Coordination through Short-Term Coalitions: The Hollywood Motion
Picture Industry Hollywood, or more properly the Los Angeles area, has dominated the U.S. motion picture industry since the 1920s. In 1939, for example, Hollywood produced 90 percent of the feature-length motion pictures made in the United States and 65 percent of those produced in the world (Rosten 1970, 4). According to the Department of Commerce’s census of service industries, in 1987 California accounted for 75 percent of U.S. motion picture production and 70 percent of U.S. television show production. The Los Angeles-Long Beach Primary Metropolitan Statistical Area (PMSA) accounted for 96 percent of California’s motion picture and 85 percent of its television show production in that year. This translated into 7 1 percent of the nation’s motion picture and 60 percent of the nation’s television show production.
Industry History Hollywood’s rise to prominence began shortly after the turn of the century. In 1909, William Selig, a Chicago moviemaker frustrated by Chicago’s weather (all movies were shot outdoors at the time) and running battles with the New York-based Motion Picture Patents Company (MPPC),’O moved his business to Los Angeles. Another company, the Nestor Film Corporation, set up the first studio in Hollywood in 1910. Within three months, there were fifteen companies shooting films in Hollywood, which was soon transformed from a sleepy residential community into the motion picture capital of the world. The movie companies were initially attracted to Hollywood by the weather, the proximity of Los Angeles (which provided infrastructure and workers), location near other film companies (which stimulated the development of specialized services and suppliers for the industry), and low land
prices. Another attraction was distance from New York (and the MPPC’s strong-arm tactics) and proximity to Mexico (which permitted escape beyond the jurisdiction of U.S. marshals). The physical geography of the Los Angeles area allowed film companies to find a wide range of locations, including mountains, deserts, rivers, and ocean, within a day’s journey. According to Schatz (1983, 3 3 , the forces that were to become the major Hollywood studios were in place by 1914. By 1915, the local film industry payroll was already estimated at $15 million (Palmer 1938, 191, 198).
During the “studio era” (mid-1920s to 1949), the U.S. motion picture industry was controlled by eight corporations. The five so-called majors, Paramount, Loew’s, Twentieth Century-Fox, Warner Brothers, and Radio- Keith-Orpheum (RKO), were fully integrated into production, distribution, and exhibition. Of the “little three,” Universal and Columbia produced and distributed films but owned no theaters, whereas United Artists distributed films for independent producers but did no production and owned no theaters. The majors developed strategies based on creating stars, controlling distribution, and dominating exhibition through ownership of a small number of firstrun theaters. This strategy allowed the majors to receive roughly 75 percent of the motion picture rental fees during the studio era. The “little three” received around 20 percent of the film rentals in the studio era; all other companies
combined received around 5 percent.I’Coordination of the industry’s activities was carried out within the vertically integrated firms. The majors’ overall production and release schedules were set by corporate management in New York. The Hollywood studio chief and a small number of producers then organized the writing, pre-production work, filming, editing, and post-production work using actors, staff writers, directors, and crews, as well as pre- and post-production workers who were under long term contracts (the so-called contract system). The studios attempted to utilize fully their fixed production assets to supply their other, larger fixed assets in exhibition and distribution.’* Specialized skills and rigid union work rules (by the mid- to late 1930s) meant that a large number of individuals performed sharply defined specialized tasks for a given film (Gomery 1986, 15). Hollywood and New York negotiated over budgets, schedules, wages, and investments. Final decisions usually rested with the CEO in New York, not the studio boss in Hollywood. The physical separation of management allowed the production chief to be part of the Hollywood creative milieu while corporate remained part of the New York financial and distribution community. The separation also allowed the studio chief a certain autonomy, providing some
insulation from the very different tasks of distribution and exhibition. Under the studio system, motion picture production in Hollywood became a standardized process tightly controlled and coordinated by the studio boss. Many believe the mass production of motion pictures reached its zenith (or nadir) at MGM, under Louis B. Mayer, and Warner Brothers, under Jack Warner, in the 1930s and 1940s. Mayer, MGM studio boss from 1924 to 1947, was reportedly the highest-paid executive in the United States in the 1930s. At MGM, producers could only sign stars and initiate projects with Mayer’s express approval. Warner Brothers was particularly known for its assembly-line methods of moviemaking. Jack Warner and his assistants made all the important
