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Boom to Bust - 1928-1929: Bullish in Hollywood, THE WASHINGTON CONNECTION, COOPERATIVE STRATEGIES

sound business film films

Try Wall Street. That’s headquarters for suckers.

BANKER IN On with the Show , RELEASED IN JUNE 1929

The transition to sound straddled a watershed in American economic history. The rush to expand business by heavy borrowing and investing created unprecedented growth. Boom times gave the film industry the money for expansion. The collapse of the banking system in 1929-1930 and the onset of the Depression years tested the mettle of the most sophisticated managers. Most industries were affected; many businesses failed. Motion pictures were no different. During the early 1930s all the studios went through varying degrees of reorganization and retrenchment, and several entered involuntary receivership. The coming of sound and the change in Hollywood’s fortunes after the Crash of 1929 are inextricably linked. This chapter will give only brief before-and-after snapshots of Hollywood’s transition within a growing, then shrinking, economy and discuss the part that sound played in those changes.

As Hollywood capitalized to install sound, build up-to-date stages, and expand its picture-palace outlets, its own way of doing business was influenced by external big business practices. Whether this trend affected the production of specific films is debatable; what is more likely is that it introduced the principles of accountability, efficiency, and “scientific management” that business leaders were espousing in the 1920s. An infusion of executives from power companies contributed to the vague notion that movies were a kind of public utility, like gas, water, and electricity. Like many good businessmen, movie leaders looked to Washington for aid in improving profits. But the national expansion needed to convert to sound, and the resulting restraint of trade also led the industry closer to infracting the antitrust laws. Though the industry tried to maintain the appearance of being depression-proof, in fact the stock market crash hit Hollywood hard, if somewhat later than it hit most other businesses. Retrenchment entailed closing unprofitable theaters, stripping away nonessential distribution services, and streamlining the Hollywood product by confining it to generic categories.

In 1930, the editor of Electronics magazine, Franklin S. Irby, attempted to express graphically the complexity of the motion-picture industry by means of a remarkable organizational chart (figure 8.1). It illustrates the new post-sound, post-Crash business environment. Octopus-like, the film industry had spread across nations and other businesses. This complex of interlocking corporate relations was the result of aggressive acquisition and defensive position-taking triggered by sound and unexpected shifts in the economic circumstances of movie consumers.

1928-1929: Bullish in Hollywood

The furor over sound peaked in 1928. Maurice Kann observed that “all signs of reason seem to have been abandoned in the stampede toward sound which now prevails. Such rapidity of decision, marked as it is by a lack of complete analysis, is a sorry enough condition for the trade to face.” 1 In its synopsis of 1928, Film Daily Year Book reported difficulty that theaters experienced in keeping up with the change:

July was proving a heyday for the wired houses, and conversely, the unwired ones were fighting with their backs to the wall. With all attention being centered on sound films, unwired houses were hard hit. Silent films were not being given proper attention, from several standpoints, notably exploitation. Frenzied efforts were being made to provide a synchronizer within reach of the little fellow’s pocketbook. Many exhibitors were installing non-synchronous equipment, figuring mechanical music and sound effects would put over their shows, but their patrons were demanding talkers. Uncertainty and confusion were the result. ( Film Daily Year Book 1929, p. 499)

As business conservatives, the Big Five producers expected to track demand without overinvesting in hardware. Taking a lesson from factory management techniques, the studios aimed to rationalize production. Examples might be the stringent divisions of labor that managers instituted in the late 1920s, or the detailed budget analysis and accounting procedures used by all the producers. The models for these operations were borrowed from chain stores—whose outlets were thought to be analogous to movie theaters—and from electric utilities, perhaps because they too “distributed” an intangible product to the masses, and because their investments were also sensitive to interest rates. Balio and Gomery have shown, however, that rationalization was more of an ideal than a reality, and that good business practices in other industries did not always work in Hollywood. 2 Changes in management, the effects of the Depression on the studios’ gross revenues, exhibitor resistance, and especially the fickle taste of the audience—going wild for one cycle of films, then suddenly switching to another—all tended to make the movie business unpredictable. To cope with sound, the producers had to find ways to integrate it into the existing institutional framework, expanding just enough to hold the box-office line, but not too much.


