The Second Period

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If during the 1926-39 period independent production was a relatively isolated phenomenon, merely tolerated by the major studios and serviced primarily by one distributor, this was not the case after 1940. In the new decade independent production became an industry-wide phenomenon with the studios opening their gates to a large number of independent filmmakers and with United Artists gradually losing its distinct identity as the first-choice distributor for top-rank independents.56 As a matter of fact, from 1945 and until the end of the studio period, going independent meant going only with the major studios as United Artists failed to attract any distinctive new producers. A number of problems within the company but mostly the other studios' active encouragement of independent production from the early 1940s onwards convinced a large number of new independents to snub United Artists and, instead, sign distribution deals with the majors. As a result, independent production became an integral part of studio filmmaking, unlike the previous decade when it occupied a marginal position. This means that the studios were now in a position from where they could control and, consequently, influence independent production directly, while in the 1920s and 1930s they maintained their control indirectly, mainly through ownership of first-run theatres. On the other hand, independent production also influenced studio filmmaking in substantial ways and laid the foundations for a number of production and business practices that characterised American cinema in the following decades.

If there was a landmark achievement of independent production during the previous era, this was undoubtedly the Selznick International Pictures-produced film Gone with the Wind (1939). The film 'pushed the envelope' in a number of areas:

• it cost three to four times the budget of the average prestige-level film to make ($4.1 million);

• it was widely credited as a model for faithful film adaptation (from Margaret Mitchell's same-titled novel);

• it employed state-of-the-art Technicolor cinematography;

• it ran for three-and-a-half hours (almost double the length of an average studio film);

• it was launched amidst an unprecedented level of publicity;

• it received the highest number of Academy Awards until that time (eight - including one for Best Picture);

• it effected a minor but still very substantial victory against the Production Code Administration (the PCA allowed the inclusion of the word 'damn', a word explicitly forbidden by the Production Code until then); and

• it grossed $20 million only from roadshowing (before its general release and subsequent runs), more than any other film in the history of sound cinema until that year.57

The phenomenal success of Gone with the Wind and the less spectacular but still very strong business of another Selznick International Pictures-produced film, Rebecca, the following year (1940), resulted in a unique occurrence in the history of American cinema. In 1940 SIP became the first independent company to record more profits in one year than any of the major studios ($10 million compared to $8.7 million for the second, MGM, and $6.4 for the third, Paramount).58 What makes SIP's achievement even more impressive, however, was that the company's profits came from only two films as opposed to forty-seven for MGM and forty-eight for Paramount.59 What's more, Gone with Wind was also responsible for at least half of MGM's profits, as Selznick chose that studio to distribute his film, despite having a distribution contract with United Artists at the time. Realising that the box office potential of the film was enormous, MGM charged a 70 per cent distribution fee for a long period during the film's release and ended up with very good profits in a year when its own films underperformed.

Selznick's success demonstrated clearly the great potential for profit of independently produced, prestige-level films. MGM's profits, on the other hand, convinced the studios that they could stand to earn a massive part of their income from independent production simply by using the savvy of their distribution apparatuses and the power of their exhibition sites. As a number of independent producers had voiced strong complaints and doubts about United Artists' ability to market independent pictures effectively and to arrange the best possible exhibition terms,60 the studios were in a position to offer independent production companies considerably superior distribution expertise. In fact, Selznick opted for MGM instead of United Artists, mainly because of the major's 'unparalleled sales and exhibition operations', which were greatly superior to United Artists' distribution resources.61

Although United Artists' competence in film distribution was questioned throughout its history by various independent producers, the company's distinct identity as the only distributor who could guarantee independents access to the first-run theatres ensured that it had always been the first destination for any top-rank independent producer. In the late 1930s, however, it got competition. In 1937 UA lost Walt Disney to RKO, while a year later George Schaefer, UA's general manager in charge of domestic distribution, left the company, also for RKO. As the new president for the studio, Schaefer immediately put into practice a programme of recruitment of independent producers, in effect adapting the United Artists model to the resources of a major studio. Within a few years RKO became a haven for independent filmmakers with Samuel Goldwyn, Leo McCarey, Orson Welles and Alfred Hitchcock joining Disney and distributing their films through the company. Equally Universal, Columbia and even Warner Bros, the most factory-oriented studio of the 1930s, moved to embrace deals with independent filmmakers in the early 1940s therefore providing additional competition to United Artists.

