Although 1946 was the peak year for Hollywood, with the eight studios' combined profits soaring to a record $122 million (up a remarkable 85 per cent from $66 million in 1945), this turned out to be the last time profits climbed for a very long time, thus marking the beginning of a period of recession. Only a year later, in 1947, profits were down 27 per cent to $89 million, while by 1949 they had dropped to $37 million, an alarming 70 per cent down from the 1946 milestone.9 During the same time the gross revenues of the eight studios' films went down only slightly (14 per cent), which suggests clearly that one of the reasons studio profits were slashed was because of a significant increase in production costs. While in the 1930s and early 1940s budgets of $1 million and over were allocated mainly to a few prestige-level pictures, by 1950, the studios' average negative cost per film was well over that figure ($1.14 million for Paramount; $1.63 million for 20th Century-Fox) with the independents following closely ($0.8 million).10 For that reason, profit margins kept shrinking, especially as grosses remained stagnant.
The drop in theatre attendance and the ensuing recession caught the industry by surprise as it invalidated all positive projections by industry analysts who were arguing that the immediate future of the film industry was secure because returning soldiers could only boost attendances further; increases in salaries and disposable income and decreases in working hours would drive more people to the theatres more often; and resumption of film distribution outside the US (discontinued during the war years) would bring pure profits as the studios had a backlog of unre-leased films from as early as 1939.11
The reality, however, proved very different. A large number of ex-soldiers who returned from service chose to go into adult education, which minimised their leisure time.12 A boom in marriages and a sharp increase in birth rates created a huge number of new families which had little time to visit the cinema, especially as they started migrating to newly built homes in the suburbs of large cities, often miles away from the closest theatre (by 1950 it was estimated that 40 to 50 million Americans had moved to the suburbs).13 The increase in disposable income (22 per cent up from 1946 to 1949) did not make Americans visit the theatres more frequently.14 Instead, it allowed them to explore an ever-increasing array of leisure and recreation options giving cinema-going (one of the very few leisure options during the war time) fierce competition: attending performances of travelling theatre companies presenting Broadway shows; attending professional sports games; listening to the radio; boating; bowling; golf; amateur photography; recreational driving; and, of course, watching television, especially from 1950 onwards).15 Finally, immediately after the end of World War II, major European countries (and film markets) like Britain, France, Italy and Germany introduced protective measures against and quotas on the importation of US films to help resurrect their national film industries. One of these measures was the retaining of a large percentage of film rentals by US films in the host country, thus allowing only a fraction of profits back to the hands of the studios. This means that the studios' profits from their hitherto unreleased films were severely dented, while returns from the distribution of new films were also substandard as some of these films had to end their runs quickly, to make way for a percentage of home-produced films.
In the wake of recession and with the Paramount Decree removing their most significant source of income, their (first-run) theatres, the studios responded with a number of measures that were geared mainly towards cutting operating costs. Having lost their theatres, and therefore no longer being guaranteed exhibition for their films, it made little economic sense for the studios to keep above- and below-the-line talent and crew under contract. Gradually they started releasing their stars, directors, writers and technical personnel from their long-term agreements, which of course had an immediate positive impact on the size of their payrolls. More importantly, in order for the studios to maintain an operational release schedule (and cover the costs of maintaining worldwide distribution networks) they started recruiting aggressively independent producers to supply them with the necessary product.
Although it seems that the independent producers had found themselves at last in a position of power against the studios which could not function properly any more as production companies, the truth is that the independents had their own set of pressing problems to deal with. The recession had hit them even harder than the studios and the majority of these outfits were struggling to remain solvent. Writing in 1948 (before the Supreme Court decision), George Yousling, an executive in Security-First National Bank, had remarked:
The growth in independent production reached a peak in 1947. In the latter half of the year the amount of new credit available to independent producers, particularly 'second money,' diminished as lenders became more cautious in the face of rising costs and declining returns both in the domestic and foreign markets. At the present time - March 1948 - many independents are unable to obtain sufficient financing to start new productions, and the volume of independently produced films going into production is below the high levels of recent years.16
The trade publications concurred. In an article entitled aptly 'Bell Tolls for Indie Producers' that appeared in Variety in May 1948, it was reported that with the exception of a handful of extremely well established independents (Disney, Goldwyn, Chaplin and Selznick who incidentally were also experiencing some difficulties in obtaining production funds), financing was simply not available for independent producers.17 Indeed in the previous year, a large number of independently produced films had failed miserably at the box office, to the extent that they could not even recoup 60 per cent of their costs from theatrical rentals.18 Banks responded by foreclosing loans to such companies while hoping to get part of their investment back from the films' foreign box office receipts. From that point on banks would be ready to loan funds only to companies with tangible assets, like the studios, while if they were to make production funds available to a handful of established producers, they would charge more interest and take an active interest in the production process.19
Perhaps the most characteristic example of the impact of the recession on American cinema in the post-war period was the fate of United Artists. The company had been experiencing economic difficulties from inception, struggling constantly to keep its position in the film market and competing against immensely better-capitalised, vertically integrated companies. Its financial problems, however, had been increasing during the 1940s when the rest of the studios opened their gates to independent producers and provided UA with fierce competition. Even in 1946, Hollywood's golden year, United Artist's profit was a petty $0.4 million out of the $122 million the eight companies earned in total.20
A great share of responsibility for United Artists' inability to capitalise on the war boon lay with its management regimes and especially the owners' interference in the running of the company, which never allowed the specialised distributor to follow trends in Hollywood cinema. In the immediate post-war period, these problems were greatly amplified, while the company's perennial lack of working capital certainly did not make things easier. By 1948 UA was losing money at an alarming rate and the banks, already unwilling to finance independent production, refused to support producers who were contracted to release through the company as they considered the distributor 'a poor risk'.21
In early 1949 United Artists had only four pictures ready for release, two more in production and no plans for future production. Banks and other creditors had started applying great pressure to secure at least some return on their investment, while by June 1949 the company had lost already $400,000.22 Various attempts at restructuring failed to produce any results. By early 1951, UA was loosing $100,000 a week and was heading for bankruptcy,23 until two lawyers with experience in the workings of the film industry, Arthur Krim and Robert Benjamin, took the company over and managed to reverse its fortune. Their success depended to a great extent on their decision to sponsor a particular brand of independent production and on their efforts to forge a distinct type of relationship between independent producers and the distribution company. Within a few years United Artists became the most successful distributor in American cinema, while its distribution and production policies became the blueprint for the ex-studios.
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