Speaker 1: Welcome to Tech Stuff, a production from I Heart Radio.
Speaker 1: Hey there, and welcome to tech Stuff. I'm your host,
Speaker 1: Jonathan Strickland. I'm an executive producer with I Heart Radio
Speaker 1: and I love all things tech. And a while back,
Speaker 1: I did some episodes in which I mentioned off hand
Speaker 1: a Supreme Court decision in the United States that laid
Speaker 1: down the law when it came to movie studios and
Speaker 1: theater chains. And lately I've been thinking about this again
Speaker 1: as we see movie studio has become part of much larger,
Speaker 1: multibillion dollar communications companies. And then when I decided to
Speaker 1: do this episode, I found to my surprise that the
Speaker 1: Supreme Court decision from decades ago, like eighty years ago,
Speaker 1: was dissolved earlier in and somehow I had never even
Speaker 1: heard about it. So today I want to talk about
Speaker 1: the production and distribution side of entertainment, specifically when it
Speaker 1: comes to motion pictures. This discussion involves technology, politics, and business,
Speaker 1: and it also ties into other stuff that we've talked
Speaker 1: about in recent episodes, like the problem with anti competitive
Speaker 1: practices and monopolies. So let's get started by going back
Speaker 1: to the early days of film and theaters. Films have
Speaker 1: always been a convergence of technology, business, and art. Sometimes
Speaker 1: one or two of those three points might be emphasized
Speaker 1: more than another. So for example, you might argue that
Speaker 1: a big budget action film could lean heavily on business
Speaker 1: and tech, but maybe go a little light on the
Speaker 1: art part of the triangle. Or you might have a
Speaker 1: really low budget arthouse film that's really heavy on the
Speaker 1: art and kind of light on the tech, and you
Speaker 1: wonder who the heck even agreed to fund the thing
Speaker 1: in the first place. But I think generally speaking, most
Speaker 1: movies have these three factors, and on measure, we're going
Speaker 1: to leave art out of this, as it is subjective
Speaker 1: and up to the interpretation of each person. There's probably
Speaker 1: someone out there who objects to me dismissing most big
Speaker 1: budget action films, for example. But the tech and business
Speaker 1: sides are woven together in a really snug way. For
Speaker 1: one thing, if you invent a technology, you have the
Speaker 1: opportunity to file for a patent describing how that technology works.
Speaker 1: Patents are useful because they provide you some protection for
Speaker 1: your idea. On the one hand, you have to spell
Speaker 1: out how your invention works, at least on a high level,
Speaker 1: and you do that in a document that the patent
Speaker 1: office makes available to anyone who wants to see how
Speaker 1: that technology works. But on the other hand, in return
Speaker 1: for agreeing to have your ideas publicly available, you get
Speaker 1: protection for those ideas. If someone else tries to make
Speaker 1: a you know, whatever it is you made without your permission,
Speaker 1: you can file a lawsuit for patent infringement, and if
Speaker 1: you can prove that they in fact violated your patent
Speaker 1: by creating a competing product based on your design, a
Speaker 1: court can make them stop and perhaps award you compensation,
Speaker 1: which would be paid by the accused, assuming that they
Speaker 1: can pay it now. One of the important things about
Speaker 1: patents is that they expire, and once they do, anyone
Speaker 1: can make a technology based off that patent without having
Speaker 1: to get the permission from the patent holder. Because the
Speaker 1: patent itself has expired, it's in the public domain. So
Speaker 1: a patent grants you a limited amount of time to
Speaker 1: profit from your ideas. At that time, you can do
Speaker 1: so without the fear of someone else swooping in and
Speaker 1: using your ideas without your permission, and you can grant permission.
Speaker 1: Typically we see that in the form of licensing agreements.
Speaker 1: So you come up with a really cool technology. Someone says, hey,
Speaker 1: I would love to use that how much And the
Speaker 1: two of you come to an agreement on how much
Speaker 1: money they pay you in return for being able to
Speaker 1: use your patented technology. At least that's how it's supposed
Speaker 1: to work. The alternative to patents is just keeping your
Speaker 1: technology as hidden and secret as possible. This would be
Speaker 1: the trade secret strategy. It's it's one you don't want
Speaker 1: to share because it would give up a competitive edge
Speaker 1: in whatever market you're working in. The danger with trade
Speaker 1: secrets is that if someone susses out how you made
Speaker 1: your technology, if they reverse engineer it, you don't really
Speaker 1: have any protection against them copying you. If I make
Speaker 1: I'll watch him a jig, and I don't patent any
Speaker 1: of my designs, and you figure out how it all works,
Speaker 1: you can make your own watch him a jig, and
Speaker 1: I'm out of luck. Really now. The reason I even
Speaker 1: bring this up is that, in the early early days
Speaker 1: of film, and we're talking like nineteen o eight, a
Speaker 1: group of motion picture companies, some of the most you know,
Speaker 1: some of the earliest ones in the assistance along with
Speaker 1: Eastman Kodak, which was the chief supplier of film stock
Speaker 1: because this was you know, when films were actually shot
Speaker 1: on film. And then a film distributor named George Klein
Speaker 1: all banded together to create an organization called the Motion
Speaker 1: Picture Parent Company or mp PC. This was out of
Speaker 1: necessity because one member of that company, that would be
Speaker 1: the Edison Manufacturing Company named after Yes, Thomas Edison, was
Speaker 1: making life really difficult for the other companies. See Thomas
Speaker 1: Edison was famous for a few different things. One was
Speaker 1: inventing stuff. Two was being a really shrewd businessman. Three
Speaker 1: was that he built up a company that he filled
Speaker 1: with engineers who invented stuff too, and when they patented
Speaker 1: those inventions, Thomas hays and always made sure his name
Speaker 1: was also on the patents, which is part of why
Speaker 1: he has so many hundreds and hundreds of patents to
Speaker 1: his name. And four he was fierce you protective of
Speaker 1: his patented technology. If he suspected that some other company
Speaker 1: was making use of his patented tech without a proper license,
Speaker 1: he would file lawsuits, lots of them. Well. The other
Speaker 1: members of what would become the Motion Picture Parent Company
Speaker 1: were film studios that Edison had kind of sued on
Speaker 1: multiple occasions and really The purpose of this new entity
Speaker 1: was to work out some licensing agreements to pool patents together,
Speaker 1: so that way, when it came to stuff like film cameras, projectors,
Speaker 1: and the various processes used in making movies on a
Speaker 1: technical level, there was this agreement. Now, there was also
Speaker 1: a holdout company called Biograph. That company had its own
Speaker 1: camera technology that didn't sit well with Edison because he
Speaker 1: wanted to have the corner on that market. So Edison
Speaker 1: was really hoping he could push them out of business.
