Record #852

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David Palfreyman
Gabriel Hess
Lupton A. Wilkinson, Assistant to Will H. Hays, MPPDA
Mr Charles C. Pettijohn, General Counsel, MPPDA
Reel 9
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MPTOA - Allied States Meeting

'Resume of Intra-Industry relations." The consequences of the collapse of arbitration and conciliation between exhibitors and distributors over the last couple of years.


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Long Description:

18 August 1932 Memo, Palfreyman to Hays "The attached memorandum outlining concisely the present status of affairs affecting the relations between distributors and exhibitors in the industry has been prepared with Messrs. Hess, Pettijohn and Wilkinson with the idea in mind that you might want to submit a copy of this with a covering letter to the members of the Board of Directors of the Association. ... It is extremely difficult, if not impossible, to suggest or plan a definite program in view of the present frame of mind that exists. This attitude, however, may be changed after further consideration is given to the matter by the responsible heads of the companies." "Resume of Intra-Industry Relations: The motion picture industry until about two years ago was able to develop through organization and patient effort several outstanding examples of organized self-control in distribution and exhibition. A remarkable record for a major industry was established during this period for avoiding expensive litigation, for conciliation and for common sense disposition of irritating trade disputes and controversies. This resulted in constant improvement in good will and confidence between buyer and seller and the presentation of a united front against unfair tax and drastic regulatory legislation." Mentions -- the Standard contract which "was considered reasonably fair by a majority of exhibitors," arbitration, zoning plans and committees, etc. "... Within the past two years all or nearly all of this machinery has been destroyed. The prevailing opinion among exhibitors now is that the last trace of organized cooperation between buyer and seller has been removed. They are rapidly becoming convinced that the distributors, acting on the advice of their attorneys, will uniformly refuse any requests they may make for organized cooperation, for the adjustment of complaints, for the removal of alleged abuses and for organized self-control in the business operation of the industry. Their experience during the past two years in urging a standard contract, uniform zoning, arbitration, selective buying, etc. have crystallized this frame of mind. "Without going in the merits of the legal opinions and interpretations that have brought this about, the inevitable result of a continuation of these policies should be considered. Since such organized cooperation has ceased the record shows a marked increase in litigation within the industry. Law suits and threatened suits involving distributors and circuit theatres are rapidly increasing. Exhibitors, even the more intelligent ones, are virtually convinced that no other relief for their complaints and from their grievances either fancied or real, is available, accordingly they are now turning to the courts and legislatures for redress and such control as they think is desirable. "The troublesome and complex question of protection and run cannot be settled by any court action. Unreasonable protection may not be illegal but it will never be tolerated by he independent subsequent runs if they can find and way to retaliate. Since the distributors refused to participate in any uniform zoning negotiations, the industry has no practical plan of organized self-control to offer. That there are abuses, with the huge number of separate competitive situations existing today, and the trading method by which protection is granted, is not surprising. The litigation over protection has almost entirely occurred in the absence of an openly negotiated and fair uniform zoning plan (e.g. Los Angeles, Chicago, Detroit, Milwaukee, New Orleans, Cleveland). Others are now contemplated, in the absence of zoning plans, in various places, particularly Kansas City, San Francisco, Indianapolis, Los Angeles, Buffalo, Chicago, etc. "The proposal to sell exclusive runs, whatever its economic merits, only aggravates this situation. Exhibitors naturally are inclined strongly to resent a plan which they feel will derive them of needed attractions for their theatres. "The delay and refusal to use a standard from of contract greatly strengthens the support of so-called anti-block booking legislation and legislation otherwise to regulate and control the business operation of the industry. Already exhibitors are making plans for the introduction and support of such legislation in the states. The center of attack will be the affiliated circuit theatres. Everyone knows these first runs pay the largest film rentals and disgruntled exhibitors intend to make them a taxation target as a ready method of retaliation against distributors. Some of the ideas gaining momentum are laws to abolish or drastically limit protection, such as recently were introduced in Louisiana. A referendum is being circulated in California for a vote at the next election to tax chain stores and circuit theatres, up to $2,500.00 each per year, exempting independent stores (and theatres) as was done in Indiana and elsewhere. (Such state laws were held constitutional by the United States Supreme Court). This on the theory of 'equalizing competition.' In retaliation against exclusive runs, exhibitors are quietly advocating a heavy sales tax on film rentals of $200,00 and over, which they would not be required to pay and which they think would stop that practice by making it too expensive for the first runs. They also play litigation against exclusive runs as a monopoly. "Legislation is being suggested to require by law the use of a standard leasing agreement for motion pictures as is now required for insurance policies, etc. If successful, this will mean a different form of contract in every state written largely by the local exhibitors. "Even if these state laws are ultimately ruled unconstitutional, it is not particularly difficult for the local theatre owners to get them enacted if they have the backing of the aroused independent exhibitors. And it costs them nothing. To attack them in court requires long, expensive and unprofitable litigation by the distributors, which is defended by the State Attorney General at no cost to the exhibitor. It is not impossible to change any law now relied upon by counsel for the distributors. "In the face of the position taken by counsel there is no definite program of organized cooperation and self-control that can be offered to local theatre owners as an alternative to litigation and legislation to remove alleged abuses. "The more constructive organizations of exhibitors are sincere and want only a square deal but feel completely frustrated in their efforts during the past two years to make any progress in improving conditions by conference, conciliation and negotiation. Distrust, hatred and ill-will are being fostered by this lack of definite cooperation between the buyer and seller and will surely break loose soon in spite of all that can be done in the way of conciliation, unless alternate constructive plans for organized cooperation are offered before the breach further widens. These attacks will be brought on not so much by what is done as by what is not done by the distribution companies.This begins to indicate the scale of the problem the MPPDA had encountered since 1930 -- not so much in the area of the SRC, where it subsequently became displaced, but in the distributors' attitude to the independents -- part brought about, perhaps, by the influx of new management and counsel resulting from the various takeovers and mergers -- leading to this kind of breakdown, which was not only in distributor-exhibitor relations, but in the relationship between the MPPDA and its members.

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