2
The Motion Picture Industry in 1940-1941

Prologue: January 1940

The American cinema in early 1940 was a study in paradox, with Hollywood in the full flowering of its "golden age" while the industry foundered economically and was beset by crises both at home and abroad. In terms of filmmaking achievements, Hollywood was just coming off what many considered its best year ever—a view underscored in January 1940 when several top holiday pictures went into widespread release. Those late-1939 releases included Mr. Smith Goes to Washington, The Hunchback of Notre Dame, Drums Along the Mohawk, Destry Rides Again, and Gone with the Wind. The most significant of these, without question, was Gone with the Wind, an industry phenomenon of the first order and striking evidence of the movie industry's paradoxical state.

Released in late December 1939, Gone with the Wind was an immediate hit of such magnitude that it redefined what one trade paper termed "how big and how important a motion picture can be."¹ David O. Selznick's massive Civil War epic was certainly the "biggest" production in Hollywood annals: a $4.25 million, 220-minute, star-laden Technicolor spectacle far beyond the scale of even the "prestige pictures" of the era. Gone with the Wind proved to be the biggest of commercial hits as well. In that era, a $5 million box-office gross was considered exceptional; over the previous decade, only Disney's Snow White and the Seven Dwarfs (1937) had surpassed that mark. In January 1940, Gone with the Wind averaged roughly $1 million per week while playing in fewer than 500 of the nation's 17,500 theaters.²

Despite the runaway success of Gone with the Wind, the overall economic state of the industry in early 1940 was shaky at best. Box-office receipts for January were down about 5 percent compared with January 1939, and in fact the studios' combined profits during that halcyon 1939-1940 period were well below their net income in 1936 and 1937, when Hollywood's Depression-era recovery first took hold. The studios had responded to that earlier economic upturn by increasing both the quality and quantity of their productions in the late 1930s, a strategy which now seemed somewhat ill advised. As Variety's Roy Chartier noted in January 1940, many leading exhibitors felt that Hollywood's high-end pictures, "regardless of how fine they are, have gone entirely out of proportion to the potentialities of the market as it stands today. "³ Interestingly enough, Gone with the Wind was the exception that proved the rule; that single picture accounted for over one-half of Hollywood's net profits in 1940.⁴

The glut of "quality" pictures indicated not only a misfired market strategy but the gradual erosion of studio control over the filmmaking process as well. While the studios still ruled the industry at large, they were forced to contend with the growing power and leverage of independent filmmakers and top freelance talent, who tended to specialize in prestige-level production. The status of major independent producers like Selznick, Walt Disney, and Sam Goldwyn signaled this trend, as did the steadily increasing clout of top stars and filmmakers. The producer-director Frank Capra in January 1940, for example, had recently ended a decade-long relationship with Columbia Pictures after completing Mr. Smith Goes to Washington and was negotiating a one-picture deal with Warner Bros. for Meet John Doe (1941). RKO, meanwhile, was trying to rein in its recently signed multitalented prodigy, twenty-five-year-old Orson Welles. In January 1940, the studio announced that it was shelving the boy wonder's first project, a film adaptation of Conrad's Heart of Darkness, owing to projected cost overruns, and that Welles would begin work (as producer-director-writer-actor) on another project, "John Citizen, U.S.A."—released in 1941 and retitled Citizen Kane. And Hollywood's con-summate independent filmmaker, the producer-director-writer-star Charlie Chaplin, was shooting "Chaplin #6" in January 1940 at his personal production facility on La Brea Avenue under the usual shroud of secrecy—although it was widely known to be a comic biography of Adolf Hitler.⁵

Another clear display of individual clout among Hollywood's creative community in January 1940 involved Katharine Hepburn. The actress had fled Hollywood for the Broadway stage in 1938, having been dubbed "box-office poison" by leading exhibitors, and had starred in a stage hit, The Philadelphia Story. Hepburn had the foresight to purchase the screen rights to Philip Barry's hit play, and now she was back in Hollywood, auctioning both the presold story property and her own renewed star status to the highest bidder. As of January 1940, both Warners and MGM were still in the running; Hepburn would decide on MGM.⁶

While the increasing authority of top talent was a matter of some concern for the Hollywood studio powers in early 1940, the industry faced even greater threats from various outside forces and from external industry developments. The most serious, of course, involved the outbreak of war in Europe in late 1939, which threatened Hollywood's crucial overseas trade. In January, the war's impact on foreign markets, particularly in Europe, was still uncertain. After the Nazi invasion of Poland in September 1939 and ensuing declarations of war on Germany by both England and France, there had been very little active warfare. Thus, an eerie calm pervaded the Continent, and the Hollywood studios had no real conception of how the war in Europe would affect their foreign trade. Nor was there any clear indication of whether the war-related U.S. defense buildup, just under way in early 1940, would affect the film industry. As Chartier described the situation in January 1940: "The war, and any boom resulting from that industrially in this country, might mean generally renewed vitality in theater receipts. It also might mean nothing and, so far, it hasn't except in a very isolated way through stepped up grosses where production has spurted, notably steel centers."⁷

While war conditions intensified both at home and abroad in early 1940, so did the growing discord between Hollywood and the U.S. government. When Congress reconvened in January, Hollywood suffered a series of verbal assaults on Capitol Hill. Senator Burton K. Wheeler of Montana, an avowed isolationist, publicly chastised Hollywood for pro-war and pro-military propaganda and promised to propose legislation restricting any overtly interventionist films. Hollywood was accused of a different brand of propaganda by Congressman Martin Dies of Texas, who in his opening address to the House requested additional funding for his investigation of "un-American activities" in the United States. Dies singled out Hollywood in his January 1940 address, suggesting that the movie industry, and particularly its labor unions and talent guilds, was rife with subversives and Communists. And organized labor suffered a setback in January when a federal grand jury indicted Willie Bioff, the Hollywood-based chief of the industry's dominant labor organization, the International Alliance of Theatrical and Stage Employees (IATSE), in a major racketeering and bribery scandal.

Yet another congressional assault came from Senator Matthew Neely of West Virginia, an outspoken critic of motion picture trade practices. In past years, Neely had sponsored bills against the block booking of pictures, a practice by which the studios forced exhibitors to take a studio's entire annual output, sight unseen, in order to get the more desirable A-class pictures. Neely's anti-block-booking bills had passed the Senate in 1938 and again in 1939, only to fail in the House.⁸ Neely vowed in January 1940 to reintroduce that legislation and to sponsor additional bills outlawing double features and, on a more serious note, prohibiting studios from owning theater chains.

This threat of theater "divorcement" already had been posed by another and considerably more potent governmental force: the antitrust division of the Department of Justice. In 1938, the Justice Department filed an antitrust suit against the major Hollywood studios—the so-called Paramount case, named for the first defendant cited—which challenged the studios' ownership of theaters and various other trade practices as well. The studios had managed to keep the Justice Department at bay until January 1940, when the senior federal judge John C. Knox set a trial date of 1 May.

The announcement of a trial date in the Paramount case sent shock waves through the industry, initiating a decade-long succession of legal proceedings—hearings and trials, appeals and reversals, and eventually a series of Supreme Court rulings late in the decade. The government's antitrust campaign was in many ways the single defining industry event of the 1940s, striking at the very essence of the Hollywood studio system and bringing about the wholesale transformation of the American movie industry.

The Studio System and the Antitrust Campaign

The major combatants in the movie industry's antitrust battles during the 1940s were the Department of Justice and Hollywood's major studio powers: MGM, Paramount, Warners, 20th Century-Fox, RKO, Universal, Columbia, and United Artists (UA). Through the 1920s and 1930s, these studios steadily refined a "vertically integrated" system of film production, distribution, and exhibition, creating what economists term a "mature oligopoly"—that is, a cartel of companies cooperating to control an industry.⁹ In the Justice Department's view, the net effect of that control was a veritable monopoly of the movie business, a view that led the attorney general to file the 1938 antitrust suit against the studios.

Actually, the Justice Department's antitrust suit was simply one facet of a widespread government initiative against the studios. Scarcely coherent or unified, the antitrust campaign against the movie industry was waged on numerous fronts, from local courts and state legislatures to Congress and the Justice Department; it also involved a range of legal and regulatory efforts, from civil and class-action suits to state laws and federal regulations. Because of the structure of the movie industry, however, only the federal government had the authority to regulate the complex nationwide system of marketing and exhibiting movies. Moreover, the antitrust battles eventually involved not only the Hollywood studios with their affiliated theater chains but also several large unaffiliated theater circuits.

The Roosevelt administration, the Justice Department, Congress, and the federal courts were in many ways at odds with one another about whether any antitrust action against the movie industry was necessary, and if so, exactly what action to take. And this disagreement applied to many other industries besides motion pictures. Since the mid-1930s, in fact, the antitrust division of the Justice Department had been involved in a fierce, ongoing battle with the White House over the New Deal and, more specifically, over the National Recovery Act (NRA), which FDR pushed through Congress shortly after his inauguration in 1933. The NRA, in essence, provided government sanction for monopolistic trade practices in certain industries, including motion pictures, as a means of combating the Depression. Significantly enough, the Supreme Court had declared the NRA unconstitutional in 1935, but by then trade practices were in place which clearly were benefiting leading U.S. industries, and which the dominant powers in those industries were altogether unwilling to give up.

