One reason that the major studios could attain virtually monopolistic control over the film industry is that they developed several business strategies during the 1910s and 1920s that all in some way constrained the independent exhibitor's freedom in booking films. These strategies continued to play a central role in film exhibition until the end of the 1940s. Perhaps most important was the run-zone-clearance system, which enabled the "Big Five" major studios (MGM, Paramount, RKO, Warner Bros., and Twentieth Century Fox) to control the distribution of the films they produced. This system was designed to guarantee that films were circulated so as to ensure broad exhibition and to bring in maximum profits to the parent company. The national exhibition market (especially the urban market) in the United States was divided into geographical zones. In each zone, films moved consecutively from first-run through several intermediate steps (second-run, third-run, and so on) to final-run venues. Ticket prices tended to drop with each run. There was, in addition, a "clearance" time between runs, which meant that moviegoers could expect to wait months or up to a year after a film premiered at a downtown picture palace before it reached a neighborhood theater or a small-town venue. By privileging their own theaters and organizing distribution according to the run-zone-clearance system, the Big Five assured their dominance of the American motion picture industry.
Exhibition at independently owned and operated theaters was also constrained by procedures that governed how major studio films were booked by exhibitors. "Blind booking" meant that exhibitors had to schedule the films for the coming season based only on descriptions provided by the studio, with no actual preview prints available. Furthermore, exhibitors had little choice but to agree to "block booking," which required that they take a full season or at least a significant number of films (shorts as well as features) from the same studio. Exhibitors were thus less able than in the past to pick and choose titles and thus tailor their programming, week-by-week, to a particular clientele.
Marcus Loew, the creator of MGM and one of the most successful figures in the motion picture industry during the silent era, was, first and foremost, an exhibitor. "I don't sell tickets to movies," he is said to have declared, "I sell tickets to theaters."
Born to immigrant parents on New York's Lower East Side, Loew moved into commercial entertainment after working in the garment industry. In 1904, he co-founded the People's Vaudeville Company, which soon expanded its holdings to include several penny arcades in New York City and one in Cincinnati, Ohio, where he built a 110-seat theater on the second floor to screen motion pictures.
Loew ran nickelodeons, but he made his mark with what was called "small-time vaudeville," a show that combined live vaudeville performance with motion pictures—all for a relatively inexpensive ticket price. In the first of many acquisitions, in 1908 he purchased and refurbished the Royal Theater in Brooklyn. His chain of New York theaters grew to forty small-time vaudeville venues, including impressive new theaters, like the 2,400-seat Loew's National. By the end of the 1910s, Loew owned or leased more than fifty large theaters from Canada to New Orleans, with an especially prominent presence in the major Northeast cities.
Like other moguls, Loew became committed to developing a vertically integrated motion picture company, which controlled production and distribution as well as exhibition. He formed Loew's, Incorporated in 1919, purchased the Metro film studio and then Goldwyn Pictures. Loew's theater holdings increased to more than 100 first-class venues, topped by the 3,500-seat Loew's State Theater in Times Square. In 1924, Loew acquired Louis B. Mayer's Los Angeles studio and Metro-Goldwyn-Mayer was formed, with Loew's Inc. as its parent company. Until his death in 1927, Marcus Loew served as president of Loew's/MGM, continuing to expand his theater holdings, including newly built picture palaces.
Loew's legacy lasted long after his death, beyond the success of MGM in the 1930s. Following the Paramount decision in 1948, which ordered studios to divest themselves of their theater holdings, Loew's became by the late 1950s a separate entity from MGM, with fewer than 100 theaters. Over the next twenty years, Loew's diversified its holdings but maintained a relatively small number of theaters. However, through ensuing expansion and corporate mergers, Loew's by the 1990s had become an 885-screen chain owned by Sony Pictures Entertainment. Merged with Cineplex Odeon, Loew's Cineplex Entertainment eventually controlled almost 3,000 screens in 450 North American and European locations. With much hoopla, Loew's Cineplex in 2004 celebrated its 100 years of being in the exhibition business.
Crowther, Bosley. The Lion's Share: The Story of an Entertainment Empire . New York: E. P. Dutton, 1957.
Gomery, Douglas. The Hollywood Studio System . New York: St. Martin's Press, 1986.
Gregory A. Waller
Exhibitors had always been constrained in other ways as well. For instance, from the nickelodeon era onward, they had faced considerable pressure from religious and reform groups and actual policing from municipal and state authorities, especially in the form of building and safety codes, Sunday closing laws, and license fees. However, exhibitors stood to benefit from government intervention when the Federal Trade
Commission in 1921 accused Paramount of unfair business practices and illegal restraint of trade, beginning a legal process that continued on and off for more than twenty years. In 1938, the Justice Department initiated anti-trust proceedings against the major Hollywood studios, leading to a temporary consent decree in 1940 that prohibited blind booking and limited block booking to groups of no more than five films. Finally, in 1948, the United States Supreme Court delivered its decision in what was called the "Paramount case," a sweeping ruling that eliminated block booking, challenged monopolistic practices, and significantly altered the relationship between film distribution and exhibition.
The major decision in United States v. Paramount, et al. was to restrict Hollywood studios from owning and operating movie theaters. This divestiture took place over the next six years and to some degree it opened up the American market for independent theaters and newly formed theater chains. The 1948 court ruling also prohibited block booking, meaning that films were henceforth to be rented to a theater not as a package or a season, but individually. In addition, the ruling put an end to the frequently long clearance time between when a film was shown at a first-run theater and when it reached subsequent run theaters. In sum, the Paramount case dramatically opened up the marketplace and altered how exhibitors selected and scheduled movies. But since the production companies were by the 1950s no longer directly in the film exhibition business, they did not have their previous incentive to deliver many new films year round. Furthermore, blind booking was not explicitly banned as part of the Paramount decision, and this practice re-emerged, especially in the 1970s, as production costs rose and wider distribution patterns became the norm for first-run films.