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The War and Hollywood's Overseas Markets

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Besides the government’s antitrust campaign, Hollywood’s chief concern in the early 1940s was the war overseas, which affected its foreign trade as well as the domestic market as the United States shifted into an extended and increasingly intense prewar mode. The prewar period began with the outbreak of full-scale war in Europe and steadily intensified from the fall of France and the Battle of Britain in mid-1940 until the United States entered the war in December 1941. During that time, the country underwent a complete social, political, industrial, and economic transformation, keyed by a massive military and defense buildup, which stimulated the national economy, and by an ideological shift from isolationism to uneasy neutrality to open support of Britain and the Allies.

In the early months of the war in Europe, Hollywood’s primary concern was the prospective decline of its foreign trade. Ironically, the situation at the outset of World   War II contrasted sharply with the impact of the First World War, which came as a tremendous windfall for the nascent American movie industry. As the film critic Frank Nugent of the New York Times recollected in September 1939: “Prior to 1915, the American picture industry was a puny brat living on a diet of one and two reels. Germany, Italy and Sweden were the flourishing film makers; France was not far behind. The war changed all that. Hollywood was a war baby.” Nugent noted that the elimination of foreign competition during World War I enabled the Hollywood studios to corner the U.S. market and to establish a foothold internationally. That foothold became a stranglehold in the 1920s with the steady consolidation of the studio system and Hollywood’s successful introduction of sound—to a point where, in Nugent’s words, “Hollywood’s standards generally have become the world’s standards.”

With the deepening military crises overseas in the mid to late 1930s, Hollywood again was benefiting from weak foreign competition. Moreover, the studios’ ongoing efforts to pursue overseas markets despite the war put the movie industry in a rather unique position among U.S. industries. As the Wall Street Journal noted, “The moving picture industry was one of the very few American businesses that had a vital stake in foreign trade when the war broke out.” 55 Maintaining that trade had not been easy, of course, particularly with the loss of major foreign markets in the late 1930s. Germany in 1937 severely cut its import of Hollywood films and also reduced the revenues remitted to the studios. Japan followed suit in 1938, reducing the number of U.S. imports to about sixty films (down from an average of about four hundred before the war) and freezing virtu-ally all U.S. motion picture revenues in Japan. 56 Nazi expansion into central Europe 1938 further undercut Hollywood’s overseas business, contributing to a fall of 6 percent in the studios’ overseas revenues compared to 1937. 57 In January 1939, Italy nationalized the film import business, at which point the MPPDA announced that all studio trade with that country was suspended. In July, Variety reported that Hollywood’s foreign revenues were off nearly 10 percent compared with the first six months of 1938, owing mainly to the losses in central Europe and Italy.

In mid-1939 there were 62,000 movie theaters wired for sound worldwide. This number included 17,500 in the U.S. domestic market and about 1,225 in Canada; 33,000 in Europe; 5,250 in Latin America; and some 6,200 in the Far East. Despite the lost Axis markets, which included 6,500 theaters in Germany and 4,000 in Italy, Europe remained the key region in Hollywood’s overseas trade, with England’s 5,300 theaters and France’s 4,600 accounting for the vast majority of Hollywood’s overseas revenues. 59 According to a Variety survey of the global movie marketplace in September 1939, the market shares (percentage of total foreign revenue) of Hollywood’s chief overseas clients at the time were: Great Britain, 45 percent; France/Belgium, 13 percent; Australia, 11.2 percent; Central and South America, 9 percent; Scandinavia, 4.2 percent; Holland, 1.5 percent; Bulgaria/Greece/Turkey, 1.2 percent; neutral central Europe, 1 percent.

Variety routinely estimated Hollywood’s overseas income as 40-50 percent of its total movie revenues in the late 1930s; other more conservative (and perhaps more reliable) estimates were somewhat lower. In October 1939, the Wall Street Journal reported: “The situation may be summed up as follows: American film producers obtain about 30 percent to 35 percent of their total film rentals from abroad. This varies somewhat from year to year. Around half of the foreign income … comes from Great Britain. South America supplies 10 percent to 15 percent and the rest is scattered. The Continent of Europe, due to government regulation and exchange difficulties, has provided little profit in recent years.” 61 In the ensuing months, Hollywood’s trade on the Continent   would be reduced to virtually nil as the Nazi blitzkrieg eliminated one European market after another, culminating in the fall of France in June 1940. By late 1940, all of Europe except Sweden, Switzerland, and Portugal was lost, owing either to Naziimposed trade embargo or to political alliance with the Axis. That left England standing virtually alone in the face of Nazi aggression in the West—and alone, too, as Hollywood’s last significant European market.

Britain traditionally had generated the lion’s share of Hollywood’s overseas income, providing the majors with $35 million per year throughout the 1930s. 63 Hollywood product accounted for well over 80 percent of the films screened in England, and by the late 1930s Britain had become, in effect, a direct extension of the American market; it was, as Variety suggested in January 1939, “a country that is closer to America in language, thought and ideals than any other in the world.” 64 But as war conditions in Europe and England worsened, Hollywood seemed ever on the verge of writing off its British income. After its declaration of war on Germany in September 1939, Britain closed all its theaters—a move termed by George Bernard Shaw, in an open letter to the London Times, “a master stroke of unimaginative stupidity” considering the cinema’s importance to morale and social cohesion, as well as its role as simple diversion from the events at hand. 65 Within two weeks, 65-70 percent of British theaters had reopened, primarily those outside London, and by early 1940 business was nearing prewar levels.