Thus, the Justice Department became heavily involved in "trust-busting" in the late 1930s—seeking, in effect, to undo what had been done under NRA sanction during the first few years of FDR's administration. The head of the department's antitrust division was Assistant Attorney General Thurman Arnold, who by 1938 already had won antitrust cases in the medical, oil, dairy, fertilizer, and construction industries, among others. Arnold fielded countless complaints about unfair trade practices from the movie industry's so-called independent exhibitors—the theater owners with three or fewer movie houses whose business dealings were virtually dictated by the studios. Arnold grew increasingly sympathetic to their plight, and on 20 July 1938, he filed U.S. υ. Paramount Pictures et al. in New York Federal District Court, citing the so-called Big Eight Hollywood studios for violating the Sherman Antitrust Act.¹⁰

Interestingly enough, the suit against the studios did not center on film production but rather on two other factors: first, the integration of production and distribution through various trade practices, which were facilitated by the Big Eight's trade association, the Motion Picture Producers and Distributors of America (MPPDA); and second, the further control of distribution and exhibition by the five studios which also owned theater chains. Although their control of actual film production was not central to the suit, there was no question but that the Big Eight studio-distributors dominated that end of the business as well. By the late 1930s, they produced about 75 percent of all U.S. feature films, which generated 90 percent of all box-office revenues. Hollywood features also accounted for some 65 percent of all films exhibited worldwide; one-third of the studios' revenues came from abroad."¹¹ The studios' foreign and domestic revenues enabled them to keep their production factories running at full capacity; in the late 1930s, that meant turning out about one feature film per week, along with assorted serials, newsreels, shorts, and cartoons. The lone exception was UA, which was not a studio per se but rather a distributor for Hollywood's major independent producers; UA released only fifteen to twenty pictures per year.

As important as film production was to the major studios—and to the studio system—the real key to studio control of the industry lay in the distribution and exhibition sectors. In fact, the single most complex question raised by the antitrust suit, and a question which would plague the Justice Department and the courts for a full decade, was whether film distribution or exhibition was the key to studio hegemony. The Big Eight had a virtual lock on all feature film distribution, completely controlling the movie marketplace and taking in around 95 percent of all domestic (U.S. and Canada) rental receipts.¹²

Studio control had steadily consolidated during the 1920s and 1930s, when the major Hollywood powers refined an array of sales policies and trade practices which dictated the flow of movie product through the nation's movie theaters, minimizing their own risks while maximizing the earning potential of their top features, and effectively stifling any form of competition in the mainstream movie marketplace. Chief among these tactics were blind selling (also known as blind bidding) and block booking. Equally important was the elaborate "run-zone-clearance" system, which favored A-class studio pictures and the all-important first-run movie market. Indeed, studio control of the first-run market was in many ways the essential feature of the Hollywood studio system.¹³

According to the 1941 Film Daily Year Book, there were some 17,500 movie theaters in operation in 1940—one for every 8,000 persons in the United States. The total firstrun market in 1940 included 1,360 theaters in the 400 largest cities in the United States and Canada (i.e., those with a population of at least 12,500). All told, first-run houses generated well over one-half of the industry's total domestic revenues. The most important of these were the first-run metropolitan houses, which in 1940 comprised about 450 downtown deluxe palaces in the 95 U.S. cities with over 100,000 population.¹⁴ These theaters seated thousands of spectators, ran only top features, which played day and night, and generated the lion's share of movie revenues.

The run-zone-clearance system sent a picture, after playing in the lucrative first-run arena, through the 16,000 "subsequent-run" movie houses; "clearance" refers to the amount of time between runs, and "zone" refers to the specific areas in which a film played. Typically, a top feature would play its second run in smaller downtown theaters and then move steadily outward from the urban centers to the suburbs, then to smaller cities and towns, and finally to rural communities, playing in ever smaller (and less profitable) venues and taking upwards of six months to complete its run.¹⁵ The average daily attendance per theater was 500, and average attendance per show was 250.¹⁶ But because of the enormous differences in moviegoing patterns and in theater size, ranging from rural houses with only a few hundred seats to the metropolitan movie palaces which seated thousands, these average figures were virtually meaningless. In Rebecca's record-setting run in early 1940 at New York's Radio City Music Hall, for instance, a reported 750,000 saw the picture in its first five weeks—an average of 20,000 per day.¹⁷

Thus, the logic of the studios' effort to own and/or control (through joint-ownership ventures) the nation's first-run theaters. As Mae Huettig stated in her landmark 1939 study, The Economic Control of the Motion Picture Industry, "Despite the glamour of Hollywood, the crux of the motion picture industry is the theater." Huettig acknowledged the importance of the studios' movies as the means of attracting audiences to those theaters, aptly describing the movie industry as "a large inverted pyramid, top-heavy with real estate and theaters, resting on a narrow base of the intangibles which constitute films."¹⁸ Figures from the 1941 Film Daily Year Book indicate just how top-heavy the industry actually was at that time. In 1940, the U.S. movie industry was a $2 billion enterprise; of that total, some $135 million was invested in the Hollywood studios and about $25 million in distribution operations, while the exhibition sector was valued at a staggering $1.9 billion.¹⁹

The overall importance of the exhibition sector was further reinforced by the vastly superior power of the studios which also owned theaters. Those vertically integrated companies—MGM, Paramount, Warner Bros., 20th Century-Fox, and RKO—were without question the governing powers in the movie industry. In fact, there was no real comparison between these so-called Big Five companies and the Little Three nonintegrated studios (Universal, Columbia, and UA) in terms of power, size, and economic value. The net worth of the Big Five in 1940-1941, including their theater holdings, ranged from MGM and Warners at about $165 million each to Fox at $130 million, Paramount at $ 110 million, and RKO at $70 million. Universal and Columbia were each valued at about $16 million, most of which was tied up in their production-related facilities. UA had little book value or assets to speak of, since it was essentially a distribution company.²⁰

Taken together, the Big Five studios either wholly owned or held controlling interest in a total of about 2,600 "affiliated" theaters in 1940, most of which were first-and second-run theaters in major urban markets. While their collective theater holdings amounted to only about 15 percent of the nation's total, they included over 80 percent of all metropolitan first-run theaters."²¹ The integrated majors also completely controlled exhibition in 73 of the 95 U.S. cities with over 100,000 in population.²² And significantly enough, the studios' affiliated and first-run theaters were not subject to compulsory block booking. In these lucrative venues, the companies cut exclusive deals with one another and played only the best of each others' pictures.²³ Not surprisingly, this practice reinforced the general perception of collusion among the Big Five.

Another crucial aspect of studio collusion, in the Justice Department's view, was the geographical dimension of their theater holdings. While each of the Big Five's chains included several dozen first-run theaters in major cities nationwide, the bulk of each company's holdings was concentrated in particular regions. Thus, the Big Five cooperated with one another in order to control the first-run market and to gain the full benefit of a nationwide first-run release.

Paramount's chain was by far the largest, totaling some 1,250 theaters in 43 states, but it was especially strong in the upper Midwest (chiefly the Chicago area), the Deep South, and New England. Fox owned around 600 houses in 1940 through its National Theaters subsidiary, most of them west of the Rockies, along with limited holdings in various areas in the Midwest. Warners' chain of about 475 theaters dominated the mid-Atlantic states and the Northeast. MGM (via Loew's, Inc.) and RKO both had relatively small theater chains—barely one-tenth the size of Paramount's—but they had two distinct advantages: a relatively high proportion of first-run theaters, and shared dominion over the New York City area, the nation's leading movie market. Loew's New York theaters made up one-half of its chain of 150 houses; most of its other holdings were firstrun houses in the eastern half of the United States. RKO, meanwhile, was the least regionally oriented of the Big Five; its slightly more than 100 theaters, most of them former vaudeville houses, were located in major cities across the United States.²⁴

These theater chains provided the Big Five with profitable exhibition venues and also valuable real estate holdings, giving them increased leverage with the financial institutions that underwrote production costs. Being in this position enabled them to produce a generally higher grade of pictures than their competitors could, pictures ideally suited for display in their deluxe theaters. Their affiliated chains also enabled the Big Five to control the point of entry for top features into the movie marketplace. "As a control device, the development of strategic first-run theaters as the showcase of the industry proved remarkably effective," stated Huettig. "Ownership of these relatively few theaters gave [the integrated majors] control over access to the market."²⁵ For the Justice Department, this "barrier to entry" was yet another factor in its case against the studios.