Because film was an important growth industry, and because of its glamour and cultural cachet, the film moguls found friends in politics and the Republican White House. Calvin Coolidge was invited to appear in several talking newsreels, the most famous of which was Fox’s Movietone record of Lindbergh’s reception in Washington. After Herbert Hoover was elected in November 1928, things looked even rosier for the movie moguls. Hoover had been secretary of commerce since 1921, sitting on Harding’s cabinet beside Will H. Hays, who had been postmaster general. Hoover had been keenly interested in radio and the movies and was receptive to the industry’s needs. When Hays left the cabinet to head the Motion Picture Producers and Distributors Association (MPPDA), he worked with the Commerce Department to establish a special motion picture division.


Hoover was philosophically disposed toward cooperation among businesses and encouraged the associationist movement that typified American capitalism in the twenties. 3 This idea encouraged businesses to band together to regulate competition and share the market in the name of efficiency and limiting “wasteful” competition. Associationism was part of a pervasive philosophy of business, exemplified by a shift away from agrarian values and individual enterprise and toward social association. The historians Thomas C. Cochran and William Miller note that “American business, under the leadership of international corporations, interstate trade associations, national chambers of commerce, and ‘booster’ organizations, had already become much more cooperative than competitive, much more social than individualistic.” Hoover’s FTC had become “a research organization to discover ways in which business managers could cooperate more successfully. The Federal Trade Commission had originally been formed to check violations of the Clayton Antitrust Act. Under business pressures it became an instrument for rationalizing such violations.” 4 The task of enforcing antitrust laws fell to the Justice Department, which administered them selectively, subject to all kinds of political influence.

The explosive expansion of the film industry in 1927-1929 was set against this background. Easy money flowed into the studios from consumers financing their leisure time on revolving credit plans and from brokers, banks, and big corporations eager to issue initial public offerings of movie company stock, float bonds, and give outright loans secured by the ever-growing chains of theaters and the rapidly appreciating land beneath them. The studios were awash with cash, credit, real estate, and stock equity. Studios were able to rebuild their physical plant for making films and to bid for movie chains in which to show them. The expense of sound conversion was immense, but so was the payoff. Will Hays reported to the U.S. Chamber of Commerce that it cost 22.5 percent more to run the film business in 1929 than it did in 1928. Even with this extra overhead, film company profits for the fiscal year ending 30 September surpassed those for 1928 by a wide margin; the Wall Street News attributed these returns to talking pictures. 5 Kann compared the consolidations and huge gains for the big chain theaters to Woolworth’s stores, which had a similar rise in profits of 25-125 percent over the same period in 1928. 6 These profits funded the studios’ ventures into experimental technologies, like color, widescreen, television, and, of course, sound.

Herbert Hoovers nomination, acceptance, and inauguration were media events. In Washington, in January 1929, broadcasters jostled with five sound newsreel trucks. President Hoover displayed a revitalized interest in motion pictures, and the film industry responded warmly, eager to reap federal favors. Hoover’s friend Louis B. Mayer had introduced the president to William Randolph Hearst and the California clique after the 1924 election and chaired the Republican Party in California. Mayer exemplified the 1920s businessman-lobbyist.

Since America’s economy had become dependent to a large extent upon new consumers’ goods industries and the success of these industries depended upon good public relations, it is not surprising that businessmen sought increasing social control. And since their “prosperity” won for them the confidence of a large part of the population, they became more than ever before the fountainheads of American ideas and the arbiters of American morality. (Thomas C. Cochran and William Miller, The Age of Enterprise: A Social History of Industrial America [New York: Macmillan, 1942; reprint, New York: Harper & Row, 1961], p. 324)

Mayer was among the first guests to stay in the White House and had the president’s ear when Fox took over Loew’s, Mayer’s parent company. It has been assumed (though not proven) that the Justice Department suit against Fox was in recognition of Mayer’s loyalty.

On 9 May 1929, the White House screening room was wired for sound. Hoover asked Hays to select and install the apparatus. (He chose Western Electric.) Film Daily reported (a bit coyly perhaps?) that “both the President and Mrs. Hoover are very fond of pictures, but have seen few other than newsreels, which are shown two nights a week.” Fox’s THE VALIANT (1928), starring Paul Muni, became in June the first talkie feature screened in the White House. Exhibitors also played the Washington game. Coolidge’s FTC chair, Abram F. Myers, became the new head of the Allied States Association, a powerful exhibitors’ organization. It represented the independents and rivaled the Motion Picture Theater Owners of America (MPTOA), which represented the affiliated chains. 7 His connections in the Department of Justice transformed Allied States into a powerful check against the studio oligopoly. 8

