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Welcome to Stuff You Missed in History Class A production of I Heart Radio. Hello and welcome to the podcast. I'm Holly Fry. And I'm Tracy Wilson. So this is a part two of a two parter. And in part one, we talked a little bit about the lives of Adolph Zukor and W-W Hodkinson and how their various steps in the business world led to the creation of Paramount Pictures.
And when we left off, Zucker had managed to wrangle control of Paramount from its founder. Hodkinson had ousted him in the process and it kind of changed the business model. Zucker had already proven himself to be a very shrewd and insightful businessman with the ability to see an end goal and backwards engineered the steps he would need to take to achieve it. And once he became head of Paramount, Zucker applied that same approach to the business there. In combining his production company, Famous Players Laski with Paramount's distribution company, he had consolidated two aspects of the industry under one business, and his next step was obvious gain control of exhibition of films as well.
And this was accomplished through two means that we're going to talk about today. And that led to a lot of legal trouble. And those are block booking and buying theaters. So block booking means that when he made contracts with theaters, Zucker would bundle movies together in one block. The exhibitor had to take the whole block if they wanted the most prestigious or likely blockbuster among them. That ensured that there would be distribution for movies that had a lot less hype or were sometimes just bad movies.
This practice allegedly started when Zucker started using the success of Mary Pickford's movies to get distribution for lesser films. Although the in film manufacturing company had done the same thing in the 1980s by tying the distribution of popular Charlie Chaplin films to smaller pictures for release. But Zuiker wasn't just tying two pictures together the way Sony had. He was, as the name suggests, making entire programming blocks so a cinema would be running lots of Paramount titles.
Of course, this practice both strongarmed theaters into carrying movies they didn't want, and it also meant the independent producers struggled to get their films into theaters, where screens were clogged up with blocks of films from Paramount. Incidentally, Mary Pickford hated this practice, even though she was being used to generate it. And she eventually had a clause written into her contract with Zuercher that guaranteed that her pictures would not be used for block booking. And this actually meant that two subsidiary companies had to be formed to produce her movies and to distribute them, rather than carving out an exception within the famous players Laski and Paramount set up.
But Zucker continued the practice, with all those other pictures sometimes blocking together more than 20 titles. In some cases, this was more than a small theater could even show in a year. But they still had to agree to take this entire block, even if that meant they got movies that they would never run. There were also concerns that small theaters and conservative towns would automatically have to book pictures that really were not in line with what audiences in those places might approve of know.
They were definitely people that were worried that this was going to bring licentious and terrifying content to the screens of their their small towns.
Here's the thing. Zucker and his colleagues certainly saw how this staked out a huge chunk of screen real estate for Paramount Pictures. But this concept was also driven by a simple desire to streamline business. Doing separate distribution deals for every single picture required a lot of man hours and negotiating some in the industry. Of course, the people who benefited from the system further argued that black booking made the whole thing easier and that it also guaranteed income for studios. And then they could make both hits and more experimental fare without having to fret over bankrolling every single one individually.
This also, incidentally, led to a lot of debate over whether popular films were the good result of this system or whether good movies being made were the ones not getting attention because they sat outside the larger studio system. So what constitutes a good film was being argued right from the start?
Yeah, when I think about how people get into Internet arguments about whether or not like a Marvel movie is a good movie or a fun movie and other people are like, no, serious drama is good movie, and that these arguments are literally a century old.
So starting in 1921, though, the Federal Trade Commission began investigating block booking and famous players Laski and Paramount, in particular because they were the biggest users of it. In nineteen twenty three, the Federal Trade Board held a series of hearings to investigate the possibility that there were, according to the New York Times, quote, the corporation, six subsidiary companies and six. Individuals operating in a trust, the announcement that ran in papers about the investigation read, quote, The complaint alleges that the famous players, Laski Corporation by progressive expansion, now dominates the exhibition field through its ownership of production, distribution agencies and theater holdings.
And because of this combination of efforts, stifles competition inasmuch as its competitors are unable to secure first run showings of their pictures.