Speaker 1: But Biograph wisely went and purchased the rights to another
Speaker 1: key patent in the film process, which gave the company
Speaker 1: enough leverage to force its way into mp PC as well.
Speaker 1: So there were a lot of strange bedfellows, I guess
Speaker 1: you could call them now. Before the mp PC, the
Speaker 1: standard procedure between studios and theaters went something like this.
Speaker 1: A theater owner would decide which films they wanted to
Speaker 1: play in their theater, and they would purchase a film print,
Speaker 1: So in other words, they would purchase a copy of
Speaker 1: a film from a studio uh and the studio would
Speaker 1: make copies from a master and then sell the copies
Speaker 1: to theaters, and then the theaters would just hold on
Speaker 1: to that copy because they had purchased it, or they
Speaker 1: might just you know, throw it away if they didn't
Speaker 1: hold onto it, but it was theirs. But the mp
Speaker 1: PC would change that. They switched it to a rental agreement.
Speaker 1: So now theaters would pay a certain amount of money
Speaker 1: to get a copy of a film for a set
Speaker 1: amount of time. After that set amount of time, they
Speaker 1: would have to return the copy or they would have
Speaker 1: to rent it again. And this gives studios a bit
Speaker 1: more quality control over film prints because they could dispose
Speaker 1: of any prints that had a lot of wear and
Speaker 1: tear on them. And you know, films, the physical medium,
Speaker 1: it does wear down over time, so that this was
Speaker 1: important and it was good business because it meant that,
Speaker 1: you know, audiences wouldn't associate a particular studio with poor
Speaker 1: quality film. If in fact that copy was starting to
Speaker 1: break down, they could swap it out for something new.
Speaker 1: The mp PC was also a trust or you know,
Speaker 1: a monopoly. Eastman Kodak held the rights to produce film stock,
Speaker 1: and other companies could license that technology from Kodak, or
Speaker 1: you could have someone try and come up with a
Speaker 1: total alternative to Kodak film and the typical film stock,
Speaker 1: but that would also mean you would have to have
Speaker 1: an alternative form of camera and a projector as well,
Speaker 1: so that was not, you know, a small task. So
Speaker 1: the mp PC set it up where Kodak would only
Speaker 1: sell film stock to the companies that were inside the
Speaker 1: mp PC. The trust also held the camera and projector rights,
Speaker 1: and so all of this meant that anyone who wanted
Speaker 1: to get into the filmmaking side of business had to
Speaker 1: be a part of the mp PC, or they would
Speaker 1: have no legal means to get hold of the equipment
Speaker 1: and film that they needed to make movies. But as
Speaker 1: I mentioned earlier, patents expire, and by nineteen thirteen, the
Speaker 1: mp PC no longer had the cudgel of patent infringement
Speaker 1: lawsuits to knockdown competitors. In addition, the mp PC was
Speaker 1: located on the east coast of the United States in
Speaker 1: New Jersey, that's Thomas Edison's stomping Grounds, and several upstart
Speaker 1: motion picture companies would set up operations way out west
Speaker 1: in the world of Hollywood Land, which made it mighty
Speaker 1: inconvenient to investigate the possibility of patent infringement and hanky panky.
Speaker 1: So that's on the on the other side of the nation.
Speaker 1: And and then the death blow came. The United States
Speaker 1: government brought an antitrust lawsuit against the mp PC in
Speaker 1: nineteen fifteen. The government claimed that the actions that the
Speaker 1: company had taken were anti competitive and it wasn't just
Speaker 1: the actions of a company trying to protect its own
Speaker 1: intellectual property, and as a result, the mp PC would
Speaker 1: dissolve just a couple of years later. So that's our
Speaker 1: first example of a monopolistic strategy in the film distribution world,
Speaker 1: and it won't buy any stretch be the last one.
Speaker 1: The law of the U. S Government enforced against the
Speaker 1: mp PC is called the Sherman Act. It's one of
Speaker 1: the foundational antitrust laws in the United States, and in fact,
Speaker 1: it was passed all the way back in eighteen ninety
Speaker 1: is part of an effort to deal with issues stemming
Speaker 1: from powerful monopolies and cartel's, largely in industries like steel
Speaker 1: and railroad, among a few others. The government found that
Speaker 1: mp PC was in violation of Section one of the
Speaker 1: Sherman Act, and that section states that quote, every contract
Speaker 1: combination in the form of trust or otherwise, or conspiracy
Speaker 1: in restraint of trade or commerce among the several states
Speaker 1: or with foreign nations is declared to be illegal. End quote.
Speaker 1: Section two of the Sherman Act is the part that
Speaker 1: really prohibits the monopolization of interstate trade or commerce and
Speaker 1: makes it a felony to to do so. While mp
Speaker 1: PC was crumbling, a new movie studio Powerhouse was taking shape.