The Industry-wide Shift

Besides the lessons that Selznick and Gone with the Wind were 'teaching' Hollywood in the late 1930s/early 1940s, there were other factors that convinced the studios to accept independent production as a very significant industry-wide paradigm for filmmaking. These included: the impact of the consent decree of 1940 (which limited substantially the practice of block booking and eliminated entirely the practice of blind-bidding); the effects of World War II (mainly the slowing down of film production, the increase in theatre attendances and, especially, the introduction of a system of taxation that encouraged the establishment of independent companies); and certain changes in film financing which opened up more options for independent producers. By the final months of 1947, when market conditions started deteriorating and independent production was no longer encouraged by the industry, there existed ninety active independent producers specialising in prestige-level or A-class features.

When the US Justice Department charged the eight major companies with violating the Sherman Antitrust Act on 20 July 1938, it initiated a legal battle that would last for more than a decade. Acting on behalf of the independent US exhibitors, who owned more than 60 per cent of the country's theatres but claimed a disproportionately low share of film rentals compared to studio and studio-affiliated theatre circuits,62 the Justice Department filed a lawsuit against the Big Five and the Little Three to address this inequality. The lawsuit was aimed primarily at putting a stop to the practice of block booking, which forced all theatres - with the exception of the studio-owned first-run houses - to buy the studios' films in large blocks, sometimes as large as blocks of fifty. Furthermore, and as an extension of this aim, the lawsuit was also about discontinuing the practice of blind-bidding, through which independent exhibitors were forced to buy a studio's films without knowing any information about the nature of the films, their stars or level of production values. On a more general level, however, the Justice Department's lawsuit was aimed at separating the branch of production from distribution and exhibition to stimulate competition. Consequently, it focused its attention on the vertically integrated Big Five studios. After months of deliberations, negotiations, political manoeuvring and thirteen trial postponements, the US government and the five studios drafted a consent decree which was signed by the relevant parties on 29 October 1940.

Although the 1940 decree had several main points, the one that became important for independent production was the studios' agreement to reduce the number of block-booked films to five and to replace blind-bidding with trade showing, a form of advanced screenings of studio films for prospective buyers. The consequences were immediate. In order to make the block of five films as appealing to exhibitors as possible, the studios started placing more emphasis on the films' production values, especially in terms of the use of stars and spectacle in individual films.63 As a result, they gradually phased out B movie production but, more importantly, slowed down their overall production schedules to allow for more attention to their top films. The production slowdown had two very positive effects for independent production. First, it made studios look once more to the established independents to supply the extra product. Second, the demand for top-rank pictures became so high that it created a need for more independent companies to provide those pictures to the studios.

The studios' renewed emphasis on quality and production values caused a particularly important shift in the balance of power, from executives to above-the-line talent. While in the 1920s and 1930s films were sold on the basis of the studios' brand names, the limiting of block booking to groups of five decreased the value of the studio brand name as a bargaining tool. Instead, it was the films' stars, directors and stories that became the focal point for programme differentiation as well as the main marketing strategy the major distributors employed. Consequently, this above-the-line talent found itself in a position of growing power and increased leverage over the production process. The studios had no alternative but to accommodate a substantial number of directors, stars and, more rarely, writers who sought more creative and administrative responsibility of their pictures. This accommodation took the form of allowing (and later actively encouraging) talent to establish their own in-house independent shops, sometimes with extremely favourable terms. As Thomas Schatz put it, 'the studios were willing to consider deals with outside producers and other top talent, often on unprecedented terms, simply to secure proven filmmakers who could reliably deliver A-class pictures'.64

At the vanguard of this new independent movement were the 'hyphenates', filmmakers who undertook a second and, more rarely, a third role in the production process, in addition to their normal roles. Unlike the majority of independent producers in the 1930s, who were originally studio executives or had an industrial or business background, these new independents were mainly creative personnel who established their own companies, while also adding extra responsibilities to their job description. Thus directors became director-producers (John Ford, Leo McCarey, Cecil B. De Mille, Frank Capra); writers became writer-producers (Herman Mankiewicz, Sidney Buchman, Nunnally Johnson) and writer-directors became writer-director-producers (Preston Sturges).

