Record #1303

Record Type:
Letter & marketing problem
Professor Howard T. Lewis, Professor of Marketing, Harvard University
Reel 6
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Block Booking
see also 06-2021 to 06-2061

Harvard Business School students have been given this assignment involving block-booking. Information supplied with the problem includes a percentage breakdown of Paramount's film rental earnings in different U.S. regions. Other useful information about block booking is also included in this 40-page assignment Harvard Business School exercise on whether the distributors should continue the practice of block booking in the face of opposition to it. Essentially contains a summary of the FTC case and the majors' responses to it. Suggests that Brookhart introduced his bill in an effort to hasten the settlement of the issue, which would otherwise be detained by years of litigation.


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Long Description:

Harvard Business School exercise on whether the distributors should continue the practice of block booking in the face of opposition to it. Essentially contains a summary of the FTC case and the majors' responses to it. Suggests that Brookhart introduced his bill in an effort to hasten the settlement of the issue, which would otherwise be detained by years of litigation. The FTC's objection, throughout, appears to have been to the practice, in block booking, of insisting on selling the entirety of a block on an "all or nothing" basis - something which the testimony of 16 exhibitors insisted on, and which Famous Players-Lasky (FPL), and other companies, denied. This describes the elastic practices of sales people in what seem to have been very flexible arrangements for negotiating a price with each exhibitor. There were no fixed prices: "The price on each picture was the result of a process of bargaining between the distributor and the exhibitor and varied according to the number of seats in the exhibitor's theatre, the type and location of the theatre, the value of its competition, protection required over other theatres, the reputation of the theatre, etc." Some of those factors, one would have thought, more legitimate than others - e.g. bartering over the amount of protection. But on the face of it, such a flexible sales policy seems to make anything so fixed as an "all or nothing" block policy unlikely. However, we read on for further complications: The document provides a history of block booking and its emergence. Currently, only UA doesn't sell in blocks, the other companies claiming that a very few of their superproductions might merit selling on an individual basis in the way that UA does, but that this would not prove effective for selling a large number of their pictures. Early distribution practice was "service" or "program" distribution, in which what was sold was "a constant supply of two or three reels of motion picture film furnished two or three or more times per week" - sold by one company to an exhibitor, who would not think to use more than one service -- this method predominated until 1917. "To say that this method constituted an illegal sales method and was a method of restrictive and tying contracts is to forget entirely that the distributing companies of that early day were not licensing individual pictures for exhibition but were selling a film service." In part this may simply be distributor rhetoric, but it does, obviously, relate importantly to the way that distributors, at least, saw what they were doing. Throughout this argument, it is in the distributor's interests to argue that their business is similar to other businesses, and that group selling is a form of wholesaling - which means that if they establish that they are selling a service to their exhibitors, rather than simply licensing exhibition rights, that is easier. This is more than rhetoric, this is a description of what they saw themselves doing. In the service system, there were differential prices based upon the newness of the product and/or protection (6). In 1917 the system changed, with a recognition that some pictures could be sold for higher prices than others, because they had greater drawing power. This resulted from the recognition of the drawing power of stars. Between 1917 and 1919 the star series system of selling was adopted, selling a block of films featuring the same star. "It was the universal custom of the trade for exhibitors to take all of the pictures in a star series and distributors not only required exhibitors to buy all of the pictures in a star series but tried to get them to buy all of the star series which were offered at the same time."(7) The system did not persist because "the emphasis placed upon the particular stars caused the stars to develop such ideas of their popularity that they demanded increases in salary which the producers thought excessive. The star series system was gradually abandoned and about 1920 or 1921 the then existing methods of selling motion pictures were almost completely replaced by the present generally used method of block booking ..."(7-8) The dates here are interesting in relation to both the formation of the MPPDA and to the series of star scandals around the early 20s. Was the regularly expressed sentiment that the public had become infuriated and scandalized by the behavior of the stars a mechanism for controlling their bid for power in the production industry? Obviously not entirely, since there clearly was a press-produced outcry against Arbuckle - but one manufactured by the Hearst press? We need some sort of model to explain the relationships among the forces at work here, I think. Certainly, though, the industry had to organize around 1921 to combat the growing power of stars. It did so successfully at the same time that the careers of a number of stars were destroyed by scandal. To what extent that was coincidence may be open to conjecture.There are some distributor arguments about figures. 