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Investigation of Concentration of Economic Power; Monograph No. 1

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Investigation of Concentration of Economic Power; Monograph No. 1 muuiiuitimi: mHp} *i»i!S«««il hi)'' Pi m :|il pill 7 Congress], SENATE COMMITTEE PRINT ou Session INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER TEMPOBARY NATIONAL ECONOMIC COMMITTEE A STUDY MADE FOR THE TEMPORARY NATIONAL ECONOMIC COMMITTEE, SEVENTY-SIXTH CONGRESS, THIRD SESSION, PURSUANT TO PUBLIC RESOLUTION NO. 118 (SEVENTY-FIFTH CONGRESS) AUTHORIZING AND DIRECTING A SELECT COMMITTEE TO MAKE A FULL AND COMPLETE STUDY AND INVESTIGATION WITH RE- SPECT TO THE CONCENTRATION OF ECONOMIC POWER IN, AND FINANCIAL CONTROL OVER, PRODUCTION AND DISTRIBUTION OF GOODS AND SERVICES MONOGRAPH No. 43 THE MOTION PICTURE INDUSTRY A PATTERN OF CONTROL Printed for the use of the Temporary National Economic Committee UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON : 1941 TEMPORARY NATIONAL ECONOMIC COMMITTEE (Created pursuant to Public Res. 113, 75th Cong.) JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman HATTON W. SUMNERS, Representative fro,u Texas, Vice Chairman WILLIAM H. KINO, Senator from Utah WALLACE H. WHITE, Jr., Senator from Maine CLYDE WILLIAMS, Representative from Missouri B. CARROLL REECE, Representative from Tenne.ssee THURMAN W. ARNOLD, Assistant Attorney General, •HUGH COX, Special Assistant to the Attorney General, Representing the Department of Justice JEROME N. FRANK, Chairman •SUMNER T. PIKE, Commissioner, Representing the Securities and Exchange Commission GARLAND S. FERGUSON, Commissioner, •EWIN L. DAVIS. Chairman. Representing the Federal Trade Commission ISADOR LUBIN, Commissioner of Labor Statistics, 'A. FORD HINRICHS. Chief Economist, Bureau of Labor Statistics, Representing the Department of LabT)r JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel, •CHARLES L. KADES. Special Assistant to the General Counsel. Representing the Department of tlie Treasury WAYNE C. TAYLOR, Under Secretary of Commerce, *M. JOSEPH MEEHAN, Chief Statistician, Bureau of Foreign and Domestic Commerce, Representing the Department of Commerce Leon Henderson, Economic Coordinator Dewey Anderson, Executive Secretary Theodore J. Kreps, Economic Adviser •Alternates Monograph No. 43 The Motion-Picture Industry—A Pattern of Control DANIEL BERTRAND W. DUANE EVAN'^ E. L. BLANCHARD ^ ACKNOWLEDGMENT This monograph was written by DANIEL BERTRAND Administrative Assistant, Temporary National Economic Committee W. DUANE EVANS Senior Economist, Bureau of Labor Statistics, United States Department oj Labor E. L. BLANCHARD Member, Temporary National Economic Committee Staff The.Temporary National Economic Committee is greatly indebted to these authors for their contribution to the literature of the subject under reviev^ The status oJ the materials in the volume is precisely the same as that of other carefully prepared testimony when given by individual witnesses; it is information submitted for committee deliberation. No matter what the official capacity of the witness or author may be, the publication of his testimony, report, or monograph by the committee in no way signifies nor implies assent to, or approval of, any of the facts, opinion, or recommenda- tions, nor acceptance thereof in whole or in part by the members of the Temporary National Economic Committee, individually or collectively. Sole and undivided responsibility for every statement in such testimony report, or monographs rests entirely upon the respective authors. (Signed) JOSEPH C. O'MAHONEY, Chairman, Temporary National Economic Committee. Ill TABLE OF CONTENTS Page ^^ Letter of transmittal Introduction ^i * Chapter I. The pattern Development of the pattern | Crystallization of the pattern ^ Chapter II. The issues VV-V oo and the forcmg of shorts Block booking, blind selling, ^^ Block booking *^ Forcing of short subjects ^° Blind selling ^^ Designated play dates ^* ^o Other practices affecting distributor-exhibitor relationships Overbuying ^^ Selective contracts ^^ Clearance and zoning ,- ^V Unfairly specified admission prices. ^. *^ 47 Other practices affecting relationships between exhibitors ^^ Chapter III. Observations APPENDIXES ^^ I. The eight major companies — or II. The Motion Picture Producers and Distributors of America, Inc., the Hays organization ^^'•* III. The consent decree ' TABLES Page 1. Number of feature length motion pictures produced in the United States by all producing companies, and by each oi the major pro- ducing companies, by seasons, 1930-31 to 1938-39 9 2. Number of theaters operated by each of the major companies, 1940 10 3. Number of first-run metropolitan theaters operated by each ot the major companies in 35 key cities, 1940 11 4. Cities with populations of 100,000 or more in which exhibition is con- trolled by major companies 12 5. Control of exhibition facilities by a single major company in each of four localities. 