HGH Kodak had been chairman of the Finance Committee of Famous Players after his firm, which was American International Corporation, had him investigate famous players business Sounness to determine whether ASIC wanted to invest. And ASIC did invest and underwrote a stock issue worth ten million dollars. Conex detailed knowledge of famous players finances led to him testifying before the Federal Trade Commission during a hearing that took place in late April 1923.
Conic gave the following statement in that testimony, quote, Naturally, Mr. Zuercher was ambitious. He wanted his company to be successful. He wanted to have weekly receipts as large as possible, and he was anxious to do anything to bring this about. His goal was to have the best and most successful motion pictures. Mr. Zucker was of the opinion that at the time that the famous players company dominated the industry and the acquisition of the theaters in key cities, which would be made possible through the issuance of 10 million dollars worth of preferred stock, would make sure the permanence of the situation by giving an outlet to all of his pictures.
What he's referring to there is that Paramount had purchased more than 300 first run theaters by 1921 in all of the major markets using that money. And you can bet that those theaters were getting all of the most anticipated movies. When Conic was cross-examined, the counsel for the respondent focused the initial question on defining what he meant by domination, and he clarified that he meant superiority. Counsel then followed up by asking if Conic agreed then that the singer Enrico Caruso, dominated the opera field and Conex answer was, quote, God Almighty had a lot to do with Caruso, but he had nothing to do with the famous players.
König then went on to describe how Zucker ensured that independent producers would have a very hard time getting their film shown in key markets because Zuercher controlled about 50 percent of the best movie houses in the most important cities.
We're going to get into some of the additional testimony that was given in these FTC hearings. But first, we will pause for a quick response break.
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There were other witnesses that offered damning testimony about the business practices of famous players Laski and Paramount in May film Exhibiter Joseph Seabass described a handshake deal that he had made with a man who worked for Paramount named s.A. Lynch. Lynch had allegedly told Boss that if he boss built a new theater in Dallas, Texas, and promised to enter into a contract with Paramount, that Paramount would not build a planned theater on that street. A year later, Paramount opened a theater across the street from his, and he was suddenly unable to get access to big films, couldn't get lobby displays, etc.
. The Paramount Theater got all of those things six days after Boss, another theater owner, James Burnham of Buffalo, gave similar testimony. Burnham said that when he turned down the offer of a block booking with famous players Laski through their distribution agent, that was a Mr. Rose. Things became heated. Soon, advertisements showed up in the local paper, encouraging people to demand that their theaters carry Paramount Pictures. And Burnham's case. He was harassed by a number of people, and Paramount simply bought a nearby theater and started running their movies there anyway.
Testimony from additional theater owners described Paramount sending agents into theaters to count their patrons, as well as Paramount Contracting for blocks of movies and then not even sending all of the movies that were part of the block. But theater owners were not the only people that the FTC heard testimony from regarding the business dealings. The famous players Laski and Paramount of vice president of Paramount, named W.L. Sherries, described having his stock in Paramount exchanged for famous players stock and the rights to distribute famous players pictures and losing money.
In this deal, he never received the promised contract and was pushed to a lower position as head of the purchase department, was forced into deals that lost money and put him in a precarious financial position.
There are cages and details of sherries dealings with Paramount and how he kind of got really taken advantage of that go on and on and on. It could probably be their own episode if we really wanted a minutia episode.
Another man, Walter W. Irwin, worked for famous players from 1916 to 1920.
And when he was called at the FTC hearing, he described his job as largely being conducting surveys of cities to identify their markets in some markets. He was trying to figure out why they were underperforming. But in others, particularly where the company's rival First National, had a theater, he would arrange to have a new, nicer theater built often right across the street from the first national movie house. Then the new Paramount Theater would get all the best new pictures.
First, National had been outspoken in wanting to break up the trust. First players was alleged to be operating, even going so far as to try to acquire Mary Pickford in retaliation for this conspiracy against famous players. Irwin testified that he had advised Zucker to withhold distribution to exhibitors who worked with First National. Yes, so they didn't want to only withhold things from First National, but basically, like, are you friends with them? Do you do business with them and you don't do business with us?
All of these actions combined made it harder and harder for independent filmmakers to get financing, according to Irwin, because they had to get a distribution deal in place first just to reassure backers that they wouldn't get shut out of the key markets.