Speaker 1: And someday I'm going to have to do a full
Speaker 1: episode on this company because it has a fascinating and
Speaker 1: important history. But it all started off with the merger
Speaker 1: of two other companies. First was the Famous Players Film Company,
Speaker 1: which in itself was originally called Famous Players in Famous
Speaker 1: Plays the early days of films sometimes referred to movies
Speaker 1: as plays. And second was the Feature Play Company, which
Speaker 1: was founded by a guy named Jesse L. Laski, and
Speaker 1: the merged company would become Famous Players Last Key Company. UH.
Speaker 1: It would later on merge with a film distribution company
Speaker 1: with the more familiar name of Paramount Pictures Corporation. Along
Speaker 1: the way, the organization acquired several more independent film companies,
Speaker 1: and it would lead to an approach and filmmaking and
Speaker 1: distribution that would become a big headache for the industry
Speaker 1: and the United States government down the line, and the
Speaker 1: actual merger process was actually a really sneaky one. So
Speaker 1: you got Adolph Zukor, he's the founder of Famous Players
Speaker 1: Film Company, and then Jesse Laski, and they both entered
Speaker 1: into distribution deals with Paramount Pictures Corporations. So originally this
Speaker 1: wasn't you know, a merger, that was just a business deal.
Speaker 1: And the guy who founded the Paramount Pictures Corporation was
Speaker 1: William Wadsworth Hodkinson, and he was serving the president as
Speaker 1: president of the company. But then Laski and Zuker thought, hey,
Speaker 1: you know, if we were able to distribute our own movies,
Speaker 1: we wouldn't have to share revenues with a distributor. It
Speaker 1: would all be our own revenue. So instead of paying
Speaker 1: this this guy to distribute our films, wouldn't it be
Speaker 1: better if we just got hold of those assets and
Speaker 1: we did it ourselves and thus got to keep all
Speaker 1: the money. So they set about doing a hostile takeover.
Speaker 1: This is what we would call it in the hades.
Speaker 1: And sometimes I see Hodgkinson listed as a founder of
Speaker 1: the movie studio Paramount Pictures Corporation, and it is true.
Speaker 1: He founded the distribution side of the company, but he
Speaker 1: was not involved with it as a movie studio. Because
Speaker 1: Laski and Zooker bought enough shares to influence the board
Speaker 1: of directors of Paramount Pictures to have Hodginson ousted as president,
Speaker 1: then they were able to buy the company because they
Speaker 1: essentially had the board of directors in their pocket. So
Speaker 1: they said, hey, board of directors, wouldn't it be cool
Speaker 1: if we bought your company? And they said, yes, because
Speaker 1: you own us. And so they brought Paramount Pictures under
Speaker 1: the fold and they made this a true force and
Speaker 1: film and like I said, I have to do a
Speaker 1: full episode or maybe two, maybe three about Paramounts history
Speaker 1: and movies because it really did shape the way the
Speaker 1: film industry works today. Around this time, the various film studios,
Speaker 1: including the future Paramount Pictures, began to create what we
Speaker 1: call the studio system. This system would lockdown film production
Speaker 1: in various ways. For example, studios would engage directors and
Speaker 1: performers and others into long term contracts, so the filmmakers
Speaker 1: and stars wouldn't be full time employees of the studio
Speaker 1: per se, but they would be locked down to exclusive agreements,
Speaker 1: and so certain actors would only be found in a
Speaker 1: particular movie studios films Rudolph Valentino and Gloria Swanson were
Speaker 1: two actors exclusive to famous players Laski. For example, Sometimes
Speaker 1: a studio would negotiate with another studio and they would
Speaker 1: allow one of their stars or directors to work for
Speaker 1: another studio in exchange for a trade of you know,
Speaker 1: perceived equivalent value. But for the most part, people were
Speaker 1: stuck working for a single student video until their contract expired,
Speaker 1: and that would end up being a big part of
Speaker 1: the problem as it would give the creators in Hollywood
Speaker 1: a lot less opportunity to pursue their best deals while
Speaker 1: under contract. So there might be a part that an
Speaker 1: actor would have been perfect for, they just never would
Speaker 1: have had the opportunity to do it because they would
Speaker 1: have been locked in with a competing studio. Now, the
Speaker 1: second big part of the studio system was the vertical
Speaker 1: integration approach. So we can think of there being three
Speaker 1: major components in the film industry. There are producers. There's
Speaker 1: the studios that actually you know, make films. There are distributors.
Speaker 1: These are the companies that arranged for prints of a
Speaker 1: film to go to theaters. And then there are the
Speaker 1: exhibitors or the theaters themselves. And then you've also got
Speaker 1: you know, other parties involved, like film stock companies like Kodak,
Speaker 1: which play a part two. But the producers, distributors and
Speaker 1: exhibitors are what we're really focusing on. In the eyes
Speaker 1: of the government. These three groups were meant to be
Speaker 1: separate from one another, but Famous Players Last Sky changed
Speaker 1: this by going with a vertical integration approach. With the
Speaker 1: sniping of Paramount Pictures Corporation, Zukor and Laski checked off
Speaker 1: the distribution box, and they also began to buy up
Speaker 1: theaters in various markets. This activity attracted the attention of
Speaker 1: the US Federal Trade Commission, or FTC in the early
Speaker 1: nineteen twenties. In the FTC charged the company with conspiracy
Speaker 1: and restraint of trade, essentially arguing that the company was
Speaker 1: violating the Sherman Act. When we come back from break,
Speaker 1: we'll talk about how that unfolded, how the Great Depression
Speaker 1: complicated matters, how a movie trade organization would become part
Speaker 1: of this mess, and how things would get a whole
Speaker 1: lot worse. But first, let's take a quick break among
Speaker 1: the problems that the FTC found with Famous Players Last Ski,
Speaker 1: and I should point out that other studios were doing
Speaker 1: the same thing. Were some industry strategies that were particularly unfair.
Speaker 1: One was called block booking, and here's how it would work.
Speaker 1: Studios were locking down stars in these long term contracts.
