In early 1895 Ottomar Anschütz (1846–1907) had paying audiences for his Tachyscope, an optical device capable of producing movement in single pictures, and on 1 November that year the Skladanowsky brothers projected what was arguably the first film show as public entertainment. The Skladanowskys' "Bioskop" projector was not, however, technically equal to that of the French Lumière brothers (Auguste [1862–1954] and Louis [1864–1948]), who are generally credited with the first authentic film show on 28 December 1895. Cinema originated as part of variety performances, and the first generation of exhibitors traveled around existing entertainment venues showing, between live acts, a mixture of short items featuring acrobatics, nature scenes, local events, and so on. Many of these items were realist documentation, but filmmakers were already developing film's capacity for the fantastical.
The most significant pioneers of German cinema were Oskar Messter (1866–1943) and Guido Seeber (1879–1940) in Berlin. Messter refined the technology, inventing the Maltese cross to synchronize film frames behind the projector's lens, and also a sound system using gramophones. He shot his own material, including regular newsreels, and initially used it to sell his equipment. Messter moved into exhibition and distribution and by 1913 was producing full-length features. As a director and cinematographer, Seeber developed German cinema's potential in lighting and effects photography, but perhaps his major contribution was to supervise the building in 1912 of the first major German studio at Babelsberg, a suburb of the city of Potsdam, just southwest of Berlin.
Up to 1906 German exhibitors made or bought their material, but by 1910 a second stage of development was under way with longer, multi-reel narratives, together with a change in ownership rights toward distributors, who now began renting prints. Cinema was moving out of its initial novelty phase and into premises built specifically to show films, some of which, like the Marmorhaus (Marble House) in Berlin, copied the opulence of established theater in an attempt to share its cultural recognition. Filmmakers strove to increase cinema's cultural capital by attracting bourgeois audiences, which would in turn serve to moderate censorship restrictions and entertainment taxes and to counter the efforts at controlling them by reform movements like those established in 1907 and again in 1917. Such movements promoted preventive censorship, requiring that films justify their right to be shown, and sought to co-opt the new medium for their own educational, reformist, or nationalist purposes. Filmmakers responded by producing what have come to be known as "authors' films." These might be adaptations from literature, with screenplays written by recognized authors—such as Hanns Heinz Ewers's scenario for Stellan Rye's (1880–1914) Der Student von Prag ( The Student of Prague , 1913), a fantasy on the motif of the alter ego, and Paul Lindau's (1839–1919) version of his play Der Andere ( The Other , 1913)—or films with rights to plays by renowned dramatists like Gerhart Hauptmann (1862–1946) or Arthur Schnitzler (1862–1931). Recognized names from the theater also came to act and direct, like the actor Albert Bassermann and the stage-director Max Reinhardt.
Most films functioned as popular entertainment, which demanded the recognizable patterns of genres with known stars and directors. Established popular traditions, such as fairy tales, operettas, and serial novels, made film dramas, melodramas, and comedies easily accessible, and fantastic narratives appeared alongside historical epic and costume extravaganzas. Der Steckbrief (The wanted poster, Franz Hofer, 1913) combined the fashion for detective stories with stylized settings. Hollywood provided models for slapstick comedy and even for a group of imitation westerns, some adapting the Wild West tales of the German nineteenth-century writer Karl May (1842–1912). Stars of the period included Paul Wegener (1874–1948), Bassermann, Henny Porten (1890–1960), and, above all, Asta Nielsen (1881–1972).
With the outbreak of World War I in 1914, the German industry moved into its final founding stage, consolidation. Nationalism had always marked German filmmaking, with groups like the Deutsche Flottenverein (Society for a German Fleet) and colonial societies producing films to promote their policies. And the German emperor, Wilhelm II, figured so frequently in newsreels that he was nicknamed the nation's first film star. As foreign competition declined, domestic production and exhibition expanded and came under increasing state influence aimed at harnessing the established entertainment function as both a distraction from the war's realities and as a vehicle for nationalist propaganda. Newsreel and documentary film adopted narratives supporting the war effort rather than depicting the realities of the Front. The military formed its own Bild-und Filmamt (Office for Photography and Film) in 1917, seeking to control all German filmmaking. Defeat nullified such ambition, but not before it generated the most famous studio in German cinema history. The Universum Film Aktiengesellschaft (Ufa) brought together private and state investment to buy up large parts of the industry, like Messter's studios and the German division of the Scandinavian Nordisk company, and dominated German Filmkultur , even through the Third Reich.