exploring the important question of corporate control. The early development of the film business as an industry is outlined with a discussion of the limited involvement by bankers in this process. In Chapter 2, the focus is on the period between 1918 and the introduction of sound—the expansion period that initially attracted banks to the industry. The legitimation process that encouraged this development is explored, while the experience of D. W. Griffith pro­ vides an example of how one important filmmaker was influenced by increased banker participation in the industry during this period. Chapter 3 returns to the question of corporate and financial con­ trol, examining the period between 1927 and 1939 when banks and bankers played key roles in the American film industry. This chapter further documents the argument that the industry was controlled by banks through direct and indirect means, as the participation of fi-

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nance capital in the industry is traced from the introduction of sound through the reorganization of the major corporations in the industry during the thirties. Specific attention is given to the American Tele­ phone and Telegraph Company’s involvement in this financial control, with case studies of the Fox Companies and Radio-Keith-Orpheum during this period. Chapter 4 examines the 1940s and 1950s when the industry ex­ perienced several major alterations in its structure and operations that affected its relations with banking institutions. The focus is on the development of independent film production and its financing, with a detailed look at one bank—the Bank of America—and its participation in this process. Chapter 5 surveys the evolution of corporate filmmaking and discusses the involvement of banks in the world of film production, distribution, and exhibition by conglomerate, diversified, and inter­ national organizations. Discussion of each major Hollywood corpora­ tion and of the Hollywood bankers of the 1970s is included. As much primary documentation as possible had to be located and used in this study, working through and around the obstractions of corporate secrecy. Studies involving corporate history are difficult enough, but the problems are considerably compounded as one con­ fronts both the traditionally secretive banking industry and the com­ pulsively skittish film industry. Invariably, those writers and re­ searchers who have attempted to explore the economic aspects of the American film industry have made at least some mention of the dif­ ficulties encountered in obtaining reliable data. Perhaps this is one of the reasons there are so few studies of this type. Geographical and practical limitations also restrict access to some material. The general focus of this book is on the production and distribution branches of the film industry, with little emphasis on the banking relations to the industry involved in the exhibition of films, for which little documen­ tation is available or accessible. Documentation available in several archives and research cen­ ters provided primary sources for the case studies. Loan agreements, corporate memoranda, and other materials were examined at the Mu­ seum of Modern Art, University of Wisconsin, Bank of America Ar­ chives, Walt Disney Studio Archives, as well as other collections. Bankruptcy and receivership papers were also examined at the Fed­ eral Archives in Bayonne, New Jersey. In addition, personal inter­ views with industry and banking representatives provided much of the information for Chapter 5. Other sources included oral histories and first hand accounts by

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industry leaders and bankers, court cases, government investigations and hearings, government reports and documents (including Securities and Exchange Commission reports, especially 10K and 8K reports) industry and company reports (including annual reports to stockhold­ ers, prospectuses, proxies, etc.), and trade press articles (including both film and financial/banking industries’ trade periodicals).

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E arly T ies B etw een th e Film In d u stry & B anking The history of American film continues to be written and rewritten by film scholars and historians as well as by Hollywood personalities and and film buffs. While these accounts often acknowledge that film has evolved as a business, scarce attention is given to how this aspect relates to the artistic, technological, and cultural contributions made by American films. Yet, bankers and businessmen with financial backgrounds were involved with motion pictures from their very inception, urging in­ ventors and photographers to develop the new technological innova­ tion as a commercial venture, as well as playing key roles in the ev­ olution of film as an industry in future years. This is true, whether one traces the commercial beginning of the industry to Thomas Edi­ son’s contract for the sale of kinetoscopes at the Chicago Exposition in 1892 or the first kinetoscope parlor that opened its doors to the public on April 14, 1892. Both events involved Erastus A. Benson, an Omaha banker, and Thomas R. Lombard, president of Investment Syn­ dicate Company of Chicago. In addition to Benson and Lombard, Nor­ man C. Raff and Frank R. Gammon, bankers from Canton, Ohio, also joined to develop the invention’s money-making potential, which Edi­ son had overlooked. According to film historian Terry Ramsaye, they provided capitalization of $17,940 for the Kinetoscope Company in 1895, as well as eliciting financial support from other wealthy indi­ viduals.1 Benson, Lombard, Raff, and Gammon were certainly not repre­ sentative of many bankers and financiers, and their attitudes towards 1

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the movies at this time. While there were a few instances of bank loans, those responsible for building the movie business into an in­ dustry for the most part relied on their own funds, the savings of their families and friends, or the fortunes of loyal supporters. With the promise of quick profits with little investment, the movie business by 1903 was an entrepreneurial delight. The small-scale, decentralized business at this point meant easy access to the market, made up of the great number of working class inhabitants of America’s rapidly expanding urban centers.2 An example of the investment potential is the Kalem Company, which was started in 1905 with an investment of $600, and which, by 1908, was making a profit of $5,000, with production of two pictures a week for $200 each. Larger companies with studios were known to have spent from $400 to $500 per picture, although production ex­ penses were still kept to a minimum. One-reelers were produced from ideas purchased for $5 to $25 and were shot in one day (without re­ takes), using a limited number of scenes and a crew of anonymous workers paid from $20 to $40 per week to perform a variety of jobs, including set construction and acting. At this time, distribution and exhibition required little expense, because films were sold outright and screened as part of vaudeville programs, traveling shows, or penny arcades. As the business grew and developed along industrial lines, a spec­ ialized need for capital also evolved. In addition to surplus profits and private investment, various financial arrangements provided capital for the production of films, the maintenance of distributing facilities and the construction and operation of theaters. An exhibitor advance system was attempted for a time when theater owners advanced funds to producers to finance proposed picture projects. But arrangements such as these could not provide the necessary capital, and film entre­ preneurs attempted to secure external financing for increasing costs and expansion. Invevitably, then, as film grew as a commercial enter­ prise with a corporate structure, film industrialists looked to the tra­ ditional sources of finance, and important relationships with banking institutions developed. Generally, there are many possibilities for interaction between corporations and financial institutions. Throughout the years, the ser­ vices offered by different types of banks have varied due to the chang­ ing financial needs of industry and the general economic climate, as well as changes in banking laws and the structure of the banking industry. For the most part, however, the types of banking relations with the film industry have been similiar to that of other industries

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and corporations, varying little over the years. Some explanation of these basic relationships and their economic and political significance is relevant at this point. *

The normal operations of even small commercial enterprises, such as sole proprietorships and limited partnerships, involve various types of accounts and services offered by commercial banks, such as check­ ing, savings, payroll and pension fund accounts, and international banking services. Bank credit or loans may be also possible for some of these small business establishments. More important, however, is the role that banks play in supplying business credit and capital for larger corporations. Generally, there are two types of corporate financing provided by commercial and in­ vestment banking institutions, both of which are applicable to the film industry: debt and equity financing. Bank loans are included in debt financing and involve an extension of credit, or a specific sum of money loaned for a specific period of time for a specific amount of interest. For the film industry, lending generally has taken two basic forms: production and corporate loans. Production lending has been basically short-term (or interim) loans, with money provided for production ex­ penses, often to be repaid from receipts generated from a picture’s release, but also from other forms of repayment. Corporate financing, on the other hand, has evolved in a manner similar to other industries and include not only bank loans (short-term, long-term, and various types of credit lines), but also the issuing of notes and various types of bonds and debentures for use in general corporate purposes, includ­ ing filmmaking, theater construction, or other diversified activities. All of these various forms of debt financing were handled both by commercial and investment banks until 1933, when the Glass-Steagall Act limited both types of banks to specific activities. Debt financing does not involve ownership rights, but a creditorship relationship, i.e., the expectation of money paid back with interest in a certain period of time. However, the ability of the company to repay this sum is of particular interest to the lender. Thus, specific restrictions and conditions for the operation and management of the company are set by the lender in covenants. In addition, board mem­ bers are appointed at times to protect a bank’s interest. Legal protec­ tion is also provided for creditorship capital, which claims a senior position to equity capital with respect to both earnings and assets, especially in the case of receivership or bankruptcy situations. Historically, debt financing has dominated American film fi­ nancing. But as film companies became incorporated, offering shares

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in their organizations to the public, equity capital became essential. * Equity financing includes the issuing of preferred and common stock by investment banking firms, although prior to 1933 this was also done by commercial banks through their security affiliates. Similiar conditions and restrictions are involved with equity financing, as with debt financing. And, more often, directors from the banking firms in­ volved are appointed to serve on corporate boards. Technically, common stock represents ownership rights in a cor­ poration. Dividend payments are the rewards for equity interest, with preferred stock having various types of priorities over common stock, depending upon the specific capitalization of a corporation. Yet, divi­ dends come only after payment of debt plus interest (and for common stock, after payment of preferred stock dividends). Again, in the case of receivership or bankruptcy, equity rights are subordinated to creditorship claims. However, financing, or the supply of capital, is not the only in­ teraction between corporations and banking institutions. In addition to underwriting corporate stock and bond issues, banking firms also own corporate shareholdings and can control corporations through di­ rect stock ownership. Although prevented by law since 1933 from stock ownership per se, commercial banks inevitably become associated with shareholdings through the capital acquired from equity financing or stock issues and trading. The large trust departments of the major commercial banks also hold sizable blocks of corporate stock (often with sole voting rights) for pension, welfare, and personal trust funds, and, according to several Congressional studies, these institutional stockholdings have increased dramatically over the years. (Additional discussion of this trend is included in later chapters.) Director interlocks are another link between corporations and banks; corporate boards may include directors representing lending relationships, stock ownership, primary business affiliations, or a com­ bination of these relationships. As we shall see, the presence of bank­ ers and financiers on boards of directors has been common throughout the history of the motion picture industry in the United States. There are many other services which investment and/or com­ mercial banks provide corporate clients, including the management of stock portfolios, arrangement of private placements, financial advice on investments and mergers, and registrar, transfer, and dividend dis­ persing services. Personal loans and accounts for a corporation’s man­ agement and employees have also been common. Most important, however, banks offer a range of services and will affiliate in a number of different ways with a corporation. Thus it is the interrelationships or the totality of these various services and af-

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filiations that become important. The continuation of bank/corporate relationships over the years also provides financial institutions with intimate knowledge of a company’s business, as well as the possibili­ ties of reciprocal or community of interest activities. In essence, then, bank/corporate relations involve far more them the supply of capital by banking institutions. Inevitably, basic questions of corporate con­ trol and the role of finance capital in a capitalist society must be con­ fronted. In Capital Karl Marx argued that the uneven extension of bank credit would have inevitable consequences for industrial concentration in a capitalist system. He further observed, The banking system, so far as its formal organization and cen­ tralisation is concerned, is the most artificial and most developed product turned out by the capitalist mode of production . . . (and) possesses indeed the form of universal book-keeping and distri­ bution of means of production on a social scale, but solely the form. . . . banking and credit thus become the most potent means of driv­ ing capitalist production beyond its own limits, and one of the most effective vehicles of crises and swindle.3

Following Marx, others argued that bank capital plays a domi­ nant economic force in the development of monopoly capitalism. In 1910, Rudolph Hilferding defined finance capital as " . . . capital con­ trolled by banks and employed by industrialists,” and described a com­ munity of interests arising from "personal unions” between different corporations and banks.4 V. I. Lenin elaborated Hilferding’s definition in 1917: The concentration of production: the monopolies arising therefrom; the emerging or coalesence of the banks with industry—such is the history of the rise of finance capital. . . (U)nder the general con­ ditions of commodity production and private property, the "business operations'’ of capitalist monopolies inevitably leads to the domination of a financial oligarchy.5

For Lenin, then, the domination of finance capital was the highest stage of capitalism, or imperialism. The supremacy of finance capital over all other forms of capital means the predominance of the rentier and of the financial oligar­ chy: it means that a small number of financially “powerful” states stand out among all the rest.6

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As Marx anticipated, the uneven distribution of credit has un­ deniably affected industrial concentration in advanced capitalist so­ cieties. Certainly this study of the relationship between banks and the American film industry offers but one example of the inequitable sup­ ply of capital contributing to a highly concentrated industrial struc­ ture. In addition, there has been considerable concentration in the banking industry itself, thus further illustrating Marx’s observations concerning the credit system. Yet, the role of finance capital as the dominant force in monopoly capitalism, as described by Hilferding and Lenin, is somewhat more problematic and controversial. First, there have been varying degrees of acceptance of their basic formulation over the years. The original conceptualization has been closely followed in descriptions of unified, coordinated financial groups forming a powerful financial oligarchy that most often revolves around the largest commercial banks at the center of a complex "spider web” of control.7 However, while accepting the basic notion of finance capital’s key role in monopoly capitalism, doubts have been expressed as to the actual degree of cohesion and unity within these financial groups. Thus, debates continue regarding the differing goals, strategies, and motivations of finance versus in­ dustrial capital, or the contradictions present within the capitalist class represented by these various fractions.8 But it has also been argued that the Hilferding/Lenin conceptmistakes the domination of finance capital as a permanent character­ istic of capitalism, rather than a transitional phase. This critique has been advanced most recently by Antony Cutler, Barry Hindess, Paul Hirst, and Athar Hussain in Marx's Capital and Capitalism Today, although Paul Baron and Paul Sweezy adopted a similiar stance in Monopoly Capitalism in 1966 when they argued that the giant corpo­ rations had become independent of financial groups and were the pri­ mary units of advanced capitalism.9 Elsewhere, Sweezy noted that this did not contradict Lenin’s notion of finance capital/imperialism as the coalesence of industrial and financial interests in the U.S. " . . . reaches its apex precisely in the concentration of power in the hands of a few hundred giant corporations . . . which are essentially financial, not production, units.”10 Concurring with the views of Maurice Zeitlin and Edward Herman, Sweezy further argues that financial institutions are important components in a system of reciprocity, or a community of interests, but this does not always mean that banks necessarily main­ tain ultimate control.11 Clearly, as long as the corporate system continues as such, fi­ nancial institutions will contribute in important ways to the repro­ duction of capitalist production relations. As Sweezy has observed.

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. . . banks and other financial institutions have played an indispensible role in mobilizing capital and channeling it into the most profitable lines of activity.12

Yet, still more complex and critical questions persist: To what extent is there the potential for control inherent in this role? How often and to what extent is this power exercised? What are the economic, polit­ ical and social consequences of such power? Although these questions are given further consideration in Chapter 3, it is possible to propose at this point that financial control, or the power of finance capital, can vary over time, between different countries, with different industries and individual corporations. Accordingly, corporate control must be carefully studied within specific historical contexts. There has been general agreement within these debates, how­ ever, that there was dominant financial control of industry in the United States from the early 1900’s through at least 1929. The role of investment banking firms was especially important in the period of industrial growth after the 1890s, as finance capitalists (or, financial magnates, as Thorstein Veblen called them) arranged the expansion of the railroads and the great industrial mergers.13 It was during this same period, when the budding, young Amer­ ican film industry began to experience those growing pains, that am­ bitious film entrepreneurs were prompted to seek external financing from banking institutions. Most often, however, these efforts were un­ successful. Years later, Attilio H. Giannini, one of the first bankers to cooperate with the industry, explained: The machinery and equipment employed in the business, the kind of theaters in use, the poor stories, the inexperienced director, the calibre of the cast, the incompetent title-w riter-all these factors were not calculated to awaken an intense interest in the public. The banker, of course, was not attracted to this business.14

Although a few entrepreneurs were making money, the movies were still thought of as a novelty or a fad that eventually would fade into obscurity. Consequently, those who engaged in this business were thought to lack the proper dignity necessary to interest the financial community. As Leo Rosten observed: Respectable businessmen and respectable financiers shunned the movie infant for fifteen years; the movies were vulgar knickknacks, as all sensible people knew they were cheap amusement, patronized by the poor and the immigrant, the illiterate and the unwashed___ The men who built the motion picture indus-

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try . . . were not drawn from the supposedly far-sighted ranks of American business. They came, instead, from vaudeville, nickleodeon parlors, theatrical agencies, flea circuses, petty trade.16

Thus, the challenge facing the emerging moguls was to establish their companies as stable and high-quality businesses, in order to be eligible for the various forms of external capital and financing neces­ sary for their growth. The first stabilizing influence on the sporadically growing film business was the formation in 1908 of the Motion Picture Patents Company (M.P.P.C.), known more commonly as the Trust. The com­ pany was actually a patent pool organized to hold the key patents for film cameras and other equipment necessary to maintain monopolistic control over the industry. The pool included 10 companies: Edison, American Mutoscope and Biograph, Vitagraph, Essanay, Kalem, Lubin, Pathe Freres, Selig Polyscope, Kleine, and Melies. The Trust also included the active participation of another of the early bankers in­ volved in the film industry, Jeremiah J. Kennedy. The Empire Trust Company was one of the first New York banks to participate in financing a motion picture company, providing capital for the American Mutoscope and Biograph Company. Apparently, this support developed from the financial connections of E. B. Koopman, the financier involved with Henry Marvin, Herman Casler, and Wil­ liam Dickson, or the K.M.C.D. syndicate, which later became the American Mutoscope Company, and finally known as Biograph. Evi­ dently, Empire Trust was anxious about an overdue loan of $200,000 and sent Kennedy, a former engineer and construction boss, to inves­ tigate Biograph. Rather than liquidating the company, Kennedy stayed on to become its president, adopting many standard business proce­ dures eventually used by other companies in the industry. With the assistance of a Wall Street accountant, he gathered some of the first statistical records on the industry. He was also credited with changing the name of Biograph’s film factory to a "laboratory,” a term soon adopted by the rest of the industry.16 In addition to his activities at Biograph, Kennedy also played a key role in developing and enforcing the Trust’s policies. Terry Ramsaye dubbed him "the first czar of the industry,” because his leader­ ship in the Trust’s monopolistic and dogmatic policies was substantial. These policies included attempts to eliminate competition for its mem­ bers and the formation of the General Film Company for the distri­ bution of Trust companies’ products—the first step for the industry toward vertical integration.17 Thus, the M.P.P.C. provided some of the stability that was needed for the industry to attract outside financing.

