Studio system
A studio system is a method of filmmaking wherein the production and distribution of films is dominated by a small number of large movie studios. It is most often used in reference to Hollywood motion picture studios during the early years of the Golden Age of Hollywood from 1927 to 1948, wherein studios produced films primarily on their own filmmaking lots with creative personnel under often long-term contract, and dominated exhibition through vertical integration, i.e., the ownership or effective control of distributors and exhibition, guaranteeing additional sales of films through manipulative booking techniques such as block booking.
During the Hollywood Golden Age, eight companies constituted the major studios that promulgated the Hollywood studio system. Of these eight, five were fully integrated conglomerates known as the original Big Five, combining ownership of a production studio, distribution division, and substantial theater chain, and contracting with performers and filmmaking personnel: Metro-Goldwyn-Mayer, Paramount Pictures, Warner Bros., 20th Century-Fox, and RKO Radio Pictures. Also at this time, two of the Little Three major-minors were similarly organized, though without more than small theater circuits, and the third owned a small number of theaters and had access to two production facilities owned by members of its controlling partnership group, but it functioned primarily as a backer-distributor, financing independent productions and releasing their films.
The Walt Disney Company was founded in 1923 but it was an animation studio and did not own its own theaters, so it was not considered a peer of the major studios. Disney did expand into live-action movies in the 1940s, and by 1986 it grew to be considered one of a new "Big Six". Ironically, Disney is the only one of these studios that originated in the 1940s and continuously operated as the same company to the present day, as even those which survived into the 21st century such as Paramount and Warner Bros. went through several mergers and restructurings.
The studio system was challenged under the antitrust laws in a 1948 Supreme Court ruling which sought to separate production from the distribution and exhibition and ended such practices, thereby hastening the end of the studio system. By 1954, with television competing for audience and the last of the operational links between a major production studio and theater chain broken, the historic era of the studio system was over.
Sound and the Big Five
The years 1927 and 1928 are generally seen as the beginning of Hollywood's Golden Age and the final major steps in establishing studio system control of the American film business. The success of 1927's The Jazz Singer, the first feature-length "talkie" gave a big boost to the then midsized Warner Bros. studio. The following year saw both the general introduction of sound throughout the industry and two more smashes for Warners: The Singing Fool, The Jazz Singer's even more profitable follow-up, and Hollywood's first "all-talking" feature, Lights of New York. Just as significant were a number of offscreen developments. Warner Bros., now flush with income, acquired the extensive Stanley theater chain in September 1928. One month later, it purchased a controlling interest in the First National production company, more prominent than Warners itself not long before. With the First National acquisition came not only a studio and backlot but another large string of movie theaters.The last of the "Big Five" Hollywood conglomerates of the Golden Age emerged in 1928: RKO Pictures. The Radio Corporation of America, led by David Sarnoff, was looking for ways to exploit the cinema sound patents, newly trademarked RCA Photophone, owned by its parent company, General Electric. As the leading film production companies were all preparing to sign exclusive agreements with Western Electric for their technology, RCA got into the movie business itself. In January, General Electric acquired a sizable interest in Film Booking Offices of America, a distributor and small production company owned by Joseph P. Kennedy, father of future president John F. Kennedy. In October, through a set of stock transfers, RCA gained control of both FBO and the Keith-Albee-Orpheum theater chain; merging them into a single venture, it created the Radio-Keith-Orpheum Corporation, Sarnoff chairing the board. With RKO and Warner Bros. joining Fox, Paramount, and Loew's/MGM as major players, the Big Five that would remain for thirty years were now in place.
Although RKO was an exception, the heads of studios on the west coast, the "movie moguls", had mostly been in place for some years: Louis B. Mayer at MGM, Jack L. Warner at Warner Bros., Adolph Zukor at Paramount, William Fox and Darryl F. Zanuck, Carl Laemmle at Universal, and Harry Cohn at Columbia.
Reign of the majors and the first decline
The ranking of the Big Five in terms of profitability was largely consistent during the Golden Age: MGM was number one eleven years running, 1931–41. Paramount, the most profitable studio of the early sound era, faded for the better part of the subsequent decade, and Fox was number two for most of MGM's reign. Paramount began a steady climb in 1940, finally edging past MGM two years later; from then until its reorganization in 1949 it was again the most financially successful of the Big Five. With the exception of 1932—when all the companies but MGM lost money, and RKO lost somewhat less than its competitors—RKO was next to last or last every year of the Golden Age, with Warner generally hanging alongside at the back of the pack. Of the smaller majors, the Little Three, United Artists reliably held up the rear, with Columbia strongest in the 1930s and Universal ahead for most of the 1940s.Hollywood's success grew during the Great Depression, possibly because films helped audiences escape their personal difficulties. President Franklin Delano Roosevelt said of Shirley Temple, "When the spirit of the people is lower than at any other time during this Depression, it is a splendid thing that for just fifteen cents an American can go to a movie and look at the smiling face of a baby and forget his troubles". Studios released up to 70 films each year. By 1939 there were 15,000 movie theaters in the United States, more than banks; the number of theaters per capita was twice that of the mid-1980s. The cinema industry was larger than that for office machines. While only the 14th largest by revenue, it was second in the percentage of profits that its executives received. Top stars such as Bing Crosby and Claudette Colbert were paid more than $400,000 a year.
