When and clearances into its business practices. However,

When we think of the film industry in Hollywood, we often picture it in our mind as an ideal industry full of fame and money. What makes the production process of films in Hollywood so successful? The answer is the studio system. According to Hollywoodlexicon.com, the studio system is a business model adopted by five major Hollywood studios – Paramount Pictures, Metro Goldwyn Mayer, Warner Brothers Pictures, 20th Century Fox and RKO – that combined all facets of film production with studio-owned distribution chains. In fact, The Big Five Studios possessed 17% of the theaters that owned 45% of domestic film rentals by 1945.  The genesis of the studio system began when the studio system first took over Thomas Edison’s organization called the Motion Picture Patents Company, which was a trust that governed production, distribution, and exhibition through its motion picture patents. Edison’s Motion Picture Patents Company was an oligopoly, meaning it was an industry that was dominated by a few companies, such as Vitagraph, Biograph, Edison, and Pathe. The creation of the studio system can be followed to the efforts by autonomous exhibitors and distributors, such as Carl Laemmle and William Fox, to separate this trust. In 1915, the independent exhibitors and distributors were able to successfully break up the trust when the U.S. courts announced that Edison’s Motion Picture Patents Company violated the laws of the Sherman Antitrust Act. The defeat of the trust resulted in the formation of a new system, called the studio system. The studio system was created to meet the demands of feature-length films and the star system, which were features that were deliberately ignored by the trust system. Its success can be tied to the studio’s use of Thomas H. Ince’s “vertical integration”. The studio system was successful because of its advancement of incorporating vertical integration, block booking, blind bidding, runs, zones, and clearances into its business practices. However, the studio system’s prosperity declines just before World War II due to accusations of its monopolistic practices. The studio system’s success can be tied to the use of vertical integration because the studios owned almost all parts of the operation of the cinema chain. The term vertical integration refers to the “structure of a marketplace that is integrated (rather than segregated) at a variety of crucial levels; in the case of the motion picture industry, the studio system established a market in which the studios are owners of their production facilities, distribution outlets, and theaters” (Belton 68). Since the studios could control the entire process of production, distribution/booking and exhibition, they could be recognized as a monopoly. The studios even owned their actors, directors, producers, cinematographers, screenwriters, art directors, and other staff by keeping them all under a contract. The formation of vertical integration first started in the 1910s, when independent exhibitors and independent distributors were denied motion pictures by the trust. Independent exhibitors had to pay fees to the trust if they wanted to use its theaters and many refused the idea of paying those fees while independent distributors disliked the idea of the trust’s control on the supply of films. These problems resulted in the merging of distribution companies and production companies as they sought to get into production. The mergers bought theater chains and exhibitors contributed their distribution and production to the merger’s business model. An example is the establishment of Metro-Goldwyn-Mayer, which was merged from Metro Pictures, Louis B. Mayer Picture Corp, and Goldwyn Pictures in 1924. The formation of Metro-Goldwyn-Mayer was made possible by Marcus Loew, who owned a chain of theaters and bought the individual companies Metro Pictures, Goldwyn Pictures, and Louis B. Mayer Picture Corp. in order to get into production and distribution.  This merge gave Metro-Goldwyn-Mayer the ability to optimize the distribution, production and exhibition processes of a movie. To summarize, the distribution and production of cinema in America were controlled by the Big Five, which consisted of Warner Brothers, Fox, RKO, Loew’s Inc., Metro-Goldwyn-Mayer and Paramount, and the Little Three, which consisted of United Artists, Universal, and Columbia. In addition to the practice of vertical integration by the studio system, the studio system also used methods such as block booking, blind bidding, runs, zones, and clearances to increase their profits. The major studios were successful because they used special distribution practices recognized as block booking, blind bidding, runs, zones and clearances to generate huge amounts of profits. Block booking is the process of renting a large number of films. For example, if a theater wanted to rent a studio’s film, they had to rent the yearly supply of other films produced by that studio so that the studio could make profits, not only from the major films but also from the worst films as well. This guaranteed the studios a market for all their products and they knew that they would get a return on their investment. On the other hand, blind bidding is the process in which exhibitors must rent the films from the studio before the films are actually produced. Since the major studios were able to contract the distributors to agree to bid and book the films before seeing it, this helps the major studios generate money no matter what they produced. Compared to blind bidding and block booking, the run-zone-clearance system effectively gave the major studios an advantage by selecting certain theaters that secure the rights to exhibit their films before other theaters. Runs are broken down into tiers, such as first run, second run, third run, and so on. The theaters in the first runs would usually be owned by the studios and have the highest advantage because they get to exhibit the newer films first before the other runs. This protected the first runs from having competition with the other subsequent run theaters. In addition, only one theater in a specific zone or area is allowed to exhibit the film in any particular run. Again, these zones would favor the studio-owned theaters and give them an advantage by allowing them to feature the film in the area. Furthermore, between each run, a clearance or a specified amount of time which was usually between 7 and 30 days, was set so that during that time period, the film was unavailable. This allowed each and every individual run to maximize its profits. The delay of time also caused consumers to renew their demand for the film.  Despite the success of the major studios’ distribution practices such as block booking, blind bidding, runs, zones, and clearances that allowed it to increase its profits, the studios faced a major downfall. The studio system suffered a horrific tragedy that led to the end of the studio era. The collapse of the studio system is known as The Paramount Case, which took place in May 1948. The ultimate cause of the Paramount Case of 1948 is known to be during the time period before World War II when the U.S. Department of Justice’s Antitrust Division filed a lawsuit that accused the major studios of using monopolistic practices in the film industry to increase their profits. Many studios agreed to stop their monopolistic behaviors but did not keep their words, as independent exhibitors found out that these studios were still continuing their practices and filed complaints to the U.S. government. The result is the Paramount Case of 1948, which declared that the major studios had to separate their business operations from interacting with each other, which divided production and distribution from exhibition. The Paramount case also divided the major studios’ theater chains by selling them to different groups of owners who did not associate themselves with production and distribution. The Little Three such as United Artists, Universal, and Columbia were unaffected by the division of the theater chains because they did not own any theaters. Aside from the Paramount case, there are many different factors that caused the downfall of the studio system, such as postwar strikes by labor unions, different preferences for leisure-time entertainment, competition with television, and the advancement of independent production.    Ultimately, the studio system was an efficient and profitable filmmaking technique when it was still in operation. The studio system’s success can be tied to the effective use of vertical integration which merged all parts of the operation such as production, distribution, and exhibition in order to gain huge profits. In addition, the studio system also used special distribution techniques such as block booking, blind bidding, runs, zones, and clearances in order to protect themselves from competition and maximize profits in a monopolistic way. However, the studios suffered huge consequences for being a monopoly due to many independent exhibitors filing complaints to the U.S. government about their practices which lead to the Paramount Case of 1948. Consequently, the major studios had to separate production and distribution from the exhibition and they lost their theater chains, as they were sold off to different owners.

BACK TO TOP