The affiliated chains were clearly the privileged class of movie theater by the late 1930s; they included the majority of first-run houses, relied almost exclusively on top features, and were not subject to block booking.²⁶ Another privileged class—and another eventual target of the Justice Department's antitrust division—was the large unaffiliated theater circuits. Because some of the larger circuits included several hundred theaters, they were able to do volume business and had considerable buying power with the studios. Also, some circuits dominated particular regions of the country—the Schine circuit in the Southeast, for instance, or the Griffith circuit in the Southwest—thus complementing the majors' regional strengths (as exhibitors) and further enhancing the circuits' status and preferential treatment by the studio-distributors.²⁷

Meanwhile, the independent theaters—about 60 percent of all theaters in the United States—had been systematically relegated to the weakest and least profitable position in the movie marketplace. As Garth Jowett has noted, by the late 1930s the "independent theater was in a rapid decline." Although "by far the largest group numerically," these theaters were "the least important source of film rentals. More and more, these tended to consist of the smallest houses in the less lucrative locations."²⁸ Independent theater owners had been battling the studios and the large circuits since the 1920s. In 1929, they formed their own trade organization, Allied States Association (ASA), to counter the powerful Motion Picture Theater Owners of America (MPTOA), which was dominated by the affiliated chains and large circuits.²⁹ The independents saw little success, and their situation worsened dramatically with the Depression and with FDR's National Recovery Act, which enabled the studios to codify, quite literally, such practices as block booking, blind bidding, and run-zone-clearance as standard industry policy. Indeed, the NRA provided what Tino Balio has termed "government sanction for the trade practices that [the majors] had spent years developing through informal collusion."³⁰

As mentioned earlier, the plight of the independent theater owners—whose overall numbers and sheer persistence earned them political clout—was the prime motivation for the Justice Department's antitrust suit against the Big Eight. In U. S. υ. Paramount, the studios were held in violation of the Sherman Antitrust Act for a range of trade practices—principally block booking, blind bidding, arbitrary designation of play dates, forcing shorts and newsreels (along with features) on exhibitors, discriminatory film rental rates, prohibition of double features (of A-class product), admission-price fixing, pooling of filmmaking talent, and assorted lesser charges. Also at the behest of independent theater owners, Attorney General Arnold filed antitrust suits against several powerful theater circuits, charging them with restraint of trade within specific geographical locales.³¹

In the initial Paramount suit, the Justice Department named all of the Big Eight producer-distributors as defendants, since their collective trade practices had rendered the entire industry a vertically integrated system. But the Little Three protested that, without their own theaters, they exercised nowhere near the same control as their theaterowning counterparts—and, in fact, UA did not even practice block booking. The Little Three's protest raised the crucial question of whether distribution or theater ownership was the key to studio control; at this point the Justice Department opted simply to deal separately with the Big Five and the Little Three. In 1939, the Paramount suit was emended, effectively splitting the defendants into two groups according to theater ownership. While still suing Columbia, Universal, and UA for unfair trade practices, the government increasingly shifted the focus of its case to the five integrated major studios.

The 1940 Consent Decree

The studios' initial response to the Paramount suit was rather cavalier, just as it had been to other challenges to their hegemony. As the Motion Picture Herald described the situation, "Time was, back in the summer of 1938, and for many months following, when many a motion picture corporate executive, and many a motion picture corporate counsel, held the opinion—never expressed publicly—that the United States Government's 'key' antitrust case to divorce production-distribution from exhibition, break up the 'talent pool' in Hollywood, and otherwise refabricate most of the industry's pattern, never would reach trial."³² But the government pressed on; the Wall Street Journal predicted in January 1939 that the studios' "high, wide and handsome days are coming to a close," and that "henceforth there will be increasing control and regulation" of the industry.³³

Ensuing events in early 1939 certainly bore out that prediction. In January, the studios submitted (via the MPPDA) a sixteen-point proposal outlining a new trade agreement, which within days was rejected by the theater owners. In February, Thurman Arnold told the Economic Society of New York that the Justice Department's primary goal was "absolute divorcement of production and distribution from exhibition" and he even broached the possibility of cinema as a "government regulated monopoly."³⁴ That same month, the Supreme Court handed down its first post-New Deal decision related to the movie industry, citing the Big Eight and two large unaffiliated circuits for attempting to fix prices and to prohibit double billing of top product in subsequent-run theaters.³⁵ This decision was a severe setback and a worrisome signal for the Hollywood powers. In the words of a Variety editorial, the decision "unwinds much of the complicated industry texture which had developed in the past decade," and seriously threatened both the "large affiliated and independently owned theater circuits, now in control of first-run exhibition."³⁶

By March 1939, over thirty antitrust lawsuits had been filed against the majors in federal, state, and local courts, and the Senate's Interstate Commerce Committee had resumed hearings on the Neely anti-block-booking bill in the Senate.³⁷ The majors responded by offering to stop forcing shorts on exhibitors (which Variety termed "a sop to the Government monopoly suit"), and by proposing yet another draft of revised trade practices to theater owners—which again was rejected.³⁸ The government, meanwhile, increased the pressure in May by bringing another antitrust suit against several large unaffiliated circuits as well as attaching a partial "bill of particulars" to the New York suit, citing Paramount for forty-three specific offenses.³⁹ In June, another MPPDA proposal was rejected by Allied, and Variety signaled a Justice Department ultimatum under a front-page banner headline: "Divorcement or Else, Says D.C."⁴⁰ In late summer, the Senate again passed the Neely bill, sending it on to the House; that it was not expected to pass did little to assuage the growing concerns among Hollywood's major studio powers.

This general pattern of lobbying, negotiating, and political maneuvering continued, both in the press and behind the scenes. In January 1940, the Film Daily Year Book listed the war in Europe as the number-one news story of the past year, followed by the trade reforms, the Neely bill, and antitrust litigation; Variety named the federal antitrust suit as "No. 1 on the list of current nightmares" for the industry.⁴¹ Once the trial date was set (eventually it was moved from May to June), the majors began negotiating directly with the Justice Department. Meanwhile, the MPPDA president, Will Hays, working behind the scenes, even made overtures to Roosevelt himself.⁴² Neely, despite the continued reluctance in the House to pass his anti-block-booking bill, submitted a bill to the Senate in April demanding complete theater divorcement; Thurman Arnold supported the bill in Senate testimony.⁴³

Clearly the government's antitrust campaign was gaining steam, and the Hollywood powers—and their armies of attorneys—worked furiously to reach a satisfactory com-promise. The case did finally go to trial on 6 June, only to be immediately adjourned by Judge Henry W. Goddard, with the attorney general's approval, to allow further settlement explorations.⁴⁴ That adjournment was the first of thirteen trial postponements over the next four and a half months as the Justice Department and the Big Five hammered out a consent decree. Signing such a decree was, for the studios, a submission of a no-contest plea and an implicit admission of guilt, as well as an effort to rectify the situation. The key points of the 1940 consent decree, signed on 29 October 1940, were: block booking would continue, but in blocks no larger than five films; trade shows would be held regularly to provide exhibitors with advance screenings; forcing of shorts and newsreels was banned; and the majors could not expand their holdings without federal approval. An arbitration board was set up to settle disputes involving clearance and the like. And the issue of divorcement was tabled for three years, left by the Justice Department and the court to hang like the sword of Damocles over the majors' heads.⁴⁵

Two points should be underscored here. One was that the independent exhibitors, on whose behalf the antitrust suit had been filed, had begun protesting the consent decree as soon as drafts of the document began circulating in the summer. The independents' main concern was the blocks-of-five compromise, which they argued would do little to stop the blocking of weak pictures together with more desirable ones and thus would allow the present abuses to continue. Moreover, the trade shows would cause additional expense and hassle for the independent exhibitors. A more favorable plan, Allied suggested, was to continue the policy of buying a full season's program, sight unseen, but with more liberal cancellation allowances—letting exhibitors cancel up to 20 percent of a seasonal block.⁴⁶ In fact, Allied's Northwest office sponsored just such a bill in Minnesota immediately after the decree was signed. The bill passed both houses in early 1941, causing severe problems for all involved, including Minnesota exhibitors who grew desperate for product when the Big Five refused to deal with them on the terms dictated by the legislation.⁴⁷

The second point relates to the Little Three and the so-called escape clause in the 1940 consent decree. Because UA, Universal, and Columbia did not own theaters, they considered themselves exempt from the government's antitrust charges. (UA sold its pictures individually, while Universal and Columbia relied heavily on block booking.) Still, Justice pressed its suit against the Little Three; the consent decree included a clause stipulating that if the government's case against the Little Three had not been resolved as of 1 June 1942, then the entire consent decree was void and the Big Eight could resume their earlier trade practices.