5,000 theatres - c25% - are in towns of population under 2,500, renting programs for as low as $5 per night. If films had to be sold to them individually, Pettijohn argued to the 1928 hearings, 20% of theatres would close. (9) Famous Players-Lasky (FPL) argued that they had twice tried selling individually, in 1919 and 1923, and on both occasions had abandoned the policy because of the increased cost to exhibitors. In 1923 it involved increasing their sales force by 4 times, and it doubled sales costs. Had this plan been put into effect it was argued that costs to exhibitors would have been increased by 40% - many exhibitors turned to other companies who would sell their pictures in blocks. Famous Players-Lasky (FPL)'s main brief contains this expression of what is a core argument about the nature of the industry: "Theatres cannot exist and prosper on a succession of superspecial pictures, each widely exploited and each advertised as the greatest picture ever made. The rentals which distributors of such pictures are forced to ask require exhibitors to operate their theatres at capacities and prices too great to be consistently maintained. The backbone of the exhibition business is the ordinary program picture, few of superspecial quality, none bad but all of a consistently good average quality. Such pictures cannot profitably be sold or purchased on a strictly individual basis. The producer must be assured in advance of a considerable and continuing income in order to maintain consistent quality production. The most businesslike method of securing this assurance is to offer the program pictures in block sufficient in number to distribute widely the risk of occasional failures. From the standpoint of the exhibitor the assurance of a definite supply of pictures upon whose quality he has learned from experience to rely is worth the deprivation of the opportunity of always being able to buy the proven outstanding picture of the week."(12) Against the FTC arguments about "all or nothing," Famous Players-Lasky (FPL) produced figures apparently detailing contracts, which indicated that even among the 16 exhibitors complaining, only 10% of the contracts were for all the pictures in a block. There are figures relating to a study by Famous Players-Lasky (FPL) of their contracts in 9 territories comprising 40% of the domestic market - these might well be worth reproducing - all of these point to a much more disparate pattern than that suggested by the FTC. There are also figures relating to 195 first-run theatres in 27 key cities, which indicate similar variation. FPL also dispute the claim that price increases on buying less than a complete block were as high as FTC claim - they suggest it was 20-25% rather than 50%. The FTC reply begins to indicate the complexity of the map that needs to be drawn around these things. They argue that in many of the exchange territories there are from 60% to 70% of all the towns where there is no competition: closed towns or one-man towns - usually towns with populations of under 10,000, including many small towns with only 1 theatre. "Where there is no competition block booking cannot be forced profitably because the exhibitor controls the market and, monopolistic-like, selects the pictures and names the price he will pay and the producer accepts it or his pictures are not shown in the town. Many of these small-town theatres only run one or two days a week, using but a few pictures, and those are more apt to be the western 'shoot-em-up" kind than the high grade society and costume feature pictures produced by the respondents." - claims that this therefore distorts the figures, concealing the effect block booking has on "the large theatres in the larger cities where block booking is enforced." Thus it looks as if we are primarily concerned here with markets such as subsequent run exhibition in the cities and independent exhibitors or chains in the larger towns. FPL claim that the advantages brought by block booking against other producers "are merely the legitimate advantages of business efficiency."(25) What, however, spurred the original complaint was the expansion of FPL in the early 1920s, where it appears to have been prepared to threaten to buy up and operate theatres in opposition to exhibitors who refused to buy their blocks and have all their playing time taken up by FPL product. This was a considerably more aggressive policy than was in operation subsequently, and, indeed, was abandoned presumably partly in an attempt to mollify the FTC. FTC claim that the New York Theatre Owners' Chamber of Commerce in 1923 passed resolutions against block booking - but this seems like rather old evidence on which they might still be basing a case. What it is important to work out is the arrangement of power and interest blocks in all of this - quite who were the people objecting to block booking? Obviously, apparently, not the little guys, who got a cheap deal out of it, had a monopoly of their market and could dictate terms to the distributors anyway - and, in any case, were not sufficiently profitable to worry overmuch about. It is presumably these people with whom the 1929 negotiations over reparations for sound go on - so as not to have them defect to Allied States, which represents a different group of second-run exhibitors who feel debarred form the majors' profits? and who have excited the interests of anti-monopolists like Myers and Brookhart?

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