movie production decisions, generally trying to produce large volumes of films on small budgets, reusing stories, and operating with an overworked and underpaid studio staff (Gomery 1986,68-69, 112-15). An antitrust suit initiated by the Justice Department against the eight largest motion picture companies in 1938 had a dramatic impact on the movie industry. In 1948, the U.S. Supreme Court found that the companies had illegally monopolized the distribution and exhibition of motion pictures.13 In what became known as. the “Paramount Decision,” the Court ordered the firms to divest their theaters and outlawed block booking, the practice of forcing exhibitors to take blocks of films, sight unseen, in order to obtain any films at all. The decision influenced organization and coordination in the motion picture industry in two ways. The direct effect was the separation of exhibition from distribution. The indirect effect was the separation of distribution and production. The divestiture of the theaters and the end of block booking meant that each film had to be marketed individually. A studio could no longer guarantee the run of its motion pictures, or whether they would actually be run at all. Faced with greatly increased uncertainty, the Paramount defendants curtailed production (even though the Paramount decision did not force them to do so), further decreasing their level of vertical integration, and ended the contract system. Directors, writers, producers, and performers began to freelance on a picture by picture basis, while the “studios” focused on distribution rather than production.
Another result was a dramatic increase in the importance of independent production. In 1949, independently produced films accounted for only 20 percent of the films released by the eight Paramount defendants. United Artists, which did not produce at all, accounted for half of that 20 percent. In 1957, independent production accounted for 58 percent of the large distributors’ releases, with United Artists releasing less than one-third of that 58 percent (Connate 1978, 117-18). The separation of production from distribution had unanticipated benefits. The major studios found that independent producers were able to provide films that were more creative and lower cost than in-house production, with its large overhead expenses and risk-averse formula-film tradition, indicating that there had been significant inefficiencies in the vertically
integrated structure. The studios actually accelerated the process of vertical disintegration by renting studio space, distributing independent films, and investing in independent production. Warner Brothers, for example, advanced $1.6 million to independent producers in 1946. Ten years later the figure was $25.1 mi1li0n.l~ Actually, the motion picture industry had begun to change even before the Paramount decision. During the boom years of the Second World War, leading stars, directors, and producers set up production companies to take advantage of favorable corporate and capital gains tax rates.I6 By the 1950s, most important stars had formed their own production companies (Gomery 1986,9-10). Bitter but successful unionization drives in the 1930s and 1940s left Hollywood a fully unionized shop by the time of the Paramount decision. Extremely detailed work rules limited the flexibility of the studios, while wage agreements increased the integrated studios’ labor expenses. Even before the decision, studios had begun efforts to reduce their fixed costs and payrolls.
Paradoxically, industry-wide union contracts, which gave workers protection without the need to negotiate a detailed agreement for each film, and the roster system, in which the craft unions acted as hiring halls to allocate temporary jobs, allowed independent filmmakers to find qualified personnel without incurring search and negotiation costs. After the Paramount decision, more and more filmmakers found they could increase flexibility and decrease expenses by hiring independent contractors rather than permanent employees. The result was a further “casualization” (use of temporary workers and contractors) of motion picture employment.The structure of the motion picture industry was also influenced by changes in demand due to demographic changes and increased competition from television. As population shifted from city to suburb, it became more difficult to attract crowds to the large inner-city theaters that had provided the bulk of movie revenues in the 1930s and 1940s. A more important phenomenon was the advent of television. In 1949, there were
Coordination through Short-Term Coalitions: The Hollywood Motion
Picture Industry Hollywood, or more properly the Los Angeles area, has dominated the U.S. motion picture industry since the 1920s. In 1939, for example, Hollywood produced 90 percent of the feature-length motion pictures made in the United States and 65 percent of those produced in the world (Rosten 1970, 4). According to the Department of Commerce’s census of service industries, in 1987 California accounted for 75 percent of U.S. motion picture production and 70 percent of U.S. television show production. The Los Angeles-Long Beach Primary Metropolitan Statistical Area (PMSA) accounted for 96 percent of California’s motion picture and 85 percent of its television show production in that year. This translated into 7 1 percent of the nation’s motion picture and 60 percent of the nation’s television show production.