All in all, the majors emerged from the antitrust suit in remarkably good shape. As D. W. Churchill of the New York Times suggested in early October 1940, "From tentative drafts of the consent decree already produced, it appears that the government has taken a generous attitude toward the peculiar marketing system under which the industry operates, and that the studios will get off a lot easier than they had at first anticipated." Churchill also criticized the exhibitors for their "desire to share in all of the profits without wanting to assume any of the risks." But there was no doubt that independent theater owners had been systematically denied a fair share of those profits—as the majors acknowledged when they entered into the decree.⁴⁸

Because the decree was signed after the 1940-1941 season commenced on 1 September 1940, the new selling setup with its blocks-of-five provision did not take effect until the 1941-1942 season. The majors did start holding trade screenings for exhibitors in early 1941, however, and arbitration tribunals also were set up in each of the thirty-one key distribution exchanges to hear complaints. By mid-July, nearly one hundred arbitration cases had been filed, the vast majority of them involving clearance; about half had been resolved, with only eight favoring the complaining exhibitor.⁴⁹ Not surprisingly, both the circuits and the independent exhibitors were as unhappy with the arbitration system as they were with the blocks-of-five provision. In December 1941, the MPTOA president, Ed Keykendall, stated that "the consent decree is a mess," and that "the benefits promised to exhibitors have completely failed to materialize."⁵⁰ A short time later, he wrote a piece for the Film Daily Year Book, suggesting that, for the theater owner, "the problem now is how to get out of the costly blunder without becoming even further involved in litigation and statutory regulation."⁵¹ In that same volume, Allied's board chairman and general counsel termed the decree a "lamentable failure," insisting that theater owners in 1941 suffered "the blackest year in their history."⁵²

The Justice Department shared the exhibitors' concerns about the effectiveness of the consent decree, and in fact the Justice Department clarified its concerns in a statement issued in January 1942 reviewing the first year of operation under the decree. While "the net result of the decree" was still uncertain, Justice questioned whether continued "discrimination" against the independents "may be remedied by measures short of divorcement."⁵³ But any claims regarding the exhibitors' undue suffering in late 1941 were dubious at best considering the recent box-office surge due to the improving economy and the U.S. government's massive defense buildup. Indeed, as discussed later in this chapter, the domestic movie marketplace by late 1941 was booming while Hollywood's overseas markets were imperiled. It was the major studio-distributors who were feeling the squeeze.

The War and Hollywood's Overseas Markets

Besides the government's antitrust campaign, Hollywood's chief concern in the early 1940s was the war overseas, which affected its foreign trade as well as the domestic market as the United States shifted into an extended and increasingly intense prewar mode. The prewar period began with the outbreak of full-scale war in Europe and steadily intensified from the fall of France and the Battle of Britain in mid-1940 until the United States entered the war in December 1941. During that time, the country underwent a complete social, political, industrial, and economic transformation, keyed by a massive military and defense buildup, which stimulated the national economy, and by an ideological shift from isolationism to uneasy neutrality to open support of Britain and the Allies.

In the early months of the war in Europe, Hollywood's primary concern was the prospective decline of its foreign trade. Ironically, the situation at the outset of World War II contrasted sharply with the impact of the First World War, which came as a tremendous windfall for the nascent American movie industry. As the film critic Frank Nugent of the New York Times recollected in September 1939: "Prior to 1915, the American picture industry was a puny brat living on a diet of one and two reels. Germany, Italy and Sweden were the flourishing film makers; France was not far behind. The war changed all that. Hollywood was a war baby." Nugent noted that the elimination of foreign competition during World War I enabled the Hollywood studios to corner the U.S. market and to establish a foothold internationally. That foothold became a stranglehold in the 1920s with the steady consolidation of the studio system and Hollywood's successful introduction of sound—to a point where, in Nugent's words, "Hollywood's standards generally have become the world's standards."⁵⁴

With the deepening military crises overseas in the mid to late 1930s, Hollywood again was benefiting from weak foreign competition. Moreover, the studios' ongoing efforts to pursue overseas markets despite the war put the movie industry in a rather unique position among U.S. industries. As the Wall Street Journal noted, "The moving picture industry was one of the very few American businesses that had a vital stake in foreign trade when the war broke out."⁵⁵ Maintaining that trade had not been easy, of course, particularly with the loss of major foreign markets in the late 1930s. Germany in 1937 severely cut its import of Hollywood films and also reduced the revenues remitted to the studios. Japan followed suit in 1938, reducing the number of U.S. imports to about sixty films (down from an average of about four hundred before the war) and freezing virtu-ally all U.S. motion picture revenues in Japan.⁵⁶ Nazi expansion into central Europe 1938 further undercut Hollywood's overseas business, contributing to a fall of 6 percent in the studios' overseas revenues compared to 1937.⁵⁷ In January 1939, Italy nationalized the film import business, at which point the MPPDA announced that all studio trade with that country was suspended. In July, Variety reported that Hollywood's foreign revenues were off nearly 10 percent compared with the first six months of 1938, owing mainly to the losses in central Europe and Italy.⁵⁸

In mid-1939 there were 62,000 movie theaters wired for sound worldwide. This number included 17,500 in the U.S. domestic market and about 1,225 in Canada; 33,000 in Europe; 5,250 in Latin America; and some 6,200 in the Far East. Despite the lost Axis markets, which included 6,500 theaters in Germany and 4,000 in Italy, Europe remained the key region in Hollywood's overseas trade, with England's 5,300 theaters and France's 4,600 accounting for the vast majority of Hollywood's overseas revenues.⁵⁹ According to a Variety survey of the global movie marketplace in September 1939, the market shares (percentage of total foreign revenue) of Hollywood's chief overseas clients at the time were: Great Britain, 45 percent; France/Belgium, 13 percent; Australia, 11.2 percent; Central and South America, 9 percent; Scandinavia, 4.2 percent; Holland, 1.5 percent; Bulgaria/Greece/Turkey, 1.2 percent; neutral central Europe, 1 percent.⁶⁰

Variety routinely estimated Hollywood's overseas income as 40-50 percent of its total movie revenues in the late 1930s; other more conservative (and perhaps more reliable) estimates were somewhat lower. In October 1939, the Wall Street Journal reported: "The situation may be summed up as follows: American film producers obtain about 30 percent to 35 percent of their total film rentals from abroad. This varies somewhat from year to year. Around half of the foreign income … comes from Great Britain. South America supplies 10 percent to 15 percent and the rest is scattered. The Continent of Europe, due to government regulation and exchange difficulties, has provided little profit in recent years."⁶¹ In the ensuing months, Hollywood's trade on the Continent would be reduced to virtually nil as the Nazi blitzkrieg eliminated one European market after another, culminating in the fall of France in June 1940. By late 1940, all of Europe except Sweden, Switzerland, and Portugal was lost, owing either to Naziimposed trade embargo or to political alliance with the Axis. That left England standing virtually alone in the face of Nazi aggression in the West—and alone, too, as Hollywood's last significant European market.⁶²

Britain traditionally had generated the lion's share of Hollywood's overseas income, providing the majors with $35 million per year throughout the 1930s.⁶³ Hollywood product accounted for well over 80 percent of the films screened in England, and by the late 1930s Britain had become, in effect, a direct extension of the American market; it was, as Variety suggested in January 1939, "a country that is closer to America in language, thought and ideals than any other in the world."⁶⁴ But as war conditions in Europe and England worsened, Hollywood seemed ever on the verge of writing off its British income. After its declaration of war on Germany in September 1939, Britain closed all its theaters—a move termed by George Bernard Shaw, in an open letter to the London Times, "a master stroke of unimaginative stupidity" considering the cinema's importance to morale and social cohesion, as well as its role as simple diversion from the events at hand.⁶⁵ Within two weeks, 65-70 percent of British theaters had reopened, primarily those outside London, and by early 1940 business was nearing prewar levels.⁶⁶

Conditions worsened in late 1940 with the Battle of Britain, a sustained German air attack designed to soften England for an all-out invasion later that year. In September, the German Luftwaffe began its nightly air raids over London—the so-called London Blitz—and within two weeks the total number of war-related theater closings surpassed one hundred. The nightly bombing raids on London and other key industrial targets continued, and by December the number of London theaters closed due to bombings reached two hundred. The courageous British resistance stalled Hitler's plans for an invasion in 1940, and by 1941 those plans were abandoned altogether and the Battle of Britain finally ended. In June 1941, as England entered a summer free of blitzes, some 650 theaters were closed, at least 500 owing directly to the war, and attendance was down 25 percent. But remarkably enough, British cinemas during the first two years of the war had generated nearly $50 million in rentals for Hollywood's major producer-distributors.⁶⁷

Getting that money out of England was quite another matter, however. As of September 1941, British trade restrictions had frozen an estimated $35 million of Hollywood revenues in British banks. The freeze caused considerable concern among the majors, whose foreign income had fallen more than 50 percent in the previous year.⁶⁸ The freezing of British funds dated back long before the war, to the so-called Films Act of 1927, also known as the "quota law," which was renewed by Parliament in 1938. The act set limits on remittance of revenues and also set quotas on the proportion of domestically produced and imported films that British theaters could screen, thus encouraging American companies to invest in British production (or to coproduce). Once the war broke out, filmmaking in Britain fell to under one hundred films per year, and its facilities were converted to factories, offices, warehouses, and so on. These changes reduced American investment opportunities; Britain desperately needed cash for its war effort, however, and so it increased the remittance restrictions. In October 1940, U.S. distributors were allowed to remit only $17.5 million; in January, a new agreement lowered the ceiling for that year to $12.5 million.⁶⁹ Finally, in October 1941, after a full year's negotiation and cajoling by Ambassador Joseph P. Kennedy, Britain agreed to allow withdrawal of $37.5 million and lowered the quota of British films to only 2.5 percent.⁷⁰

England yielded on the issue of remittances in response to the U.S. government's active support of the British war effort, notably the Lend-Lease Act (which became law in March 1941), whereby the United States supplied England with weapons, ships, planes, and other war-related materiel. By mid-1941, Hollywood also became more aggressive in its on-screen support of the British war effort, producing a number of features and documentaries designed to solidify American support of England and also to boost British morale.