Speaker 1: So audiences would begin to fall in love with some
Speaker 1: of these stars, and they wanted to see the pictures
Speaker 1: the movies that these stars were in. Theater owners would
Speaker 1: want to run films with those stars in them in
Speaker 1: order to attract crowds and sell tickets. And so the
Speaker 1: movie studios who controlled the stars would say to the
Speaker 1: theater owners, Okay, I'll lease to you a print of
Speaker 1: this film with the stars that you want in it,
Speaker 1: but in return, you also have to promise to rent
Speaker 1: and exhibit these dozen other movies starring folks that nobody
Speaker 1: really cares about. Otherwise you don't get the good stuff.
Speaker 1: And when I say dozen, that's not an exaggeration. In fact,
Speaker 1: some block booking would be up to a hundred and
Speaker 1: four films, which was a year's worth of movies in
Speaker 1: one go. And this practice is called block booking. Theater
Speaker 1: owners were being pushed to rent out entire blocks of
Speaker 1: films if they wanted to exhibit an anticipated film in
Speaker 1: their theaters, so it was saying, if you want this one,
Speaker 1: you also have to take all these other ones. In addition,
Speaker 1: block booking would affect the variety of movies that theater
Speaker 1: owners could show. If you're running a theater that has
Speaker 1: a single screen, as many theaters had back in the
Speaker 1: early days, there are really only so many different movies
Speaker 1: you can exhibit in a week, and if your agreement
Speaker 1: with Studio A means you have to take you know,
Speaker 1: a dozen or more of their films, that might be
Speaker 1: all you can show. You could presumably pay the studios
Speaker 1: for all these movies but not actually show them, and
Speaker 1: opt instead to also deal with Studio B. But then
Speaker 1: you're wasting money, right because you're spending money to rent
Speaker 1: out blocks of films that you never show, you only
Speaker 1: show a couple of them. That makes it much harder
Speaker 1: to make your money back as an exhibitor, and the
Speaker 1: exhibitors were over a barrel on this one, as were
Speaker 1: the directors and stars. In fact, you could argue that
Speaker 1: the only party to really benefit from this arrangement would
Speaker 1: be the studios. Another practice the FDC found questionable was
Speaker 1: called blind booking or sometimes called pre selling. So with
Speaker 1: this approach, theaters would agree to pay studios up front
Speaker 1: to rent film prints of movies that hadn't even been
Speaker 1: made yet, and these could often be lumped in with
Speaker 1: the block booking. So you might get a deal where
Speaker 1: you're dealing with Paramount, for example, and Baramount tells you,
Speaker 1: all right, we'll give you will We'll let you rent
Speaker 1: this one film, but you have to agree to rent
Speaker 1: these one and three other movies, and a lot of
Speaker 1: them haven't even been shot yet. If you have watched
Speaker 1: a movie about the Golden Age of Hollywood, you may
Speaker 1: have seen some sort of parody of this, where you know,
Speaker 1: a film has its director and its cast, and maybe
Speaker 1: even has a ooster for the movie, but the film
Speaker 1: doesn't have a script and no one has shot a
Speaker 1: foot of film yet. Barton Fink has a scene that
Speaker 1: specifically sends this up. Well, that kind of stuff was
Speaker 1: actually happening, and again exhibitors were being pressured to play
Speaker 1: ball and pay up without a chance to even see
Speaker 1: the film first, often because there was no film to
Speaker 1: see if they hope to get the movies that their
Speaker 1: customers were willing to pay for. And as I mentioned,
Speaker 1: earlier studios were also buying up theaters or building theaters
Speaker 1: of their own. The FTC alleged that famous players last
Speaker 1: Kie had even gone so far as to lean heavily
Speaker 1: on a theater owner to sell their movies to or
Speaker 1: to rent their movies too, and if they encountered resistance,
Speaker 1: they would threaten to open up a competing movie house
Speaker 1: in a nearby location, like literally across the street. And
Speaker 1: then after opening up the competition, the studio would undercut
Speaker 1: the prices of the competing theater and would sell tickets
Speaker 1: at a huge loss just to attract customers away from
Speaker 1: the theater owner that had shown resistance and hopefully forced
Speaker 1: them to go out of business as a result. So
Speaker 1: it's a very cutthroat way of doing business. Lumping the
Speaker 1: theaters under studio ownership gave studios even more control of
Speaker 1: which films would play in various regions. Studios could block
Speaker 1: a theater from exhibiting a film from a rival studio.
Speaker 1: The vertical integration was creating a real stranglehold on the
Speaker 1: entire process, and the average American customer had fewer options
Speaker 1: to buy a ticket to the films they really wanted
Speaker 1: to see, so then the FTC comes in and says, hey,
Speaker 1: this doesn't seem fair. It appears that Famous Players Last
Speaker 1: Key is engaged with some anti competitive practices meant to
Speaker 1: restrict other companies from doing business in the film industry.
Speaker 1: But the FTC's pursuit of a judgment against the company
Speaker 1: would take, let's call it, a leisurely path. It wasn't
Speaker 1: until the summer of nineteen twenty seven. Keep in mind,
Speaker 1: this investigation began in the one. It wasn't until that
Speaker 1: the courts a warded the FTCs call for a cease
Speaker 1: and desist order against Famous Players Last Key for practices
Speaker 1: like block booking, and a call for the company to
Speaker 1: stop purchasing theaters. The court ordered Famous Players Last Key
Speaker 1: to comply within sixty days of the judgment or otherwise
Speaker 1: produce a darn good excuse as to why it had
Speaker 1: not yet done so, and the company played for time
Speaker 1: they asked for, and they received extensions on this judgment twice.