And there was even testimony about the forced removal of W-W Hodkinson, organized by Zucker, who got other producers to agree to the plan. Walter E. Green had been a partner of Hyrum Abrams. He was placed into the president role at Paramount after the takeover and detailed Zucker's frustrations with Hodkinson, as well as Zucker's plan to start acquiring first run theaters after he had taken over in late April of 1923. Al Lichtman, president of Preferred Pictures, told the FTC committee that when he tried to get his movies placed into theaters that had contracts with Paramount, he was always told that they had, quote, no open time.
Of course, the FTC also asked W-w Hodkinson to testify. Hodkinson described meetings as far back as 1915, in which Adolph Zukor had pushed for the idea of combining production and distribution under one company, something Hodkinson was against. This was likely the largest source of friction between the two men. Yeah, Zuercher, there's a lot of discussion of how much he didn't like Hodkinson, and it really seems like because he won't let me do what I want to do in the industry.
Hodkinson was very forthright in this testimony in his belief that large studios controlling distribution was bad for the industry, saying, quote, The history of the business has shown that the most successful pictures have been developed by individual efforts rather than by mass production where there is. No competition and no necessity to have special regard to quality, the independent producer being denied the patronage of the larger theater does not receive compensation sufficient to successfully compete with other independent producers. And this stands to lower the quality of the pictures.
Over the course of the investigation, the FTC amassed more than 17000 pages of testimony. Yeah, I think they also had something like 15000 pages worth of introduced evidence in all of this. And while all of this was going on, we should point out it was not as though Zucker famous players, Laski or Paramount were just sitting idle as the investigation played out. Remember, this all started at the beginning of the 1920s and literally years had gone by over the course of the investigation where everyone kind of just kept doing business.
In nineteen twenty six famous players, Laski had a new Hollywood studio built. They were still growing and expanding throughout the 1920s. The studio needed pictures to fill the 20 million dollars worth of new theaters that Zucker had decided to build. He also purchased the Taliban and Cats' theater chain and TASC, their existing leadership with running his rapidly expanding cinema holdings. They started operating under the name Paramount Publix. Eventually, those theaters had to have sound systems installed to keep up with the growing demand for talkies in the late 1920s.
Despite the looming investigation, things were going spectacularly well, and despite Zucker often paying way more than most people thought was reasonable for the production of movies, the company was raking in five million dollars in profits each year in the mid 1920s, and that number was rising. The Paramount building on Times Square started construction in 1926 with a five million dollar theater.
As part of that design, in April of nineteen twenty seven famous players, Laski became paramount famous Laski Corp.. Also in nineteen twenty seven, the studio released the Clarabelle vehicle Wings, which was a huge success and would go on to win the first Academy Award for Best Picture in 1929. But less than two months after Wings had its first test screening and before its premiere, the studio's legal issues once again became a more pressing problem.
On July 9th, 1927, a cease and desist order was issued against famous players Laski to stop block booking. In the same order, Paramount was also required to reform its acquisitions practices of movie theaters. Zuercher, Laski and their company were given 60 days to comply or to submit explanations as to why they could not. But even after two extensions on that 60 day limit, the information that famous players submitted in April nineteen twenty eight was really just a disputation of charges, claiming that the way that the FTC had defined block booking wasn't even how their company did it anyway.
So on April twenty seventh nineteen twenty eight, the Federal Trade Commission took legal action against the famous Players Laughy Corporation. But it was not the only company named in the antitrust cases. What started as two separate cases eventually merged into one. And in addition to Paramount and famous players, Lafsky, MGM Universal, United Artists First National Pictures, Fox Film, Pathé, FBO, educational film exchanges and videography were all implicated in Monopoly allegations. The case against famous players.
Lafsky was stated by the FTC from the beginning as being because paramount in part through the use of dummy corporations to make purchases had become, quote, the largest theater owner in the world. And in one week in the year 1920, more than 6000 American theaters, or approximately one third of all the motion picture theaters in the United States, showed nothing but Paramount Pictures. Additionally, there was corruption suspected in the compulsory arbitration that was part of all the contracts with exhibitors.
