The economic downturn of the Depression was precipitated by a rapid decline in values of stock at the New York Stock Exchange in the fall of 1929. Black Thursday (24 October) and Black Tuesday (29 October) were key moments in the collapse. Overall, the Dow Jones Industrial Average dropped from a high of 381 on 3 September to a low of 198 before the end of the year. The economy continued to decline through 1932, when the Dow Jones industrial average bottomed out at 41. Between 1929 and 1933, when Franklin Delano Roosevelt (1882–1945) assumed the presidency, consumption had plummeted 18 percent, construction by 78 percent, and investment by 98 percent. National income had been cut in half, five thousand banks had collapsed, and over nine million savings accounts evaporated. Nonfarm unemployment reached 25 percent in the United States, and most farmers were struggling to survive because of severely depressed prices for the crops they grew and livestock they raised.
Inevitably, such an economic climate hit Hollywood hard. The industry had enjoyed a period of prosperity in the 1920s, building luxurious movie palaces and, from 1927 on, cashing in on the novelty of the newly developed technology of talking films. Between 1930 and 1933, however, movie attendance dropped from around ninety million admissions per week to sixty million admissions, and average ticket prices dropped from 30 cents to around 20 cents over the same span. Industry revenues dropped from $720 million in 1929 to $480 million in 1933, while total company profits of $54.5 million in 1929 gave way to total company losses of $55.7 million in 1932.
At the time of the stock market crash the film industry was organized by a studio system, and most of the important films produced in Hollywood in the 1930s were made by five studios that owned theater chains and three smaller studios that did not. The "Big Five" that owned theaters faced particularly pronounced strains following the crash because of the investments they had made in building theaters in the 1920s. Of that group, RKO, Fox, and Paramount all went into bankruptcy or receivership in the early 1930s, Warner Bros. managed to stay afloat only by selling off nearly one-quarter of its assets, and only MGM—which had much smaller theater holdings than Paramount—continued to make a profit, although its profits dropped from $15 million in 1930 to $4.3 million in 1931. (Fox returned to stability by merging with the independent production company Twentieth-Century in 1935.)
The "Little Three" managed a bit better. Both Columbia and Universal, production companies that owned no theaters, survived in part by making low-budget "B movies"that were often shown as double features. Columbia did better from 1934, when Frank Capra's (1896–1991) It Happened One Night became a hit. Universal was in constant financial difficulty, recording small losses each year between 1932 and 1938, although the popularity of their horror films early in the decade and Deanna Durbin (b. 1921) musicals later on kept the losses from growing even higher. United Artists, essentially a distribution company for its owners, such as Charlie Chaplin (1889–1977), and talented independent producers such as Samuel Goldwyn (1882–1974) and Walter Wanger (1894–1968), lost money only in 1932, although its profits in the later 1930s were very modest.
Movie exhibition was also affected by the economic downturn. One major effect was the decline of construction of new theaters following the boom of movie-palace building in the 1920s. As movie attendance began to decline significantly in the early 1930s some theater owners also began to offer giveaway programs (like "dish night") or games of chance (SCREENO, a variety of bingo, was the most popular), particularly on the traditionally slow nights of Monday and Tuesday, to get more people back into the theaters. Theater owners also sought to reduce costs by cutting staff—hiring fewer ushers, for example—or, in the bigger urban theaters, by eliminating live shows that supplemented the movie program. Some theaters turned to double features, thus boosting the demand for B movies by companies such as Monogram and Republic. The only major new expense made by many theater owners in the Depression, especially in the South and West, was the installation of air conditioning, which because of technological advances became more affordable than it had been in the 1920s. By the end of the decade attendance inched back to 1929 levels. In this improved financial environment, the giveaway programs and the games of chance began to disappear.
Indeed, the industry began to rebound after the dark years of 1932 and 1933, in part because of New Deal legislation. President Roosevelt's National Industrial Recovery Act (NIRA) went into effect in June 1933, and its strategy for recovery was in part to permit certain monopolistic practices by major industries, including the film industry. Even though the Supreme Court eventually struck it down in 1935, the NIRA also authorized the organization of labor unions and collective bargaining, a tendency strengthened with the passage of the Wagner Act in 1935. From 1933 on various groups of Hollywood workers sought and eventually succeeded in establishing unions recognized by the studios, including the Screen Actors Guild (recognized in 1937), the Screen Directors Guild (1939), and the Screen Writers Guild (1941). By the time the United States entered World War II, the industry was largely unionized.
The evolution of the industry through the Depression can be grasped in part through numbers. Box-office receipts bottomed out in 1933 at $480 million, gradually growing to $810 million in 1941, which slightly exceeded the $720 million receipts of 1929. Total company losses of $55.7 million in 1932 were reduced to losses of $4.9 million in 1933, after which the bottom line improved to profits of $9 million in 1934, up to $34 million in 1941. Only in 1943, however, with profits of $60.6 million, did Hollywood exceed the $54.5 million of profits in 1929. In the most general terms, after spiraling downward from 1929/1930 to 1932/1933, the economic condition of the industry reversed itself and gradually improved for the rest of the decade, even though attendance and profits did not return to 1929 levels until after World War II was well underway. The economic conditions of the Depression surely tested the movie industry.