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Yet, while the Trust dominated the industry for at least a few years, it was unable to squelch competition completely. Independent producers and exhibitors diligently challenged the Trust’s strangle­ hold with the innovation of feature films and the star system, as well as with an antitrust suit filed by William Fox against the Trust in 1912. The decline of the Trust was also hastened by inflexibility and internal decay within the M.P.P.C. itself.18 At any rate, the eventual adoption of the feature film and star system by the industry meant further development of an industrial structure with production, distribution, and exhibition as distinct branches, and increased costs in all areas. The quality features offered by Zukor and other former independents necessitated a more elaborate production process, with a division of labor featuring new, specialized personnel hired at increased salaries to handle specific functions, such as costumes, sets, and make-up. In other words, a studio system began to develop, built around star performers demanding increasingly higher salaries to appear in longer, higher-quality films. Conse­ quently, production costs by 1914-1915 had risen to between $10,000 and $20,000 per film. The expansion of distribution on a national basis involved increased costs of new exchanges, additional publicity and advertising expenses, as well as higher print costs. Distribution costs (prints and advertising) for program pictures around this time were estimated to be $10,000 above the negative costs.19 Exhibition ex­ panded as well, and new theaters were often built with an emphasis on elegance and luxury in order to attract a "higher class” audience.20 This overall improvement in quality and stability in the industry, together with growing profits for most companies, seemed to have im­ proved the image of the film industry, at least in some financiers’ eyes. At this time, the leading companies (Paramount, Famous Players, Fox, First National, Loew’s, and others) slowly began to gain support from various segments of the financial and banking community. Generally, this support came from several sources outside the industry, including private capital from wealthy individuals, commercial banks, and in a few instances, investment banks. As mentioned previously, financing from wealthy individuals had been one early source of funding for film companies. This type of sup­ port continued. For example, William Fox received financial support from the Prudential Life Insurance interests and a group of New Jer­ sey bankers. William Hodkinson’s Paramount organization distrib­ uted the films of several production companies that received financing from a Los Angeles banker, Frank Garbutt.21 Those commercial banks that had been affiliated with the indus­ try through standard business relationships (deposits, payroll ac-

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counts, etc.) increased their familiarity with the industry, its leaders, and its special needs. Gradually, a few corporate loans were arranged, as in the case of Empire Trust’s loan to Biograph, Guaranty Trust’s loans to Vitagraph and to Hodkinson’s Paramount, and Irving Trust’s support of Zukor’s activities. There were also instances of production loans for individual pictures, especially by A. H. Giannini of the Bank of Italy in California and by a few of the New York banks; however, this type of loan was relatively rare at this time. Besides loans from commercial banks, another source of capital was the issuing of stocks (equity financing) or bonds (funded debt) for purchase by the investing public. Since the 1890s investment banks had been active in financing newly incorporated industrial firms, han­ dling securities, and gaining positions of influence in growing corpo­ rations. Following the example set by the railroads, investment bank­ ers used their influence to encourage consolidation and to discourage competition among these firms. In fact, from 1898 with the formation of Federal Steel by J. P. Morgan, investment bankers had played major roles in financing industrial mergers, and in the ongoing activities of manufacturing companies in the United States.22 However, these activities, which characterized the era of finan­ cial or banker control of industry from the 1900s, also inspired popular reaction and reform movements characteristic of the Progressive era. Antitrust legislation and the Pujo Committee’s investigation from 1912-1913 brought the subject of bank control to the public’s atten­ tion, while the formation of the Federal Reserve System in 1913 es­ tablished a regulatory body to supervise commercial banks. Yet, the power of the big banks was not substantially weakened, and the un­ favorable publicity only intensified efforts to disguise such power, prompting bankers to participate more cautiously in industry. Caution was especially warranted with unproven industries such as the film industry already plagued with antitrust problems and con­ sistently in the public eye. Even though the industry had become more stable and offered quality products from 1915-1916 film companies (with only a few exceptions) were still not considered eligible for sub­ stantial investment bank support before 1919. Some individual investment bankers did provide financing, al­ though it was usually without involving their institution’s capital or reputation. Most notably, Otto and Felix Kahn and Crawford Living­ ston of Kuhn, Loeb & Co. personally supported various filmmakers and companies, including Mutual Pictures and filmmakers such as D. W. Griffith. There were also numerous examples of security selling schemes and stock-jobbers attempting to lure investors to the movie business. But most of these quickly turned sour and further spoiled the appetites

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of the investing public, as well as the investment banking commu­ nity.23 There were, however, at least two instances in which important Wall Street investment banking firms issued securities for film com­ panies during this period. Both of these companies eventually failed, primarily because of poor management, thus, further intensifying in­ vestment bankers’ reluctance to issue movie company securities. The first of these two companies was World Film Corporation, incorporated in 1914 with the assistance of Ladenburg, Thalman & Co., a well-known, conservative investment banking firm. Lewis J. Selznick is given credit for "handpicking” backers for the new corpo­ ration from Wall Street bankers who had participated in funding one of his previously successful films. But Arthur Spiegel, of the famed mail-order house, served as the first head of the corporation, which might have been a more important incentive for Wall Street’s backing of World. An affiliation with the Schuberts, proven successes in the theater world, added further legitimation to the World organization.24 However, Selznick and World’s board of directors, which included a number of these-banker% clashed once too often over company pol­ icies, and Selznick departed. Even though business experts were brought in, the company survived only a few years, ending in a loss to investors. Selznick was able to purchase the remains of the company years later, only to dissolve it once and for all.25 Another example of Wall Street participation in the industry at this time was the Triangle Film Corporation. Triangle was the crea­ tion of Harry Aitken, formerly in the insurance business, but by 1915 already an old hand at the movie business. Aitken had participated in the formation of Mutual Pictures and seemed to be responsible for eliciting the support of two Kuhn, Loeb & Co. bankers, Crawford Liv­ ingston and Felix Kahn. As noted in the next chapter, Aitken worked with D. W. Griffith on the epic film, The Birth o f a Nation, and became quite adept at attracting bankers and investors to the film business. Aitken’s idea was to combine the talents of three successful di­ rectors to produce films based on stage plays using stage stars, thus, appealing to an upper class audience. D. W. Griffith, Thomas H. Ince, and Mack Sennett were to be the corners of Aitken’s proposed triangle, which seemed to please the bankers at Smithers & Co.—that is, after they had carefully checked into Aitken’s financial position. The finan­ cial success of The Birth of a Nation played a role in the bank’s par­ ticipation, as might have the appeal of Triangle’s "high class” pictures to these "high-class Wall Street Bankers.”2® Triangle was incorporated in Virginia in July 1915, with capi­ talization of $5 million. But less than two years later, the corporation was voluntarily dissolved, thanks to Aitken’s financial manipulations

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and the problems associated with using stage performers in a different medium.27 Triangle’s failure provided bankers with still another ex­ ample of the film industry’s immaturity and financial instability. The film business was not to remain immature for long, however. By the end of World War I, the industry had developed basic industrial methods; a national distribution system was established and several major companies had emerged as large and profitable enterprises. The heads of these corporations, formerly the independents who challenged the domination of the Trust, maintained ownership control over their businesses, although they were gradually establishing personal and structural relationships of various types with bankers and other fi­ nancial backers. These movie moguls—Adolph Zukor, William Fox, Marcus Loew, Carl Laemmle, Lewis J. Selznick, Sam Goldwyn, the Warner brothers, and others—were, for the most part, from immigrant families or were immigrants themselves, and were firm believers in the free enterprise system. They had invested or participated in other industries (mostly the clothing and fur trade), and had taken a chance in the movie business as "marginal men entrepreneurs.’’28 Certainly not from the ranks of the wealthy, they built their small film companies and neigh­ borhood theaters into large corporations, demonstrating a fair amount of a characteristic perhaps best described as "chutzpah.’’ They were innovative, aggressive, and ruthless, demonstrating an endless capac­ ity for hard work. Ben Seligman argues in Economics o f Dissent that most of the movie moguls were Jewish as an "accident of history’’ more than anything else.29 This may have been one of the reasons for their intense drive to prove themselves in a new, undeveloped business endeavor. There are numerous examples retold in biographies and film histories of their attempts as members of an immigrant minority group to gain social recognition and to impress those of a higher social status, including bankers and the financial elite. Perhaps it is not too surprising, then, to find that the first bankers to acknowledge these aggressive capitalists were those with similiar backgrounds. Otto H. Kahn was an immigrant from Germany and had learned banking in Europe before coming to the United States in 1893. In addition to his financial and political endeavors, he was well known in cultural circles since he had helped form the New York Metropoli­ tan Opera Company and was active in the American Shakespeare Foundation and the American Federation of the Arts. Although these activities are emphasized in his biographies, little mention (if any) is given to his support of the early motion picture field.30 Amadeo Peter Giannini, and his brother, Attilio Henry, were of Italian descent, and identified themselves and their bank accord­ ingly. They were very conscious of their Italian-American status and Original from Digitized by G O O g l C

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sought to serve the needs of the immigrant and working class com­ munities, first in the North Beach area of San Francisco, and later, throughout California. The Bank of Italy’s lending activities were ex­ tended to borrowers and businesses traditionally shunned by the es­ tablished banking community, as loans were made to farmers, furriers, suit makers, and even to those who made movies. These bankers may have been attracted to the romance and glam­ our that was becoming a distinctive feature of Hollywood’s public im­ age, for this appeal was to draw many a financier and banker over the years. Both Kahn and the Gianninis also supported Broadway and theater producers, which seems to substantiate this notion. Neverthe­ less, such bankers still maintained conservative expectations when it came to financial matters. A. H. Giannini was reported to have com­ mented on the theater and movie crowd: "What if they do smell like cheese and garlic? They meet their obligations.’’31 That, above all, was why these bankers provided financial support to the still unproven and risky film business. To summarize, then, during the first 20 years of the American film industry, there was only limited and cautious involvement on a personal basis by a few unusual bankers who often shared similiar backgrounds with the movie entrepreneurs. During these years, the movies were considered novelties, and thus, the film business was seen as transitory and unappealing in the eyes of the more traditional fi­ nancial community. This lack of interest in young industries and busi­ nesses was common for banks, especially the large commercial and investment banks, as their capital and support were generally re­ served for established industries or for those new businesses perceived as obviously profitable, such as the automotive or electronics indus­ tries during this period. Although relationships between early film companies and banks were established through various banking services utilized by produc­ tion companies, film exchanges, and theaters, for the most part, film entrepreneurs relied on non-banking sources for capital during this period. As a stable industrial structure developed and profits in­ creased, the banking community gradually began paying attention to the new film industry, providing corporate and production loans and underwriting a few stock and bond issues after 1915/1916. As numerous film biographies reveal, the early film entrepre­ neurs were certainly motivated and ambitious, obviously viewing film as an opportunity to make money rather than to make artistic or ideological statements. Even though their tactics may have differed, those that participated in the film industry during this period—in other words, the Trust companies and the independents—shared the same profit-orientation towards motion pictures. This motivation would not

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have changed even if bankers would have offered more substantial financial support. It is even possible that the initial lack of recognition by the financial elite drove the movie leaders even harder to build a legitimate industry, in order to be accepted in the financial world. Thus, by ignoring the film industry during this period, these bankers may have even further stimulated the already prevalent profit-making orientation of film production, distribution, and exhibition. As the Supreme Court declared in the Mutual Pictures v. Ohio case in 1915, motion pictures were "a business, pure and simple.” The movie moguls, then, were well on their way to developing a legitimate industry that eventually—perhaps, inevitably—was to attract the at­ tention of some of the most important and influential banks and bank­ ers in the country.

NOTES 1Terry Ramsaye, A M illio n a n d O ne N ig h ts (New York: Simon & Schuster, 1926), pp. 835-837. It might be noted th at many of the classic film histories (such as Ramsaye’s) are referred to quite often in these first few chapters. Despite their repetition of in­ dustry myths and legends and their failure to identify sources, these accounts are valuable historical documents, often providing firsthand accounts of industry activi­ ties. They include: Beruamin B. Hampton, H isto ry o f th e A m e r ic a n F ilm In d u s tr y (New York: Dover Publications, 1970); Howard T. Lewis, T h e M otion P icture In d u s tr y (New York: D. Van Noetrand Co., 1933); Gertrude Jobes, M otion P icture E m p ir e (Hamden, Conn., Archon Books, 1966); Lewis Jacobs, T h e R is e o f th e A m e r ic a n F ilm (New York: Harcourt, Brace & Co., 1939). While many film historians often rely totally on these accounts, other film scholars are exploring new sources of primary documentation with interesting and valuable results. See, for instance, J o u r n a l o f th e U n iv e rsity F ilm A sso c ia tio n 31:2 (Spring 1979) for an entire issue devoted to the economic history of the American film industry. Other works of this type are referred to throughout this book. 2 For interesting discussions of early film audiences, see Garth Jowett, F ilm , th e D em ­ ocratic A r t (Boston, Mass: Little, Brown & Co., 1976), pp. 35-42, and Russell Merritt, "Nickelodeon Theaters 1905-1914: Building an Audience for the Movies," in T h e A m e ric a n F ilm In d u stry , ed. Tino Balio (Madison, Wise.: University of Wisconsin Press, 1976), pp. 59-82. 3 Karl Marx, C a p ita l (Volume 3) (London: Lawrence & Wishart, 1974), pp. 606-607. 4 Rudolph Hilferding, D a s F in a n zk a p ita l (Munich: Literarische Argentur Willi Weisman, 1910), Chapter 23. 5 V. I. (Nikolai) Lenin. L en in : S elected W orks {New York: International Publishers, 1976), pp. 145-146. 6 I b i d See also Karl Kautsky, T h e S o c ia l R evo lu tio n (New York: Dial Press, 1925); Rosa Luxemburg, T h e A c c u m u la tio n o f C a p ita l (London: Routledge and Kegan Paul, 1951); and Nikolai Bukharin, Im p e ria lism a n d W orld E co n o m y (London: Merlin Press, 1972). 7Among those writers generally adhering to this position are Anna Rochester, R u le r s o f A m erica : A S tu d y o f F in a n ce C a p ita l (New York: International Publishers, 1936); Victor Perlo, T h e E m p ir e o f H ig h F in a n ce (N ew York: International Publishers, 1957);