Basically, if there was an issue, it was to be taken up with an industry arbitration board. And those boards always seemed to favor the studios and distributors over the exhibitors.
In the fall of nineteen twenty nine, the New York Federal District Court ruled against the use of compulsory arbitration and deals. This was a blow to distributors, but the court did not in the use of block booking. So the FTC also felt slighted in this ruling. Both sides wanted to appeal the decision and so it went to the Supreme Court in 1930.
Coming up, we'll talk about how that played out. But first, we will take a quick sponsor break. Hi, this is Melanne Verveer and this is Kim Mazzarelli and we're co-hosts of Senecas Conversations on Power and Purpose, brought to you by the Seneca Women Podcast Network and I Heart Radio.
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Listen, a battleground on the I Heart radio app, Apple podcast or wherever you get your podcast. The appealed case was argued in the Supreme Court on October 27th, 1930, and the decision came down a month later on November 24th. It was not what the studios had hoped for. The decision delivered by Justice James Clerk Mike Reynolds read in part, quote, The record discloses that 10 competitors in interstate commerce controlling 60 percent of the entire film business have agreed to restrict their liberty of action by refusing to contract for a display of pictures except upon a standard form which provides for compulsory joint action by them in respect of dealings with one who fails to observe such a contract with any distributor, all with the manifest purpose to coerce the exhibitor and limit the freedom of trade.
Regarding the matter of arbitration, the decision read, quote, It may be that arbitration is well adapted to the needs of the motion picture industry, but when, under the guise of arbitration parties enter into unusual arrangements which unreasonably suppress normal competition, their action becomes illegal. The studios, due to their use of block booking, were found to be in violation of the Sherman Antitrust Act, which, according to the opinion written by Justice McReynolds, quote, seeks to protect the public against evils, commonly incident to the unreasonable destruction of competition and no length of discussion or experimentation amongst parties to a combination which produces the inhibited result can give validity to their action.
So in the end, the FTC won and the studios are going to have to change. Well, on paper, the timing of this case becomes really important. The country was plunging into the Great Depression and that actually gave the film industry's biggest players a break on this whole Supreme Court ruling to enable the industry to survive and to continue to provide entertainment at a time when people needed it desperately. The government gave famous players Laski and all the other studios a reprieve.
In 1933, the motion picture producers and distributors of America took advantage of the newly passed National Industrial Recovery Act and negotiated a deal with the federal government to protect the studios and their distribution branches. The deal terms were fairly simple. When you boil it down, the film industry, in accordance with the IRA, had to be willing to work with labor unions to do their part for economic stimulus. And in return, the court ruling was nullified, block booking continued and the studios were able to keep their hand in the distribution and exhibition.
But even though this was something of a save for Paramount, this was still the Great Depression. There were outstanding debts on some of the theater acquisitions that had been made in the 1920s and some of those purchases Zucker and Paramount had paid for the properties with Paramount stock and a promise to buy back shares with revenue. But the 80 dollars per share value that had been established in the purchase contracts left Depression era paramount owing 11 million dollars and revenue was just in freefall.
The year before the MPRDA cut their deal with the government, Paramount lost twenty one million dollars. The company's stock fell from a value of seventy eight dollars per share to just eight dollars. There had to be a reorgs and more urgently, a bankruptcy filing. Financial experts were called in to help the company, which had a very high turnover at the executive level for several years.
In 1935, Barney Balaban, who had been in charge of the theatrical presence for Paramount Publix and who had an accounting background, became president over the whole company. Zucker became the chairman of the board at Paramount Pictures and moved to Los Angeles permanently. Instead of splitting time between the East and West coasts, he wanted to keep a closer eye on things. As the studio rebuilt under Ballah Band's guidance, the company started selling off some of the acquisitions it had made, including a 50 percent interest in CBS, and they let theater chains buy back partial ownership of their cinemas.
Balaban got things back on track for Paramount, and the company built up its health year over year to get out of debt and once again turned a profit. But that same year that Balaban became president and Zucker became chairman, the National Industrial Recovery Act was determined by the Supreme Court to be unconstitutional. Controversial deals like the one with the MPRDA had raised concerns over it from the beginning. Yeah, that was one of those deals. And it was like, hey, we cut a deal with the government.
