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The Hollywood Studio System, 1946-1949

studios million production percent

In the movie industry’s roller-coaster postwar ride from the unprecedented heights of 1946 to the panic of 1949, the Hollywood studio powers underwent enormous changes. Their way of doing business and of making movies changed radically in a few short years as the industry peaked and began its rapid descent. In the process, euphoria steadily gave way to a deepening malaise and a growing nostalgia for Hollywood’s halcyon days. By 1949, in fact, trade papers were wistfully invoking the prewar era as “the golden age of Hollywood production.” 1 And there was also a bitter desperation about the current state of the industry—made all the worse by the economic conditions in the nation at large. “Hollywood,” lamented one major producer in 1949, “is an island of depression in a sea of prosperity.”

The studios would endure, of course, and in fact their survival instincts proved to be remarkably acute in the chaotic and uncertain postwar era. In the short term, survival was primarily a matter of controlling costs. Fortune magazine deemed Hollywood’s “cost-cutting program” of 1948—1949 “the severest the movie colony has known since the great depression.” 3 In late 1949, Thomas F. Brady of the New York Times wrote, “Hollywood’s economy, declining from the 1946 peak of excess profits and lavish waste, reached a nadir early in the year and leveled off.” But over the past year, said Brady, the studios “emerged from a state of panic and settled down to the production of films on a reasonable and, by previous standards, a business-like basis.”

While controlling costs enabled the studios to survive the postwar downturn, the key to industry fortunes remained the exhibition sector. The theater end of the business was far more profitable than the production end in the postwar era, owing in large part to inflated ticket prices. In January 1948, Variety reported that in terms of overall revenues, “the real lifeline has been the company-owned theater chains.” Variety estimated that of the nearly $100 million in total studio profits for the previous year, roughly 70 percent came from the majors’ affiliated chains. The increasingly “steadying influence” these chains had on the majors in a difficult time was “a bright sign for the future if the U.S. Supreme Court permits the Big Five to hold on to them.”

The Court did not, of course, and thus a governing irony for the postwar movie industry was that the companies with the most to lose in the antitrust battle—the integrated majors—enjoyed, until divorcement took effect, even greater hegemony than ever, owing to market conditions. This position clearly favored Paramount, with its chain of over 1,200 theaters, while Fox and Warners (with about 500 houses each) held the middle ground. The once-dominant MGM (with only about 125 theaters) steadily lost ground but still remained profitable throughout the late 1940s, thanks to the superiority of both its pictures and its distribution operation. The only integrated company to lose money in the late 1940s was RKO; not only were its holdings limited (about 100 theaters), but it suffered from chronic management troubles. Meanwhile, the three majorminors, without the relative security of theater holdings, struggled simply to stay afloat.

Performance is clearly tied to studio holdings in the postwar studio profits and profit shares outlined in table 10.1:

Besides the general economic downturn, these figures signal several other important postwar developments. First, the integrated majors were making a great deal more in gross revenues and profits than the other companies. Second, a larger portion of the majors’ gross income was being retained as profit (i.e., they had wider profit margins). Third, more extensive theater holdings led to proportionately higher revenues and profits. And fourth, to state the obvious, business was declining rapidly, in fact, the falling gross revenues and profits for all the studios would not only continue but accelerate over the coming years with only one exception: Universal’s losses bottomed out in 1948 and 1949, and it was the only studio to actually increase revenues and profits in the early 1950s. The Big Five suffered their heaviest losses in 1950—and afterwards, of course, as they began to divest their affiliated theaters.

The figures in table 10.2 also indicate the dwindling profit margins for all of the studios in the late 1940s, and in fact the decline in profits was far more severe than the decline in gross revenues. From 1946 to 1949, the studios’ total box-office receipts fell from an all-time high of $1.7 billion to $1.45 billion, a drop of about 14 percent; mean-while, profits plunged from a record $120 million to $33.6 million, a three-year drop of over 70 percent. Rising production and operating expenses were the main reason for the squeeze, and thus the studios steadily intensified their efforts to cut costs—not only film budgets but also the operating costs of the studio-factories themselves. The belttightening was done without significant reductions in overall output. The Big Eight had averaged about thirty-three releases per year in the later war years (1943—1945). This average fell to just under thirty-one releases per annum from 1946 to 1949, with the major-minors accounting for most of the decline. (The Big Five averaged some twenty-nine releases per year from 1943 to 1945, and twenty-eight from 1946 to 1949.)

During the war boom, film costs had inflated considerably, as has been seen, and the majors had helped fuel the inflationary trend by concentrating so heavily on first-run product. They continued this strategy through 1946; the Wall Street Journal noted in November that the “big studios” had all but eliminated low-budget production to concentrate exclusively on A-class pictures. 6 In 1946, the average feature film cost about $665,000, roughly double the cost five years earlier. That year, MGM reportedly spent an average of $1.6 million per feature, Paramount $1.5 million, Warners $1.3 million, and Fox $1.25 million. Columbia, Universal, and RKO were close to the industry average, while Republic spent under $500,000 and Monogram only about $200,000 per picture.

