Whenever American film executives meet these days, two topics come up sooner or later: the war and the consent decree. The one has made serious inroads on foreign business; the other is reshaping domestic production and sales policies.
Despite foreign losses and domestic reshuffling, however, there is a buoyant spirit in the industry. One reason is that providing entertainment to maintain morale in a war-torn world has actually paid dividends. Some companies report an increase in 1940 profits over the previous year. Others are down, of course, but the general level is not unduly discouraging. In the United States, 17,000 theaters of the 19,000 available show houses were in operation. According to a survey made early in 1940 by the United States Department of Commerce, approximately 65,000 of the 67,000 motion picture theatres in 98 countries of the world were equipped to show sound motion pictures.
Remnants of the foreign market still return revenue. Continental Europe has largely disappeared, but the United Kingdom remains. In the year ending October 31, 1940, the United Kingdom released $17,500,000 to American distributors; and, under the agreement for the current fiscal year, it will release some $12,800,000. It is reported that $20,000,000 will be frozen until after the war. Of the remaining foreign markets, the British dominions and Latin America are the most fruitful.
The buoyancy mentioned above is especially apparent in the studios. There is no faltering in the boldness of business men who underwrite creative activities. The upwards of $100,000 paid for Ernest Hemingway's latest, For Whom the Bell Tolls, may be cited as an example. Meanwhile Gone With the Wind, based on the best seller of another year, has completed a round of selected first run theatres at a reported gross rental of $15,000,000 before it goes into general release at popular prices. That's an exceptional record, but it indicates that spectacular showmanship yields spectacular results even in wartime. Rebecca and The Grapes of Wrath are two other best sellers that have yielded pay dirt to film producers.
Studios have been working at top speed over the year-end. Actual shooting continued throughout the holiday period, with the exception of Christmas Day and New Year's Day. Usually there is a two weeks' layoff. Shooting schedules are being extended on the bigger pictures, aiming for greater quality. One reason cited for the greater studio activity is the necessity for building up a backlog of completed pictures in order to comply with the terms of the consent decree.
And that brings up the subject which, second only to the war, has been of most absorbing interest to industry executives — not to mention lawyers — since Assistant United States Attorney General Thurman Arnold filed his anti-trust suit against eight film companies and their subsidiaries on July 20, 1938. The petition in equity asked that the defendants be enjoined from certain 'unfair trade practices' which, it was charged, violated the Sherman Anti-Trust Act. Among the most disturbing of the demands was that five distributors must dispose of their theatres, a total of some 2,300, including many desirable first runs. All five had started in show business as theatre operators, then branched out into production and distribution according to the logic of events; so they were naturally reluctant to part with their 'show windows.' The petition also objected, among other things, to block booking, protection, overbuying, forcing of shorts and newsreels and arbitrary designation of playdates.
After nearly two years of crossfiring interrogatories and other legal shenanigans, the trial opened before Judge Henry Warren Goddard in the United States District Court in New York City on June 3, 1940, with all the pomp and circumstance of a million dollars worth of legal talent, including John W. Davis, former Federal Judge Thomas D. Thacher and Colonel William (Wild Bill) Donavan. To all outward appearances, the defendants were prepared to fight to the last ditch.
Thurman Arnold opened for the Government with a statement of the broad policy of the anti-trust division. Then he turned the case over to an assistant, Paul Williams, who outlined it in detail. In the next two days there were answers by counsel for each of the eight companies. Before the first witness was called, however, court was adjourned. Other adjournments followed to allow conferences between defense counsel and the Department of Justice attorneys. On Oct. 22, final agreement was reached between counsel representing the five theatre-owning companies and the government; and, on Oct. 28, Attorney General Robert Jackson approved the consent decree that had resulted from lawyers' negotiations.