Speaker 1: Then in nine, when the stalled tactics were at an end,
Speaker 1: the company claimed it wasn't really guilty of the charges
Speaker 1: after all, at least not the way they had been
Speaker 1: framed in the court case. That did not sit well
Speaker 1: with the f TC, and in the meantime, the Commission
Speaker 1: was expanding its investigations into the movie industry at large,
Speaker 1: with the Famous Players Last Key case at the heart
Speaker 1: of it. The FTC began to escalate its charges against
Speaker 1: movie studios and going for a more direct antitrust case.
Speaker 1: This would ultimately rise to the Supreme Court. The Supreme
Speaker 1: Court would ultimately decide that the practice of block booking
Speaker 1: was inherently anti competitive and thus would be illegal under
Speaker 1: the Sherman Act, and that studios that practice block booking
Speaker 1: would be subject to criminal proceedings and fines. However, at
Speaker 1: the same time, the United States was dealing with the
Speaker 1: Great Depression, which began in October of nineteen twenty nine
Speaker 1: with the stock market crash, and then it got worse
Speaker 1: due to multiple complicating factors. Meanwhile, the film industry was
Speaker 1: actually seeing more competition, not less, but that had to
Speaker 1: do with a technological advance rather than trumped up charges
Speaker 1: against the Famous Players Last Key Company. See. In the
Speaker 1: late nineteen twenties, talking pictures were becoming a thing which
Speaker 1: created a new type of film experience that various studios
Speaker 1: were trying to capitalize on. While simultaneously trying to figure
Speaker 1: out how to salvage the assets that were more suitable
Speaker 1: for silent films. That's a nice way of saying that
Speaker 1: not all directors or actors were equally adept at making
Speaker 1: talking picture as they had been with silent films. But
Speaker 1: the talking pictures revolution would create competition between various studios. Okay,
Speaker 1: to understand what happened next, we need to rewind a
Speaker 1: little bit. As the FTC and famous players last Kie
Speaker 1: were wrestling in the courts, the movie studios as a
Speaker 1: whole were converging. In an effort to protect the industry
Speaker 1: against US government regulation. The studios formed an organization called
Speaker 1: the Motion Pictures Producers and Distributors of America, or the
Speaker 1: mpp d A. This organization would later become the Motion
Speaker 1: Picture Association of America a k a. The m p
Speaker 1: a A until twenty nineteen, when it would turn into
Speaker 1: its final, at least for now, form of Motion Picture
Speaker 1: Association or mp A. The purpose for this trade association
Speaker 1: was to bolster the financial support of Hollywood and to
Speaker 1: encourage investment in the film industry. As part of that strategy,
Speaker 1: the association also took it upon itself to create a
Speaker 1: system to ensure that the films produced in America met
Speaker 1: a strict moral code, the idea being that investors would
Speaker 1: be hesitant to pour money into an industry that had
Speaker 1: a seedy reputation. The first president of this association was
Speaker 1: a man named will H. Hayes, Postmaster General of the
Speaker 1: United States, and the moral code applied to the content
Speaker 1: of films, and it would become known as the Haze Code.
Speaker 1: That in itself is a subject suitable for a full episode,
Speaker 1: though I'm not sure that would fit within the bounds
Speaker 1: of tech stuff. What is important is that at first,
Speaker 1: movie studios paid little mind to the Haze Code. They
Speaker 1: had similarly ignored an earlier set of guidelines that were
Speaker 1: called the don'ts and be carefuls because the mp p
Speaker 1: d A had no real way to enforce the code.
Speaker 1: The studios wanted to use every trick in the book
Speaker 1: to get more butts and seats because the depression was
Speaker 1: really taking a toll on businesses in general, including the
Speaker 1: film industry, so part of that included producing and distributing
Speaker 1: films of what would be considered questionable moral character for
Speaker 1: the time. Today, we'd probably think of it as quaint. However,
Speaker 1: various state governments in the United States began to pass
Speaker 1: censorship laws to protect the delicate citizens of those states
Speaker 1: from seeing such scandalous material, and out of a concern
Speaker 1: that the federal government might get involved. As more and
Speaker 1: more states were taking a heavy hand with censorship, the
Speaker 1: movie industry largely agreed to abide by the Hayes Code,
Speaker 1: and they formed the Production Code Administration or p c
Speaker 1: A to do so, and with the threat of substantial
Speaker 1: fines for any film that failed to adhere to that code,
Speaker 1: provided that the film came from a studio that was
Speaker 1: also part of the mp p d A. But the
Speaker 1: mp p d A would also play a part in
Speaker 1: the battle over anti competitive practices. As a trade association,
Speaker 1: it was tasked with helping studios attain financial stability during
Speaker 1: a depression. That's a tall order, but the US government
Speaker 1: was receptive to suggestions, as the thought was that people
Speaker 1: needed distractions from the hardships of going through an economic depression,
Speaker 1: kind of similar to the way people are talking about,
Speaker 1: you know, dealing with the pandemic, and the film industry
Speaker 1: was a way to provide diversions for a suitably low
Speaker 1: cost per experience, and so, faced with a dilemma, the
Speaker 1: US government agreed to dismiss the whole judgment against stuff
Speaker 1: like block booking if it meant that studios could continue
Speaker 1: to provide entertainment for Americans undergoing a really tough economic time.
Speaker 1: The mp P d A successfully argued that motion pictures
Speaker 1: should be protected under a larger national strategy called the
Speaker 1: National Industrial Recovery Act. In nineteen three, the industry had
Speaker 1: only faced consequences for the vertical integration strategy that it
Speaker 1: had employed for a very short while, and some really
Speaker 1: hadn't faced any consequences yet at all. And so through
Speaker 1: the nineteen thirties, the studio system approach grew more powerful.
Speaker 1: Studios continued to grow and expand their influence. They pushed
Speaker 1: harder into the various components of film production, distribution, and exhibition.