Outside the United Kingdom, Hollywood's prewar overseas interests focused increasingly on Central and South America. In January 1939, the Motion Picture Herald announced that "plans are under way [in Hollywood] for the intense cultivation of the Latin American countries," in hopes of offsetting the expected losses in Europe and the Far East. Many of these plans involved production outside Hollywood. UA already had been producing and releasing Spanish-language pictures for several years through facilities in Spain and Mexico, and of the thirty or so pictures planned for release in 1939 in Central America, fewer than half were to be produced in the United States. The wide-spread conviction was that, even with imported Latin talent, the Hollywood studios were fundamentally ill equipped to produce "a genuinely Spanish film." Thus, these coproductions were coordinated through the State Department's Division of Cultural Relations, whose "good neighbor policy" with Latin America well indicated the larger political and economic stake of the United States in that region.⁷¹

Hollywood was particularly sensitive to the cultural and language barriers between the United States and Latin America, although there were several other drawbacks to developing those markets as well. First, the dominant Latin American nations, unlike those in war-torn Europe, were in relatively good economic shape and were producing their own films. In fact, Hollywood in 1939 was supplying talent and equipment as well as financing to various Latin American countries.⁷² By early 1940, Brazil, Argentina, and Mexico all had surpassed Britain as top consumers of film stock from the United States.⁷³ A second concern was that other foreign nations besides the United States, notably Nazi Germany, also were cultivating the Latin American market—and like the United States, primarily for political rather than economic reasons.⁷⁴

By 1941, various Hollywood studios were designing major productions for the Latin American market—and for domestic audiences as well, in hopes of improving America's interest in its neighbors to the south. These included Fox's That Night in Rio (1941), Down Argentine Way (1940), and Blood and Sand (1941), RKO's They Met in Argentina (1941), and MGM's The Life of Simon Bolivar. The improving Latin American market was often referred to as a "bright spot" in Hollywood's otherwise dismal or uncertain overseas trade, showing a 10 percent improvement between 1940 and 1941. But in fact, Hollywood's cultivation of the Latin American market was an economic disappointment and something of a cultural and political debacle.⁷⁵ In May 1941, Argentine Nights (1940), a Ritz Brothers-Andrews Sisters musical comedy from Universal, was banned in Buenos Aires after opening-night demonstrations against the picture. The chairman of the U.S. Cultural Relations Committee, Jock Whitney, blamed the problem on "anti-American and anti-free forces," but actually such protests were not uncommon, nor were they confined to films designed specifically for the Latin American market. That same month, Mexico banned a seemingly innocuous Western, Kit Carson (1940), for its offensive portrayal of Mexicans.⁷⁶

In late 1941, the State Department began suggesting topics for films designed for export to Latin America, and it supported a fact-finding and goodwill tour of South America by a Hollywood contingent that included Jock Whitney, Bing Crosby, and Walt Disney.⁷⁷ The 1942 Film Daily Year Book lauded that effort and again cited the improving Latin American market, though the improvement was attributed as much to the general economic and social development of the region as to any of Hollywood's efforts.⁷⁸ And Variety's year-end survey reported that efforts by cinema, radio, and other U.S. media industries to promote the good neighbor policy was "pretty much a flop." As a State Department study at the time suggested, despite their good intentions, "Americans still do not appreciate the tastes, interests and conditions of countries below the Rio Grande."⁷⁹ But U.S. government and industry could ill afford to ignore the Latin American market, given the immediate political stakes and the long-term economic prospects, and so Hollywood's good neighbor initiative continued throughout the prewar era and into the war years.

The U.S. Defense Buildup and the Domestic Movie Market

The war-induced decline in foreign revenues and the problems over British remittances forced the studios to focus more heavily than ever on the domestic market. In 1940, the movie industry gauged its "potential " audience (comprising "frequent" and "occasional" moviegoers) at 90-100 million out of a total population of just over 130 million. According to the Film Daily Year Book, weekly ticket sales in the United States totaled 80 million in 1940, and 55-60 million Americans went to the movies every week.⁸⁰ Movie tickets made up one-fifth of all U.S. amusement expenditures and fully four-fifths of all spending on spectator amusements, including theater and sports.⁸¹ Although moviegoing was integral to the everyday lives of most Americans in 1940, the industry still was struggling to shake the lingering effects of the Depression and harbored grave concerns about the effects of war on the domestic market.

As the U.S. defense buildup gained steam in 1940, however, it became clear that the motion picture industry would be a major beneficiary, particularly because the buildup was centered in the urban-industrial areas where Hollywood did most of its business. Thus, the film industry's guarded optimism about a possible war boom tended to grow right along with the defense buildup. A June 1940 report from Poor's on Wall Street suggested that the improving domestic movie market should more than compensate for losses overseas.⁸² Industry performance in 1940 actually bore out that prediction: domestic revenues climbed from $659 million in 1939 to $735 million in 1940, up nearly 12 percent.⁸³ In January 1941, the Wall Street Journal reported that "Hollywood is on the road to becoming more domestically self-contained, even though the road may be a rough one," and went on to note that the movie industry "has by now pretty well adjusted to the loss of a large part of its foreign revenues."⁸⁴

While the movie industry was enjoying the benefits of the defense buildup by late 1940, it actually lagged behind other major industries as the buildup went into high gear in the early months of 1941. In fact, many feared that the full force of the defense boom might not reach the movie industry. "All Other Biz Up But Pix," ran a banner Variety headline in May 1941, and in June Bosley Crowther of the New York Times devoted several columns to what he termed Hollywood's "Boxoffice Blues."⁸⁵ By late June, according to the Office of Government Reports, defense contracts and expenditures totaled $17 billion, but still the movie business was in the doldrums.⁸⁶

All that changed overnight—or over a single weekend, actually. During the Fourth of July holiday weekend, theaters reported a surge in attendance—and in fact, virtually all amusement and recreational spending in the United States surged."⁸⁷ The Wall Street Journal reported in September 1941 that the boom was still going strong. "The amusement world says the Fourth of July touched off a spending explosion," said the page-one story. "So sharp and so sudden was the spurt that those affected dismissed it as a flash in the pan. But succeeding summer weeks … continued to pile up cash in the box offices, book and liquor stores, railroad, bus, and airline ticket offices."⁸⁸

By the autumn of 1941, the sustained boom had become an accepted way of life in the movie industry, with even better business expected as new factories, urban labor migration, the draft, new army camps, and rearrangement of work schedules (night shifts, swing shifts, and the like) all pushed movie attendance and ticket sales ever upward. The box office was up a reported 20-25 percent in Washington, D.C., and about 15 percent in the Twin Cities. Business in Indianapolis was even better, with city payrolls having increased 50 percent over the preceding year. The boom also hit heavily in Detroit and Los Angeles owing to the concentration of airplane factories in those areas. One city that lagged behind, ironically enough, was New York, the nation's movie exhibition leader, since there were relatively few defense plants in the metropolitan area.⁸⁹

Perhaps the number-one beneficiary of the defense buildup was Pittsburgh, the nation's steel center and capital of heavy industry, and thus a crucial city in the U.S. defense arsenal. New munitions factories, shipyards, airplane plants, and military bases added millions of dollars to payrolls and pushed movie theater revenues up well over 20 percent—and even higher in department store sales, auto purchases, home building, and some luxury expenditures. Factories were still being built as of 1 November 1941, with 22,000 new jobs expected within the next fifteen months. Virtually all of the city's 150 theaters were feeling the effects of the boom, with the biggest rise occurring in the neighborhood and suburban houses.⁹⁰

This latter point touches on one of the more interesting aspects of prewar exhibition, namely, the trend in American life toward suburbanization as the population shifted away from urban centers to outlying suburbs and small communities. Prior to the defense buildup, in fact, the population shift away from the downtown theaters where the industry did most of its business had been a growing concern among exhibitors. In August 1940, the Motion Picture Herald reported that Census Bureau figures indicated that "a substantial part of the future of motion picture exhibition lies in the suburbs." This change reversed the trend of the 1910s and 1920s when urban centers grew rapidly. According to the Census Bureau, the total population of nine of the thirty U.S. cities with over 300,000 in population had actually declined since 1930.⁹¹

One obvious factor in this shift, stated the Herald, was the "commuter mode of life," which was also contributing to the slow but steady rise of the drive-in movie theater—a trend that accelerated in 1941 with the development of in-car speakers.⁹² There were some sixty-five drive-ins operating in 1941, with another fifty or so under construction, most of them in the South and in California, spurred by population growth and favorable weather. Another phenomenon related to suburban and commuter lifestyles, said the Herald, was "the construction of well planned 'shopping centers' … creating situations in which motion picture theaters can and do thrive." Los Angeles provided a prime example. Downtown retail sales in L.A. had been declining since 1929, while department stores like Bullock's and the Broadway had opened successful suburban branches. Sears, Roebuck, and Company had five stores in the L.A. area, none of which was located downtown.⁹³

Along with the antitrust suit, noted the Herald, the move to the suburbs and shopping centers could render the industry's movie palaces "unprofitable" and could even "break the first-run monopoly which the 'downtown' theatres have enjoyed." But as yet, these trends were deemed to be "of too recent origin for any conclusive results."⁹⁴ Those "results" would not be forthcoming for quite some time, since the defense buildup and the ensuing war conditions would keep the population concentrated in urban centers. In fact, in 1941 the suburban trend was effectively quashed by government mandate: new home construction was suspended so that both labor and material could be utilized for war-related production. For the time being, however, the limited suburban boom provided a strong complement to soaring downtown movie attendance and helped push revenues to record levels.