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S. Menshikov, M illio n a ires a n d M anagers (Moscow: Progress Publishers, 1969); J. M. Chevalier, L a S tru c tu re F inanciere de V In d u strie A m eric a in e (Paris: Ci\jas, 1970); David Kotz, B a n k C ontrol o f L a rg e C orporations in th e U n ite d S ta te s (Berkeley & Los Angeles: University of California Press, 1978). 8 See Robert Fitch and Mary Oppenheimer, "Who Rules the Corporations?—Parts 1-3,” S o c ia list R ev o lu tio n 1:4 (July-August 1970), pp. 73-107; (September-October 1970), pp. 61-114; 1:6 (November-December 1970), pp. 33-94; James O’Connor, Robert Fitch, "Correspondence: HI. Who Rules the Corporations?” S o c ia list R ev o lu tio n 2 (JanuaryFebruary 1971), pp. 117-170; Maurice Zeitlin, W. Lawrence Neuman and Richard E. Ratcliff, "Class Segments: Agrarian Property and Political Leadership in the Capitalist Class,” A m e r ic a n Sociological R ev iew 41, pp. 1006-1029. For summaries of these var­ ious positions and studies, see John Scott, C orporations, C lasses a n d C a p ita lism (Lon­ don: Hutchinson & Co., 1979) or, Maurice Zeitlin, "Corporate Ownership and Control: The Large Corporations and the Capitalist Class,” A m e ric a n J o u r n a l o f S o cio lo g y 79 (March 1974), pp. 1073-1119. 9 Antony Cutler, Barry Hindess, Paul Hirst and Athar Hussain, M a rx 's C a p ita l a n d C a p ita lism T o d a y (London: Routledge & Kegan Paul, 1978), Volume 2, pp. 89-108: Paul A. Baran and Paul M. Sweezy, M onopoly C a p ita l (New York and London: Modern Reader Paperbacks, 1966), pp. 27-61; also, Paul M. Sweezy, T h e T h eo ry o f C a p ita list D evelo pm ent (New York: Monthly Review Press, 1956) and T h e P resen t a s H istory: E ssa y s a n d R e v ie w s o n C a p ita lism a n d S o c ia lism (New York: Monthly Review Press, 1953). 10Paul M. Sweezy, "The Resurgence of Financial Control: Fact or Fancy?” S o c ia list R ev iew (March-April 1972), p. 189. 11 Ibid.; Zeitlin, "Corporate Ownership and Control,” op. cit., pp. 1099-1106; Edward S. Herman,"Do Bankers Control Corporations?” M o n th ly R ev iew (June 1973), pp. 12-29. 12Sweezy, "The Resurgence.. . , ” op cit., p. 179. 13See Sweezy, T h e P resent as H istory, op. cit.; Kotz, op cit.; Alfred D. Chandler, S tr a te g y a n d S tr u c tu r e (Cambridge,: MIT Press, 1962); and Thorstein Veblen, T h e T h eo ry o f B u s in e s s E n te rp rise (New York: Scribner, 1915). 14A. H. Giannini, "Financing the Production and Distribution of Motion Pictures,” A n n a ls o f th e A m e ric a n A c a d e m y o f P olitical a n d S o c ia l S cien ce 128 (November 1926), p. 46. 16Leo C. Rosten, H ollyw ood, T h e M ovie Colony, T h e M ovie M a kers (New York: Harcourt, Brace & Co., 1941), p. 67. 18See Ramsaye, op. cit., pp. 215, 468, 528; Jobes, op. cit., pp. 15-16, 48-49, 54. 17The Empire Trust Company also maintained a relationship with the General Film Company, serving as a Trustee for the Trust’s distribution company, as noted in U .S. v. M otion P icture P a ten ts C o m p a n y (1912), original petition in University of California a t Los Angeles, Special Collections Library. 18See Jeanne Thomas Allen’s "The Decay of the Motion Picture Patents Company,” in Balio, T h e A m e r ic a n F ilm In d u stry , op. cit., pp. 119-134; and, Robert Sklar, MovieM a d e A m e ric a (New York: Vintage, 1976), pp. 33-47. 19Jacobs, op. cit., p. 162; Hampton, op. cit., p. 118; also, Kalton C. Lahue, D rea m s fo r S a le : T h e R ise a n d F a ll o f th e T ria n g le F ilm C orporation (South Brunswick N.J.: A. S. Barnes, 1971), p. 85. 20 See Merritt, op. cit. 21 Hampton, op. cit., pp. 118-120. “ See Vincent Carosso, In v e s tm e n t B a n k in g in A m e ric a (Cambridge: Harvard Univer­ sity Press, 1970), pp. 44-45; Kotz, op. cit., pp. 31-32; also, Alfred D. Chandler, T he V isib le H a n d (Cambridge, Mass.: Belknap Press, 1977).

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23Jobes, op. cit., pp. 45, 129. 24Ramsaye, op. cit., pp. 712, 761-762; see also, Ralph Cassady Jr., "Monopoly in Motion Picture Production and Distribution 1908-1915,” S o u th e rn C a lifo rn ia L a w R eview 32 (Summer 1959), pp. 325-390. “ Hampton, op. cit., pp. 134-135;, Jobes, op. cit., pp. 116-141; Ramsaye, op. cit., pp. 712-713, 761-764, 812; Cassady, op. cit., pp. 383-384. 29 Hampton, op. cit., pp. 140-142. 27 See Lahue, op. cit., for more details on Triangle’s nefarious dissolution. “ See Everett E. Hagen, On the T heory o f S o c ia l C h a n g e ( Homewood, 111.: Dorsey, 1962). 29 Ben B. Seligman, E co n o m ics o f D isse n t (Chicago, 111.: Quadrangle Books, 1968). pp. 206-217. See also Philip French, T h e M ovie M o g u ls (London: Weidenfeld & Nicolson, 1969), pp. 36-46; Rosten, op. cit., p. 67; Hortense Powdermaker, H ollyw ood, T h e D rea m F actory (Boston: Little Brown & Co., 1950), pp. 93-94, 104; Jobes, op. cit., pp. 63, 124. 30 For one typical biographical account, see George F. Redmond, F in a n c ia l G ia n ts o f A m erica , VoL I (Boston: The Strafford Co., 1922), pp. 149-159. 31 Frank Taylor, "He’s No Angel,” S a tu r d a y E v e n in g Post, January 14, 1939, p. 46.

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2 A N ew Era in Film F inancing (1919-1926) World War I changed the United States from a debtor to a creditor nation. Before then, European capital had been important for financ­ ing American business, but after the war, domestic banks took a dom­ inant position in providing funds for American companies, as well as for foreign firms. New York became the international banking center as increased competition among investment banks only slightly re­ duced the power of certain important financial leaders, such as the Morgans, and Kuhn, Loeb & Co. Consequently, more money became available for industries that were proven according to the investment community’s standards. At about this time, the motion picture industry was just begin­ ning to prove itself. In The History of the American Film Industry, Benjamin Hampton observed that 1919 marked a new era in movie financing, as increased competition, expansion, and integration forced the industry to turn to new sources of capital.1 More and more film companies turned to investment banks to publicly offer stocks and bonds for their companies, and to commercial banks to provide loans. And, more often, bankers were responding to their requests. 1919 was a significant year because it marked an important fi­ nancial arrangement between Famous Players-Lasky Corporation and Kuhn, Loeb & Co. It was not the first public offering made by a film corporation; it was not even the first financial arrangement made with prestigious bankers, as noted in the last chapter. However, it was important because Kuhn, Loeb represented a well-established and con­ servative banking firm, and one of the most important investment banks active in international and railroad financing.2 The bank’s sup17

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port at this time meant that the film industry was indeed a legitimate industry. The competition Famous Players-Lasky encountered from First National Pictures around this time apparently provided the impetus for Adolph Zukor to launch a two-yew study of the industry. He con­ cluded that his corporation must not only produce and distribute films, but also control the sales outlets for these products. As Zukor later explained: To build, buy or lease theaters you have to have money. The capital in our business was a revolving fund sufficient to make the nec­ essary pictures, but we did not have any money to go into the third branch of the business, namely, theaters. I approached different bankers and tried to sell them the idea of big profits in the motion picture business. They were very glad and wished me good luck and hoped I would succeed, but they did not see their way clear to participate in this lucrative business until one day I met Mr. Otto Kahn, of Kuhn Loeb and Company. I thought that on account of his connection with the Metropolitan Opera House and his interest in theaters and artists I would refer to the possibilities of the pic­ ture business and perhaps he would be interested. I talked to him a bit and he told me that he was much interested.3

Zukor prepared a statement about Famous Players-Lasky. But Kuhn, Loeb wanted more. "So,” according to Zukor, "they sent their own auditors in and formed a picture of the whole situation according to their own ideas.” Zukor waited as H. D. H. Connick, vice president of the American International Corporation, made a study of Famous Players-Lasky for Kuhn, Loeb & Co.4 The study was later cited as "one of the most comprehensive studies of the industry,” and used extensively by the government years later as a vital part of its case in FTC v. Famous Players-Lasky et a ls Connick’s investigation included a survey of the entire motion picture industry—production, distribution, and exhibi­ tion—in addition to a comparison with other large industries. The sta­ tistical analyses ranged widely, from the amount of positive and neg­ ative film stock sold to producing companies, to the increase in the number of fan magazines. Statistics from the Famous Players-Lasky sales department estimated the gross annual return for 15,000 Amer­ ican motion picture theaters during 1919 as $800 million, of which $90 million was to be received by producers in the form of sales and leases of films and accessories. The permanency of the industry was dependent on the ability to maintain the demand for motion pictures, both in America and abroad. However, the study concluded that:

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. . . the largest returns of the industry result from exhibiting pic­ tures to the public, not from manufacturing them.6

Thus, Zukor’s interest in expanding into exhibition was sup­ ported by the report. The rapid growth in theater construction was noted and theaters were discussed according to four classes based on average admission charges and seating capacity. The report recognized that first-run houses were potentially more profitable and important than other theaters. The financial advantage of theaters with large seating capacities was also discussed and the report explained how certain operating expenses (such as film rentals, orchestra fees, and management expenses) remained the same, regardless of the number of seats. In addition to increases in admission prices and box office attendance, the rate of increases in film rentals was reported to be 375% from 1916/1917 to 1919/1920. Another section of the report noted that America led the world in the motion picture trade with the advantage of a home market of 15,000 theaters enabling an American producer to undersell in foreign markets. The final section of the study concluded that " . . . the star system was sound and would continue to be used by the most successful producers/’ based on an analysis of the rates of return for those pic­ tures made with different stars. In an analysis of Famous Players-Lasky, the report cited the quality of the Famous picture, which was due to its reservoir of dra­ matic material, stars and directors. The cost record of the company was commended, but it was observed that with only a few changes a budget system might be set up. With more "aggressive” sales cam­ paigns, the domestic and foreign rental returns could be increased considerably. The strong competitive position of Famous within the industry was discussed; however, the management was "somewhat lacking in general business experience, which might become a severe handicap under strong competition.” Salaries were observed to be high, and a finance commitee was recommended to assist the board of di­ rectors. At this time, Famous Players-Lasky had credit lines for approx­ imately $3 million, as well as a total of $23,000 still outstanding on an $875,000 debenture bond issue from August 1916. Irving Trust Co. had provided funds, served as the corporation’s registrar, and was represented by a director on the Famous board. Empire Trust Co. also had a board representative and served as transfer agent for the cor­ poration, while five other directors represented various other invest­ ment banking firms or financial institutions. Thus, one third of the Famous board was already associated with financial interests, even before Kuhn, Loeb became involved with the company.7

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The bankers at Kuhn, Loeb & Co. seemed favorably impressed with the results of Connick’s study. Nonetheless, they were not im­ pressed enough to taint the name of Kuhn, Loeb by open association with the likes of a motion picture company—even Famous PlayersLasky. A syndicate was formed by Kuhn, Loeb to underwrite an issue of $10 million of 8% cumulative preferred stock, which was first offered to stockholders on October 22, 1919. For 15 days, one share of new preferred was offered for two shares of common held. The remaining unsubscribed stock was then offered to the public at par $100. The name of Kuhn, Loeb was not publicized with the offer. Although com­ mon stock was suggested by Zukor, preferred stock was issued because it was considered less speculative. A bond issue was also considered to be unattractive since the company still lacked stabilized earnings.8 The financing syndicate and Kuhn, Loeb became active partici­ pants in a newly formed finance committee, as recommended by Connick’s report. In fact, Connick served as chairman, as well as becoming a board member for two years. Felix E. Kahn (Otto’s brother) also joined the board, followed by several other representatives of Kuhn, Loeb over the years.9 One might wonder why Kuhn, Loeb & Co. had abandoned its policy against supporting this type of business, as well as participating so fully in the company’s activities. According to Otto Kahn, Kuhn, Loeb usually preferred merely to offer advice to its customers, or, as he explained later, .. clients feel that if they have a problem of a financial nature, Dr. Kuhn, Loeb & Co. is a pretty good doctor.”10 Again, the similiarity of backgrounds may have been a factor in influ­ encing Kuhn, Loeb bankers to consider Zukor’s company eligible for support. The bankers at the firm had started in the clothing trade, as had Zukor. In fact, both Kahn and Zukor were furriers at one time, Kahn having provided the furs for D. W. Griffith’s production, Way Down E a st11 Both were German Jewish immigrants as well. But, Zukor explained it differently: Finally, although it was much against the policy of Mr. Schiff, who was then at the head of the business, to finance any industrials, nevertheless they made an exception in our favor. They felt that this business was something different. It was romantic. It had a future.12

It might also be noted that participation in a $10 million issue of preferred stock, compared to the millions which Kuhn, Loeb regu­ larly offered for other industries, was not that much of a risk for the prestigious banking firm. Yet, even with Famous Players-Lasky’s po­ sition in the film industry at the time, the bank felt the need to alter

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its stated policy of noninvolvement in a company’s affairs and became quite active in Zukor’s organization. Despite these considerations, this was a big step for Zukor and the motion picture industry as a whole. With Kuhn, Loeb & Co. and other bankers to assist financially and advise as directors, Famous gained control over 303 theaters by mid-1921. The acquisitions were financed primarily through additional preferred stock issues.13 At this time, a few other companies added theaters with funds provided by internal funds and a few bond issues. First National controlled 664 houses by 1920 and the Goldwyn Company gained interest in about 30 theaters by 1921.14 But the quest for theaters began more intensely by 1925 with other film companies and investment banks following the example set by Famous Players-Lasky and Kuhn, Loeb & Co. in 1919. Meanwhile, the innovations that had helped the independents become dominant forces in the industry were becoming standard—and expensive. Production costs continued to rise, and, although estimates vary greatly, the average negative cost for feature films around 1920 seemed to be somewhere between $25,000 and $100,000.15 Adding to the expense was an increasing number of features that were being made by higher-paid, specialized workers at newly constructed and equipped studios. Distribution was expanding as well, with national exchanges con­ tinuing to develop, as state’s rights exchanges declined rapidly after 1913.16 Moreover, foreign distribution was extended as the export of American films became increasingly important after World War I.17 These higher costs and expansion meant increased capital ex­ penditure, and with increased capital expenditure came integration and consolidation. Large companies were able to buy out smaller ones and expand into other branches of the industry. In addition, with in­ creased initial capital requirements, fewer new companies or hopeful entrepreneurs were able to enter the business. Production and distri­ bution had become increasingly integrated after the formation of Fa­ mous Players in 1916, and the reverse form of vertical integration occurred when exhibitors combined to form First National Pictures in 1917. By 1925, more companies had followed Zukor’s example. Theater acquisition and construction resurged, culminating with the infamous "battle for theaters.” The mggor theater circuits already had control over the majority of first-run theaters, and by 1931, the five theater­ owning majors controlled a total of 2,371 theaters.18 Thus, by the mid1920s, a handful of major corporations were completely integrated and effectively able to dominate the industry through their control of these theaters and monopolistic trade practices such as block booking, blind bidding, price fixing, and a system of unfair clearances and runs.19

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Although the film industry had become recognized as a profitable enterprise, the funds necessary for this increased expansion and con­ solidation, as well as funds for continuing operations, were not always available from surplus profits. More than ever, then, external capital was necessary. After having resisted requests for financing in the past, major banking institutions finally began to approach the industry with financing offers. Not so coincidentally, those bankers supplying funds were also beginning to encourage increased expansion and consolida­ tion.20 Who were these financial sources and how was financing ar­ ranged during this period of film history? Before examining the exter­ nal sources of capital used during the 1920s, brief consideration will be given to the legitimation of the industry during these years. During the formative period of the motion picture industry the business was attended by too much uncertainty and hazard to at­ tract the serious attention of banks, investment brokers and the more conservative types of investors. Now, however, that the in­ dustry has been definitely placed on a sound, stabilized basis, both security house and investors are becoming more and more inter­ ested in the financing of this important and profitable business.21

The preceding passage, from an investment bank publication in 1927, indicates the transition that had taken place after 1919. The notion that the film business was finally legitimate was noted by bank­ ers involved in the industry and also by industry leaders at about this time as one of the key factors in attracting external capital, allowing the industry to expand, as well as to consolidate.22 With the success of The Birth o f a Nation in 1915, bankers rec­ ognized that individual films had the potential of drawing substantial profits. However, the risk of investing in a single picture was still taken by individuals, with private capital invested for a percentage of the profits. As we shall see, production loans from those banks or bankers familiar with the industry and its leaders were not always based on the profit potential of a film alone. Legitimation in the eyes of the bankers meant more than simply increased profits. They looked to the stability offered by large corpo­ rations with a life beyond single proprietorships—corporations orga­ nized on a rational basis along standard business lines thus eliminat­ ing as many risks as possible. The expanded, integrated and consolidated film industry of the late 1920s, with its growing invest­ ments in real estate, offered the banking community this type of le­ gitimate industry.