Conditions worsened in late 1940 with the Battle of Britain, a sustained German air attack designed to soften England for an all-out invasion later that year. In September, the German Luftwaffe began its nightly air raids over London—the so-called London Blitz—and within two weeks the total number of war-related theater closings surpassed one hundred. The nightly bombing raids on London and other key industrial targets continued, and by December the number of London theaters closed due to bombings reached two hundred. The courageous British resistance stalled Hitler’s plans for an invasion in 1940, and by 1941 those plans were abandoned altogether and the Battle of Britain finally ended. In June 1941, as England entered a summer free of blitzes, some 650 theaters were closed, at least 500 owing directly to the war, and attendance was down 25 percent. But remarkably enough, British cinemas during the first two years of the war had generated nearly $50 million in rentals for Hollywood’s major producer-distributors.

Getting that money out of England was quite another matter, however. As of September 1941, British trade restrictions had frozen an estimated $35 million of Hollywood revenues in British banks. The freeze caused considerable concern among the majors, whose foreign income had fallen more than 50 percent in the previous year. 68 The freezing of British funds dated back long before the war, to the so-called Films Act of 1927, also known as the “quota law,” which was renewed by Parliament in 1938. The act set limits on remittance of revenues and also set quotas on the proportion of domestically produced and imported films that British theaters could screen, thus encouraging American companies to invest in British production (or to coproduce). Once the war broke out, filmmaking in Britain fell to under one hundred films per year, and its facilities were converted to factories, offices, warehouses, and so on. These changes reduced American investment opportunities; Britain desperately needed cash for its war effort, however, and so it increased the remittance restrictions. In October 1940, U.S. distributors were allowed to remit only $17.5 million; in January, a new agreement lowered the ceiling for that year to $12.5 million. 69 Finally, in October 1941, after a full year’s negotiation and cajoling by Ambassador Joseph P. Kennedy, Britain agreed to allow withdrawal of $37.5 million and lowered the quota of British films to only 2.5 percent. 70

England yielded on the issue of remittances in response to the U.S. government’s active support of the British war effort, notably the Lend-Lease Act (which became law in March 1941), whereby the United States supplied England with weapons, ships, planes, and other war-related materiel. By mid-1941, Hollywood also became more aggressive in its on-screen support of the British war effort, producing a number of features and documentaries designed to solidify American support of England and also to boost British morale.

Outside the United Kingdom, Hollywood’s prewar overseas interests focused increasingly on Central and South America. In January 1939, the Motion Picture Herald announced that “plans are under way [in Hollywood] for the intense cultivation of the Latin American countries,” in hopes of offsetting the expected losses in Europe and the Far East. Many of these plans involved production outside Hollywood. UA already had been producing and releasing Spanish-language pictures for several years through facilities in Spain and Mexico, and of the thirty or so pictures planned for release in 1939 in Central America, fewer than half were to be produced in the United States. The wide-spread conviction was that, even with imported Latin talent, the Hollywood studios were fundamentally ill equipped to produce “a genuinely Spanish film.” Thus, these coproductions were coordinated through the State Department’s Division of Cultural Relations, whose “good neighbor policy” with Latin America well indicated the larger political and economic stake of the United States in that region.

Hollywood was particularly sensitive to the cultural and language barriers between the United States and Latin America, although there were several other drawbacks to developing those markets as well. First, the dominant Latin American nations, unlike those in war-torn Europe, were in relatively good economic shape and were producing their own films. In fact, Hollywood in 1939 was supplying talent and equipment as well as financing to various Latin American countries. 72 By early 1940, Brazil, Argentina, and Mexico all had surpassed Britain as top consumers of film stock from the United States. 73 A second concern was that other foreign nations besides the United States, notably Nazi Germany, also were cultivating the Latin American market—and like the United States, primarily for political rather than economic reasons.

By 1941, various Hollywood studios were designing major productions for the Latin American market—and for domestic audiences as well, in hopes of improving America’s interest in its neighbors to the south. These included Fox’s THAT NIGHT IN RIO (1941), DOWN ARGENTINE WAY (1940), and BLOOD AND SAND (1941), RKO’s THEY MET IN ARGENTINA (1941), and MGM’s THE LIFE OF SIMON BOLIVAR . The improving Latin American market was often referred to as a “bright spot” in Hollywood’s otherwise dismal or uncertain overseas trade, showing a 10 percent improvement between 1940 and 1941. But in fact, Hollywood’s cultivation of the Latin American market was an economic disappointment and something of a cultural and political debacle. 75 In May 1941, ARGENTINE NIGHTS (1940), a Ritz Brothers-Andrews Sisters musical comedy from Universal, was banned in Buenos Aires after opening-night demonstrations against the picture. The chairman of the U.S. Cultural Relations Committee, Jock Whitney, blamed the problem on “anti-American and anti-free forces,” but actually such protests were not uncommon, nor were they confined to films designed specifically for the Latin American market. That same month, Mexico banned a seemingly innocuous Western, KIT CARSON (1940), for its offensive portrayal of Mexicans.

In late 1941, the State Department began suggesting topics for films designed for export to Latin America, and it supported a fact-finding and goodwill tour of South   America by a Hollywood contingent that included Jock Whitney, Bing Crosby, and Walt Disney. 77 The 1942 Film Daily Year Book lauded that effort and again cited the improving Latin American market, though the improvement was attributed as much to the general economic and social development of the region as to any of Hollywood’s efforts. 78 And Variety’s year-end survey reported that efforts by cinema, radio, and other U.S. media industries to promote the good neighbor policy was “pretty much a flop.” As a State Department study at the time suggested, despite their good intentions, “Americans still do not appreciate the tastes, interests and conditions of countries below the Rio Grande.” 79 But U.S. government and industry could ill afford to ignore the Latin American market, given the immediate political stakes and the long-term economic prospects, and so Hollywood’s good neighbor initiative continued throughout the prewar era and into the war years.

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