The end of the system and the death of RKO
One of the techniques used to support the studio system was block booking, a system of selling multiple films to a theater as a unit. Such a unit—five films was the standard practice for most of the 1940s—typically included only one particularly outstanding film, the rest being a mix of A-budget pictures of lesser quality and B movies. As Life magazine wrote in 1957 in a retrospective on the studio system, "It wasn't good entertainment and it wasn't art, and most of the movies produced had a uniform mediocrity, but they were also uniformly profitable... The million-dollar mediocrity was the very backbone of Hollywood."On May 4, 1948, in a federal antitrust suit known as the Paramount case brought against the entire Big Five, the U.S. Supreme Court specifically outlawed block booking. Holding that the conglomerates were indeed in violation of antitrust, the justices refrained from making a final decision as to how that fault should be remedied, but the case was sent back to the lower court from which it had come with language that suggested divorcement—the complete separation of exhibition interests from producer-distributor operations—was the answer. The Big Five, though, seemed united in their determination to fight on and drag out legal proceedings for years as they had already proven adept at—after all, the Paramount suit had originally been filed on July 20, 1938.
However, behind the scenes at RKO, long the financially shakiest of the conglomerates, the court ruling came to be looked at as a development that could be used to the studio's advantage. The same month that the decision was handed down, multimillionaire Howard Hughes acquired a controlling interest in the company. As RKO controlled the fewest theaters of any of the Big Five, Hughes decided that starting a divorcement domino effect could actually help put his studio on a more equal footing with his competitors. Hughes signaled his willingness to the federal government to enter into a consent decree obliging the breakup of his movie business. Under the agreement, Hughes would split his studio into two entities, RKO Pictures Corporation and RKO Theatres Corporation, and commit to selling off his stake in one or the other by a certain date. Hughes's decision to concede to divorcement terminally undermined the argument by lawyers for the rest of the Big Five that such breakups were unfeasible.
While many today point to the May court ruling, it is actually Hughes's agreement with the federal government—signed November 8, 1948—that was truly the death knell for the Golden Age of Hollywood. Paramount soon capitulated, entering into a similar consent decree the following February. The studio, which had fought against divorcement for so long, became the first of the majors to break up, ahead of schedule, finalizing divestiture on December 31, 1949. By this time, there were 19,000 movie theaters in the United States.
Through Hughes's deal with the federal authorities, and those by the other studios that soon followed, the studio system lingered on for another half-decade. The major studio that adapted to the new circumstances with the most immediate success was the smallest, United Artists; under a new management team that took over in 1951, overhead was cut by terminating its lease arrangement with the Pickford-Fairbanks production facility and new relationships with independent producers, now often involving direct investment, were forged—a business model that Hollywood would increasingly emulate in coming years. The studio system around which the industry had been organized for three decades finally expired in 1954, when Loew's, the last holdout, severed all operational ties with MGM.
Hughes's gambit helped break the studio system, but it did little for RKO. His disruptive leadership—coupled with the draining away of audiences to television that was affecting the entire industry—took a toll on the studio that was evident to Hollywood observers. When Hughes sought to bail out of his RKO interest in 1952, he had to turn to a Chicago-based syndicate led by shady dealers without motion picture experience. The deal fell through, so Hughes was back in charge when the RKO theater chain was finally sold off as mandated in 1953. That year, General Tire and Rubber Company, which was expanding its small, decade-old broadcasting division, approached Hughes concerning the availability of RKO's film library for programming. Hughes acquired near-complete ownership of RKO Pictures in December 1954 and consummated a sale with General Tire for the entire studio the following summer.
The new owners quickly made some of their money back by selling the TV rights for the library they treasured to C&C Television Corp., a beverage company subsidiary. Under the deal, the films were stripped of their RKO identity before being sent by C&C to local stations; the famous opening logo, with its globe and radio tower, was removed, as were the studio's other trademarks.
Back in Hollywood, RKO's new owners were encountering little success in the moviemaking business and by 1957 General Tire shut down production and sold the main RKO facilities to Desilu, the production company of Lucille Ball and Desi Arnaz. Just like United Artists, the studio now no longer had a studio; unlike UA, it barely owned its old movies and saw no profit in the making of new ones. In 1959 it abandoned the movie business entirely.