As the above internal changes in the American film industry had already cultivated a positive climate for a more widespread practice of independent production, the effects of the United States' entry to World War II created even better market conditions for the film industry in general and the independents in particular. Even before the country's entry in the war in December 1941, the film industry had started reaping the benefits of an increasingly strong economy that was driven by massive investment in the country's defence build-up. Theatre attendance had started to increase and so had the studios' profits which almost doubled from 1940 to 1941.65 These trends continued throughout the years America was at war (1942-5). With employment rates at record levels, salaries up 65 per cent (from 1942 to 1945) and an overwhelming part of war-industry production taking place in and around the urban centres where the studios' theatres were located, attendance and profits surpassed pre-Depression totals in 1943 and continued at this level until the end of the war.66

The type of film that led the impressive box office revenues during this boom period was the prestige-level film. With approximately a third of all studio personnel serving the armed forces and with a number of bans imposed on the use of essential raw material for film manufacturing, the studios had to cut back further on their yearly output (from 358 films in 1942, to 289 in 1943, to 262 and 270 in 1944 and 1945 respectively).67 As the output was getting smaller, demand for films, particularly for prestigelevel productions, remained high and the studios were in an even greater need for such films. Under these conditions independent production was not only welcomed but was also actively encouraged by a film industry that was desperate for product. Even the traditionally thorny issue of production financing was suddenly not such a great problem. The huge box office success of independently produced films such as Sergeant York (1941), Since You Went Away (1944) and The Bells of St Mary (1945) convinced Wall Street banks that independent filmmaking could be an enterprise as lucrative as studio production.68 Consequently, they started financing independent companies, often without asking for the types of guarantees that had made production financing almost impossible in the previous decade.

Even though the system of production financing for independent films would be perfected after the end of the studio era, its main characteristics were introduced in the early 1940s. In general, there were three 'categories of money' which normally were differentiated by the degree of risk attached to them and which had to be obtained from different sources:

• first money: it finances up to 60 per cent of the production and is normally borrowed from a bank. It is termed so because it is the first one to be paid back once the film is released;

• second money or 'risk' money: it finances the remaining 40 per cent of the film and is normally raised by salary and other types of deferments or by straight cash from an outside party like a film distributor; and

• completion money: although this type of arrangement varies greatly from film to film, it normally involves the signing of a bond by a guarantor who undertakes the responsibility to provide the funds necessary for the completion of a film.69

The most important source of financing in this arrangement was the second money. It was on the basis of securing the second money (and of producing a distribution contract) that the banks would agree to provide the first money as it was rare for a film in the 1940s not to return enough rentals to cover the 60 per cent of its budget that the banks provided.70 On the other hand, if a film did indeed do bad business at the box office, the 'second-money group' could stand to lose all their investment, which is why second money was also known as 'risk' money.

While market conditions were constantly improving, it was the introduction of a war-time system of taxation that perhaps played the most important part in the exponential increase of independent producers in the 1940s. In order to finance the war, one of the US government's measures was to increase the income tax rates for all high-salaried employees. With the introduction of the Revenue Act of 1941, the top tax bracket was lowered from $5 million to $200,000, a figure which the salaries of many stars and top studio executives exceeded. For those individuals income tax rates could be as high as 80 or 90 per cent, which meant that in 1941 a star like James Cagney would be able to keep only $70,000 on annual earnings of $350,000.71 On the other hand, though, if such an individual was not earning this income as straight salary but receiving it instead as part of an investment in a corporation, the individual had the right to present this income as capital gains and be taxed at a rate of only 25 per cent. Forming an independent company or a partnership after 1941 then became the main avenue for stars or top executives to maintain their high earnings and to 'sequester returns from films in investments, deferments and other methods of remuneration than straight salaries.'72

Not surprisingly, the Revenue Act of 1941 provided above-the-line talent with even more impetus to enter independent production. As Ernest Borneman put it in an article in Harper's magazine, stars, directors and writers were starting their own companies by 'clutching the banner of freedom in one hand and an income tax blanket in the other'.73 By that time (1946) the number of independents had risen to seventy and the capital gains tax loophole seemed to have created a new type of independent company, the single picture collapsible corporation. Under this configuration, a producer would set up an independent company to make one feature and as soon as that feature was released he or she would dissolve the company and have the profits taxed at capital gains rate before moving into the creation of a new single picture corporation. This system proved very appealing not only for new producers but for established ones as well. In particular, Samuel Goldwyn produced his wartime films through different corporations each time (such as Avalon, Regent, Beverly and Trinity Productions) to exploit the low capital gains rate.74

The above developments signalled clearly the fact that top-rank independent production had become an industry-wide phenomenon. Equally importantly, however, they also demonstrated the remarkable adaptability of the studios which retained their control of the industry despite the shift to independent production. When the benefits of this format of film production became clear, the studios were quick to reorganise their production practices and make way for this type of filmmaking, proving that they were not monolithic organisations steeped in tradition but dynamic business enterprises with the power to adapt to new industry trends.

