The Rank Organisation Pic

6 Connaught Place
London W2 2EZ
England
71-706-1111
Fax: 71-262-9886

Public Company
Incorporated: 1937 as Odeon Theatres Holdings Ltd.
Employees: 39,700
Sales: £2.2 billion (US$3.3 billion)
Stock Exchanges: London Toronto Amsterdam Frankfurt
Brussels NASDAQ
SICs: 7812 Motion Picture and Video Production; 5049
Professional Equipment, Not Elsewhere Classified; 5065
Electronic Parts & Equipment, Not Elsewhere Classified;
3825 Instruments to Measure Electricity

The Rank Organisation Plc maintains a diversified array of holdings primarily in the film and television industries, but it also owns various holiday, recreation, and leisure businesses. Among these operations are the Odeon cinema chain in England; various holiday parks and centers in Europe; bingo parlors and casinos in England, Canada, and Spain; and Hard Rock Cafes around the world. Rank also owns a half-share of the Universal Studios Florida theme park in Orlando. Resting wholly outside this fairly interrelated group of enterprises is a partial share of Rank Xerox, a joint venture with the Xerox Corporation. Throughout much of its history, Rank Xerox has supplied a disproportionate share of Rank’s profits.

The overall picture of Rank remains rather confusing until one understands that its history falls into two very distinct parts. When Joseph Arthur Rank (later dubbed Lord Rank) founded the conglomerate in 1935, he quickly assembled the dominant motion picture combine in Great Britain, with interests in everything from the manufacture of cameras to Lawrence Olivier’s interpretation of Henry V. Twenty years later the nation’s film business was suffering, so Rank made a deal with a little-known American company to market the company’s products everywhere outside of the western hemisphere. That company was Xerox, and since then the only real task for the managers at Rank has been to decide how to intelligently utilize the endless profits generated by its partnership. Continually seeking to diversify in order to lessen its fiscal dependence on Rank Xerox, the Rank Organisation has followed a wobbly course of expansion into a variety of areas without managing to correct its fundamental, though hardly fatal, imbalance, although it began to do so when it sold part of its stake in Rank Xerox in 1995.

The story of Rank’s emergence as the leading film magnate in Great Britain is complex and closely bound up with the history of British film as a whole. Joseph Arthur Rank was born in 1888 to a wealthy Yorkshire flour miller—His father was the founder of today’s Ranks Hovis McDougall, one of Britain’s leading food companies. The younger Rank first became interested in film as a means to spread the truths of the Methodist religion, to which he was deeply devoted. Working with a group called the Religious Film Society, he paid for the 1934 production of Mastership, and shortly thereafter joined a like-minded millionaire, Lady Yule, in founding Pinewood Studios. Rank soon decided to leave religion in the pulpit. Taking advantage of his growing connections in the film world, he began to produce and distribute popular entertainment. The board of directors of Pine-wood included members from the boards of the British and Dominion Film Corporation and British National Films Ltd., two of the country’s leading production houses. British and Dominion also had an agreement with United Artists (UA), the American film company, whereby the latter distributed Dominion films in Great Britain. From this nucleus of financiers and film makers would grown one-third of Rank’s empire; the production division.

In March 1936, Rank and four other men formed the General Cinema Finance Company (GCFC), with enough capital to allow its subsequent acquisition of General Film Distributors Ltd. (GFD), the basis of Rank’s future distribution business. GFD’s board included members of the British and Dominion board, which formed an important link between GFD and United Artists—as will become apparent, Rank was a lover of intricate corporate strategy. Also in 1936, Rank and a group of American and British investors brought a controlling interest in one of the American “majors,” Universal Pictures. As a result, GFD became the distribution arm of Universal in Britain. Another thread in Rank’s densely woven corporate cable was represented by A. H. Giannini, a member of the new Universal board of directors who also happened to be the president and chairman of United Artists. In this way, Rank tightened his links with the critically important Hollywood industry and its vast American market.