Speaker 1: Things got mighty anti competitive, but the US government saw
Speaker 1: it as unnecessary evil. However, various court cases in different
Speaker 1: industries would ultimately test the National Industrial Recovery Acts constitutional basis,
Speaker 1: and these cases would eventually come before the Supreme Court,
Speaker 1: and in ninety five, the Supreme Court decided that the
Speaker 1: Act was in fact unconstitutional and therefore it would be
Speaker 1: overturned that would remove the protection for the film industry,
Speaker 1: which for a couple of years had really gone hog
Speaker 1: wild with the anti competitive strategies. Pretty Much everyone outside
Speaker 1: of studio executives were unhappy with these anti competitive strategies.
Speaker 1: Directors and actors were unhappy because they couldn't pick and
Speaker 1: choose their projects the way they wanted to. They had
Speaker 1: to respond to studio mandates. Theater owners were unhappy that
Speaker 1: they had to comply with studio wishes and distribution practices.
Speaker 1: The American consumers, while happy to watch movies, weren't being
Speaker 1: well served by the vertical integration approach either, and so
Speaker 1: once the n I r A protection dissolved. Once that
Speaker 1: act was overturned by the Supreme Court, the U. S
Speaker 1: Department of Justice began a renewed legal attack on the
Speaker 1: anti competitive practices of the movie industry. Among the issues
Speaker 1: were not just the vertical integration or block booking or
Speaker 1: blind booking, but also the industry forcing conditions like the
Speaker 1: length of a film's run in theaters and dictating what
Speaker 1: the minimum admission price for a ticket should be in
Speaker 1: distribution contracts. The Department of Justice charged eight defendants, including
Speaker 1: Paramount Pictures. What would follow would be a long series
Speaker 1: of cases and consent decree ease that ultimately resulted in
Speaker 1: the Court finding the process of vertical integration anti competitive.
Speaker 1: The movie studios received a mandate to split up so
Speaker 1: that they would no longer be production studios that also
Speaker 1: controlled exhibition of films. So when we come back, we'll
Speaker 1: talk more about the outcomes of that Supreme Court decision
Speaker 1: and then do a big jump in time to talk
Speaker 1: about how this decision was recently reversed. But first let's
Speaker 1: take another quick break. So eventually, the decision that would
Speaker 1: you know, determine the fate of the film industry for
Speaker 1: eighty years or so, finally came about in nineteen forty six,
Speaker 1: after World War Two. To keep in mind, the original
Speaker 1: decision had been back in nineteen twenty nine, and a
Speaker 1: few factors led into this change. One was that the
Speaker 1: world of nineteen forty six was very different from the
Speaker 1: world of nineteen twenty nine. In nine, at the beginning
Speaker 1: of the Great Depression, there was a perceived need for
Speaker 1: entertainment and a fear that the economic depression would destroy
Speaker 1: the film industry, that they would go out of business
Speaker 1: and you'd be left with nothing, and so the anti
Speaker 1: competitive practices were seen as sort of the necessary evil
Speaker 1: to keep the industry afloat. But in ninety six we
Speaker 1: were out of the Great Depression, World War two was over,
Speaker 1: soldiers had returned home, and more people were going to
Speaker 1: the movies than ever before. The film industry was no
Speaker 1: longer precariously positioned in an existential crisis. It was doing
Speaker 1: really well. Further, only the five largest studios paramount included
Speaker 1: had agreed to consent decrees that the court had previously issued,
Speaker 1: and the consent decrees were essentially a temporary agreement to
Speaker 1: stop doing stuff like blind booking and block booking. But
Speaker 1: three smaller studios would not sign the consent decrease. They
Speaker 1: argued that they actually needed those practices to be competitive
Speaker 1: with the five larger studios because, unlike the major studios,
Speaker 1: these three did not own their own theaters. So the
Speaker 1: ninety six decision would eventually lay down the law for everybody.
Speaker 1: It took some time, but eventually the movie studios all
Speaker 1: capitulated to the pressure from the U. S. Department of Justice.
Speaker 1: But the results of this might not have been what
Speaker 1: the courts had originally intended. Over the following two decades,
Speaker 1: more than five thousand movie theaters closed. The studios began
Speaker 1: producing fewer movies. They had been producing several hundred per
Speaker 1: year now it was a few hundred per year total,
Speaker 1: and ticket prices were still on the rise. So there
Speaker 1: were some definite downsides in the wake of this decision.
Speaker 1: We can't blame it all on the court, of course,
Speaker 1: because there were other elements at play, including the rise
Speaker 1: of television, which was a big one, so it's pretty
Speaker 1: complicated stuff. In addition, while the intent was to disrupt
Speaker 1: anti competitive practices, it didn't really do that so much.
Speaker 1: On the books, it was forbidden for a studio to
Speaker 1: own its own chain of theaters. Soon new theater chains
Speaker 1: would rise up instead. And while in theory the court
Speaker 1: decision would have busted open the stranglehold that big studios
Speaker 1: had on exhibition, that didn't play out so much. In reality.
Speaker 1: The means to produce films became more attainable for independent filmmakers,
Speaker 1: but the means to distribute movies for exhibition did not.