Another factor in the improving market situation in 1941—and another distinct manifestation of the nation's deepening prewar mentality—was the public's growing appetite for news about the war overseas as well as about U.S. "preparedness." By late 1940, Hollywood newsreels, documentary shorts, and features were increasingly devoted to war-related subjects. The public was buying, and, in fact, news-hungry audiences were changing the very nature of moviegoing. By spring 1941, theaters routinely interrupted their programs to provide news bulletins, and some houses actually began scheduling radio broadcasts of FDR's Tuesday evening "Fireside Chats"—broadcasts which were drawing total radio audiences of up to 70 million, fully one-half the U.S. population.⁹⁵ Another barometer of public interest in the war was the prewar rise of the newsreel theater. These theaters enjoyed their heyday before and during World War II, with approximately twenty-five in operation in the largest U.S. cities by late 1941. Nearly all of these were converted second-run downtown houses, and many had news tickers in the lobby and radio piped into the auditorium between newsreel programs.⁹⁶

Newsreel houses were one of several forms of specialty theaters operating in the United States in 1940, virtually all of which were affected by the defense buildup and the war. The effects were most pronounced in those theaters that catered to foreign films, including both ethnic theaters and art-cinema houses. The former were located in ethnic neighborhoods in large cities, primarily in the Northeast, although Spanish-language theaters in the Southwest were not uncommon. Art cinemas catered to the growing ranks of cinephiles and connoisseurs interested in critically acclaimed foreign films, primarily from France, Germany, and England. Just before the war in Europe, the Motion Picture Herald reported that foreign-language films played regularly at about 175 theaters in 85 different localities, about 100 of which screened only foreign films. That total actually had declined during the 1930s, with the assimilation of immigrant audiences into the American (and Hollywood) mainstream and also the increased control over the movie marketplace by the Big Eight. By 1940, in fact, the ethnic theater was being eclipsed by the art cinema as a site for viewing foreign-language films. With the war in Europe, however, the market for foreign-language films quickly dried up altogether.⁹⁷

By far the most significant form of specialty theater in the United States at the time was the so-called Negro theater. The number of these theaters, designed to serve the nation's 12 million African Americans, had increased steadily in the 1930s and would explode during the 1940s as African-American participation in the war effort made that population an increasingly viable market segment. Not surprisingly, given the marginal social and economic status of blacks before the war, statistics on these theaters and their audiences are even less accurate and reliable than those on mainstream moviegoing. According to an in-depth Motion Picture Herald story in July 1939, the Motion Picture Division of the Department of Commerce estimated that there were some 400 Negro theaters in 175 cities in 28 states at the time—an increase of 65 percent in the previous two years.⁹⁸Variety in January 1940 reported that there were some 500 theaters in the United States devoted to "all-Negro" films. Most of these were located in the Deep South, although New York City's Harlem district alone boasted seventeen Negro theaters."⁹⁹

Variety also noted that an increasing number of mainstream theaters in more openly segregated areas, especially in the Deep South, were adopting policies to accommodate blacks, such as reserving a portion of the theater for blacks (usually the balcony, entered through a separate entrance) or devoting the final screening of the day (usually a late-night program) to black-only audiences. These changes enabled blacks to see Hollywood films at the same time as white audiences in these areas, which was scarcely the case in Negro theaters.¹⁰⁰ The latter generally received Hollywood films in their final runs—sometimes one to two years after their initial release in large cities in the North, and about six months later in the South.¹⁰¹ But the Negro theaters also had the advantage of being able to run all-Negro films created specifically for African-American audiences.

By late 1941, the U.S. movie marketplace was booming and Hollywood's late-Depression economic woes clearly were over. The industry had become "domestically self-contained" to an unprecedented degree, no longer relying on overseas revenues to turn a profit. Domestic revenues reached a record $809 million in 1941, up from $735 million in 1940. And the British remittances in late 1941 came as a tremendous windfall, pushing studio profits to their highest levels in over a decade. The combined profits of the Big Eight totaled $35 million, nearly double the $19 million profits of 1940.¹⁰²

Labor Pains

Adding to the chaos and uncertainty of the prewar era was a deepening labor crisis, which involved powerful forces both inside and outside the motion picture industry. In fact, a number of long-simmering labor conflicts reached a boiling point in 1940-1941, signaling not only the severity but also the increasingly political nature of Hollywood's labor crisis. The conjunction of these conflicts also indicated the inability of the studios—and their trade association and public relations branch, the MPPDA—to manage these crises. Hollywood's labor conflicts centered on three distinct areas: first, jurisdictional battles for control of the unions and guilds by national labor organizations; second, government prosecution of film industry labor leaders for racketeering; and third, investigations by local and federal authorities into alleged Communist infiltration of Hollywood labor unions.

A catalyst of sorts in each of these conflicts during the prewar era was the official formation of Hollywood's top talent guilds. The directors' and writers' guilds were founded in the mid-1930s, but as of 1939 they still had not signed contracts with the studios (which, in this context, were routinely referred to as the "producers").¹⁰³ The Screen Actors Guild (SAG) won recognition from the producers in 1937, signing a contract that made SAG the sole bargaining agent for all of Hollywood's actors, from top stars to bit players.¹⁰⁴ The leverage of top stars over the studios proved crucial in winning SAG approval, and in turn the Actors Guild helped win approval for both the Screen Directors Guild (SDG) and the Screen Writers Guild (SWG). Both SDG and SWG sorely needed this support, since both were deemed a greater threat to studio control over filmmaking than SAG and thus both faced much heavier producer resistance to their respective guild agreements.

The first of these two guilds to win recognition was SDG. A key figure in the effort was the Columbia producer-director Frank Capra, arguably Hollywood's top filmmaker at the time and a savvy political infighter. Capra was the first president of SDG and also happened to be president of the Motion Picture Academy in 1939 (having won three best-director and three best-picture Oscars in the preceding five years), and he deftly played SDG and the Academy against each other. Capra also won the support of SAG and played the industry's top stars and directors against the studios.¹⁰⁵ In early 1939, the directors, after threatening to strike and desert the Academy en masse, signed a three-year pact with the producers.

The writers had much more difficulty reaching an agreement, owing to chronic internal conflicts and a lack of leadership, as well as a history of battling the studio brass. SWG had won certification in August 1938 from the National Labor Relations Board (NLRB) to act as bargaining agent for screenwriters, then spent two years haggling with the producers over an agreement. By 1940, writers were the only Hollywood workers with no protection or bargaining rights with the studios. The NLRB was highly critical of the producers' intractable stance, and also of studio efforts to set up a competing union dominated by highly paid contract writers. SWG eventually prevailed, however, signing a six-month pact in 1940 and then a seven-year deal in June 1941. While Variety termed this agreement "a major victory for the scribes," it was a bitter, hard-won victory.¹⁰⁶ As Leo Rosten observed, "The obstinacy and indiscretion with which the produc ers opposed Hollywood writers in their fight for recognition, basic working conditions, and a code of fair practice, is one of the less flattering commentaries on the men who control movie production."¹⁰⁷

With the unionization of top filmmaking talent, the stakes in Hollywood's ongoing jurisdictional battles rose considerably. In general, these battles over jurisdiction resulted from two factors: the enormous size and complexity of the movie industry, and the fact that Hollywood labor had not organized extensively until the Depression. During the 1930s, in fact, Hollywood had rapidly evolved from essentially an "open shop" to a "union town," leading Variety to posit in January 1939 that "the major studios are now 100 percent organized."¹⁰⁸ As David Prindle has noted, "When several unions are attempting to move into an unorganized city, or when technological change creates new and different jobs, jurisdictional strife is inevitable. Because Los Angeles was the least organized large city in America [in the early 1930s], and because the motion picture was using a rapidly evolving technology, Hollywood was a union battleground during those decades [the 1930s and 1940s].¹⁰⁹