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The leaders of the film industry were all too aware of this process. The image-conscious efforts of many of the movie moguls to impress bankers and financiers included various fund-raising activities and political work, as well as membership in social clubs and committees. Even the attire of some of these movie magnates was said to have been chosen to reflect an image of "solid, bourgeois respectability.”23 The public image of Hollywood in the early twenties did little to enhance these efforts. The film business was suffering from several embarrassing scandals, the publication of excessive executive salaries, and the negative reactions to increasingly explicit sexual content in certain films. Not only did this arouse the scorn of certain segments of the public and the threat of government censorship, it further deep­ ened the reluctance of many banks to supply needed capital to the industry. Bankers, as might be expected, respond even more intensely than the general public to "bad press,” and publicity of this ilk at­ tracted the wrong type of banker’s attention to Hollywood. Thus, the formation of the Motion Picture Producers and Dis­ tributors of America, Inc. (MPPDA) in 1922 was not only to appease the public in general, but also to placate the financial community. As the first treasurer of the MPPDA, J. Horner Platten wrote: The significance of this movement was clear to the banking inter­ ests of the country. Bankers had a responsible headquarters to go to for information on financing certain phases of the industrial operations.24

The choice of Will Hays to head the MPPDA was obviously a strategic one. Hays had important financial, political, and government ties, and was said to participate at the highest levels of financial and political decision-making in the country. Interestingly, he, too, had been a banker early in his career.26 Indeed, the MPPDA served in even more specific ways to attract banker support for the film industry. In 1923, Hays called a meeting of the financial and accounting officers of the member-companies .. for the purpose of giving detailed consideration to the attitude in general of banks toward the motion picture industry.”26 On August 30, 1923, the Committee on Banking Procedures and Finance was formed, including subcommittees on Ways and Means and on State­ ments. Meetings were held, during which balance sheets of membercompanies were examined and samples drafted, with definitions of terminology suggested for use in the accounting process. The commit­ tee apparently cooperated with the Federal Reserve Bank of New York, the New York Clearing House, and public accountants and banks fa­ miliar with film financing.27

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These two subcommittees presented a recommendation to the parent committee that they "be employed by the member-companies in presenting a statement of condition to banks when applications for loans are made.” The committee considered itself, in Platten’s words, "a clearing house for the consideration of individual and joint financ­ ing and accounting problems,” and that .. much good had been de­ rived from the cooperation of the financial officers of the membercompanies---- ,,2S The success of these efforts is apparent to some extent in several investment bank prospectuses (discussed in more detail at the end of this chapter), which cite the advantages of standard accounting pro­ cedures practiced by the major companies, as well as effective national trade associations organized to serve the industry.29 The Hays organization also joined with the Better Business Bu­ reau in attempts to discourage unscrupulous stock promoters. Com­ panies, such as Quaker City Finance Corporation, were becoming ob­ stacles for those attempting to raise money for legitimate stock issues. Quaker City had sent letters to a few production companies in 1925, stating that it was starting a new department to finance motion pic­ ture producers and distributors. The MPPDA subsequently sent copies of the letter to others in the industry, along with some background on Quaker City, a company that was officially out of existence and in the hands of receivers for nonpayment of taxes early in 1923.30 The MPPDA and the Better Business Bureau used several tech­ niques in combatting these companies, which had become a serious problem by 1925. Radio broadcasts warned prospective investors to use "reliable bankers” to purchase film securities, and various other campaigns were waged against the false promoters. By 1927, however, the MPPDA reported that the problem seemed to be greatly reduced, thanks to their efforts.31 Gradually, the film business had established itself as a legitimate industry eligible for support from the financial community. But how was external capital supplied and, specifically, by whom? The follow­ ing sections discuss production financing as it developed after 1919, briefly examine corporate financing during this period (with more de­ tail in the following chapter), and provide an example of both forms of financing in a case study of D. W. Griffith.

PRODUCTION FINANCING As the film industry developed its unique industrial structure and practices, the few banks that would extend credit gradually developed standard lending practices for film production. At first, lending tended

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to be on a sporadic and personal basis with bankers such as A. H. ("Doc”) Giannini making loans to those "militantly enthusiastic cru­ saders” of the film business who became his friends in California and New York. The usual "Character, Capacity and Capital” formula of bank lending did not quite apply, because those who requested loans from these bankers had little capital. Thus, small amounts were loaned for short periods of time, based on the character and capacity of the borrower.32 Production loans were often arranged by syndicate financing, as a producer or director made the rounds to numerous bankers and fin­ anciers gathering small loans or investments from each to finance the production of a single film. An example of this type of financing is provided by The Birth o f a Nation, although numerous other cases might also be noted.33 As commercial banks began lending larger amounts of money for production, standard credit policies and procedures began to evolve. These have always varied depending on the individual picture, pro­ ducer, director, and/or company involved and have been adjusted con­ tinuously during various stages in the history of American film. Still, a general pattern was established during this period and has been generally maintained to the present day. In 1919, John E. Barber of the First National Bank of Los An­ geles and the L.A. Trust and Savings wrote: . . . bankers who have carefully investigated this new source of profitable business have become convinced that motion picture loans, when properly safeguarded offer good security and liquidity above the average.34

In assessing whether a loan should be made, the character and capacity of the borrower was most definitely taken into account. As Barber notes, an important factor in considering a loan was: . . . the integrity and personal character of the producer and his ability and experience, especially along business lines.35

"Capital” was as important as "Character” and "Capacity,” as larger amounts of money were involved for production loans during this period. Additional information was requested prior to the approval of loans, financial statements were required, and the "capital set-up” of a company thoroughly examined.36 Bankers were also interested in the type of picture or story, the cast (including featured stars), and the budget. Barber advised caution on pictures with "prospective costs” (he did not use the term "budget”) of over $200,000, although:

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. . . care is taken not to impose too rigid financial limits upon the creative talents of the director, who, by an additional expenditure of $5,000 might suddenly see a way to increase the picture’s selling value $25,000.37 One of the most important criteria to these bankers was distri­ bution. As Barber observed: As in other industries, the distribution or marketing of pictures is of far more importance commercially than production. Pictures do not sell on their intrinsic excellence alone. They require to be skill­ fully sold by wholesalers, called "distributors” to retailers called "exhibitors.”30 Thus, one of the major factors in considering a loan was: Definite arrangements for "releasing” or selling the picture when completed.... [V] iewed from the banker’s standpoint, rather than the hopeful optimism of the producer, actual provision for selling the product should be made prior to any bank advances.39 The emphasis on distribution was repeated even more emphati­ cally by Motley Flint, also associated with the Los Angeles Trust and Savings Company and one of the Warner Brothers’ primary financiers. In 1922, Flint stressed the need for centralization of distribution: ... unless this problem of distribution is soon solved banks will be reluctant to advance money to producers. Hundred per cent dis­ tribution must be assured if the producer is to receive full and proper returns from his investment, and unless this is secured, a bank cannot be expected to loan to the independent producer.40 Lending practices for production financing actually developed along with the evolution of distribution as the key to the interrela­ tionship between the other branches of the industry and with the stan­ dardization of distribution methods.41 In fact, unless funds come from private sources, production financing nearly always revolves around distribution in one way or another. Either distributors have financed films themselves, or banks have required distribution guarantees and/ or various types of assignments, which virtually control distribution. If distribution is not assured or controlled, then other forms of collat­ eral or security must be provided, such as residuals from other pictures in release or other forms of property. In other words, distribution be­ comes a key factor in the extension of credit for film production be­ cause, as Barber observed, distribution provides security to film pro-

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duction. Films must reach paying audiences to produce profits, and the distributor offers that essential link between producers and exhib­ itors enabling films to reach those audiences. Even with a distribution guarantee agreed upon before produc­ tion begins, various types of assignmens have been involved that pro­ vide security for a loan. A. H. Giannini noted that unsecured loans were made to those “producing companies of the first rank;” however, rarely was an unsecured loan made to an independent producer, except in very early lending activities. As Doc Giannini noted: Our loans were at times unsecured and at other times secured by an assignment of the proceeds from the positive prints. Occasion­ ally a loan was made on the negative prints, but this was a tem­ porary expediency for a negative in the possession of the bank made it impossible to play the picture.42

Another early form of security was the assignment of exhibitor con­ tracts, which Giannini noted was obsolete by 1926.43 Although every deal was different, standard loan arrangements gradually evolved. Assignments of negatives were made to the bank in most cases, and, as Giannini reported, negatives were at first phys­ ically held by the banks themselves. But eventually, laboratories be­ came the banks’ agents and agreed to such an arrangement through Laboratory Pledgeholder Agreements, which became standard for most loans. Assignments of Positive Prints were also made, as were Assign­ ments of Receipts. An early example of these assignments is included in D. W. Grif­ fith’s loan agreement with Central Union Trust for the financing of Way Down East The agreement included the assignment of “rights, title and interest to motion picture negative and positive prints of Way Down East and all sums now due or to be due on lease and distribution with United Artists for the U.S. and Canada or with any other person, firm, corporation for other than the U.S. or Canada... .’,44 Often, as­ signments were much more elaborate and complex than in this ex­ ample, and involved copyrights on the story, the photoplay, and to any other material created by the production. Other rights assigned de­ pended upon the producer and the parties involved, and could include the right to produce, distribute, and exhibit the film, as well as the right to edit or otherwise change the film prior to release, as the case study of Griffith reveals. Very often, assignments of already-released pictures became the basic security for a production loan, especially as well-known produc-

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ers/directors, such as Griffith, continued to make successful films. For example, the $340,000 loan for Two Orphans (1921) was secured by the assignment of rights to the revenue from already-released pictures such as Way Down East and Dream Street46 However, the Griffith case and other examples indicate the problems that producers and produc­ tion companies encountered when films were less than successful at the box office. Additional forms of security or guarantees were some­ times required, as evidenced by the insurance policies involved in Grif­ fith’s loans and the guarantees Mary Pickford and Douglas Fairbanks provided for various United Artists’ producer loans.46 The amount of the loans, again, varied with each bank, and with the company or producer involved. Barber noted that 65 to 70% of production expenses were allowed for the loans he made, while Giannini stated that he sometimes advanced up to 100% of production costs. Disbursements were made in weekly advances during the production of a film, according to expenditures submitted by the producer. Loan repayment came from either the produced film’s receipts or the receipts of other assigned pictures, while various bank reimburse­ ment methods developed. Most often, the bank claimed a first lien on the picture’s receipts and was paid directly by the distributor, after the deduction of distribution expenses. Repayment periods were based on a specific period following the film’s release and ranged from 3 to 6 months, according to Barber, or from 4 to 8 months, according to Giannini. At first, problems developed regarding repayment periods, with banks insisting on immediate payment, not taking into consid­ eration the problems involved in collecting film rentals. However, a bank was rarely left with an unpaid loan, as the distributor or other guarantees provided repayment, even if the film proved to be unsuc­ cessful at the box office. In addition to interest received by the bank, deposit balances were expected and sometimes specified in loan agreements. These bal­ ances became particular problems for some companies/producers—a situation illustrated in several examples that follow. Although many loans were arranged at standard interest rates of 6 to 7%, it was not uncommon for banks to charge higher interest rates or add service charges because these loans proved to be more complicated than others.47 Various sources cite interest rates as high as 40 to 60% around this time, and Giannini cried out against the extra fees being extracted by the "bonus sharks."48 The difficulties confronted by some filmmakers in obtaining capital meant that they were often forced to pay these exorbitant interest rates and extra fees to numerous credit or financing companies that evolved around this time.49

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By the mid-twenties, however, larger companies arranged unse­ cured lines of credit for financing an entire production season. Thus, loans were advanced in June for the production season that followed, with loans repaid from receipts received by the following March. 50 The extension of lines of credit involved the definite commitment of funds by the bank with deposits to be kept at the bank, as specified in the loan agreement as a percentage of the loan outstanding.51 These deposits are important to bankers, as it is not only the interest from loans that prompt them to extend credit, but the use of others’ money enabling them to make even further loans. An example of some of these early problems encountered in pro­ duction lending about this time is provided by documentation from several films produced by Associate Authors, Inc., a production com­ pany set up by Douglas Fairbanks and Mary Pickford in the early 1920’s. Associated Authors arranged production loans with the Bank of Italy for Richard, The Lionhearted (1923), Loving Lies (1924), and No More Women (1924). Each loan involved $100,000 at 7% interest, with guarantees provided by Pickford, Fairbanks, D. W. Griffith, and his business agent, Nathan Burkan. However, problems developed over the deposit balances kept at the bank by both the production company and the endorsers, with the Bank of Italy insisting on more substantial amounts deposited especially by Pickford and Fairbanks.52 Further, there were also misunderstandings about the payments on the loans. The bank insisted on weekly payments or it would take legal action, with possible embarrassment for the companies and personnel in­ volved. The bank claimed that exhibitor advances on contracts should have provided the distributor (United Artists) with enough funds to make regular weekly payments. However, a UA executive wrote: United Artists does not average 25% on deposits on contracts taken and must wait for pictures to be exhibited before collecting bal­ ances. United Artists must borrow moneys for expenses during summer months consequently cannot make advances against con­ tracts unplayed.53

Later, as United Artists was unable to make any payments be­ cause it had no new pictures, and the Associated Authors pictures were proving unpopular at the box office, the Bank of Italy loans were paid off with the funds arranged by United Artists from the Mutual Bank in New York. This loan of $220,000 at 6% interest involved assignment of all earnings for the pictures as security.54 By October 1927, UA concluded that the pictures’ ". .. gross rent­ als were never sufficient to liquidate the entire indebtedness, leaving

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a liability to each guarantor of $10,967.75___ ”66 However, by this time the Mutual Bank loan had also been repaid by United Artists; thus, neither bank involved suffered a loss from the lending arrange­ ments.

CORPORATE FINANCING Any discussion of the development of corporate financing of the film industry during this period must be placed in context with the general economic situation in the United States during the 1920s. Capital was available to finance industry in general as investment bankers and their corporate borrowers took advantage of the growing interest in securities investments after the war. The American people had been stimulated by the government’s wartime bond drives and were more eager than ever from early 1922 through 1929 to invest in the un­ precedented number of stock and bond issues offered by investment bankers, as well as numerous get-rich-quick schemes. New corporate security issues during this period increased from nearly $3 billion in 1920 to over $9 billion by 1929.58 With this generally favorable investment climate and with the increasing acceptance of the film business as a legitimate industry, new sources of funds became available for the industry through the issuing of stocks and bonds. Although Kuhn, Loeb & Co. had set an example for prominent banking institutions, few large offers of film securities were arranged until about 1926, when theater acquisitions and construction began anew. By that time, most of the major com­ panies were public corporations with their stock listed on the New York or other stock exchanges, and had developed formal and legal relationships with investment bankers. Table 2.1 presents Poor’s Analytical Service’s estimates of the amount of invested capital in the industry between 1921 and 1930, both in funded debt (including loans, notes, bonds, debentures, etc.) and equity capital (including preferred and common stock). The figures indicate tremendous growth in funded debt after 1925, with nearly a 100% increase between 1925 and 1926, and between 1928 and 1929. At the time, one study stated that between 1925 and 1927 over $200 million in securities were issued for film companies by Wall Street and LaSalle Street investment houses. However, the study did not identify which companies or what type of securities had been included.57 Table 2.2 presents a rough estimate of the amount of new stock and bond issues for the major corporations between 1925 and 1929, using Moody's Industrial Manual's reports for Famous Players-Lasky, Loew’s, First National, Fox, Warner Brothers, and Universal.

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The majority of these issues were bonds and debentures, and most often they were secured by property, which involved long-term mort­ gages. (Chapter 3 includes more details about this type of debt.) This not only indicates the general popularity of these type of securities, TABLE 2.1 CAPITAL INVESTED IN THE MOTION PICTURE INDUSTRY (1921-1930)1 (in thousands) Year 1921 1922 1923 1924 1926 1926 1927 1928 1929 1930

Funded Debt $

9,691 15,966 22,703 25,266 35,935 71,578 105,465 128,537 227,066 305,586

Capital Stores, Reserves & Surplus

Total Invested Capital

$ 68,539 73,572 77,723 97,465 129,182 157,909 165,798 278,804 425,599 544,400

$ 78,230 89,538 100,426 122,731 165,117 229,467 271,263 407,341 652,665 849,986

1 From: Poor’s Analytical Services, T h e M otion P icture In d u s tr y {1932). The source does not designate which companies or branches of the motion picture industry were included in this tabulation. TABLE 2.2 NEW STOCK AND BOND ISSUES FOR MAJOR MOTION PICTURE CORPORATIONS (1925-1929)1 1925 1926 1927 1928 1929

$21.9 million 34.3 million 37.5 million 36.0 million 47.8 million

1 From: M oody's In d u s tr ia l M anual, (1926-1930).

but also points to another factor especially important to the film in­ dustry: bankers had been unable to assess the value of a motion pic­ ture, which was a rather strange and mysterious commodity. As Jo­ seph P. Kennedy (who later became quite active in the industry) once observed: When you make a steel rail you make something that is so long and so heavy and of such a quality. But when you make a foot of film, it is subject to the judgement of millions of people, each with his own standard of measurement.58

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Thus, bankers became more interested in the industry when they could identify a tangible asset, such as real estate, on the balance sheets of the film companies requesting finance. Bonds and debentures for new theaters were especially popular, as these newly constructed buildings frequently included offices, stores, and other facilities, thus providing further security for invested capital. With these stock and bond issues, there was naturally an interest by the industry and the bankers to sell them to the investing public. Some of the movie companies even sold securities in their theaters, with filmed promotions preceding regular features and handbills dis­ tributed in the lobbies. An example of one of these handbills distrib­ uted in Loew’s theaters is reproduced in Bosley Crowther’s The Lion’s Share, and includes the following statement: Why is Mr. Loew making this offer? He feels that Loew patrons appreciate the success of the Loew Theaters and may desire to become partners in the profits through stock ownership.. . . Every patron who is a profit-sharing stockholder will be a Loew booster, even more than before.59

The investment banks’ traditional promotion of securities, however, was through the publication of prospectuses. Several of these docu­ ments provide interesting insights into the primary attractions of the film industry to bankers, and thus, their appeal to investors. In May 1927, Halsey, Stuart & Co. offered a prospectus for a bond issue, although not identified as such, most likely for Fox Film and Theaters companies, as these bankers were Fox’s primary financiers at the time.60 An earlier document prepared by a West Coast invest­ ment bank, Hunter, Dulin & Co., included the same information and probably provided the model for the Halsey, Stuart prospectus. In The Golden Harvest o f the Silver Screen (1927), Hunter, Dulin & Co. give a brief historical description of the film industry, followed by a discussion of industry statistics and practices. The total invested capital in the industry was taken from figures cited in The Architec­ tural Forum, which claimed $1.5 billion was invested in the entire industry, with new theater construction totalling over $199 million.61 These new theaters were praised as the show windows of the industry, setting the style for the whole motion picture world, which, it was observed, Hollywood clearly dominated, serving as "world center” for production of over 80% of the world’s output of exposed film. Thus, Wherever motion pictures are shown—from Tokio to Timbuctoo [sic] and from Nome to Buenos Aires—Hollywood is about as wellknown as the sun and moon.62

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The document concluded that the industry was well organized, stable and profitable—just the qualities that leaders of the industry had been striving to project for years in order to attract bankers’ at­ tention. According to Hunter, Dulin & Co., the future looked just as bright: That the forces and influences which nurtured the motion picture through the seedling and sapling stages to its present development as one of the most stalwart and productive trees in the industrial orchard, will continue to bring prosperity to this great business is reasonable certain . . . There is little reason to believe that this growth will not continue indefinitely.63

Prior to this flowery conclusion, the investment bankers had cited one particular film and filmmaker: In 1913 [sic] came the dawn of a new era in the motion picture industry. In that year D. W. Griffith produced "The Birth of a Nation," and this was the forerunner of large, ambitious, expen­ sive pictures that heralded the birth of the motion picture as we know it today.64

Although the date was inaccurate, the reference to Griffith and The Birth of a Nation was not uncommon for financial people at this time. It may be of interest, then, to step back a few years and examine the case of Griffith and his relationship with bankers, as well as his in­ volvement in the evolution of this new era of film financing.