Industry History Hollywood’s rise to prominence began shortly after the turn of the century. In 1909, William Selig, a Chicago moviemaker frustrated by Chicago’s weather (all movies were shot outdoors at the time) and running battles with the New York-based Motion Picture Patents Company (MPPC),’O moved his business to Los Angeles. Another company, the Nestor Film Corporation, set up the first studio in Hollywood in 1910. Within three months, there were fifteen companies shooting films in Hollywood, which was soon transformed from a sleepy residential community into the motion picture capital of the world. The movie companies were initially attracted to Hollywood by the weather, the proximity of Los Angeles (which provided infrastructure and workers), location near other film companies (which stimulated the development of specialized services and suppliers for the industry), and low land
prices. Another attraction was distance from New York (and the MPPC’s strong-arm tactics) and proximity to Mexico (which permitted escape beyond the jurisdiction of U.S. marshals). The physical geography of the Los Angeles area allowed film companies to find a wide range of locations, including mountains, deserts, rivers, and ocean, within a day’s journey. According to Schatz (1983, 3 3 , the forces that were to become the major Hollywood studios were in place by 1914. By 1915, the local film industry payroll was already estimated at $15 million (Palmer 1938, 191, 198).
During the “studio era” (mid-1920s to 1949), the U.S. motion picture industry was controlled by eight corporations. The five so-called majors, Paramount, Loew’s, Twentieth Century-Fox, Warner Brothers, and Radio- Keith-Orpheum (RKO), were fully integrated into production, distribution, and exhibition. Of the “little three,” Universal and Columbia produced and distributed films but owned no theaters, whereas United Artists distributed films for independent producers but did no production and owned no theaters. The majors developed strategies based on creating stars, controlling distribution, and dominating exhibition through ownership of a small number of firstrun theaters. This strategy allowed the majors to receive roughly 75 percent of the motion picture rental fees during the studio era. The “little three” received around 20 percent of the film rentals in the studio era; all other companies
combined received around 5 percent.I’Coordination of the industry’s activities was carried out within the vertically integrated firms. The majors’ overall production and release schedules were set by corporate management in New York. The Hollywood studio chief and a small number of producers then organized the writing, pre-production work, filming, editing, and post-production work using actors, staff writers, directors, and crews, as well as pre- and post-production workers who were under long term contracts (the so-called contract system). The studios attempted to utilize fully their fixed production assets to supply their other, larger fixed assets in exhibition and distribution.’* Specialized skills and rigid union work rules (by the mid- to late 1930s) meant that a large number of individuals performed sharply defined specialized tasks for a given film (Gomery 1986, 15). Hollywood and New York negotiated over budgets, schedules, wages, and investments. Final decisions usually rested with the CEO in New York, not the studio boss in Hollywood. The physical separation of management allowed the production chief to be part of the Hollywood creative milieu while corporate remained part of the New York financial and distribution community. The separation also allowed the studio chief a certain autonomy, providing some
insulation from the very different tasks of distribution and exhibition. Under the studio system, motion picture production in Hollywood became a standardized process tightly controlled and coordinated by the studio boss. Many believe the mass production of motion pictures reached its zenith (or nadir) at MGM, under Louis B. Mayer, and Warner Brothers, under Jack Warner, in the 1930s and 1940s. Mayer, MGM studio boss from 1924 to 1947, was reportedly the highest-paid executive in the United States in the 1930s. At MGM, producers could only sign stars and initiate projects with Mayer’s express approval. Warner Brothers was particularly known for its assembly-line methods of moviemaking. Jack Warner and his assistants made all the important