The majors’ production expenditures paid off in 1946 and early 1947 as top features continued to return record grosses. But as economic conditions worsened, the studios began cutting production and operating costs—an effort that began in earnest in late 1947 after Britain initiated the 75 percent ad valorem tax. By 1948, cost-cutting had become a way of life at all of the studios. Reviewing the year 1948 in the 1949 Film Daily Year Book, the industry analyst J. P. McGowan described “the policy that has been established in most of our studios. Shooting schedules have been reduced 50 percent. Budgets have been cut in half.” McGowan reported that the studios had reduced the number of A pictures from 136 in 1947 to 100 in 1948, while increasing B output from 110 to 156. He noted, too, that several companies—including Universal, RKO, and Warners—had actually suspended production in 1948, relying on backlogs while reorganizing and streamlining operations to further cut costs.

Actually, none of the majors achieved quite the reductions that McGowan described, but the cost-cutting was substantial. The Wall Street Journal reported in 1949 that budgets and schedules were down roughly 25 percent at the major studios since their postwar peak. In 1946, for example, Paramount’s features had required an average of 55.2 shooting days; in 1949, the average was down to 41.3 days. Paramount’s average budget was down from $1.95 million in 1947 to $1.5 million in 1949. Fox, meanwhile, had cut its budgets for top features from $2.35 million in 1947 to $1.785 million in 1949. 10 At year’s end, Variety announced that Paramount and Fox had set strict budget ceilings (of $1.5 million and $1.75 million, respectively) on their high-end features. Variety also reported industrywide budget reductions of 25 percent."

Overall, the studios’ efforts to control production costs proved to be effective and were especially impressive in light of the heavy inflation throughout the U.S. economy in the late 1940s. Hollywood’s total production expenditures had doubled during the war, climbing from around $200 million in 1942 to just over $400 million in 1946, but over the next three years they rose less than $10 million. 12 The average feature budget did move past the $1 million mark in 1948, more because of inflation, however, than lax studio cost controls, in fact, a recent study calculating Hollywood feature production costs adjusted for inflation found that budgets had increased 100 percent from 1940 to 1946—the biggest periodic leap, by far, in Hollywood’s history—but actually declined about 5 percent from 1946 to 1950. 13

While the studios focused their cost-cutting campaigns primarily on reducing budgets and shooting schedules for individual films, they pursued other strategies as well. The postwar trend to location shooting was motivated, in part at least, by the fact that production and labor costs were lower outside California, particularly in New York City. The studios also eschewed high-priced presold story properties—or virtually any pre-sold properties, for that matter—relying more heavily on original screenplays. In 1947, the studios spent $4.35 million on screen rights to stage plays; in 1948, they spent only $350,000—the lowest total in two decades, according to the Motion Picture Herald. 14 In 1949, Variety reported a continued “sharp upswing” in original screenplays; by then, roughly 70 percent of Hollywood films were based on original stories.

The principal means of cutting studio overhead and general operating expenses was simply reducing the labor force; wages had climbed even faster than the rate of inflation after the war. In January 1945, there were 31,000 employees in Hollywood on a combined payroll of $192 million. Within a year, the payroll was $240 million—a 25 percent increase—for roughly the same number of workers. By January 1948, the workforce had declined by some 1,500 while payroll rose to $314 million, having climbed another 30 percent in two years. By then, the studios were cutting both operating costs and the number of employees, and within two years (as of January 1950), the total payroll was reduced to $230 million and the studio workforce to 17,500 employees. Thus, the studios managed to bring wages back to about the 1946 level, but only by eliminating over one-third of their workforce in the span of two years.

Several other factors should be mentioned here in relation to Hollywood’s cost-cutting campaign. One was that economies were virtually forced on the studios by lending institutions. With the general inflationary trend in the United States after the war, as well as the decline of the movie industry (which made it an increasingly risky investment), the studios faced higher interest rates and tighter credit terms. 17 These constraints were especially hard on independent producers, but the studios felt the pinch as well. Another factor was the studio management control that accompanied cost-cutting. Simply stated, the tighter economy meant tighter management, which for filmmakers meant that much of the hard-won autonomy and creative control they had enjoyed during the boom years was now lost. Tight money also meant limited opportunities for independent producers, and so many of them, especially producer-directors, returned to the studio fold in order to finance their films—and thus had to submit to tighter management controls.

Another significant factor was the general reassessment, especially by the majors, of both the first-run market and the value of top product in the late 1940s. Given the overall decline of the industry and growing uncertainties about the effects of the suburbanization of the late 1940s on major urban markets, the studios avoided high-cost, high-stakes productions. Indeed, top hits were rare in the late 1940s owing in large part to the fact that the studios simply stopped making the lavish spectacles and pre-sold “event” pictures which were most likely to become major box-office hits. This strategy was confirmed by the late-1940s dearth not only of big moneymakers but even of more modest “sleeper” hits.

Given the uncertain postwar marketplace and the increasing need to cut costs, the studios’ management and marketing operations were more important than ever—more so than at any time since the early 1930s, when Hollywood responded to the Depression. And as in that earlier period of sustained (and deepening) crisis, these operations at virtually all of the Hollywood studios underwent extensive and lasting change.

The Hollywood Studio System in 1940-1941 - The Major Studios, METRO-GOLDWYN-MAYER, WARNER BROS, 20TH CENTURY-FOX, PARAMOUNT, RKO [next] [back] The Hollywood Studio System, 1942–1945 - Income, Output, and the Balance of Studio Power

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