The chief antagonist in these battles was the International Alliance of Theatrical and Stage Employees (IATSE), a labor organization under the American Federation of Labor (AFL). Created in the 1890s on the East Coast as a stage union, IATSE came to dominate the ranks of movie theater employees, particularly through its control of the nations projectionists. This control gave IATSE the power to shut down the entire movie industry and provided tremendous leverage for its successful assault on Hollywood in the 1930s. By decades end, IATSE's ranks totaled some 40,000 members in 849 studio and exhibitor unions in the United States and Canada, including about 12,000 of Hollywood's 30,000 workers. In 1939, IATSE began vying for complete control of Hollywood's labor force, hoping to create "one big union" of motion picture employees.¹¹⁰

IATSE faced opposition from three parties. First and foremost were the studios, which had formed an uneasy alliance with IATSE; they recognized its obvious power but were adamantly opposed to the organization of all filmmaking talent into a single labor organization. IATSE also faced opposition from the AFL's chief national (and international) adversary, the Council of Industrial Organizations (CIO). In the late 1930s, the CIO began an incursion into Hollywood, until then an impregnable AFL stronghold, through the United Studio Technicians Guild (USTG), a group of Hollywood unions which bolted IATSE for CIO affiliation.¹¹¹ The third party opposing IATSE's "one big union" effort was SAG, which, despite its AFL affiliation, had been fiercely independent since its founding in 1933. During its formative years, SAG resisted horizontal affiliation with actors unions in other industries or other parts of the country and maintained a tenuous rapport with the AFL. Since winning official recognition in 1938, SAG was fast becoming Hollywood's most powerful union, and it openly refused to submit to IATSE jurisdiction.¹¹²

SAG demonstrated its growing power and influence in the battle between IATSE and the USTG, which escalated rapidly in 1939. By early summer, the USTG had won the support of the major studios, which were always looking for ways to undercut both IATSE's power and the further consolidation of organized labor. In July, the NLRB set a September date for a certification election to determine whether USTG had sufficient support to be awarded NLRB recognition. In August, SAG announced that it was on the verge of bolting the AFL and joining the CIO. That same month, the government announced that a federal grand jury would be looking into a $100,000 "loan" made two years earlier by the chairman of the board of 20th Century-Fox, Joe Schenck, to IATSE's Hollywood labor boss, Willie Bioff—a loan which was discovered by detectives hired by SAG. Now on the defensive, IATSE moved to shore up its votes against the USTG in the coming election. In September, the IATSE president, George Browne, signed a "peace treaty" with SAG assuring the guild its autonomy in exchange for AFL allegiance and an endorsement of IATSE. Bioff also began fomenting strike threats at the studios, resulting in a 10 percent pay hike on 25 September for IATSE's Hollywood members. Not surprisingly, the USTG lost its bid for NLRB certification.¹¹³

While IATSE prevailed in its battle with the USTG, its problems in Hollywood steadily worsened in 1940-1941. In January 1940, Bioff was indicted for failing to report the $100,000 loan to the IRS.¹¹⁴ In June, Joe Schenck was indicted on thirty-nine counts ranging from tax fraud and conspiracy to perjury. Schenck was tried in a New York federal court in March 1941, found guilty on two counts, and sentenced to one year in prison. What became evident at his trial was that Schenck, in his capacity as representative of the producers and head of the studios' labor negotiations committee, had acted as a "bag man" on behalf of his fellow producers, delivering payoffs to IATSE's Bioff and Browne. Moreover, the $100,000 was simply one installment in a total of over $1 million paid by the studios to avert strikes by IATSE-member unions.¹¹⁵ In May 1941, Browne and Bioff were indicted by a New York grand jury for extortion. The two were ousted from IATSE in August and were tried and found guilty later that fall. Browne was sentenced to eight years in prison, Bioff to ten.¹¹⁶

Thus, after a decade of tremendous success, IATSE's power quickly eroded while its reputation and credibility, already suspect due to mob ties and strong-arm tactics, were in absolute shreds. Moreover, IATSE faced yet another formidable challenge in 1941 when several renegade IATSE unions formed the Conference of Studio Unions (CSU). Although affiliated with the AFL (as was IATSE), the CSU was a very different organization in two primary ways. First, it comprised mainly preproduction craft unions, versus IATSE's strength among technical and production-related unions; and second, it was an openly leftist organization, while IATSE was avowedly right-wing. The CSU was led by Herbert Sorrell of the Painters Union, a canny politician and experienced labor militant, who had organized the Cartoonists Guild under his own Painters Union and in 1941 waged a bitter, protracted, and successful strike against Disney.¹¹⁷

The Screen Actors Guild, meanwhile, emerged from the USTG fray and the IATSE debacle as, in Prindle's words, "the strongest and most prestigious labor union in Hollywood."¹¹⁸ But SAG ran into trouble of its own in 1940-1941 when it became the focus of allegations of Communist infiltration. Most of these came from Congressman Martin Dies of Texas and his House Committee on Un-American Activities. Since its creation in 1938, the Dies Committee had been taking broad swipes at Hollywood's labor unions for leftist sympathies.¹¹⁹ In February 1940, the Dies Committee targeted forty-three stars as having ties to the Communist Party.¹²⁰ In August, Dies interviewed a number of stars and other key industry figures in a San Francisco hotel, and afterward he publicly exonerated James Cagney, Humphrey Bogart, Fredric March, and the writer Philip Dunne. But Dies also reasserted that "numerous actors and screen people" were either Communists or red sympathizers.¹²¹ In that same month of August 1940, a Los Angeles County grand jury began investigations of SAG along similar lines. While that inquiry found nothing, the allegations of Communist infiltration continued and steadily spread to other labor organizations.

In 1941 the Los Angeles County grand jury, the California General Assembly, the Dies Committee, and various other political groups conducted probes for "subversives" and Communists in various studio unions.¹²² These efforts also came to naught, resulting in a Variety banner headline in August, "Can't Make Red Slur Stick."¹²³ By then the anti-Communist fever was subsiding, owing mainly to Nazi Germany's June 1941 invasion of the Soviet Union. Thus, a U.S. alliance with the Soviets seemed likely—and did occur with the U.S. entry into the war, at which point the anti-Communist probes ceased altogether. In fact, Hollywood's labor conflicts all but disappeared in December 1941. Both Sorrell and the newly elected IATSE president, Richard Walsh, made no-strike pledges on behalf of their member unions, promising labor unity and full support of the industry's war effort. Thus, the Film Daily Year Book noted the "stabilization of labor relations throughout the motion picture industry" in late 1941.¹²⁴

Propaganda, Politics, and the Production Code Administration

Interestingly enough, the anti-Communist political probes during the prewar era focused on the infiltration of leftist ideologues into Hollywood labor unions rather than on the infiltration of leftist ideology into movies themselves. Other groups were sounding this alarm, however, notably conservative political and religious organizations like the American Legion and the Catholic Knights of Columbus. At the same time, isolationist politicians and political groups were increasingly vocal in their criticism of the movies' pro-war, pro-military, and pro-Allies themes and subjects. As with the labor discord, these conflicts indicated the heightened political stakes for Hollywood before the war, as well as the general inability of the industry's internal mechanisms, especially the MPPDA and its subagency, the Production Code Administration (PCA), to manage these crises.

The PCA was scarcely designed or equipped to handle overtly political matters, of course. Its primary function was to uphold the Production Code, a doctrine of movie ethics written in 1930 at the request of the MPPDA president Will Hays and designed, in the words of its preamble, to uphold "the larger moral responsibility of the motion pictures."¹²⁵ This responsibility was defined almost entirely in terms of sexual and criminal deviance, which were very much at issue in the early 1930s. Since its creation in 1934 under the leadership of Joseph Breen, the PCA (also known as the Breen Office) had interacted with producers and studio executives to regulate movie content, while the MPPDA fended off outside efforts to censor or otherwise control movie content.

Code enforcement had become standard operating procedure in the industry by 1940, with the vast majority of pictures made in complete compliance with the Code. But there were a number of serious internal Code challenges, particularly from leading independent producers on high-stakes, first-run productions. Most of these involved familiar PCA territory—sex, violence, profanity, criminal behavior—as with the well-known 1939 controversy over Rhett Butlers parting epithet to Scarlett at the end of Gone with the Wind. The latter was little more than a Selznick-inspired publicity stunt, however, and scarcely indicated what the PCA was up against at the time. A much better indication was another Selznick production, Rebecca, based on Daphne du Maurier's best-selling novel whose male hero gets away with murder. The PCA found that plot line unacceptable, leading to a bitter, yearlong struggle with Selznick over the adaptation. The PCA prevailed: in the film version the death is accidental. This change incensed Selznick, who appealed to his partners to mount a "fight against so insane and inane and outmoded a Code as that under which the industry is now struggling."¹²⁶

That campaign was conducted behind the scenes, but other producers were willing to go public about the Code. The most notable of these was the independent producer Howard Hughes, who conducted a much-publicized battle over The Outlaw (1943), an "adult Western" featuring Hughes's most recent female protégée, Jane Russell. The PCA approved the script, a bit of revisionist Western history featuring Russell as a libidinous dance-hall girl who comes between Pat Garrett and Billy the Kid. But then in early 1941, the PCA rejected the finished film, which had been directed by Hughes himself after Howard Hawks left the project. PCA concerns about The Outlaw centered on several dozen "breast shots"—scenes in which camera position or costuming, in the PCA's view, overemphasized Russell's figure. Breen instructed Hughes to reshoot the scenes with Russell "recostumed," or the PCA would not grant The Outlaw a Code seal. Without a Code seal, a film could not be released through any of the eight MPPDA distributors.¹²⁷ Hughes refused to comply and publicly chastised Breen, the Code, and the MPPDA's "monopoly" not only over movie distribution but also over the nation's social and sexual mores. While The Outlaw was shelved for the time being, Hughes's well-orchestrated anti-Code publicity campaign kept the picture (and Jane Russell's image) very much in the public eye.