Speaker 1: So in other words, you might be a humble little
Speaker 1: film production studio and you might make real art on film,
Speaker 1: but you would still probably need to find some distribution
Speaker 1: company to strike up a deal with so that you
Speaker 1: could get your finished movie into actual movie theaters. Otherwise,
Speaker 1: you've got this amazing piece of art, but you don't
Speaker 1: really have a way to show it off beyond maybe
Speaker 1: some small screenings. As for movie theaters, they gravitated toward
Speaker 1: carrying films that were likely to attract routes, which in
Speaker 1: turn would gradually fuel the cycle of the blockbuster. You
Speaker 1: can trace that history up to present day, when a
Speaker 1: cinema complex with like twenty four screens will be showing
Speaker 1: maybe a dozen films, with most screens dedicated to big
Speaker 1: budget movies from a small handful of studios. And at
Speaker 1: least that would be the case if it weren't for
Speaker 1: the pandemic. Okay, but let's switch gears a little bit
Speaker 1: and talk about streaming. Online streaming, much like TV and
Speaker 1: the home video market, which obviously came before streaming, it
Speaker 1: became a big disruptor in recent years. Early on, the
Speaker 1: concern was that a single entity like Netflix would dominate
Speaker 1: the space, and if Netflix were to become the default
Speaker 1: option for most consumers, they would give Netflix an enormous
Speaker 1: amount of leverage When working out deals for carrying content
Speaker 1: on their platform. As such, a lot of different entertainment
Speaker 1: and cable companies began to launch competing services. So that's
Speaker 1: why we've got stuff like Hulu and Amazon Video and
Speaker 1: HBO Now and HBO Max and Disney Plus and Peacock
Speaker 1: and such. And here we see an interesting evolution of
Speaker 1: that old problem of vertical integration. This is exacerbated due
Speaker 1: to the various acquisitions and mergers that film studios have
Speaker 1: been part of over the last few decades. So let's
Speaker 1: go over a few of them in brief. There are
Speaker 1: a few movie studios that really exist only as a brand,
Speaker 1: which means that you know, you might see a movie
Speaker 1: branded as a particular studios production, but ultimately it belongs
Speaker 1: to a much larger company, like a larger production studio,
Speaker 1: and it's just sort of a way to brand that
Speaker 1: film a specific way. So we're going to ignore those.
Speaker 1: I mean, there's no point in talking about them because
Speaker 1: they don't really exist on their own. They're part of
Speaker 1: a bigger company, alright. So Universal Pictures, one of the
Speaker 1: oldest studios that's still around, is now part of NBC
Speaker 1: Universal and Comcast. So within that family, you've got a
Speaker 1: telecommunication company that's Comcast. You've got a TV network in NBC,
Speaker 1: and a film and more TV studios with Universal, and
Speaker 1: this company has the streaming service Peacock. Then we've got
Speaker 1: Warner Brothers Pictures, which is part of A T and T.
Speaker 1: So we've got another telecommunications company. And we've got Warner Media,
Speaker 1: which was formerly known as Time Warner, which is a
Speaker 1: production company that includes film and TV studios. It also
Speaker 1: owns cable channels like HBO and a ton of others
Speaker 1: like Cartoon Network and CNN and TBS and more. So
Speaker 1: this company has HBO Max as a streaming service. Then
Speaker 1: we've got Columbia Pictures, which is part of a group
Speaker 1: of studios owned by Sony, the Japanese mega corporation. Sony
Speaker 1: A one time owned a streaming service called Crackle, but
Speaker 1: has since divested itself of that. So it's kind of
Speaker 1: the odd man out when it comes to production, distribution,
Speaker 1: and exhibition with this particular use case. There's Paramount, of course,
Speaker 1: which is part of Viacom CBS. That's an other super
Speaker 1: complicated story that I should dive into at some point,
Speaker 1: but this company includes Viacom, a cable company that owns
Speaker 1: networks like MTV, Comedy Central, Showtime, and Nickelodeon, among others.
Speaker 1: CBS another TV network, and Paramount Pictures, a film and
Speaker 1: television production company, and they have their own streaming service
Speaker 1: in the form of Pluto TV and CBS All All Access. Uh. Finally,
Speaker 1: we've got the Mouse House, truly gargantuan media and entertainment
Speaker 1: company also known as Disney. So we've got Walt Disney Pictures.
Speaker 1: We've got the former twentieth Century Fox, which had film
Speaker 1: and TV studios. You've got properties like ABC, another television network,
Speaker 1: and you've got Disney Plus as a streaming service as
Speaker 1: well as some other streaming services like ESPN Plus and
Speaker 1: Disney also owns Hulu. Now. So, in the era of
Speaker 1: the pandemic, when movie theaters are closed in many locations
Speaker 1: in some theater chains have shut down at least for
Speaker 1: the time being, the vertical integration approach creates a new opportunity.
Speaker 1: Studios can, if they so choose, opt to release properties
Speaker 1: on streaming services that they own, rather than sit on
Speaker 1: films until it's safe for theaters to open it full capacity.
Speaker 1: So movie studios depend heavily on box office returns typically,
Speaker 1: the first weekend of box office returns tends to be
Speaker 1: the most important. Not in every case, but in the
Speaker 1: vast majority that's true. So there's a strong incentive to
Speaker 1: hold off on releasing films before our theaters can open
Speaker 1: in full again. But at the same time, there's a
Speaker 1: lot of uncertainty about when that will ever happen, and
Speaker 1: there's an even bigger question if audiences will flock to
Speaker 1: theaters once they are open for for business as usual,
Speaker 1: and if this takes too long, we might see some
Speaker 1: movie theaters just go out of business. Both on the
Speaker 1: smaller independent scene and even with the bigger theater chains,
Speaker 1: there's talk of insolvency among some of those operating a
Speaker 1: theater is already tough. Most theaters make the bulk of
Speaker 1: their revenue not through ticket sales but through concessions, which
Speaker 1: is why it costs so dang much to get snacks,
Speaker 1: because that's where the profit margin really is for theaters.
Speaker 1: On the one hand, studios run the risk of alienating
Speaker 1: theater owners, and I think mostly we're talking about the
Speaker 1: big chains like AMC and Regal here in the United States,
Speaker 1: so there's been some reluctance among studios to make a
Speaker 1: big move toward releasing films online, even on their own services.
Speaker 1: But on the other hand, studios need to pull in revenue,
Speaker 1: and so many are part of these bigger companies, these
Speaker 1: bigger telecommunications and entertainment companies, and they look to their
Speaker 1: streaming service as a way to bring in cash regularly
Speaker 1: every month by building a subscriber base, and that they
Speaker 1: have to make a uh an incentive for people to
Speaker 1: subscribe to those services. So you can use movies to
Speaker 1: convince people to subscribe to say HBO Max for example,
Speaker 1: and maybe they otherwise wouldn't, but they'll do it in
Speaker 1: order to be able to see you Wonder Woman ur
Speaker 1: or something. So some studios are making compromises. For example,
Speaker 1: Paramount has negotiated a deal with theaters that narrows the
Speaker 1: exclusive window that theaters have for carrying a first release film.