movie production decisions, generally trying to produce large volumes of films on small budgets, reusing stories, and operating with an overworked and underpaid studio staff (Gomery 1986,68-69, 112-15). An antitrust suit initiated by the Justice Department against the eight largest motion picture companies in 1938 had a dramatic impact on the movie industry. In 1948, the U.S. Supreme Court found that the companies had illegally monopolized the distribution and exhibition of motion pictures.13 In what became known as. the “Paramount Decision,” the Court ordered the firms to divest their theaters and outlawed block booking, the practice of forcing exhibitors to take blocks of films, sight unseen, in order to obtain any films at all. The decision influenced organization and coordination in the motion picture industry in two ways. The direct effect was the separation of exhibition from distribution. The indirect effect was the separation of distribution and production. The divestiture of the theaters and the end of block booking meant that each film had to be marketed individually. A studio could no longer guarantee the run of its motion pictures, or whether they would actually be run at all. Faced with greatly increased uncertainty, the Paramount defendants curtailed production (even though the Paramount decision did not force them to do so), further decreasing their level of vertical integration, and ended the contract system. Directors, writers, producers, and performers began to freelance on a picture by picture basis, while the “studios” focused on distribution rather than production.
Another result was a dramatic increase in the importance of independent production. In 1949, independently produced films accounted for only 20 percent of the films released by the eight Paramount defendants. United Artists, which did not produce at all, accounted for half of that 20 percent. In 1957, independent production accounted for 58 percent of the large distributors’ releases, with United Artists releasing less than one-third of that 58 percent (Connate 1978, 117-18). The separation of production from distribution had unanticipated benefits. The major studios found that independent producers were able to provide films that were more creative and lower cost than in-house production, with its large overhead expenses and risk-averse formula-film tradition, indicating that there had been significant inefficiencies in the vertically
integrated structure. The studios actually accelerated the process of vertical disintegration by renting studio space, distributing independent films, and investing in independent production. Warner Brothers, for example, advanced $1.6 million to independent producers in 1946. Ten years later the figure was $25.1 mi1li0n.l~ Actually, the motion picture industry had begun to change even before the Paramount decision. During the boom years of the Second World War, leading stars, directors, and producers set up production companies to take advantage of favorable corporate and capital gains tax rates.I6 By the 1950s, most important stars had formed their own production companies (Gomery 1986,9-10). Bitter but successful unionization drives in the 1930s and 1940s left Hollywood a fully unionized shop by the time of the Paramount decision. Extremely detailed work rules limited the flexibility of the studios, while wage agreements increased the integrated studios’ labor expenses. Even before the decision, studios had begun efforts to reduce their fixed costs and payrolls.
Paradoxically, industry-wide union contracts, which gave workers protection without the need to negotiate a detailed agreement for each film, and the roster system, in which the craft unions acted as hiring halls to allocate temporary jobs, allowed independent filmmakers to find qualified personnel without incurring search and negotiation costs. After the Paramount decision, more and more filmmakers found they could increase flexibility and decrease expenses by hiring independent contractors rather than permanent employees. The result was a further “casualization” (use of temporary workers and contractors) of motion picture employment.The structure of the motion picture industry was also influenced by changes in demand due to demographic changes and increased competition from television. As population shifted from city to suburb, it became more difficult to attract crowds to the large inner-city theaters that had provided the bulk of movie revenues in the 1930s and 1940s. A more important phenomenon was the advent of television. In 1949, there were
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