Breen's battles with Selznick and Hughes indicated two important factors in prewar Hollywood: first, that there was growing resistance within Hollywood to the strictures of the Code; and second, that Code resistance was more likely to come from major independent producers and in pictures geared to more sophisticated urban audiences. These challenges involved areas that the PCA was designed to regulate, and the PCA generally did handle such challenges, although often with obvious difficulty. There were other challenges of a more topical and political nature, however, which the PCA—and the MPPDA as well—proved woefully ill equipped to handle. Most of these involved political and war-related issues, and here too the challenges tended to involve independent prestige-level pictures.

Among the chief critics of the Code's political constraints was Walter Wanger, a leading independent producer whose battles with Breen over political content dated back to Blockade, a 1938 picture set against the Spanish Civil War. In 1939, Wanger again was battling the PCA, this time while making Foreign Correspondent (1940), an espionage thriller set in Europe with Nazi antagonists and based on a recent nonfiction best-seller, Personal History by Vincent Sheean. PCA restrictions infuriated Wanger, resulting in a very public debate with the MPPDA president Will Hays conducted in speeches, in the pages of trade journals, and in the New York Times and various national news magazines. In a February 1939 letter to the New York Times, Wanger argued that the PCA was wedded to a "formulated theory of pure entertainment," which was "making impossible the honest handling of important truths and ideas."¹²⁸ Days later, Will Hays issued his annual MPPDA report, which reasserted precisely that theory: "The screen has handled successfully themes of contemporary thought in dramatic and vivid form and presented the subject matter as splendid entertainment, rather than propaganda."¹²⁹ A few weeks later, in response to the suggestion that there was a movie trend, as Variety put it, toward more "realistic and contemporary themes," the PCA flatly denied that there would be "any tampering with the production code or lightening of PCA regulations."¹³⁰

By 1940-1941, however, as the war in Europe intensified and as the likelihood of U.S. intervention increased, Hays and Breen could scarcely discourage filmmakers from taking on geopolitical and war-related subjects. Indeed, Roosevelt personally appealed to the movie industry in 1940 to support both the defense buildup at home and the Allied effort overseas. The industry complied, initially with documentary and newsreel coverage, and by 1941 with a steady increase of war-related features. The studios also began producing training and informational films for both the government and the military. Roosevelt responded to these efforts with a letter of appreciation to be read at the Academy Awards banquet in early 1941. Meanwhile, the nation‧s isolationist contingent chastised Hollywood's interventionist turn and frequently invoked the term "propaganda"—a loaded term at the time, of course, given the nationalization of the film industries in Germany and Italy and their conversion into state propaganda agencies.¹³¹

In the midst of the growing turmoil, Hays and the PCA were hit with a severe shock in May 1941 when Joe Breen announced his resignation. After running the PCA with single-handed, single-minded authority since its creation in 1934, Breen unexpectedly decided to take a position at RKO as general manager of the studio.¹³² Breen was replaced as PCA president by his former assistant, Geoffrey Shurlock, then the senior member of the nine-man Hollywood-based censorship board. The British-born Shurlock was a devout Anglican with cultivated tastes and considerable PCA experience, having been with the MPPDA since 1932, but it soon became evident that he was less adept than Breen at handling the problems that now faced the agency.

Perhaps the best indication of Shurlock's deficiencies—in judgment as well as political savvy—occurred a few months later in a confrontation with the PCA's familiar nemesis, the Catholic Legion of Decency. In October 1941, Shurlock awarded a Code seal of approval to MGM's new Greta Garbo picture, Two-Faced Woman. The picture was a follow-up to Metros 1939 comedy hit Ninotchka, again teaming Garbo and Melvyn Douglas in a screwball romance—this time in a tale of mistaken identity wherein Garbo masquerades as her own twin sister, seduces her wayward husband, and finally reveals her true identity in a climactic comic comeuppance. Variety's review of the film termed it "a wild and occasionally risqué, slapstick farce" but questioned "just how some of the lines of dialogue escaped the [PCA] scissors." The Legion of Decency wondered the same thing and gave Two-Faced Woman a "C" (condemned) rating—which rendered the film off-limits to the millions of American Catholics.¹³³

Both MGM and the PCA initially tried to weather the storm, and Variety noted in early December that the outcry actually may have boosted the picture's box office.¹³⁴ But the opposition steadily grew. Two-Faced Woman was banned by censor boards in Providence, Boston, and elsewhere, while scenes were ordered cut by boards in Omaha, Chicago, Milwaukee, and other cities.¹³⁵ The Catholic Church continued to pressure MGM, with Archbishop Francis Spellman of New York reiterating the Legion's condemnation. In December, MGM finally relented and, in an unprecedented and costly move, withdrew the movie from release. Garbo and Douglas were called back to Metro to film a new scene in which the husband learns of his wife's masquerade early in the story and thus simply pretends to be yielding to his sister-in-law's charms.¹³⁶ The picture was then re-released, but the damage apparently was done: Two-Faced Woman died at the box office.

The Two-Faced Woman flap coincided with another regulatory crisis in late 1941, and one which underscored the increasingly complex political stakes for Hollywood, as well as the industry's vulnerability to outside attack. This crisis involved the so-called propaganda hearings convened in Washington, D.C., in September 1941 by a cadre of isolationist senators who decided to take on the movie industry in a grandiose (if somewhat desperate) stand against the tide of interventionism. Gauging Hollywood as an ideal target due to the antitrust and anti-Communist assaults it had sustained, Senators Burton K. Wheeler of Montana and Gerald P. Nye of North Dakota demanded that the Interstate Commerce Committee investigate what Nye termed the Hollywood "propaganda machine," which was run by the studios "almost as if they were being operated by a central agency." The committee hearings focused on seventeen "war-mongering" feature films, a dozen of which were produced in Hollywood—including Wanger's Foreign Correspondent and Charlie Chaplin's The Great Dictator (1940)—along with four British imports and one other studio-released foreign picture.¹³⁷

The Senate hearings convened on 9 September 1941, with the former Republican presidential nominee and renowned jurist Wendell Willkie serving as Hollywood's counsel (for a fee of $100,000). Will Hays was called to testify along with several top studio executives, but the MPPDA and its president were scarcely a factor in the hearings. Indeed, it was Willkie who mounted Hollywood's defense and quite literally stole the show. Senator Nye set the tone of the investigation by describing the movies in question as "the most vicious propaganda ever unloosed on a civilized people" and suggesting they were the result of a veritable conspiracy by a cabal of foreign-born Jews. Willkie deftly reframed the terms of the isolationists' argument, putting the senators on the defensive from the outset. Nye repeatedly played into Willkie's hands—denying, for instance, that prejudice or xenophobia motivated his allegations, then adding: "If anti-Semitism exists in America, the Jews have themselves to blame."¹³⁸ Willkie mounted a spirited, high-minded defense, charging that Nye and Wheeler hoped "to foster and create public prejudice against the industry," to discourage "accurate and factual pictures on Nazism," to influence industry portrayal of "the national defense program," and "to divide the American people in discordant racial and religious groups in order to disunite them over foreign policy."¹³⁹

Public and press support immediately swung to Willkie and the movie industry. Soon there was open support from Washington as well, with FDR praising Hollywood's war effort and Senator Ernest McFarland of Arizona threatening to ask the Dies Committee to investigate the isolationists.¹⁴⁰ By October, Nye and Wheeler had completely lost the initiative, and the hearings lapsed into a series of adjournments and postponements. In mid-November, the proceedings were suspended for Thanks giving; on 26 November, they were postponed indefinitely with no plans for resumption.¹⁴¹

The Japanese attack of Pearl Harbor and U.S. entry into World War II only a few weeks later not only rendered the charges of propaganda moot but resulted in the government effectively ordering Hollywood to become precisely the kind of national propaganda agency the isolationists feared. There were no further outside attacks once Hollywood assumed that role, of course. After Pearl Harbor, the movie industry's rapport with the government changed completely, as did its role in setting the nation's social and political agenda. In fact, U.S. entry into the war stemmed the tide of industry criticism and interference from virtually all outside forces—Congress, the Justice Department, the Legion of Decency, anti-Communist crusaders, national labor organizations, and so on. The drive against Hollywood was, in the parlance of the day, suspended "for the duration."