Speaker 1: In normal circumstances, theaters have dibbs on a new release
Speaker 1: for at least a few months before a studio pivots
Speaker 1: towards the home theater market and streaming market, but Paramounts
Speaker 1: deal narrows that down to seventeen days, so a little
Speaker 1: more than two weeks after a movie hits theaters. Paramount
Speaker 1: can then make that film available to various streaming services,
Speaker 1: most likely its own. Warner Brothers went a step further.
Speaker 1: Warner Brothers announced that its entire slate of films for one,
Speaker 1: which includes seventeen films into total, will be available both
Speaker 1: in theaters and streaming on HBO Max on day one
Speaker 1: of that film's release. However, in sort of a reverse
Speaker 1: move from what Paramount is doing, these films will only
Speaker 1: be available in HBO Max for thirty one days after
Speaker 1: the film's released or thirty one days including the film's release,
Speaker 1: so it would disappear from the service thirty one days
Speaker 1: after the movie comes out in theaters. And I find
Speaker 1: it fascinating that movie studios, now part of even bigger
Speaker 1: media companies, have turned the vertical integration dial up to eleven.
Speaker 1: My original plan for this episode was to talk about
Speaker 1: how this new situation is kind of a workaround of
Speaker 1: that old restriction that says studios can't own theaters. But hey,
Speaker 1: jokes on me, because in August, the Department of Justice
Speaker 1: decided to dissolve those restrictions on studios, citing that because
Speaker 1: it's a different world than what we had back in
Speaker 1: the nineteen forties, those restrictions don't really apply anymore now.
Speaker 1: I don't think in the end that this is that
Speaker 1: big of a change, but that's because the Supreme Court
Speaker 1: ruling didn't necessarily have the effect that I think the
Speaker 1: justices intended in the first place. But really, what I
Speaker 1: guess I need to say is that it's really all
Speaker 1: a moot point. Vertical integration is here big time, and
Speaker 1: what happens next will largely depend on how things play
Speaker 1: out with the pandemic and vaccines. If the theater experience
Speaker 1: is fading into the past because of you know, the
Speaker 1: economics of running a theater house and the fears of
Speaker 1: things like pandemics and other health issues, we should expect
Speaker 1: to see a change in the way movies are produced
Speaker 1: as well. I suspect movies aren't going anywhere. There will
Speaker 1: always be a desire to create among directors and actors.
Speaker 1: That's going to stick around no matter what the circumstances.
Speaker 1: But if theaters can't recover, there will be no hope
Speaker 1: of having that big box office weekend to recoup the
Speaker 1: cost of production. And without that payout, it would make
Speaker 1: little sense to see big budget films move forward because
Speaker 1: the chances of making your money back would go down,
Speaker 1: particularly as consumers have to pick and choose which streaming
Speaker 1: services they subscribe to. That can also be a pain point.
Speaker 1: It's eerily similar to the prospect that the theater closest
Speaker 1: to you is only running movies from a single studio.
Speaker 1: You have less choice unless you're willing to pay the
Speaker 1: subscription fee to numerous services so that you have access
Speaker 1: to everything. It's not great for consumers, and it's not
Speaker 1: super great for creators because they're going to see their
Speaker 1: budgets shrink. It's not even great for the studios. If
Speaker 1: you hit your saturation point for subscribers, meaning no matter
Speaker 1: what you do, you are not likely to increase your
Speaker 1: subscriber number in any significant way. You have hit that
Speaker 1: saturation point for the market, then at what point do
Speaker 1: you have incentive to invest in interesting projects. You can't
Speaker 1: get any bigger, so why would you spend more than
Speaker 1: you have to? You just you just need enough stuff
Speaker 1: to keep people subscribed. That's all you need. You don't
Speaker 1: need to attract more people because more people aren't coming.
Speaker 1: We see this in the cable industry too. By the way,
Speaker 1: cable companies will hit a saturation point within a market,
Speaker 1: they literally can't get into more homes in that market. Well,
Speaker 1: the only thing you can do is to maybe launch
Speaker 1: a new channel or try to go into a country
Speaker 1: where you don't have a presence already. I saw that
Speaker 1: firsthand when I was working with Discovery Communications. And there's
Speaker 1: a lot that I think is wrong with the entertainment industry.
Speaker 1: I haven't really scratched the surface of all of that
Speaker 1: because it goes deep, but I do hope that we
Speaker 1: can see a recovery with movie theaters. One thing I
Speaker 1: do take comfort in is that we have always loved
Speaker 1: stories since before the time we could write them down,
Speaker 1: So that loves stories that's not going anywhere. We just
Speaker 1: my see some big changes in the ways that we
Speaker 1: tell them. But I do hope that movie theaters make
Speaker 1: a recovery and that we can continue to see innovative
Speaker 1: and big budget films. I mean, I have a lot
Speaker 1: of feelings about various big budget movies. You can hear
Speaker 1: more about my feelings on the podcast The Large Nerdron
Speaker 1: Collider that will be available later this week. It launches
Speaker 1: on Wednesday, so keep an ear out for that, but
Speaker 1: I'll save it for that In the meantime, if you
Speaker 1: have suggestions for future topics that I can cover here
Speaker 1: on tech Stuff, reach out and let me know what
Speaker 1: you are thinking. Because I cannot do it by myself.
Speaker 1: I am not psychic, So the best way to do
Speaker 1: that is to reach out on Twitter. The handle is
Speaker 1: text stuff H s W and I'll talk to you
Speaker 1: again really soon. Text Stuff is an I heart Radio
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