Despite objections raised by a dozen or more representatives of all shades of exhibitor opinion at an open hearing in Federal Court on Nov. 14, Judge Goddard signed the decree on Nov. 20. Counsel for the five theater-owning companies — Loew's, Inc., Paramount, RKO-Radio, Twentieth Century-Fox and Warner Brothers — also signed. But the three companies which own no theaters — Universal, United Artists and Columbia — refused. They are named in an amended complaint.
Under the terms of the consent decree, the five companies may retain their theaters for three years; then the subject may be brought up again. Block booking — that is, sale of an entire season's output of films in one block — is ended as of Sept. 1, 1941, in favor of selling blocks of five films at a time. Forcing of shorts and newsreels is banned. The number of days' protection that is provided between a given run of a picture and any subsequent run is subject to arbitration. Overbuying to keep pictures from a rival theater is covered indirectly by a ban on blind buying and the blocks-of-five rule.
A number of items in the original petition are not mentioned in the decree, and a number of points have been added. It provides that the distributor must show a picture to exhibitors within an exchange district before it can be leased. That explains the rush to build up a backlog of products before the opening of the 1941-42 season. Films must be leased in the district where they will be exhibited. This will prevent leasing film for an entire circuit that overlaps exchange district lines. There may be cancellation of contracts for cause, and unreasonable withholding of prints is barred. Changes in theater holdings must be reported and no general expansion of theater holdings may be made within the three-year period.
It is obvious why the five companies gave their consent: they retain their theaters. The Hollywood talent pool, of which much was made in the petition, is not mentioned. No specific action was taken on the designation of playdates to secure the most desirable playing time, such as week-ends and holidays. 'Arbitrary, unconscionable and discriminatory film rentals' are subject to possible arbitration.
The two principal changes in selling practices have to do with blocks of five and showing pictures in advance of sale. Selling costs will be heavier, and the necessity of maintaining a backlog of product will call for longer-term financing of production.
The idea of arbitration is not new in the industry, but its form is new. One previous arbitration system was banned by Mr. Thacher when he was a Federal Court Judge. Repeal of the NIRA ended arbitration under the industry's NRA code.
The new form of arbitration will consist of local boards in each of the thirty-one exchange districts administered by the American Arbitration Association. Appeals may be taken from the arbitration boards to a central appeals board presided over by former Judge Van Vechten Veeder, appointed by Judge Goddard on the day he signed the decree. The post carries a salary of $20,000 a year. Local arbitrators are chosen from among reputable local citizens who have had no previous connection with the film industry. General administration of the boards' work will be supervised by the following central committee of the AAA:
Paul F. Warburg, chairman, a member of the banking family of that name; Herman Irion, vice chairman, general manager of Steinway and Sons; Evan E. Young, vice chairman, vice president of Pan American Airways, formerly chief of the Division of European Affairs for the State Department; Frances Kellor, first vice president of the AAA; P. M. Haight, secretary-treasurer, International General Electric Company; Sylvan Gotshal, attorney, a member of the AAA's board; Wesley A. Sturges, professor of law at Yale; Lucius R. Eastman, chairman of the AAA board; and C. V. Whitney, president of the AAA and chief executive of the Pan American Airways.
What the consent decree gives the industry is, in effect, a voluntary system of regulation of trade practices under the supervision of a unit of the Department of Justice. The industry had already drawn up a trade practice code of its own, but meanwhile the anti-trust suit was filed and it was never put into practice on an industry-wide scale. Thurman Arnold refused to accept it in lieu of a court decree. Both the Motion Picture Theater Owners of America, which includes the company-owned circuits, and Allied States Association of Motion Picture Exhibitors, which includes independent exhibitors, some of whom were said to have entered complaints that were the basis of the anti-trust suit, have objected to the terms of the consent decree. Harry Brandt, president of an independent exhibitors' organization, doesn't like the decree either, but he thinks that exhibitors should give it a trial.
Arbitration machinery is ready for them to use if they want to use it. The local boards have authority to make awards. Distributors which are found to have 'forced' products may have their contracts cancelled. There is provision for fines up to $500 to be paid into the arbitration fund. See also MUSIC; PHOTOGRAPHY.
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