This is great. We're saving the industry. And a lot of people were like, wait a minute, you're doing what? Now? You you just got told everything you do is illegal and now you can do it anyway. What is that? So studios at this point, we're still struggling.
In nineteen thirty eight, Walt Disney's Snow White and the Seven Dwarfs wowed audiences and critics, but none of the major studios had hits at that point. Remember, Disney was like an independent people no to. That not much of quality was coming out of Hollywood and the studio system and the U.S. Department of Justice once again pursued a case against the studio system, accusing them of a monopoly with the filing of US vs. Paramount Pictures at all. That at all referred to seven other movie studios, Metro-Goldwyn-Mayer, Warner Brothers, 20th Century Fox, RKO, Universal, Columbia and United Artists.
There were also 25 additional affiliated companies named in the suit, as well as 132 studio executives. There were also later filings of antitrust suits against theater chains accused of colluding with the studio system. This meant that specific studios were in the big case and then they were also sometimes named as co-defendants. In those smaller cases, none of this legal action was a surprise. There had been a concern on the part of the studios that an antitrust suit would happen that had been there since the National Industrial Recovery Act had been struck down.
They had all adopted a hope for the best, but expect the worst kind of approach. A committee to develop an industry regulatory standards had been formed before the legal action was taken. It was chaired by 20th Century Fox president Sidney Kent. They did that in the hopes that it might stave off the inevitable or at least establish intent on the film industry's part before a trial could really get underway. And even after the case was announced, the committee continued its efforts at self-regulation.
Yeah, Sidney Kent was very vocal. Like, we'll figure this out ourselves. You don't have to come after us legally. You have to take us to court is fine.
This entire thing dragged on for years and years. The main trial began on June 3rd of 1940. But within a couple of weeks, the studios had managed to get the government to agree to private negotiations. So the trial was halted. This resulted in the consent decree of 1940, which limited block booking to only five films in a packaged block. Paramount, MGM, 20th Century Fox, Warner Brothers and RKO all agreed to this deal. They could continue to operate their own theaters, but they could not leverage that ownership to drive out competitors.
And they couldn't expand their theater holdings without consent from the government. The Justice Department took a lot of heat for this agreement, particularly from independent film producers who had wanted to see the integrated studio systems broken up. While the changes seemed drastic to some people, they seemed woefully inadequate to others. And there were still calls for a law making any kind of block booking illegal. Yeah, there were definitely people that were like, listen, they used to sell you 20 movies at a time.
Now it's only five. That's a big change. They're like it's not. They're still doing it, though. But here's the thing. Universal Columbia and United Artists never agreed to the consent decree for various reasons. Some of them had less interest in the whole theater chain angle of it. And because they did not agree, on June 1st, 1942, the consent decree expired as provided for in a clause in the decree itself. The other five studios went back to their old practices and the government reopened their antitrust case.
One month after World War Two officially ended, the Justice Department had the studios back on trial starting on October 8th, 1945. The studios were once again arguing that the business practices they employed were part of doing smart business. But the industry at that point was doing spectacular business. Though adopting this approach as though it were needed for survival did not really convince the judges in the case. In May nineteen forty six, the studios were found guilty of conspiracy in restraint of trade.
The studios, per this ruling, could keep their theater chains, but companies could not pool their holdings to push out smaller competitors. But the court clearly stated that it did not believe that making movie studios separate from their theater chains would eliminate monopolies. And they actually argued that it could damage the theater industry, as had happened in 1929. Neither side was happy. The elimination of block booking dismayed the studios and not requiring studios to divest their theater. Holding left the Department of Justice dissatisfied.
Once again, they were headed to the Supreme Court. The Society of Independent Motion Picture producers submitted its own briefs to the court as the case escalated based on its own antitrust investigations. The group filed a friend of the court petition at the end of 1947 outlining their findings and demands. The Supreme Court trial began on February 9th. Nineteen forty eight. And while the arguments had been fine tuned a bit since the trial in New York the prior year, each side essentially made the same case that they had before.