C a s e S tu d y : D. w . G r iffith The extensive D. W. Griffith collection at the Museum of Modern Art in New York provides the opportunity to focus on one early filmmaker and his involvement with banks and financiers. Griffith is a worthy subject for study. He was an independent producer with his own com­ pany, a partner in the United Artists Corporation, and a producerdirector for several other studios. His career spanned several eras in movie history, from the Motion Picture Patents Company’s early stranglehold on the industry to the introduction of sound in the late 1920s. During that time, Griffith was involved in one way or another with a least 34 different banks.65

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His early films, especially The Birth of a Nation, demonstrated that film could be a powerful source of profit. This success led to the involvement of previously skeptical bankers and financiers, allowing Griffith to overextend himself financially to the point that commercial considerations impinged upon and finally dominated any "artistic” considerations.66 One crisis followed another, while the parameters set by the financial men became narrower and narrower. Finally, when Griffith was unable to compete, he was excluded from an industry that he had helped to create. Griffith’s involvement with bankers began as early as 1908 when he began directing one-reel films for the American Mutoscope and Biograph Company.67 His contract was signed by Jeremiah J. Ken­ nedy, the banker who became president of Biograph after having been sent by the Empire Trust Company. For Biograph, Griffith directed at least 423 films that were largely responsible for reviving the company’s weak financial condition. Yet, in 1912, when he asked for Biograph stock or a share in the company’s profits, Kennedy denied his requests. Griffith’s desire to produce longer films was also stifled by Kennedy, who was committed to the more profitable one-reel format. The company was willing to go as far as producing a few two-reel films, but approval had to come from Bio­ graph’s executive office. Thus, when Griffith made the four-reel Judith ofBethulia for a cost of over $36,000, he was informed that he would either direct one-reelers or supervise other directors. Griffith officially broke ties with Biograph on October 1, 1913. Having freed himself from Kennedy’s confining policies, Griffith chose from many propositions the one that seemed to offer the most freedom, plus a share of the profits. However, by aligning himself with the Mutual Film Corporation, he was still tied to men with business and financial backgrounds. Mutual had been formed in 1912 by John Freuler, an ex-banker, and Harry Aitken, with the financial assistance of two Wall Street bankers, Otto Kahn, of Kuhn, Loeb & Co., and Crawford Livingston.68 Griffith served Mutual as head of production and directed several films, while Aitken busied himself by screening these films to financiers and "other society people,” in order to elicit more financial support.69 But when Griffith and Aitken launched their biggest project to date—a filmed version of The Clansman, later known as The Birth of a Nation—the conservative businessmen backed away. According to an account by Griffith’s wife, Felix Kahn (Otto’s brother) was to back the project, but withdrew because of World War I. And the ex-banker Freuler limited Mutual’s support as well, prompting Aitken and Griffith to form their own company to finance and distrib­ ute the film.70

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The outcome of the venture is well known. Despite its racist con­ tent—or perhaps because of it—The Birth o f a Nation caused a sensa­ tion, attracting huge audiences around the country, even with a $2 admission charge at some theaters, an idea that Aitken had insisted upon. The profits from the film, however, are still subject to some debate. Various accounts have cited $15 million to $18 million profits during the first few years of release.71 However, in a letter to a poten­ tial investor in the proposed sound version, Aitken noted that a $15 to $18 million box office gross was a ‘’conservative estimate.”72 For years, Variety has listed The Birth o f a Nation’s total rental fees at $50 million. (This reflects the total amount paid to the distributor, not the box-office gross.) This “trade legend” has finally been acknowl­ edged by Variety as a “whopper myth,” and the amount has been revised to $5 million.73 That figure seems far more feasible, as reports of earnings in the Griffith collection list gross receipts for 1915-1919 at slightly more than $5.2 million (including foreign distribution) and total earnings after deducting general office expenses, but not royal­ ties, at about $2 million.74 Despite these inaccuracies, the “whopper myth” is perhaps more important in that the huge profits allegedly attributed to this epic film attracted the attention of hitherto uninterested financial interests, en­ abling Griffith to raise money for his next epic project, Intolerance While many of the more than 50 investors in his new Wark Produc­ tions Company were fellow filmmakers, at least one third were in some way associated with Wall Street.75 When the film proved to be a fi­ nancial nightmare, the pressure increased for Griffith, who had taken personal responsibility for the huge debts incurred. From this point in his career, financial problems became an increasing burden. Meanwhile, as we have seen, the motion picture business was growing into a more profitable and increasingly integrated industry, thus attracting more and more interest from the financial community. Griffith constantly sought independence from these big studios and their financial backers, but he also wanted to benefit from the increas­ ing profits of the growing industry. In 1919, he joined three other filmmakers in the formation of the United Artists Corporation, and the same year built his own million-dollar studio complex at Mamaroneck, New York. Even the location of this studio, however, was influ­ enced by commercial considerations, as film historian Iris Barry noted in her well-known essay on Griffith: The complex financial operation that had become a part of film production were absorbing more and more of his time. He appar­ ently felt the need to be constantly in or near New York, which

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was then as now the financial center and shop-window of the in­ dustry.76

In order to finance these additonal commitments, Griffith directed three First National films, which, it is generally agreed, were hastily pro­ duced, shallow efforts. Finally, on June 30, 1920, the D. W. Griffith Corporation was incorporated in the state of Maryland, with a capitalization of $50 million. Listed among the company’s assets were the Mamaroneck studio and property, Griffith’s United Artists stock worth approxi­ mately $35,000, nearly $1 million worth of insurance policies on Grif­ fith and his principals, and interest in all past, present, and future Griffith productions. The stock issue was handled by Bertron, Griscom & Co., and Counselman & Co., banking firms that were also repre­ sented on the new board of directors by Charles Counselman and Lee Benoist. Two banks that had previously provided Griffith with pro­ duction funds were also represented: Central Union Trust Co. of New York was transfer agent for the new corporation and Guaranty Trust Co. of New York was one of the registrars.77 Actually, Griffith had previously been offered several financing proposals through his association with Frank R. Wilson, director of publicity for the Liberty Loan Campaign of the U.S. Treasury De­ partment. Early in 1919, Wilson had indicated a good deal of interest in the motion picture business, and by July of that year, Griffith en­ listed his help in formulating a ‘’comprehensive plan to turn (Grif­ fith’s) great earning power into permanent investments.”78 In several long and detailed letters, Wilson discussed attempts to amalgamate United Artists and First National in order to conquer the Adolph Zukor empire, his contacts with financial men interested in building a Griffith theater chain, and other schemes designed to take full advan­ tage of Griffith’s name. Most of this work was done, by the way, while Wilson was still employed by the Treasury Department.79 In September 1919, Wilson wrote of negotiations with Kissel, Kinnicut & Company, describing them as " . . . one of the strongest firms of Wall Street, Mr. Kinnicutt having formerly been a member of the firm of Morgan & Company.” The plan included the financing of Griffith’s productions and a theater building program and was de­ scribed by Wilson: These high-class business men . . . believe that the road to the greatest profits is one which would provide for supplying you with several assistant directors and turning out about thirty program pictures per year. The supplying of assistant directors would per-

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mit you to have time to devote to one or two big features a year which the firm will gladly finance because they believe these big pictures would add to the lustre of your name and contribute to the success of the thirty program pictures___ It is their belief that your name has such tremendous goodwill value that the opportu­ nity best afforded for turning this goodwill into cash is a policy of quantity production.80

Another proposal in 1919 specified that 24 pictures would be made annually at an average cost of $125,000, yielding an average profit of $50,000 per picture. Griffith would get 75% and an anonymous banker would receive the remaining 25%. Decisions on financial affairs, in­ vestments and production expenditures would be made by a Finance Committee, which would be chosen from a "strong Board of Directors, including men of financial standing.” The proposal stated that " . . . in all matters involving the artistic—such as selection of stories, the as­ sembling of casts and the direction of production in the studio or on location—the judgement of D. W. Griffith shall be final.”81 However, no explanation was offered as to how Griffith could carry out these artistic decisions, which would require large amounts of capital, with­ out the approval of the Finance Committee. The proposal was most likely the one which Wilson showed to Dennis "Captain” O’Brien, legal counsel and a member of the United Artists Board of Directors. O’Brien advised against the proposal,: not­ ing that Griffith could obtain enough credit for his business elseWhere and could "own himself. . . . He seeks an immediate and tempdrary advantage and mortgages himself, his future, etc., to bankers whom he must work and share profits indefinitely.”82 O’Brien’s advice seemed to affect Griffith, at least, for a short while. The next proposal offered by Wilson in March 1920, noted, The objections that have been urged against a general incorpora­ tion heretofore have had to do with the expense of such an oper­ ation and the restraint which might be put upon your business by the participation of bankers. This plan now proposed does away with all these objections.83

In this plan, another "group of financial men” offered to organize a public corporation and to pay for all expenses involved in offering its stock to the public. Wilson’s efforts to persuade Griffith to accept this proposal provide an example of the logic of finance capitalism: I call your attention to the fact that hardly any business in the world expects to capitalize itself out of profits___ The most suc-

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cessful businesses are the heaviest borrowers because they have found the way to make money by the use of other people’s money. And other people find it profitable to cooperate with successful business institutions by letting them use their capital to make additional money.84

Wilson concludes with a direct appeal to Griffith’s ego, pointing out that the business depended on Griffith’s personality, and upon Grif­ fith’s death his name would be gone. But, If you created a great corporation under the name of "D. W. Grif­ fith Inc.,” the corporation would live on, with you or without you-----I feel certain th at I tell you truthfully that the creation of a corporation very greatly minnimizes [sic] the hazard arising from the uncertainty of life.86

This memorandum to Griffith was dated March 1, 1920—four months later Griffith’s name was "immortalized” as D. W. Griffith, Inc. Griffith’s loan agreements specifically reveal the pressure he ex­ perienced from banking interests. While many independent filmmak­ ers found difficulty obtaining such loans, Griffith’s name and his profit­ making potential enabled him to continually gain this type of financial support. Loan agreements in the Griffith collection date back to No­ vember 1919, although references to the storage of The Birth o f a Nation and Intolerance negatives at a bank indicated that Griffith had obtained loans as early as 1917. The Central Union Trust Co. and the Guaranty Trust Co. of New York provided loans for as much as $340,000 for several productions, and by the end of 1921, nearly $2 million had been borrowed from these two banks alone, with interest amounting to over $43,000. The Central Union Trust relationship began as early as 1915 and provides an example of how Griffith was able to extend his credit while being continuously restricted. Early in 1920, the Central Union Trust loans involved the assignment of negative and positive prints for spe­ cific films, together with the receipts from the sale of these films. An insurance policy for $150,000 on Griffith’s life was to be payable to the bank, with premiums paid by Griffith. As Griffith’s financial involvements became deeper, additional demands were made. The negatives of pledged films were to be insured, at Griffith’s expense, against fire, theft, or other damage and delivered to Central Union Trust’s vaults. This storage policy changed, however, with a loan in October 1921, specifying that the original negatives be stored in Griffith’s studio vault, which the bank leased for a nominal fee of $1 per year. The bank had probably discovered what Guaranty Trust Co. had realized the previous year, when the negative for the

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film The Love Flower was returned to the studio because the bank had learned that motion picture negatives were inflammable. An accom­ panying letter apologized, explaining .. that you will understand how we feel about anything inflammable in the vaults.”86 By 1921, the Central Union Trust loan agreements also specified that any ledgers, books, or contracts referring to the assigned films were to be marked: The negative and films of this photoplay together with all contracts and agreements for the leasing, exhibition and distribution there­ from, are the property of Central Union Trust Company of New York___ 87

A good deal of correspondence took place between representatives of the bank and the Griffith company regarding these notations, as well as arrangements for placing the negatives in the vaults. By this time, the negatives had become the exclusive possession of the bank and the vaults were checked by bank representatives. The loans made in 1922 added several restrictions. The distrib­ utor was to be approved by Central Union Trust, which also main­ tained the right to call for immediate payment of the loan with interest at any time. The completed picture was to be exhibited for the bank or its designated agent, and the agreement noted that, . . . in the event that [Central Union T rust!. . . is not satisfied with said picture, or any contract or contracts which may have been or are made for sale, leasing or distribution and/or exchange.. . . the loan will forthwith, without any further action . . . become due and payable.88

Provisions added in 1923 specified that neither Griffith nor his company was to develop or produce any pictures or create any obli­ gations without the written consent of Central Union Trust. In addi­ tion to these restrictions, Griffith was required to pledge additional collateral, which included his unpaid salary from, and his stock in, the Griffith company. Of course, there were loans from banks other than Central Union Trust and Guaranty Trust. These included similiar assignments and restrictions, although a few additional provisions were sometimes added. A loan from Columbia Bank in July 1923 authorized that bank to examine any distributor’s books and records, as well as specifying that if the film being financed was not finished " . . . with due diligence or to its [the bank’s] satisfaction,” the bank had the right to enter the Griffith studio, take possession of the picture, " . . . together with all

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apparatus and appliances in connection with the same.. . and to complete the picture, with Griffith paying any indebtedness incurred, in addition to the original loan.89 In 1924, a loan from Empire Trust for $250,000 stated that in case of default, the bank had the power to sell or use any negatives, prints, or contracts, as well as Griffith’s name, in connection with the film, even if it were changed or recut.90 By 1925, most of Griffith’s indebtedness had been taken over by the Motion Picture Capital Corporation, a finance company that had been formed by a group of bankers, including Jeremiah Milbank and others connected with the Chase National Bank and other Morgan banking interests.91 Griffith became a member of the board of direc­ tors, held stock in the corporation, and received loans totaling over $223,000. At the same time, the president of the company—none other than the previously mentioned Frank R. Wilson—and his assistant became auditors for the Griffith company and were required to sign all checks issued.92 By this time, Griffith had clearly lost any chance for independ­ ence. He had borrowed over $4.5 million through banks and other financial institutions, and frequently loan applications were being re­ fused. He signed a contract to make three Famous Players-Lasky films in order to finance a film owed to United Artists, where he finally returned to direct his last film, aptly titled The Struggle, in 1931. A loan from the Federal Bank and Trust Company was secured by the mortgage on his studio property, United Artists stock, and the film itself. The Struggle was released in 1932 and withdrawn the same year as a financial disaster. The Federal Bank and Trust loan lingered on, however, while Griffith attempted to procure another loan on the mortgage and stock in order to settle the matter. Finally, in March 1933, he sold his United Artists stock, providing the necessary funds to pay the bank and several other debts.93 In 1932, he resigned from the Griffith corporation, which was bankrupt by 1935. After The Struggle, he made only a few "guest director’’ appearances, even though many other projects were dis­ cussed. As one fellow filmmaker commented, When he had to go to work for other people to obtain money, his films suffered. He needed artistic control to make successful pic­ tures. He failed completely whenever he deliberately set out to make a commercial movie___ 94

Griffith’s demise was during an era when large-scale financial interests were becoming involved with motion pictures. His pecuniary difficulties did little to endear him to these forces. As one of his ad­ mirers, Seymour Stern, noted,

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.. . the original crowd of cloak and suit manufacturers who gained possession of the industry in its pioneer days . . . are more solidly in the saddle of power than ever before. It is worse today because now they have the big bankers behind them, who lend financial and strategic support to their position; they have successfully sup­ pressed a single creative mind that might get out of hand and attempt to use cinema according to some other conception . . . other than their own... * While Griffith criticized Hollywood and how he had been treated, it must be said that he had been an active participant in the evolution of a capitalist film system, even to the extent of forming his own cor­ poration and participating in many others. Yet, one cannot help but wonder how his creative potential might have developed without these commercial restrictions that contributed so greatly to his downfall. Griffith died in Hollywood in 1948, having been excluded from the film business many years earlier. He had helped create a new American art form, but he had also contributed to the growth of motion pictures as a new American industry with commercial considerations and restrictions similiar to any other capitalist enterprise. The film industry had proven itself to the financial world during the period between 1919 and 1927, and increasingly depended on pro­ duction and corporate financing from banks for filmmaking and cor­ porate activities. Finance capitalists were attracted by the increas­ ingly stable, profitable, and rational organization of the industry, and encouraged consolidation and integration. They also were especially attracted to the growing real estate holdings because this property provided tangible assets for the major corporations. The increased banker interest and support also meant additional restrictions and constraints placed on, and more direct participation in, the movie busi­ ness. The case of D. W. Griffith offers specific examples of the types of limitations placed on filmmakers and film companies. This was only the beginning of bank participation in the film industry, however, for with the introduction of sound, these activities were to become even more extensive and more intense.