Producers and exhibitors had good reasons to cultivate federal commendation. The mergers and acquisitions of the late 1920s, made in part out of a desire to corner the sound market, had triggered investigations into Hollywood’s monopolies and marketing schemes. Hoover’s new attorney general, William DeWitt Mitchell, in an American Bar Association speech, vowed to enforce the antitrust laws. He singled out his predecessor’s lackadaisical attitude toward Hollywood for attack. Specifically, he began investigating Fox and Warner Bros. for possible violations of the Clayton Antitrust Act. (Fox would pay the consequences in 1931, but the Warners suit was dismissed in 1934.) 9 Mitchell’s offensive coincided with the post-Crash downturn in the economy, so the era of merger mania dried up anyway for lack of capital.


One way to cope with risk is to share it. The various self-protective associations worked well to defuse whatever threat sound may have represented. David Bordwell has shown how the producers banded together to exploit mutually their combined power to resist trade unionization, cosponsor research on incandescent lighting, and utilize the Producers-Technicians Committee of the Academy of Motion Picture Arts and Sciences (AMPAS) to carry out research and standardize practices. Discourses about “art” and “quality” (and events like awards ceremonies) enhanced the public’s perception of the social and aesthetic value of Hollywood’s products. 10 One could add as associationist examples the Five-Cornered Agreement, the creation of the Central Casting Corporation, the studios’ support of ERPF’s music-licensing department, and reciprocal agreements by competing distributors to book each other’s films into their chains. Such arrangements were not magnanimous expressions of brotherhood, of course. They were founded on hardheaded business practices intended to limit the access of independents to the benefits of oligopoly. The coming of sound was precisely the kind of rocking of the boat that strategic planning and cooperative action were designed to control. The   industry in general used the “threat” of sound to centralize and solidify its academy, its associations, and its distribution practices.

The Academy grew more assertive. In 1930 AMPAS used funds donated by the MPPDA to pursue its technical research through activities such as “sound schools.” The first one was attended by 550 film workers. Sharing production secrets disseminated knowledge, but it also forwarded the goals of the Academy by standardizing the product and softening any competitive edge that one company might gain in technology." Members of guild organizations—for example, the American Society of Cinematographers (incorporated in 1919)—as well as independent workers, writers, composers, and technicians migrated freely and shared knowledge among studios.

The Hays Office lobbied strongly and successfully on behalf of its members. The organization is best known for its Code of Ethics on Production and Advertising, which the industry adopted in December 1930. But the office was effective in many other   ways. Will Hays, for instance, presided over the Paris conference on world sound patents. And he helped in little ways, as when he petitioned the Interstate Commerce Commission to lower express shipping rates on movie discs. In May 1930, the producers united behind the MPPDA to declare a moratorium on widescreen systems until a uniform standard could be adopted, replaying their approach to sound three years earlier. 12 Hays maintained cordial relations with the Academy as well as the Association of Motion Picture Producers (AMPP) (founded in 1924). The latter group sought to improve public relations, but it also owned the important Central Casting Corporation, which placed extras in the films of all producers. 13

The exhibition sector had its own associations and its share of collusive practices. Publix and Warner Bros., for example, declared that they would stop buying houses in each other’s territory and would show and promote each other’s product. Warners and First National films were booked reciprocally into the Fox and Loew’s circuits. Universal, which had shed most of its theaters, booked its features into RKO’s first-run houses and the Warner-Stanley chain. United Artists ran its films in all Warner Bros., Publix, and Loew’s theaters. The Columbia lineup would play in Warner Bros. houses. Of course, cooperation had its limits. The compatibility issue was briefly resuscitated when Warners insisted that all films have disc recordings to play in its chains, even if that required making a new sound track. 14 It quickly backed down. Another dissonant note sounded when Joseph Schenck discontinued showing United Artists pictures in Fox West Coast theaters because of a dispute over rental fees. 15 The artists said they would rather show their films in tents and armories than in Wesco theaters. But aside from these exceptions, the noncompetitive exhibition arrangements are a good example of how the majors attempted to maximize profits for all through cooperation, while making it more difficult for independents to play on a level field. 16

The Justice Department continued to target these and similar cooperative strategies. Slowly small cracks appeared in the motion picture industry’s monopoly. For example, in November 1930, the Supreme Court upheld a judgment against the Hays Office, the Film Boards of Trade, and ten distributors, finding that part of the studios’ standard exhibition contract violated the Sherman Antitrust Act. 17

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