That resolution was forestalled for a full decade by the studios' legal departments as well as by World War II, and in the meantime Hollywood enjoyed enormous critical and commercial success as the classical era reached a sustained peak during what is frequently referred to as Hollywood's "golden age." Essential to that success was the studio system, which reached full maturity during the 1930s as each of the Big Eight developed a distinctive house style according to its internal resources, stables of contract talent, and overall market strategy. Key here were the studios' trademark star-genre formulas—Universal's classic horror cycle with Boris Karloff and Bela Lugosi and its Deanna Durbin musicals, for instance, or Warner Bros.' gangster sagas with James Cagney and Edward G. Robinson, its backstage musicals with Dick Powell and Ruby Keeler, its swashbuckling romances with Errol Flynn and Olivia de Havilland, and its Bette Davis melodramas. Both companies also turned out a large proportion of B movies, some of which were equally formulaic and market-driven, but it was each studio's A-class star vehicles that defined its signature style and carried the freight during the classical era, moving its annual block of pictures through the nation's theaters.
Teams of top talent invariably formed around these star-genre formulas, ensuring their consistent quality and efficient output. The star was the prime component, of course, and thus the vital interdependence of the star system and the studio system. But directors, writers, composers, designers, and others were important to these units as well, with the producer serving as the administrative linchpin who oversaw production and managed relations with the executives in the "front office." The top executives, in turn, operated in tandem—and often in significant tension—with the home office in New York, which was the ultimate arbiter of fiscal policy and corporate control. But this was scarcely a top-down system in terms of creative authority. The New York office could not produce movies, nor could the studio's production executives—with the rare exceptions of truly creative executives like Darryl F. Zanuck (1902–1979) (initially at Warner Bros. and later at Fox) or David O. Selznick (1902–1965) (who was a production executive at Paramount, RKO, and MGM before launching Selznick International Pictures in 1936). This creative conflict and collaboration at all levels of studio operation, despite the ultimate authority of the owners and top studio executives, was an essential trait of the studio system. By the late 1930s, the American film industry had attained what the astute French critic and theorist André Bazin compared to "the equilibrium profile of a river," whose waters flow evenly along without disturbing its banks (Bazin, 1967, p. 31). Bazin and others saw Hollywood as having entered its classical era—a period of creative, commercial, industrial, and institutional balance, whose success was the result of "not only the talent of this or that filmmaker, but the genius of the system" (Bazin, 1968, p. 154).
That system went into high gear in the 1940s, when war-related conditions spurred an unprecedented financial boom for the movie industry—particularly for the integrated majors. During the war, the Justice Department suspended its antitrust campaign "for the duration." The US conversion to war production brought people to the major cities and put money in their pockets but severely limited their capacity to spend it (due to rationing and the dearth of goods due to the general focus on "war production"). Movies provided a prime source of entertainment and diversion, particularly in major cities where the Big Five's theater chains were concentrated and the impact of the war economy was most pronounced. The major studios responded to the overheated first-run market by focusing on A-class pictures and cutting back on B-movie production, and by focusing film content on the war itself, at Washington's insistence, turning out newsreels and documentaries in unprecedented numbers, most of them war-related, as were roughly one quarter of all features films.
Although the movie industry did record business during the war and appeared to be as strong as ever, the studio system was beginning to weaken. Some of these various factors were war related, particularly changes to the tax codes (to underwrite the defense buildup) that put top talent in the 70–90 percent tax brackets, thus encouraging high-salaried stars, directors, and producers to "go freelance" by creating independent companies, which enabled them to be taxed at the far lower capital gains rate. The first-run market surge and unprecedented premium on A-class pictures also put a huge premium on top talent, giving them the leverage to demand more independence from the studios and greater creative control over their films. Olivia de Havilland (b. 1916) successfully challenged the studios' suspension policies in the courts, severely undercutting the contract system that kept top talent tied to particular studios.
The challenges to the studio system intensified enormously after the war. Hollywood enjoyed its best year ever in terms of attendance and profits in 1946, as returning veterans and heavy courtship sustained the war boom, but in 1947 the movie industry's fortunes began to turn. In 1948, Hollywood went into an economic free fall that would continue for the next quarter century, resulting from the combined effects of suburban migration and the rapid emergence of commercial television. The crippling blow to the studio system was the Supreme Court's May 1948 Paramount decision, which demanded that the Big Five divest their theater chains and that all eight producer-distributors suspend the trade practices (block booking, blind booking) that had enabled them to control the motion picture marketplace.