The government outlined the ways in which the studio system controlled the entire industry in ways that it believed were illegal. And the studios made clear that an end to the studio systems would collapse entertainment. The Supreme Court announced its decision. In on May 3rd, 1948, the studios were once again found guilty of violating antitrust laws, block booking was deemed illegal and the big change studios could no longer operate as integrated systems of production, distribution and exhibition. RKO was the first to go.
It was broken up on November 8th, 1948. Paramount was the second to enter into divorce. In February the following year, and while the remaining studios fought and actually went back to court, the outcome was ultimately the same. The studio system was done, block booking was over, and distribution deals would be done individually for films going forward. Finally, giving independent producers a fair chance in the business. The consent decrees entered into by the studios were known as the Paramount Consent Decrees.
As the years wore on, Zucker retained the title of chairman of the board at Paramount, though was less involved in the business, it was considered more of an honorific title for him. Eventually, he was still chairman when he died in 1976 at the age of 103. And now we get to what sparked my interest in doing Selvig in the first place, because on August 7th, twenty, twenty a month ago, as we record this 72 years after the Supreme Court's ruling in the Paramount case, the decrees were deemed outdated by the Department of Justice.
U.S. District Court Judge Analisa Torez ruled that due to a changing marketplace and changes in antitrust law, that it is unlikely that a future violation would happen. The judge's ruling also states that, quote, termination of the decrees does not give defendants or other market participants free reign to implement the same anti-competitive practices. The decrees remedied terminations simply implies that this court is performing a quote necessarily Forward-Looking and probabilistic evaluation determined that termination would be in the public interest if there was a future violation.
However, that party would be subject to the liability under the full extent of federal and state antitrust laws as they are today. Given the changing marketplace, the court finds it is unlikely that the remaining defendants would collude to once again limit their film distribution to a select group of theaters in the absence of the decrees and fines. Therefore, that termination is in the public interest.
So the industry is now in a two year sunset period of the decree's. So this will all come in and be done with in twenty twenty two. Independent theater owners and filmmakers have already criticized the decision. We will see how this unfolds in the coming months. We kind of get to live through a new phase of what we thought was settled history. Do you have some listener mail to take us out?
I do. This is a listener mail from our listener, Jane, that delighted me so utterly. I kind of couldn't deal with it. She writes, Thank you for your recent White House episode. That one hit close to home for me for several reasons. I grew up in Stafford, Virginia. My parents house is an awkward harbor located on Aquia Creek Government Island, where Aquia Sandstone used for the construction of White House, the U.S. Capitol, etc., is only two miles away.
It's a nature preserve, an archaeological site today I have never been, but my friends used to spend countless weekends hiking around there. There was not much else to do in Stafford in the mid to late eighties. I currently live just twenty minutes outside of DC. My friend worked at the White House during the Obama administration, so my family and I were lucky enough to have been able to go on a private tour. Yes, it's tiny and also invited to the annual Christmas party they host for employees.
The events all you feel when you're leaving the White House and standing underneath that famous lantern is incredible. You told the story of Dolly Madison saving the painting in Washington. So I thought you would get a kick out of this. DC historical congressional cemetery hosted several fun events throughout the year. I just signed up for Baby Goat Yoga, haha. And a few years ago they hosted a flea. The British five K run participants were led by Dolly Madison and a golf cart holding the Washington portrait while being chased by a bunch of red coats.
And then Jane included photos from their Facebook page of this event, which is fantastic. So she writes, Next time you're in DC. Yes, I know it might be a while, so I definitely check this place out. They do history tours and set up a full bar and one of the crypts Halloween tours and races. They screen movies and even have a beehive for the honey they sell for. It is called Reston Bees.
I'm sorry I made a snort laugh, but that's brilliant. Annie Royal Elbridge Gerry Belva Lockwood, Mathew Brady J. Edgar Hoover, John Philip Sousa and Dolly Madison's wild son John Payne. Todd are among those interred here. Dolly actually spent six years here before being moved to her final resting place.
And then she writes about two other people that are are interred there. That might be interesting. And my. In future episodes, thank you, Jane, for all of this, this is fabulous. Those pictures are a dream. I love a cookie themed five k. It's like the best way to get out and get some exercise and also just laugh and enjoy life. So I wish I could have been there because it looks amazing if you would like to write to us.
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