The first moving picture exhibitors were itinerant showmen who exploited the novelty of projected moving pictures by using the same film program for a series of brief engagements in different locations. They typically purchased outright the short films they screened at theaters, churches, and public halls. As early as 1903, film exchanges that owned and rented moving pictures emerged in Boston, Chicago, and New York City, creating a separation between exhibition and distribution and helping to standardize the emerging film industry. Exhibitors rented films by the reel from an exchange, allowing for more frequently changed programs at one specific location and therefore the establishment of nickelodeons, which were inexpensive storefront movie theaters.
One important early variant of the exchange system was the ''states rights'' model, in which the distribution rights for a film were sold by territory, often by individual state. Exhibitors then contracted with the rights owner. Within the constraints of price and print availability, the early exhibitor had considerable latitude in booking films of special interest to the local audience.
With the advent of the multi-reel feature film in the early 1910s, certain high profile films, like The Birth of a Nation (1915), were circulated through the country as ''road shows.'' Much like touring stage productions, road show films were promoted as special events that were booked into individual venues (often legitimate theaters or small-town ''opera houses'') for multi-day runs. This strategy remained in place through the 1920s, then re-emerged in the 1950s and 1960s, when the most expensive, spectacular, star-laden productions (usually in color and widescreen) like Ben-Hur (1959) were first exhibited on a road show basis with patrons paying notably higher admission prices for reserved seats at these heavily promoted motion picture events.
Somewhat akin to the road show was a practice called ''four-walling,'' where a theater was rented for a special screening that in some fashion was quite distinct from standard motion picture fare. Four-walling was used, for instance, during the 1930s to present foreign-language films to immigrant audiences in the United States. But it was most commonly employed from the 1920s through the 1950s as an exhibition strategy for sensationalistic "exploitation" films about childbirth, drug addiction, prostitution, and sexually transmitted diseases. At the other end of the spectrum, Sun Classic Pictures and other firms specializing in family-oriented product had considerable success during the 1970s with four-wall exhibition of films like The Life and Times of Grizzly Adams (1974).
As lucrative as road shows and four-walling proved to be in the selling of individual films, the crux of the film exhibition business has remained the ownership and daily operation of movie theaters, which requires a steady stream of product booked through film distributors. Given the low start-up costs, the first theaters dedicated to offering moving pictures as their primary, regular drawing card were usually independently owned and operated. From early on, however, exhibitors realized that it made economic sense to adopt a strategy then used for vaudeville theaters and penny arcades and operate more than one theater under the auspices of a single amusement company. Thus a key exhibition strategy that emerged during the nickelodeon era was the theater chain. A chain (or circuit of theaters) might encompass more than 100 venues or might be as small as a string of picture shows in adjacent neighborhoods or towns. Regional theater chains became especially prominent in the 1910s. The Stanley Company based in Philadelphia, for example, had by the mid-1920s grown to 250 theaters across the entire East Coast. Regional chains based in, among other places, Milwaukee (the Saxe Brothers), Detroit (John Kunsky), and St. Louis (the Skouras Brothers) became dominant forces in the industry even before these companies combined in 1917 to form the First National Exhibitors' Circuit. First National was one of several attempts in the 1920s to create a national network of theaters, including Publix Theaters, the exhibition branch of Paramount studios. For its national chain, Publix borrowed managerial strategies based on the principles of successful grocery and department store chains.
Perhaps most successful among this first generation of exhibition entrepreneurs who would later shape the Hollywood studio system was Marcus Loew (1870— 1927), who began his career running arcades and nickelodeons in New York City. To guarantee the regular supply of films for his theaters, Loew acquired production and distribution companies and in 1924 formed Metro-Goldwyn-Mayer (MGM), a vertically integrated company that produced and distributed films as well as owning and operating a chain of first-run theaters in major metropolitan areas. Controlling a significant part of the exhibition market was an essential strategy not only for MGM, but for all of the major Hollywood studios. Paramount, for example, followed a similar logic when it merged with the Balaban & Katz chain of theaters (based in Chicago), and so did Warner Bros. when it acquired the Stanley theaters in the same period.
While weekly attendance in the United States reached 22 million by 1922 and rose to approximately 80 million by the end of the decade, the construction of opulent picture palaces during the 1920s further solidified the prominence of the major studio-owned theater chains, most of which expanded by acquiring more theaters as the industry completed its transformation to sound during the late 1920s. Independent exhibitors had few options: sell out to a chain, invest in the costly equipment required for sound films, or close. The Great Depression exacerbated the dilemma of the independent exhibitor, as movie attendance dropped precipitously after the novelty of sound had worn off, dropping off to 50 million per week. New theater construction stopped almost completely, and even the largest chains felt the strain: Paramount-Publix went into receivership, as did Fox; Loew's reduced its holdings to 150 big-city theaters; and Warner Bros. sold 300 of its 700 theaters.
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