Having solidified his interests in production and distribution, Rank needed only a circuit of theaters to complete a vertically integrated film combine. As of 1936, the two leading circuits in Great Britain were Gaumont-British and ABPC (Associated British Pictures Corporation), but Odeon Theatres Ltd. was a rising power. In May 1937, Odeon had purchased a rival company’s theaters to secure its position as the third major circuit, with some 250 cinemas in the country. Odeon was already half-owned by United Artists, making it a kind of second cousin to Rank’s growing interests. Also closely allied to UA was the important London Film Productions Ltd., managed by Alexander Korda and the owner of large new studios at Denham. Toward the end of 1938, Rank began putting together these many pieces. In December he merged his Pinewood Studios with the extensive complex at Denham (creating D & ? Studios), and in the following year GCFC added to its production capacity with the purchase of the Amalgamated studios at Elstree. Finally, and most significantly, Rank acquired an interest in Odeon Theatres by subscribing (via GCFC) to its issue of debentures.

Odeon Theatres was soon in grave financial difficulties. The holding company which controlled it, Odeon Cinema Holdings Ltd., turned to Rank for assistance, and he soon became a 50 percent owner along with United Artists (because of certain peculiarities in the company’s rules, Rank was able to outvote his partner despite their equal stakes). At about the same time, GCFC was able to buy the holding company that ran the Gaumont-British theaters, giving Rank effective control over approximately 619 cinemas, or one-fifth of the total in Britain. Through a complicated series of holding companies, all of the above-named entities and some 80 subsidiaries were ultimately owned by Manorfield Investments Ltd., a private corporation in turn owned by Arthur Rank and his wife. This tidy arrangement allowed Rank to exert personal control over a vast segment of the British film industry, with commanding positions in all three of the industry’s basic components—production, distribution, and exhibition. His dominance is perhaps best illustrated by the fact that of 63 new films made in Britain in 1948, more than half were produced by Rank’s empire.

Many of Rank’s acquisitions were made possible by the slump that overtook the business in 1938. Inspired by the success of Alexander Korda’s 1933 hit, The Private Life of Henry VIII, English producers convinced themselves that they could compete with Hollywood in the high-budget blockbuster market. They were wrong, and the failure of numerous costly films during the next few years drove many companies to the brink of bankruptcy. Rank took advantage of the buyer’s market to complete the integrated group of holdings outlined above, purchasing for about £1.7 million assets later estimated to have had a market value of £50 million.

Such conspicuous success attracted its share of resistance. After its 1941 buyout of Gaumont-British, the Rank Organisation had grown sufficiently large to merit the accusation of monopoly. In 1944, the government’s Palache Report made several recommendations about how best to curb the growth of the combines while encouraging a healthy degree of independent production. Rank agreed to seek government approval before he bought more theaters, but as he already held a commanding lead over his nearest rivals, the agreement did little to change the industry’s excessive concentration.

The government did, however, manage indirectly to bring about the decline of Rank’s power. In an effort to redress the growing imbalance in U.S.-British trade, the Labor government instituted in 1947 the so-called Dalton duty, a prohibitively high tax on all foreign films distributed in the country. In retaliation, Hollywood refused to release any films at all in Great Britain, at which point the latter’s film industry, led by the highly patriotic Rank, offered to step up production to fill the gap. The year 1948 marked the zenith of British production, with Rank showing the way. But in March the government abruptly reversed itself and lifted the duty, precipitating an avalanche of high quality American imports. More hastily produced British films were destroyed at the box office, none more so than Rank’s. For the fiscal year ending June 1949, the group lost a painful £3.35 million.

1948 signaled the beginning of a long decline for the British film industry in general, and for Rank in particular. Despite his still-dominant position in all three aspects of the business, Rank could hardly continue to suffer the huge losses incurred after the 1948 debacle. But even after cutting his production drastically, Rank faced a complex of more formidable problems. The war years had actually boosted theater attendance, as war-weary British citizens sought escape. By 1950, however, relative prosperity encouraged a raft of new leisure resources, none more important than the automobile and the emerging television industry. The cumulative effect of these and other changes was a fall in theater attendance during the postwar years from 1.6 billion tickets sold in 1946 to only 400 million in 1963. The golden age of cinema had passed, and those producers who survived did so by moving quickly into other fields. Rank and his managing director, John Davis, proceeded to do just that, searching for allied industries in which to make use of the company’s expertise and financial muscle. They really found only one such nugget in 20 years of prospecting, but it turned out to be a big one.