The End of the War Boon

The rise in independent production continued after the end of the war. Even when the US government repealed the capital gains tax break in 1946 the number of independent companies continued to increase. In the following year an additional twenty new companies joined the independent ranks bringing the total number to ninety. By that time, however, market conditions had started deteriorating. Rising production costs, declining theatre attendances (after a peak in 1946) and the introduction of quotas and other protective measures in various European markets, which resulted in a steep decrease in the films' non-US box office revenues, cast a giant shadow over the future of both studio and independent production.

The studios responded immediately by tightening up operation costs. One of the first items in their agenda was reviewing and, on many occasions, revising the unprecedented deals they had made with independent producers during the war boom. With the studios' gates closing as suddenly as they had opened, a large number of independent producers, especially hyphenate filmmakers (who were more specialised in the creative than the business side of production), found it hard to obtain financing for their films.75 Consequently, many independent producers were forced to take a step back and sign with the studios as unit producers in order to secure their future. Furthermore, even the normally reliable United Artists was not in a position to support independent production as the company was heading for bankruptcy after years of mismanagement and fierce battles between the partners.

Having lost its distinct identity at the beginning of the 1940s, United Artists had seen most of its key producers deserting the company for the superior resources of other studios (Disney and Goldwyn to RKO, Wanger to Universal), while also failing to attract any major 'hyphenate' filmmakers with the exception of James Cagney (who also left the company in 1948) and Stanley Kramer (who made his presence felt in the post-1948 period). In 1942 United Artists resorted to the extreme measure of purchasing a package of twenty-three films from Paramount to fill in its release schedule for the 1942-3 season. The vast majority of these films, which were bought for $4.3 million in total, were B-class films, including twelve Hopalong Cassidy westerns that were made for less than $100,000 each.76

Besides contributing to the loss of United Artists' prestige as a company that released only the work of top independent filmmakers, the Hopalong Cassidy westerns were also responsible for reversing the company's twenty-four-year-strong sales policy. As they were cheap genre pictures normally destined for the low end of a double bill, United Artists distributed them in blocks, a strategy never before practised by the company. Additionally, United Artists also distributed 'streamliners', light comedy featurettes the duration of which did not exceed fifty minutes (twenty out of the twenty-nine films that producer Hal Roach delivered to the company were streamliners).77 With complaints about the company's inability to secure the best possible distribution terms for independent films surfacing on a regular basis, it is no surprise that UA was not the top destination for independent filmmakers in the 1940s. It was also the only one of the Big Eight companies to record net losses during the war boom years.78

The industry-wide shift to independent production signalled the appropriation of this format of film production by the studios, to the extent that the label 'independent' must be questioned. If the independent producers of the previous decade tried to prevent the total domination of the industry from the forces of oligopoly as well as maximise their share of the profits from their films, then what was the purpose of top-rank independent producers in the post-1940 period? And what was their contribution to American cinema besides supplying theatres with additional prestige-level product when the studios slowed down their production?

As the majority of top-rank independent producers established distribution and financing deals with the studios, there was no doubt that this brand of independence was somewhat different from the one associated with UA in the previous decade and therefore more akin to unit production. As Thomas Schatz put it, on the one hand those were 'filmmakers who maintained their own production units but operated within the physical and administrative purview of [a] studio.'79 On the other hand, though, the rapid increase of independent producers and especially their penetration of the major studios caused a major shift in the use of film style.

Until the early 1940s, film style was institutional, with many studios characterised by a distinct 'house style' which was the product of a creative interplay of stars, genres and budgets. As the studios decreased their output and started releasing more and more independently produced films, their distinct house styles started gradually dissipating, while different, individualised film styles were being developed primarily by the 'hyphenate' filmmakers.80 In only a few years' time studio house styles would disappear completely while this model of independent production would become the dominant model of production in mainstream American cinema.

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