1939 13 6. Number of loans by major companies since 1933 14 VII LETTER OF TRANSMITTAL January 15, 1941. Hon. Joseph C. O'Mahoney, Chairman, Temporary National Economic Committee, United States Senate, Washington, D. C. My Dear Senator: The monograph, The Motion Picture Indus- try—A Pattern of Control, is submitted for the information of the Committee. It was prepared by Mr. Duane Evans, senior economist in the Department of Labor, Mr. Daniel Bertrand, administrative assistant to the executive secretary of the Temporary National Economic Committee, and Miss Edna Blanchard, member of the T. N. E. C. staff. The Department of Labor generously detailed Mr. Evans 'temporarily to the Committee to assist in the preparation of this report. The study grew out of the continued interest in the economic problems of the industry of Mr. Evans and Mr. Bertrand since the N. R. A. period, when both were connected with the admin- istration of the code of fair competition for the motion picture industry. This study gives a concise treatment of the economic development of the motion picture industry and the problems raised by its rapid growth and its present-domination by a few large companies. It is of particular importance in the studies of the concentration of economic power for the span of time involved is so short, and the events so recent, that the pattern of control can be kept constantly before the reader. Thus, the monograph offers evidence of the ways in which great aggre- gates of economic power are created and the methods used in their oper- ation. The struggle for dominance goes forward ruthlessly, with ofttimes little regard for the motion picture industry's social responsi- bilities. Finally, as power has become lodged in a few hands, it has become necessary for the Department of Justice to take steps to protect the public interest. After prolonged discussion and litigation a con- sent decree has been entered into between that Department and the industry. This decree is analyzed in the present report, together with certain observations as to its eft'ect on the problems which it seeks to solve. The authors have been careful to present a factual description of the motion picture industry as an important economic structure. They do not moralize, nor make judgments concerning the events, good and bad, which they describe. Conclusions are not recommendations but summaries of the facts. The monograph, therefore, serves a very useful purpose in its collection and condensation of data on the motion picture industry. It should be of inestimable value to the congressional committees vested with the duty of reviewing proposed legislation which occurs each year. Respectfully submitted. Theodore J. Kreps, Economic Adviser. INTRODUCTION An outstanding lesson of history is that -security, political or eco- nomic, is perhaps best achieved through organization and coordinated activity. The early economic theorists postulated numerous small units struggling with each other under a rule of "free competition" which required that those least fitted for the conflict, the " sub-marginal establishments," should inevitably be the losers. This is not coinci- dence, since these conditions characterized the more primitive forms of business organization. But just as individuals learned that there was safety in numbers, so business units learned there was safety in size, and today economists must concern themselves with the conse- quences of combination as well as those of competition. In the United States at the end of the last century there was a rusn to form huge combines. In the process of formation of these "trusts," huge business units sometimes clashed in economic warfare, with still greater power the prize for the victor and absorption the consequence to the vanquished. In these battles of giants the consumer was in the position of inno- cent bystander. During the warfare he frequently benefited, but when the struggle ended the victor usually turned to him and demanded tribute in the form of higher prices. Sometimes the con- flict was ended or avoided by agreement; the result to the consumer was the same. When free competition prevailed, the consumer was the final arbiter, the referee. After combination had run its course and a monopoly or near monopoly was achieved, he lost this power. Once strong and now weak, he could defend himself only collectively, through the Government as his representative. The "trust-busting" campaigns of the early 1900's, the Sherman Act and the Clayton Act, all were efforts on the part of the Government to restore to the con- sumer a measure of the protection which had previously been afforded him by competition. These legislative efforts were designed to break up the existing giant combines and prevent the formation
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