Rank’s search for alternatives to the film business led him and Davis in two distinct directions, accounting for the oddly bifurcated nature of Rank’s portfolio today. On the one hand, Davis tried to exploit the enemy, as it were, by expanding Rank interests into competing leisure and entertainment fields. He first closed down many of the large Odeon theaters; total Rank holdings fell from a postwar peak of 507 cinemas to around 350 by the end of the 1950s. The vacant theaters were either used as real estate for development by one of Rank’s newly formed construction companies or were converted into bowling alleys, dance halls, and bingo parlors. The company also took a stab at the burgeoning record business in the late 1950s, and began investing in the new American-style motels and service areas needed alongside Britain’s new system of highways. Most promising of all, Rank bought a piece of the television industry, taking a 37.5 percent interest in the Southern Television Corporation, which served several million homes by the end of the decade.

But none of these project proved more than briefly successful: Bowling alleys and large dance halls were largely passé by the early 1960s; the Rank record business failed utterly; Rank’s motels and restaurants were not well situated; and even the television station failed to take off as Rank and Davis had expected. Rank had better luck in the other half of its diversification drive; precision industries and electronics.

Always involved in film producing and processing, Rank was well positioned to expand into new applications of similar technology. Among other companies, it acquired Taylor Hobson, a manufacturer of lenses and precision measuring instruments, and Cintel, an image processing concern. Soon thereafter, Rank began to make and sell television sets in its own retail outlets. The electronics program was much more successful than Rank’s leisure ventures, but the company’s future did not fully reveal itself until Rank Xerox began its spectacular rise in the early 1960s.

The connection between the two companies dates back ten years earlier, when Rank began making lenses for a new American manufacturer of copying machines called the Haloid Company. Its president, Joseph Wilson, had bought the rights to a dry-copy technique that could be used with nearly any type of paper—a great improvement over the later generation of copiers, which required specially treated paper and liquid toner. To take advantage of his find, called “xerography,” Wilson needed a large amount of money and worldwide marketing strength. The Rank Organisation had both, and in 1956 an agreement was formed whereby Rank undertook to manufacture and sell (or lease) xerographic machines everywhere except in the Americas. A new company was formed, eventually to be called Rank Xerox (RX), of which Rank owned 48.8 percent of the equity but only one-third of the profit above a certain minimum. Xerox controlled and managed the joint venture while Rank supplied some cash, the manufacturing facilities, and a distribution network. In 1956 it was far from certain that this venture would turn into anything more than another good idea, and John Davis in particular must be credited with the foresight and courage needed to make the initial investment. Two other leaders in the field, IBM and Gestettner, had already declined to put their money on the line.

By the early 1960s Rank had entered the era of Rank Xerox: RX’s sales soared from $7 million in 1962 to $276 million in 1969. Its success was so great that the Rank Organisation’s other activities became of “academic interest only,” as one financial analyst commented at the time. In 1965 the two divisions contributed equally to total Rank profit, but three years later RX profits were four times those generated by the rest of Rank (£33 million to £8.4 million). This treadmill continued to spin for quite a few years. While Rank muddled its way in and out of investments in both the leisure and technology fields, making a few pounds here and there, its Xerox associate churned out profits as if they too could be duplicated at the press of a button. By 1982, this tail-wags-dog situation had reached the point where the rest of Rank’s many businesses contributed only 7 percent to the company’s overall profit, while RX brought in 93 percent. Davis, Rank CEO from 1962 to 1977, seemed somewhat embarrassed by the reduction of his once-mighty empire to the role of coupon-clipper, and for that reason strove to establish the company in other areas. The results were not good. In 1971, Rank made $17 million on non-Xerox assets of about $204 million. 11 years later, it garnered only $7 million on assets worth twice that much. While RX forged ahead, Rank fell behind.

In the meantime, the world copier market caught up with Xerox. By the end of the 1970s, heavy Japanese competition cut into RX’s profit and its market share. The combination of ineffective Rank management and a cooling RX sent investors into a panic. In 1976, institutional investors with large holdings in Rank pushed through a rules change enabling them to exercise closer control over the troubled company. By 1983 brokers were speculating that the organization might be taken over by corporate raiders and its substantial assets sold off to those who could manage them more profitably.