NOTES 1Benjamin B. Hampton, H isto ry o f th e A m e ric a n F ilm In d u s tr y (New York: Dover Pub­ lications, 1970), pp. 121-145. 2 Vincent Carosso, In v e s tm e n t B a n k in g in A m e ric a (Cambridge: Harvard University, 1970), p. 17. 3 Joseph P. Kennedy, ed., T h e S to r y o f th e F ilm s (Chicago and New York: A. W. Shaw Co., 1927), p. 73.

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4 American International was one of the largest and most important investment com­ panies organized to exploit foreign trade and to profit from World War I’s weakening effect on Europe. The company was organized by Frank Vanderlip, president of the National City Bank, and later associated with Paramount Pictures. Other directors of American International included Otto Kahn, Albert Wiggin (of Chase National Bank), Percy A. Rockefeller, and Charles A. Stone. See U.S., SEC., In v e s tm e n t T r u s t a n d In v e stm e n t C om panies, Part 1 (Washington: Government Printing Office, 1939), pp. 65-67. 5 F ederal T ra d e C o m m issio n v. F a m o u s P layers-L asky et a l, Complaint No. 836 (1921), pp. 903-961; also, see Howard T. Lewis, C ases o n T h e M otion P icture In d u s tr y (New York: McGraw Hill, 1930), pp. 61-79, which presents Connick’s study under the fic­ titious name, Gilmore, Field & Co. 6 F. T. C. v. F am ous, op. cit., p. 903; Lewis, C a s e s . . . , op. cit., p. 73. 7 Howard T. Lewis, T h e M otion P icture In d u stry , op. cit., p. 68; Famous Players-Lasky Corporation, T h e S to r y o f th e F a m o u s P layers-L asky C orporation (1919), unpublished document in Museum of Modern Art Archives; Marquis James and Bessie Rowland James, B io g ra p h y o f a B a n k , th e S to r y o f th e B a n k o f A m e ric a (New York: Harper & Bros., 1954), p. 245. 8 Lewi8, C ases.. . . op. cit., pp. 77-78.

9 Gertrude Jobes, M otion P ictu re E m p ire (Hamden, Conn.: Archon Books, 1966), pp. 214-226. l0Caro8so, op. cit., p. 257. 11 Brochure in D. W. Griffith collection. Museum of Modern Art, New York. 12Kennedy, op. cit., p. 74. ,3 Donald L. Perry, "An Analysis of the Financial Plans of the Motion Picture Industry for the Period 1929-1962” (Ph.D. Dissertation, Dept, of Finance, University of Illinois, 1966), p. 24. u Lewi8, T h e M otion P ictu re In d u stry , op. cit., p. 18; Ham pton, op. cit., p. 247.

15 Hampton, op. cit., pp. 248-251; Michael Conant, A n titr u s t in th e M otio n P ictu re I n ­ d u str y (Berkeley: University of California Press, 1960), pp. 22, 29; William I. Greenwald, "The Motion Picture Industry” (Ph.D. Dissertation, New York University, 1950), p. 47. 18Mae Huettig, E co n o m ic C ontrol o f th e M otion P icture In d u s tr y (Philadelphia: Univer­ sity of Pennsylvania Press, 1944), p. 29. 17See Thomas H. Guback, T h e In te rn a tio n a l F ilm In d u stry : W estern E u ro p e a n d A m e r ­ ica S in c e 1945 (Bloomington, Ind:. Indiana University Press, 1969), pp. 8-9. 18 Lewis, T h e M otion P icture In d u stry , op. cit., p. 345; Hampton, op. cit., p. 26. 19 Huettig, op. cit., pp. 39-40; Hampton, op. cit., p. 363. “ Huettig, op. cit., p. 40; Lewis, T h e M otion P icture In d u stry , op. cit., p. 337; Kennedy, op. cit., p. 89; Motley H. Flint, "Financing Motion Pictures,” in Photoplay Research Society of Los Angeles', O p p o rtu n ities in th e M otion P icture In d u s tr y (Loe Angeles: The Society, 1922; reprinted by Arno Press, 1970). 21 Hunter, Dulin & Co., T h e G olden H a rvest o f th e S ilv e r Screen (Los Angeles: Hunter, Dulin & Co., 1927), p. 11. 22 Kennedy, op. cit., p. 80; A. H. Giannini, "Financing the Production and Distribution of Motion Pictures,” A n n a ls o f the A m e r ic a n A c a d e m y o f P olitical a n d S o c ia l S cien ce 128 (November 1926), p. 48. 23 Philip French, T h e M ovie M o g u ls (London: Weidenfeld & Nicolson, 1969), p. 46. 24 J. H orner P latten , "M otion P ictures—A New Public U tility?” T h e B a n k e rs M agazine, October 1926, p. 458.

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28 Greenwald, op. tit., p. 57; Ivan Abramson, M other o f T r u th (New York: Graphic Lit­ erary Press, 1929), p. 143. 26 Letter to D. W. Griffith from J. Horner Platten, October 12, 1923, in D. W. Griffith Collection (DWG Collection), Museum of Modern Art, New York. 27 Platten, "Motion P ictures.. . , ” op. cit. 28 P latten to Griffith, op. cit.

29 Hunter, Dulin & Co., op. cit., p. 10; Halsey, Stuart & Co., "The Motion Picture In­ dustry as a Basis for Bond Financing,” May 27, 1927, reprinted in T h e A m e ric a n F ilm In d u stry , ed. Tino Balio (Madison, Wise.: University of Wisconsin Press, 1976), pp. 171-191; Greenwald, op. cit., p. 58; Kennedy, op. cit., pp. 22-23. 30 Letter to Albert Banzhaf from J. Horner Platten, April 18,1925, in DWG Collection. 81 V ariety ,October 5,1927. 32 Kennedy, op. cit., pp. 78-79. 83 Miscellaneous documents in the United Artists Collection a t the Wisconsin Center for Theater Research in Madison, Wisconsin (UA Collection), especially the Muller Legal File (1919-1951), Series 4A; Lahue, op. tit., p. 29; Ramsaye, op. cit., pp. 761-762. 84 John E. Barber, "The Bankers and the Motion Picture Industry,” C oast B a n ker, June 1921, pp. 664. 35 Ibid. ^G iannini, op. cit., pp. 80, 84. 87 Barber, op. tit. 38 Ibid., p. 665. 39 Ibid. 40 Flint, op. cit., pp. 112-113. 41 Conant, op. cit., p. 22; Lewis, M otion P ic tu re . . , op. cit. 42Giannini, op. cit., p. 47. 43 Ibid., p. 48. 44 Assignment of Rights, June 18,1920, in DWG Collection. 45 Loan Agreement with Central Union Trust Co., October 5,1921, in DWG Collection. 46 Miscellaneous loan agreements in the DWG Collection and UA Collection. 47Lewi8, C ases..., p. 54. 48Huettig, op. tit., p. 50; Jobes, op. cit., p. 233; "W arner Brothers," F ortune, op. cit., p. 112; Kennedy, op. cit. 49 SEC, In v e s tm e n t T r u s t . . , op. cit.; Greenwald, op. cit., p. 57; Lewis, C a se s.. . , op. cit. “ Giannini, op tit.; Lewis, C a s e s . . . , op. cit., pp. 53, 56. 61 Lewis, C a s e s . . . , op. tit., p. 53. 62 Letter to Associated Authors, Inc. from Bank of Italy, October 15, 1923, 1A/212/9, in UA Collection. 68 Letter to Dennis O’Brien from N. A. McKay, March 7, 1924, 2A/212/9, in UA Collec­ tion. 64 Letter to Charles A. Sackett, Mutual Bank, from Dennis O’Brien, October 27, 1926, 2A/212/9, in UA Collection. 56 Letter to Mary Pickford from Arthur Kelly, October 24, 1927, and letter to United Artists from Charles A. Sackett, Mutual Bank, September 8, 1926, 2A/212/9, in UA Collection. 56 Carosso, op. cit., pp. 240-250; Kotz, op. cit., pp. 43-44. 67 Halsey, S tuart & Co., op. cit., p. 190. 68French, op. cit., p. 47. 89 Crowther, op. cit., p. 53; Jobes, op. cit., p. 208.

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“ Halsey, S tu a rt & Co., op. cit. 81 H unter, D ulin & Co., op. cit., p. 23. 62 Ibid., p. 15. 63 Ibid., p. 28. 84 Ibid., p. 20.

85 This study of D. W. Griffith appeared as "D. W. Griffith and the Banks: A Case Study in Film Financing,” in J o u r n a l o f th e U n iv e rsity F ilm A ssociation, 30:1, (Winter 1978), and published in Italian as "Cinema e potere economico: D. W. Griffith,” S cen a /A ch a b 5/6 (December 1979), pp. 15-21. 66 Dwight MacDonald, D w ig h t M a cD o n a ld o n M ovies (Englewood Cliffs, N. J.: PrenticeHall, 1969), pp. 70-72. 67 Background on Griffith’s Biograph days is based on Robert M. Henderson’s D. W. G riffith: H is L ife a n d H is W ork (New York: Oxford University Press, 1972) and Gordon Hendricks’ B e g in n in g s o f th e B io g ra p h (New York: Beginnings of the American Film, 1964). 88 Robert Grau, T h e T h ea tre o f S cien ce (New York: Benjamin Bloom, 1914), pp. 55-56; Jobes, op. cit., pp. 95, 98. 69 Letter to D. W. Griffith from Harry E. Aitken, April 15, 1914, DWG Collection. 70 Linda Arvidson, "How Griffith Came to Make T h e B ir th o f a N ation, ” in F ocus on D. W. G riffith, ed. Harry M. Geduld (Englewood Cliffs, N. J.: Prentice-Hall, 1971), pp. 81-82. 71 Ibid., p. 81; Bardfeche & Brasillach, op. cit., p. 100; Iris Barry and Eileen Bowser, D. W. G riffith: A m e ric a n F ilm M a ster (New York: Museum of Modern Art, revised edi­ tion, 1965), p. 20. 72 Letter to W. H. Kemble from Harry E. Aitken, June 17, 1929, DWG Collection. 73 "All-Time Rental Champs," V ariety, January 5, 1977, p. 16. 741919 General Correspondence, "Summaries of Earnings of T h e B ir th o f a N a tio n , March 1919-October 1919,” DWG Collection. 78 "List of Stockholders and Monies Paid—Wark Producing Corporation,” December 20, 1920, DWG Collection. 76 Barry and Bowser, op. cit., p. 29. 77 Letter to Counselman & Company from D. W. Griffith, June 18, 1920, DWG Collec­ tion. 78 Letter to D. W. Griffith from Frank R. Wilson, July 31, 1919, DWG Collection. 79 Miscellaneous letters from Frank R. Wilson, February through September 1919, DWG Collection. “ Letter to D. W. Griffith from Frank R. Wilson, September 12, 1919, DWG Collection. 811919 General Correspondence, untitled memorandum, DWG Collection. “ Letter to Albert Banzhaf from Dennis ("Captain”) O’Brien, January 17, 1920, DWG Collection. “ Letter to D. W. Griffith from Frank R. Wilson, March 1, 1920, DWG Collection.

i>cu,er to A lbert B anzhaf from G u aran ty T ru st Company of New York, May 25, 1920, DWC Collection. 87 A greem ent between C entral U nion T ru st Company of New York and D. W. Griffith Inc., October 5, 1921, DWG Collection. 88 A greem ent between C entral Union T ru st Company of New York and D. W. Griffith Inc., Ju n e 15, 1922, DWG Collection. “ Agreem ent betw een Colum bia B ank and D. W. Griffith Inc., Ju ly 31, 1923, DWG Collection.

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90 Agreement between Empire Trust Company and D. W. Griffith Inc., July 1, 1924, DWG. Collection. 91 The Chase National Bank was purchased by the Rockefellers in 1930, but until that time was controlled by Morgan interests. 92 Minutes of meeting of Board of Directors, D. W. Griffith Inc., March 10, 1925, DWG Collection. 93Balio, U n ite d A r tis ts . . . , op. cit., pp. 85-91. 94 Lillian Gish, “Fade Out,” in Geduld, F ocus on G riffith . . . , op. cit., p. 153. 95 Seymour Stern, "The Bankruptcy of Cinema as Art,”in William Perlman, T h e M ovies o n T r ia l (New York: Macmillan,1936), p.117.

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3 T he Introduction of Sound and Financial Control (1927-1939) With continued theater expansion and integration, by 1926 the film business was well on its way to proving itself as a stable and legitimate American industry. Not only did film companies attract bank support in the form of loans and security issues, but nearly 20% of the board directors of the six largest corporations were bankers, often repre­ senting substantial shareholdings in these companies. By 1926, though, box-office receipts began to decline, most likely due to the increased competition from radio and more discriminating audience tastes. Hollywood industrialists were not the only ones con­ cerned, however, as financiers involved in the industry were rumored to have plans for giving the film business "a shot in the arm.”1 These schemes proved unnecessary, however, since the film trade was re­ vived with the innovation of sound during the last few years of the decade. Ironically, this did not save the industry from financial control, but even further enhanced the participation of those bankers already involved, and attracted other (and more important) financial interests. So, as the movies learned how to talk, finance capital’s voice became even louder. The introduction of sound intensified financial involvement in the film industry in two significant ways. First, it at­ tracted those important banks connected with the large electrical com­ panies that would control much of the industry in the years to come. Second, it attracted more of the general financial community, leading to additional investments, financial extension, and, eventually, to overextension in the industry in the early 1930s. 47

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Contrary to what many film historians would have us believe, there were numerous sound systems developed during (and even be­ fore) the 1920s, for the interest in sound film existed long before the opening of The Jazz Singer at the Warner’s theater in New York on October 6, 1927.2 The innovation and development of sound for the motion picture industry was dominated and eventually controlled by the American Telephone and Telegraph Company (AT&T) and its sub­ sidiary, Western Electric (known as the Telephone Group, at this time), and by the General Electric Company (GE), the Radio Corporation of America (RCA), and other companies (known as the Radio Group), and by those financial interests associated with these companies. With sub­ stantial financial resources, these two groups operated laboratories and research facilities devoted to the development of new patents in various fields. Thus, they came to own many of the key patents that were essential for the innovation of sound in the film industry. Al­ though most new fields were divided according to the interests of either the Telephone or the Radio Group, the motion picture sound business involved intense competition between these two groups.3 Numerous inventors, entrepreneurs, and small businessmen tried to compete, but with little success. A committee was formed in 1927 by the five major film corpora­ tions to gather data and recommend the best system for adoption by the entire industry. While the committee took into account technolog­ ical factors and the patent situation, financial considerations seemed even more important. As Doug Gomery documents: The chosen system had to have the financial backing of a large, important firm with substantial manufacturing resources, vast technical expertise, personnel and facilities, and adequate strength in the financial markets.. . . Giant motion picture firms like Par­ amount were not about to risk their goodwill, capital stock and strong profit potential on a small, under financed firm.. . . The only two systems which remained under consideration after July of 1927 were the Photophone system (RCA) and the Western Electric Vitaphone system.4 Because the demands by RCA and GE were apparently too un­ reasonable for the industry, the system chosen was Western Electric’s Vitaphone. AT&T thus gained a new market for sales and servicing of its sound film equipment, plus royalties to be collected from every feature produced. RCA’s response was to enter the industry directly with the formation of its own integrated film corporation (Radio-KeithOrpheum) to produce, distribute, and exhibit films using the Photo­ phone system.

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The relatively fast transition to sound films meant increased cap­ ital needs for all of the film industry. In addition to the royalties charged by AT&T, expenditures included studio, laboratory, and thea­ ter conversion, plus higher costs for labor (talent, writers, sound tech­ nicians) and materials (film stock and recording supplies). According to various figures, the cost for sound installation for each theater ranged from $8,000 to $15,000 in 1927, $5,000 to $12,000 in 1928, and $5,000 to $7,000 in 1929. Other estimates have been made of the total cost of sound conversion for the entire industry; the MPPDA declared at the time that it would cost around $% billion, while Gomery later estimated $30 million.5 These amounts were in addition to expenditures on theater con­ struction and film production. In his excellent study, Antitrust in the Motion Picture Industry, Michael Conant found that $161,930,000 was spent on new theaters alone in 1928.6 By 1935, a group of architects estimated that $1,460,000 had been spent to date in theater construc­ tion, exclusive of sections of theater buildings devoted to office space.7 At the same time, by 1930 the average production cost was between $200,000 and $400,000, and by 1929, over $184,000,000 was spent yearly on film production by the entire industry.8 With these increased costs, smaller companies and theaters either fell prey to the larger corporations and chains, or simply faded away. The introduction of sound, therefore, stimulated even more consoli­ dation in the industry, as well as attracting additional financiers and bankers who were ready to supply the necessary capital, arrange merg­ ers, and share in the increased profits. Profits were at peak levels around Hollywood about this time. Total assets were reported to be over $1 billion, while net income for the five major corporations in 1930 totaled $70,703,000. By the end of the 1920s, the industry had developed into a mature oligopoly, as five totally integrated, diversified, and worldwide corporations dominated the business with control of 77% of the first-run theaters and the production/distribution of 50% of the feature films in the United States.9 The amount of debt incurred by these expanding companies had also increased tremendously. Donald L. Perry studied the financial plans of the five major and several minor film corporations from 1929 through 1962, analyzing the sources of capital for these companies. His analysis includes the percentage of debt to total assets, and indi­ cates that well over one third of the total liabilities of these corpora­ tions until 1935 was long-term debt, of which the principal form was long-term bonds.10 (See Table 3.1) Short-term debt averaged around 7 to 8% until 1931, increasing gradually by the end of the decade. For the entire period, debt financing was nearly as high, and, in some

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TABLE 3.1 SELECTED MOTION PICTURE FIRMS’ SOURCES OF CAPITAL (1929-1940)“ (percentage of total assets) Year 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 Meanaf

Short-Term Long-Term Debt' Debtb 7.4% 7.1 8.7 11.9 9.5 10.3 11.0 11.3 12.5 10.5 12.4 9.9 10.0%

36.4% 39.0 38.9 41.6 40.2 41.5 34.1 32.9 31.0 31.2 28.0 25.6 35.2%

Total Debt 43.9% 46.1 47.6 53.5 49.7 51.8 45.1 44.2 43.5 41.7 40.4 35.5 45.2%

Net Com­ mon Stock Equity* 49.0% 47.2 47.1 41.5 45.5 36.2 43.3 46.1 47.0 49.0 51.1 52.4 46.8%

Preferred Stock

Total Equity*

7.1% 5.9 4.9 5.0 4.1 12.3 11.6 9.7 9.5 9.3 8.4 12.2 7.9%

56.1% 53.1 52.0 46.5 49.6 48.5 54.9 55.8 56.5 58.3 59.5 64.6 54.6%

“ Table is from Donald L. Perry, "An Analysis of the Financial Plans of the Motion Picture Industry for the Period 1929 to 1962,” Ph.D. dissertation, University of Illinois, 1966, and derived from M oody’s In d u s tr ia l M a n u a ls (1930-1941). Companies include: Allied Artists (from 1937), Columbia, Loew’s, Paramount, RKO, 20th Century-Fox, Universal, Walt Disney (from 1939), and Warners. b Short-Term Debt = current liabilities. e Long-Term Debt » notes and loans with maturity dates in excess of one year. * Net common stock equity = net worth (common stock equity, reserves, and other net worth items logically included as part of equity.) “ Total equity - net common stock equity + preferred stock compared to total assets. f Industry means are arithmetic averages of total composite data for the 19291940 period.

years, even higher than net common stock equity, indicating Holly­ wood’s heavy dependence on debt funding. Not only were there these direct corporate obligations, but most of these corporations were hold­ ing companies, meaning that even more debt was possible in the form of subsidiary bonds. These various forms of debt involved heavy interest and other obligations. According to Perry’s estimates, the companies were able, for the most part, to cover interest charges on their debts from 1929 through 1931. But, for several of the largest corporations (e.g., RKO, Fox, Warners), there was no coverage available by 1931. In other words, the net corporate income for these companies failed to cover their in­ terest expenses.11 In addition to interest charges, there were often contingent liabilities associated with some of the industry’s bonded

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debt. Repurchase agreements were quite common, as were sinking fund debentures and mortgages on highly inflated real estate used to secure much of this debt. By 1930, one source estimated that the Big Five of the industry (Paramount, Fox, Warners, Loew’s, and RKO) encountered fixed charges on obligations totalling $409,855,000, which had risen from $121,846,000 in 1927.12 The notion that the film industry could escape the ravages of the depression proved to be as illusive as the images that flashed across the silver screen. The myth of a depression-proof industry was popular for a while, but by 1931, a box-office slump began to create havoc in the major film corporations’ boardrooms, then, more than ever before, inhabited by financial wizards and conservative bankers. Payments on large amounts of funded debt came due and past due. Capital reserves were rapidly depleted as interest coverage shrank to no coverage at all. Real estate values depreciated, while market prices for motion picture stocks plunged. Box-office admission charges were even reduced in hopes of attracting more customers, but this strategy produced even less box-office revenue. It may not be surprising to find that the weaknesses in the corporate/financial structure of the late 1920s, as later analyzed by many economists, were evident in the film industry during this period. First, several investment trusts were active in Hollywood and had provided film companies with many financing opportunities.13But, perhaps more important, the basic structure of the industry revolved around holding companies, another basic weakness of the corporate structure in the 19208. This provided the industry with endless possibilities for ex­ tending and overextending debts, further exemplifying another char­ acteristic of the credit/banking system as described by Marx and Hilferding. By 1931, the movie companies were in need of more financial wizardry, or, perhaps, a good dose of Dr. Kuhn Loeb’s magic potion. Loan limits were already overextended at many banks and the unfa­ vorable capital market at the time offered little relief. Due to the fall of security prices and the weak common stock market, refunding debt with equity financing was nearly impossible. Consequently, the heavy use of debt financing by the industry became a crucial problem. Refi­ nancing schemes relied on even more debt, which also meant more advice and participation by bankers already dealing with the industry, in addition to attracting new groups vying for control and possible future profits.14 Finally, (and, again, as predicted by Hilferding and Lenin), the bankruptcies and receiverships which followed for some companies led to even more control by finance capitalists over the onceshunned movie business.

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In summary, then, integration, stability, and expansion (espe­ cially theater expansion and construction) finally legitimized the film industry and attracted bankers; the conversion to sound and the depression-proof industry myth intensified banker participation; the overextension and the depression, which finally hit the industry in 1931, solidified financial control and further concentrated capital and power within the industry.

QUESTIONS OF CORPORATE/FINANC1AL CONTROL Financial control of the American film industry during the 1930s, or any other period, for that matter, demands more attention to the con­ cept of corporate control itself and the role of finance capital in mo­ nopoly capitalism, as discussed in Chapter 1. Although finance capital was dominant in the United States from the turn of the century, there was increased competition in banking during the 1920s, with the emergence of different types of financial institutions, such as invest­ ment trusts, and savings and loan associations. At the same time, banks in other sections of the country competed more actively with the large and powerful New York banking institutions, challenging their control over some companies and industries. Nevertheless, finan­ cial control remained as the major form of control over most large corporations, and especially for large manufacturing, railroad and power utility corporations, through the 1920s.15 With the depression, however, there appeared to be a gradual weakening of financial institutions in general, as the decline in eco­ nomic expansion meant less demand for funds supplied by corpora­ tions. The situation was further aggravated by revealing, and some­ times embarrassing, Congressional probes of the stock market and banking industry, leading to reforms in banking and investment reg­ ulations.16 At the same time, the notion of corporate control was reex­ amined and a new thesis on the nature of capitalism itself emerged. In 1932, Adolph A. Berle and Gardiner A. Means argued in The Modern Corporation and Private Property that there was a continuing trend toward separation of corporate ownership and control due to the widespread ownership of stock in large corporations and banks. While not a novel observation (Marx had noted this trend in the 1850s), the managerial theory argued further that "a new class of capitalists” had become the "new princes of corporate capitalism”—the professional managers had become more important than the actual owners of cor­ porations. In their study, Berle and Means found that 65% of the top 200 corporations were "management-controlled,” as opposed to "owner-

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controlled,” i.e., when a stockholder owned at least 20% of a corpora­ tion’s stock. The theory further argued that the financial independence gained by giant corporations able to self-finance their activities through internally generated funds had led to a decline in the financial power wielded by large banks and other financial institutions, thus a decline in the importance of finance capital.17 With Berle and Means’ study serving as a guiding light, the managerial theory has gained many disciples and followers over the years. At the same time, it has been diligently and persuasively chal­ lenged, not only by social scientists, but in numerous government stud­ ies of corporate and financial power. In particular, Berle and Means’s data has been attacked on methodological grounds, as corporations owned by legal devices involving small proportions of stock ownership were inappropriately characterized as management-controlled. In ad­ dition, management control was presumed for a large number of cor­ porations when no other type of control was obvious. In other words, only 22% of the largest corporations (and only 3.8% of the industrials) could actually be classified as management-controlled. Yet, as Maurice Zeitlin points out, Berle and Means went on to build the managerial thesis on these "pseudofacts.”18 Moreover, the managerial theory has consistently been criticized for its theoretical deficiencies. First, the assumption that corporations have become self-financed has been dismissed in several studies which indicate that corporations (and, especially the largest ones) inevitably rely on external funds, despite periodic cycles of self-financing.19 Furthermore, in their assessment of corporate control, the man­ agerialists generally have disregarded important interconnections and kinship ties between principal shareholders, officers and directors, and with other corporations, legal and accounting firms, and financial in­ stitutions. By emphasizing the possibilities for control through stock ownership, they have also neglected the potential power inherent in financial institutions’ role as sources of capital. Hence, further ex­ amination of capital and debt structures is necessary in assessing a corporation’s actual independence. Additionally, managerialists usu­ ally overlook other formal and legal relationships (such as ownership of vital patents and copyrights, buyer and supplier relationships, etc.) th at can sometimes serve as indirect means of control over corpora­ tions. Finally, they have ignored those informal, personal relation­ ships which can provide the possibilities for various types of pressure to be applied in order to influence corporate decisions and activities. Critics of the managerial thesis argue further that control can be overlooked in a specific corporation, unless viewed in light of all these interconnections and potential sources of control. As a result, the determination of corporate control, and consequently, the analysis

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of the role of finance capital becomes a far more complex process than merely determining who owns the msyority of stock in a corporation. That task is difficult enough. But, since control (or, actually, power) is a relationship, it is often hidden or potential, and thus sometimes tricky to identify. This is especially so when there are deliberate at­ tempts to obscure such disclosures through inaccessible data and con­ tinuously changing methods of control devised by financial interests in order to maintain corporate secrecy. Therefore, the assessment of corporate control requires " . . . the painstaking tedious, detailed and exhausting process” of examining how control is actually exercised for specific corporations within the prevailing social, political, and economic contexts of specific historical periods. As Zeitlin explains, the investigation of corporate control must take into account . . . the concrete situation within the corporation and the constel­ lation of intercorporate relationships in which it is involved.... In a word, it will be necessary to explore in detail the institutional and class structure in which the individual large corporations are situated.20 Berle and Means, as well as many other managerialists, concep­ tualize corporate control as the power to select the board of directors or its majority, and accordingly, base their determination of such power on the concentration of stock ownership.21 Yet it seems clear that a single measure taken alone is an inadequate indication of actual con­ trol in a corporation. Zeitlin suggests that, ... when the concrete structure of ownership and intercorporate relationships makes it probable that an identifiable group of pro­ prietary interests will be able to realize their corporate objectives over time, despite resistance, then we may say that they have "control” of the corporation.22 More simply, corporate control has been defined as . . . the power to determine broad policies guiding a corporation . . . and not . . . the actual influence on day-to-day affairs of an enterprise.23 In other words, it is the exercise of power over strategic decisions relevant to a corporation, including those decisions pertaining to re­ lations with other companies, the state, foreign governments, workers, trade unions, raw material sources and markets.

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On the whole, then, these definitions provide a more realistic basis on which to assess corporate control, in that both active and latent forms of power exercised by direct and/or indirect means can be taken into account. Power can be exerted, for instance, through infor­ mal types of pressure which evolve from social relationships, as well as in the role that financial institutions often play in setting bound­ aries or parameters within which managements must operate.

FINANCE CAPITAL AND FILM IN THE 1930s Widespread public acknowledgements in the early 1930s from both inside and outside the film industry, indicated that important bankers and banking groups had increased their activities in, and control over, the movie industry.24 Benjamin Hampton, an active Hollywood indus­ trialist, discussed the gradual involvement and participation of banks in the film business during this period, directly confronting the subject of banker control.26 In 1933, Howard T. Lewis also discussed the "controversy over the wisdom or necessity of so-called ‘banker control’ of the industry,” in the preface to his book The Motion Picture Industry in 1933. He noted, however, that the problems of intercorporate financial relations, financial structure and reorganizations, would not be considered in the rest of the book, not because of the lack of significance or great interest in them, but: . . . it is very dubious whether any analysis of these financial con­ siderations would be sufficiently enlightening to be of value. Only outward manifestations could be discussed; the underlying consid­ erations, involving a host of facts unknown and in many cases beyond the ability of the research man to ascertain, cannot be put in print at this time, if indeed it can ever be done. Furthermore, it is doubtful whether any real purpose would be served by pub­ lishing such information.26 Lewis, a professor of marketing at the Graduate School of Busi­ ness Administration at Harvard University noted in the book’s fore­ word th at the study was made possible through "the generous coop­ eration of Mr. Joseph P. Kennedy,” and others, formerly of Harvard School’s research staff, but then connected with RKO Pictures Cor­ poration.27 Indeed, Lewis’ book avoids any sustained analysis of finan­ cial control, and focuses primarily on the organization and practices of the industry.

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In the same year, however, Upton Sinclair tackled the subject of bank control of Hollywood directly by detailing the events of the Fox Film empire’s takeover by banking interests in Upton Sinclair Pre­ sents William Fox. Based on personal interviews and information sup­ plied by Fox, Sinclair’s study was a basic source for discussions of bank control and bankers’ activities in the film industry during the late 1920s and early 1930s.28 One of the studies that relied heavily on Sinclair’s book was Money Behind the Screen, written in 1937 by Francis D. Klingender and Stuart Legg. Probably more than any other single work, this study has been cited as the source for discussion of financial control of Hol­ lywood during the 1930s, as Klingender and Legg presented a brief financial history of the American film industry which examined indi­ rect and direct ties betwen major financial groups and film corpora­ tions.29 Money Behind the Screen was produced for the British Film Coun­ cil, a research group formed to study the social aspects of the cinema during the 1930s. The study was first published in World Film News in two sections, one dealing with the American film industry and the other on the British film trade. The latter article, it has been said, .. created a furore” in Britain.30 John Grierson, the British docu­ mentary filmmaker who had initially requested Klingender to do the study, noted in the Lawrence & Wishart volume published in 1937: . . . not the least ardent of its readers was the intelligence section of one of the bigger banks concerned. Within a week the news that the lavish credits til now advanced to the film industry, were to be brought under review.31 Grierson’s introduction also included an interesting comment as to why the Film Council was interested in this type of financial in­ vestigation: Though some of us would hardly pretend to be economists this finance story is the most vital of stories to us. With, say, fifty thousand pounds to spend on a picture it is important to know that only twenty thousand pounds will be left, after the extravagances and the rake-offs, to go on to the screen. It is not unusual for producers and directors to be kicking their heels because the fin­ anciers are too busy manipulating their shares. The creative worker lives in such uncertainty from day to day and from picture to picture that, in final cynicism, he as often as not joins the throng and, with his financial masters, maintains the principle of getting his while the getting’s good. This perhaps will explain the uncreative presence of so many creative men in the wilderness of films.