By 1988, however, Rank seemed to have rebounded under the management of its new CEO, Michael Gifford. All but one of its divisions reported a healthy increase in profits in 1988, and the balance of earnings between Rank and RX was closer to a 50-50 split. The holidays and recreation division had become the company’s largest, and its collection of resorts and travel interests netted a robust £58 million on sales of £276 million in 1988.

Under Gifford’s direction, Rank made additional investments and acquisitions in its core leisure, recreation, and holidays operations during the next several years. In 1988 Rank entered into a partnership with MCA to build the $600 million Universal Studios Florida theme park in Orlando. Rank invested £115 million for a 50 percent interest in the project, which opened in 1990 and by 1994 was attracting seven million visitors a year and generating £11.4 million in profits for Rank. In 1995 MCA and Rank began work on a $2 billion expansion that would include a second theme park called Islands of Adventure, scheduled to open in 1999.

In 1990 Rank offered to acquire Mecca Leisure Group for £512 million ($819 million). Mecca’s management initially rejected the offer, then suddenly accepted it two months later. Mecca’s holdings—hotels, theme parks, 85 bingo parlors, and 11 Hard Rock Cafes—fit in well with Rank’s operations. Under Rank, some of these operations were expanded, such as the Hard Rock Cafes—That chain grew to 15 units by 1995—while others were closed or sold off, such as the hotels, the last of which Rank sold in 1994.

With these additions, Rank’s revenue surged from £1.33 billion in 1990 to £2.11 billion in 1991. Over the next few years, revenue increased only slightly to £2.2 billion in 1994. Surprisingly, the increase in revenue did not reduce the firm’s dependence on its Rank Xerox stake. The amount of profits owing to RX surpassed 50 percent once again by the mid-1990s. Rank made a move to lessen the role of RX in the company’s future; In January 1995 it sold to Xerox 40 percent of its interest in RX for £620 million. Rank intended to use the funds to invest in leisure and recreation businesses.

This was perhaps a fitting time for a leadership transition at Rank since it was Gifford who had consistently focused on leisure and recreation during his reign at Rank and now had reduced its stake in its most important holding outside this area. Gifford announced in 1995 that he would retire in 1996. Rank searched for a new leader.

The question for Rank at this point in its history was whether it would invest its Rank Xerox money wisely, since what the firm did with its excess money had often been its downfall in the past. Signs indicated that Rank would increasingly concentrate on the leisure, recreation, and entertainment industries through the rest of the 1990s and that perhaps it would sell its entire stake in Rank Xerox to provide additional funding for expansion.

Principal Subsidiaries

Associated Leisure Limited; Butlin’s Limited; Grosvenor Clubs Limited; Haven Leisure Limited; A. Kershaw & Sons, PLC (85%); Odeon Cinemas Limited; Pinewood Studios Limited; Rank Amusements Limited; Rank Brimar Limited; Rank Cintel Limited; Rank Film Distributors Limited; Rank Film Laboratories Limited; Rank Holdings (UK) Limited; Rank Holidays & Hotels Limited; Rank Leisure Limited; Rank Overseas Holdings Limited; Rank Precision Industries (Holdings) Limited (94%); Rank RX Holdings Limited (97%); Rank Taylor Hobson Limited; Rank Video Services Limited; Rank Xerox Limited (48.8%); Shearings Limited; Strand Lighting Limited; Top Rank Limited; Warner Holidays Limited; Film House Partnership (Canada); Rank Video Services G.m.b.H. (Germany); Rank Holdings (Netherlands) B.V.; Deluxe Laboratories Inc. (U.S.); Hard Rock Cafe International Inc. (U.S.); Rank America Inc. (U.S.); Rank “Development Inc. (U.S.); Rank Leisure USA Inc.; Rank Orlando, Inc. (U.S.); Rank Taylor Hobson Inc. (U.S.); Rank Video Services America Inc. (U.S.); Resorts USA Inc.; Strand Lighting Inc. (U.S.).