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Klingender and Legg traced financial control of the industry di­ rectly, through financing, stock ownership, and key executive control; and, indirectly, through patent control, and illustrated these relation­ ships through two charts which accompanied the study. (See Fig. 1 and 2.)32 Although these have been duplicated in numerous studies, several critical points need attention. First, there is no indication as to the types of relationships represented between film corporations and banks, bankers, or other corporations (i.e., stock ownership, interlock­ ing directors, or other relations). Even though more details are pro­ vided by Klingender and Legg in their discussion, the diagrams must be seen as representing only potential sources of control or influence; in other words, a structural analysis of relationships existing at one point in time. This is not to say that a structural representation of control is irrelevant, since the totality of these complex relationships must be taken into account in order to analyze actual corporate con­ trol. Although Klingender and Legg’s figures are, for the most part, accurate representations of these structural relationships, there are a few problems that stem from the sparse information available to these researchers at the time. For instance, one might note that the War­ ners’ company is placed within the "sphere” of the Morgans, by way of AT&T; yet, as we shall see, the Warners had become a problem for AT&T by this time, and could only be seen as controlled in an indirect way through equipment supply and repair contracts. This is not to say, however, that Klingender and Legg’s basic thesis—that the American film industry was controlled indirectly and directly by major banking interests—was incorrect. Although there have been recent challenges to this notion,33 much evidence confirms Klingender and Legg’s study, especially if control, as previously de­ fined, is the power to determine broad policies guiding a corporation. As indicated by Klingender and Legg, and confirmed by this study, the majority of the major Hollywood corporations (e.g., those that dom­ inated the industry in terms of total assets, income and revenue, and determined trade practices through their control of first-run theaters and the use of monopolistic policies) were either owned by banks, or arranged their financing under restrictive conditions set by banks and were often managed by bankers or financiers. Thus, these banks and bankers held the power to determine corporate policies, to influence trade practices, and to become intimately involved in a company’s operations. While there may have been less overt financial control of corpo­ rations and industry in general during the 1930s, the film industry became even more financially-controlled than in other periods. This may have been due in part to the fact that motion pictures only

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06 F IG U R E 1. INDIRECT DEPEN D EN CE THROUGH SOUND EQUIPM ENT CONTROL

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From: Francis D. Klingender and Stuart Legg, M oney B e h in d th e S creen (London: Lawrence & Wishart, 1937), p. 71. See Appendix B for notes included on Klingender & Legg’s original chart.

F IG U R E 2. DIRECT FINANCIAL CONTROL OR BACKING, 1936.

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2, 229-30 since 1960, 151-61 Capitalists, relations toearly film industry, xvi Casting, bank approval of, 114 Celler, Rep. Emanuel, 135 Chaplin, Charles. I l l , 122, 182 Chase National Bank, in 1930s, 232 relations with AT&T, 66, 67, 68 relations with Fox, 74, 75, 76 C itize n K a n e , 94, 95 C lo se E n c o u n te r s o f th e T h ir d K in d , 190 Columbia Pictures, case study, 187-8, 191 debt, control of, 188, 189 diversification, 187 financial picture, 1970-78, chart, 192 management, change in, 188 picture financing policy, 187 relations with banks, 187, 188-9, 190, 191 Columbia Savings and Loan Association, relation with MCA, 175 Commercial banks: miscellaneous services to movie industry, 171-2 as source o f capital, 151, 153 Community o f interests, 218 Commodity, film seen as, ix, 215-6 Competition in film industry in postwar era, 104 Completion guarantee for independent film financing, 112-3 Completion money, as loan from banks, 108 Conglomerates, 150 in postwar era, 105 Control: corporate and financial, questions raised about, 52-5 fights for, 217-8 ideology, reinforcement of, 219-20 making o f films, effects on, 219 marketing o f films, 218 obvious forms, 216 types o f relations, 216 Corporate financing: early prospectuses, 32, 33 motion picture industry, capital investment in late 1920s, tables, 31 1920s, economic situation in U.S., 30

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Corporate financing (cont.) since I960, 161-2, 165 covenants, 162 restrictions on money use, 162 stock and bond issues, in 1920s, 31 theaters, stock sales in, 32 Corporate business, funds, sources of, 153 Corporations: and interactions witn financial institutions, 3-5 and small enterprises, 3 as source o f capital, 153 Cross-collateralization o f bank loans, 108 Cross ownership links in film industry, ix

D Debt-financing: as interaction between corporations and financial institutions, 3 as source o f capital, 153, 154, 155, 160 Debt, long-term, 1960-70, in manufacturing companies, 154 Debt structures, in six film companies, 1975 and 1978, 156 Decca Records, relation with MCA, 175 Decline o f revenues in postwar era, 103-4, 109 D eep , T h e, 190 De Mille, Cecil, 79 Depression Era: effect on corporate and financial control o f film making, 52 effect on Fox, 76 effects on RKO, 84 financial control and backing, control net, 59 relations between finance capital and film in. 55, 58-9 sound equipment control, control net of, 58 utilities, analogy with, 60 Direct control, nature, 57 Director interlocks, 170, 171, 174, 177, 178, 185 between corporations and financial institutions, 4 o f Fox Film and Theater Companies, 75 U>We, 171 Disneyland, 175 D isn e y V ersion, T h e , 172 Disney World, 174 Distributors: for independent film producers, 114, 118 major, North American market shares of, 1970-78, 132 as source o f capital, 158-9

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S U B JE C T INDEX Distribution and financing, 26-7 Diversification in film industry in postwar era, 105 o f Columbia, 187 of Warner Communications, 180 D rea m S tre e t, 28

E Eagle Lion Pictures, 135 East Coast banks, relations with Bank of America, 121 Eastman Kodak, ownership of, xii E c o n o m ic s o f D isse n t,

12

Economizing, efforts toward by bankers, 93 demands of, 92 ERPI, 93 and film styles and content, 94 reforms, 93, 94 Edison, Thomas A., 1 Electrical Research Products, Inc., (ERPI), 61, 62. 63, 64, 65, 66, 68, 69 Empire Trust Co., 8 End money, as loan from bank, 108 Enterprise Studios, 137 Equity financing between corporations and financial institutions, 4

F Fairbanks, Douglas, 27, 28 Famous Players-Lasky, 17, 18, 20, 21 F a n ta sia , 172-3 Favored customer policy, 218, 219 Federal Communications Commission (FCC), investigation o f AT&T, 61, 63 Flint, Motley, 26 Film companies, management by Hollywood banks, 201 Film, development of, early industry, xv, xviii-xix data sources, xix, xx as ideological carrier, xvii and real estate, xvi risks, nature of, xv-xvi Film: as commodity, ix and management, xi Film Booking Offices o f America, and RKO, 77 First Boston and Hollywood banks, 194, 196 First money, as loan from bank, 108 First National Bank o f Chicago, relation with MCA, 176

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Foreign markets for films in postwar era, 105 F o re ve r A m b e r ,

111

Fox, William, 9 relations with AT&T, 65, 66 Fox Film and Theater Companies, case, 71, 72, 73, 74, 75, 76 early growth, 70 expansion, 70, 71 promotion scheme of, 73 stock manipulation by, 72-3 Funded debt, o f four film companies, 168

G Gardner, Ava, 141 Garfield, John, 111 General Electric, in 1930s, 231 Geographical expansion o f movie industry since 1960, 150 Giannini, Amadeo Peter, 12, 13, 27, 119, 120 Giannini, Attilio Henry, 7, 12, 13, 120 Giannini, Bernard, 138 Golden Herbert, 108, 109 Goldwyn, Samuel, 110 C ra p e s o f W ra th , T h e, 94 Grierson, John, 56 Griffith, D. W., xviii, 11, 20, 27, 28. 33-41, 38, 39, 40 business ties, 34, 35 company founded by, 36, 37, 38 early work, 34 late life, 40-1 studio at Mamaroneck, N.Y., 35-36 Gulf and Western Industries. S e e Paramount Pictures, case

H Halsey, Stuart & Co., relations with Fox, 71 Hamelink, Cees, 207 Hampton, Benjamin, 17 Heinz, George, 140, 141 Hilferding, Rudolph, views of, 5 H is to r y o f th e A m e ric a n F ilm In d u s tr y , H o lly w o o d R e p o rte r, T h e, 135

17

House o f Representatives’ probe of Bank of America, 135-6

I I L o v e d a W o m a n , 95

Independent film financing, as source of capital, 111-19, 159, 160

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M O V IE S A N D M ONEY

Independent film financing, (cont.) banks: competition between, 108-9 influence of on production, 113-4 and capital gains tax law, 107 and constriction of market, 109 growth of, 107 and majors, percentages of total film production by, 106 nature, 106 requirements for financing: documents in credit file, 115 liens, 115 profit potential, 113 repayment, 116 risks. 111 Indirect control, nature, 58 Inflation, steps against by banks, 110 Influence, issue of, 204 Integration, in early film industry, 21 Interest rates on production loans, 27 Interlocks. S e e Director interlocks International markets: banks, expenses of, branches, 206 complex developing in, 207 data systems, 207 discussion, 206 as extensions of U.S., 208 loans, 207, 208 In to le ra n c e , 35 Investment banks, as source of capital, 151 Investment company, effects of on early film industry, x, xi

Korda, Alex, 128 Kuhn, Loeb & Co., 17, 18, 20, 21

L Laboratory, approval by bank, 114 Legitimation of film industry, in bankers’ eyes, 22 Leisure activities and products, under corporate umbrellas, 150 Lenin, V. I., views of on capital, 5-6 evolution of capital, 5 and imperialism, 5 Lewis, Howard T., study, 55 Line of credit in corporate financing, 161 Loans (see a lso Bankers, Banks, Corporate financing, Independent film financing) additional, to six film companies: 1975, 167 1978, 166 of Bank of America, 121-2, 129-31, 132-3, 134 in international markets, 207, 208 and issue of control, 216-7 and length of time of, 161 for production, 26, 29 repayment, 27 Loew’s, relations with Fox, 71 Lombard, Thomas R., 1 L o v in g L ie s, 29

M J J a w s, 176 J a z z S in g e r, T h e, 48 J u d ith o f B e th u lia , 34

K Kahn, Felix, E., 20 Kahn, Otto, H., 12 Kalem Company, 2 Kennedy, Jeremiah, J., 8 Kennedy, Joseph P., 31, 77-9, 80, 84, 93 and RKO, 77, 78 takeover of Pathe, 82 Kerkorian, Kirk, takeover of MGM, 177 K id , T h e , 122 Kinetoscope Company, 1 Kinetoscopes, early, 1 K in g o f K in g s, 79, 80 Klingender and Legg study, 58-9

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Managerial theory, 53 Marx, Karl, 5-6, 201 views of on banking system, 5 and credit, 6 MCA, relations of with Universal Pictures, case, 175, 176 debts of, 176 growth of, 175 McCarthy years, 109 and House Un-American Activities Committee, 110 Waldorf statement, 110 Media, businesses of under corporate umbrellas, 150 Mergers, and Banks’ attitudes to, 204-5 MGM, case: and banks, dealings with, 177 Grand Hotel of. 177 interlocks, 177, 178 Milbank fortune, 79 Milbank, Jeremiah M., 79

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Milbank, Joseph M., 79 M illion D ollar M ovie, 142 M iracle o f the Bells, 141

Mix, Tom, 78 M odern C orporation and Private Property, The, 52

Moguls: ethnic background, 12 public images, 23 relations with Hollywood Banks, 96, 201 M oney B ehind the Screen, 56 M onsieur Verdoux, 111

Morgan, J. P., 231 Morgan group, in 1930s, 231 M otio n P icture A lm anac, 1941, 119 Motion Picture firms, capital sources for: 1947-53, 154 1954-62, 155 Motion Picture Producers and Distributors of America, 23, 24 and bankers support, 23 committees of, 23, 24 and stock promoters, 24 Movies: early financing of, xvi, 3, 9, 10 early market for, 2 financing by Bank of America, 121-2, 129-31, 132-3, 134 historical role of, xv M u tu a l Pictures v. O hio, case, 14 N New processes in film industry in postwar era, 105 New York banks, relations with Hollywood banks, 198 N o M ore W omen, 29 Nominee names, for stock ownership, 169, 170

O Odium, Floyd, 86 Orion Pictures, 181 Otterson, John E., 64

P Panic of 1929, effect of on Fox, 72, 73 Paramount Pictures, case: assistance from Chase, 185 Gulf and Western, growth of, 185

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Paramount Pictures (cont.) interlocks, 185 problems with economizing, 93 Partnership concept. Fox and RKO, example, 202 Pathe, 82-4 directors, table, 83 incorporation of into RKO, 83-4 takeover by Kennedy, Joseph P., 82 Peter Pan, 173 Photophone system, 48 (see also Sound) Pickford, Mary, 27, 28, 182 Picture loans, nature of, 108, 157-8 Pinocchio, 173 Platten, J. Homer, 23 Postwar era, 103-5 Power through corporate and financial control, 54 Producers: as consideration in bank financing, 112 as source of capital, 159 Production: costs, circa 1920, 21 financing, of, 25-30 Professional managers, 52, 53 Public image of film industry, early: Hollywood scandals, 23 movie moguls, 23

R Ramsaye, Terry, 1 Rathvon, N. Peter, 87 RCA, in 1930s, 233 and RKO, 86 Release of film, influence of banks on, 116 R e d M eat, novel, filming of, 94-5 Rentals, early increases in, 18, 19 and foreign markets, 19 Revolving credit agreements and tines: in corporate financing, 161-2, 165 1975, 164 1978, 163 Richard, The Lionhearted, 29 RKO, case: control, 80 debt load, 84. 85 directors, table, 80 founding, 78-9, 80 receivership of, 85-6 reciprocal deals, 90 reorganizataion, 87, 88, 90 and sound, introduction of, 78 stock held in, table, 88 structure, 1928, 81

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Robinson, Edward G., 95 Rockefeller Center, and RKO, 87, 89 Rockefeller, Nelson, 87 Rockefeller interests, in 1930s, 231 Rosten, Leo, 7-8 S Screen Gems, subsidiary of Columbia Pictures, 187 Script approval by banks, 113 Second money, as loan from bank, 108 SEC, reports by, 170, 171 Self-conglomeration, 149 Seligman, Ben, 12 Selznick, Lewis J., 11, 128 Semenenko, Serge, 175, 187, 194-6 control of Warner Brothers, 195 as director of film companies, 195 and film industry, 195 innovations by, 194 loans by, 194, 195 S h a m p o o , 190 Sinatra, Frank, 141 Sinclair, Upton, study by, 56 S n o w W h ite , 172 Sound (se e a lso RKO), 48, 50, 51 and capital sources, 1929-40, table, 50 control of by firms, 48 costs of adoption, 49 and debts, 49, 50 introduction of, 47-8 and profits, 49, 50 system adoptions, financial factors in, 48 Spinoff merchandising, as source of capital, 158 Standard Capital, relation with AT&T, 64 S ta n d -in , 84 Star system, effects of ca. World War I, 9 S ta r W ars, 158, 179 Stock ownership: by banks, 4 disclosure of, 169 S tru g g le, T he. 40 Sullivan, Ed, 110 Sunset Securities, subsidiary of Bank of America, 142 Swanson, Gloria, 84

Temporary National Committee on Economic Concentration, 106 Tight money, periods of, 203 Title of film, as consideration in bank financing, 114-5 Tollefson memo, 136, 137 T o m m y , 190 Track record, as consideration in bank financing, 112 Transamerica Corporation, takeover of United Artists Corporation, 183, 184 Triangle Film Corporation, early firm, 11 Trumbo, Dalton, 92 Trust departments, of commercial banks, holdings of, 169, 170 TV, effect on film industry in postwar era, 104 20th-Century-Fox, case: diversification, and credit for, 179, 180 ownership of, xii problems with economizing, 93 problems, period of, 178-9 recent growth, 178 stock of, 180 takeover fight, 179 Tw o O rp h a n s, 28 U United Artists Corporation, case: banks, dealings with, 183, 184 debts, 183, 184 early ownership of, 182 financing, 29-30 management, change of, 182, 183 relations with Griffith, 35 troubles of in 1940s, 182 Unions, in independent film production, 113 Universal-International Pictures, relation with MCA. 175 Universal Pictures: original ownership by MCA, 175 relation with AT&T, 64, 65 U p to n S in c la ir p re se n ts W illia m F o x . 56 V

T 190 Telefilm companies, loans to by Hollywood banks, 205-6 T axi D river,

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142, 159 Video distribution, new forms, 150 Videodisc systems by MCA, 175 Video systems, and banks, 205 Vitaphone system, 48-9 (se e a lso Sound) V ariety,

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S U B JE C T IND EX

W Walt Disney Productions, case: early cartoons, 172 lines of credit, 172, 173, 174 stock, trading in, 174, 175 and World War II, 173 Warner brothers, 94 experience with independent film producers, 118 relations with Fox, 73 Warner Communications, case: and banks, 180, 181 expansion, 181 long-term debt policy, 181-2 music publishing, 180 reorganization, 181 Way D ow n East, 20, 27 Western Electric Co., in 1930s, 231 relation with AT&T, 61

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Wilson, Frank R., dealings with Griffith, 36, 37 World Film Corporation, 11 World War II, effects of on film profits, 103 Y Young, Robert R., 135 Yousling, George, 11 Z Zanuck, Darryl, 93 Zukor, Adolph, 9, 18, 19, 20, 21 study by, 18, 19

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Original from

UNIVERSITY OF MICHIGAN