Chapter 39: Motion Pictures
Darlene C. Chisholm1 From an economist’s perspective, the history, market structure and production chain characterizing the motion-pictures industry present fascinating puzzles and illustrate central principles of economic theory. The objective of this chapter is to outline some of the key economic phenomena that characterize the motion-pictures industry by examining the economic history of the industry, and by exploring the economics underlying the production, distribution and exhibition of motion pictures. Industry history By 1930, the US motion-pictures industry was dominated by five major studios: MGM, Paramount, RKO, Twentieth-Century Fox and Warner Brothers. The production process among these leaders was characterized by full vertical integration, with studios controlling film production, distribution and exhibition.2 Each studio maintained a roster of actors and actresses who agreed to perform exclusively in films produced by that studio. The long-term contracts into which the actors and studios entered formed the basis of the Studio System. Access to a constant supply of talent guaranteed the studios control over a constant flow of films. The studios’ control over distribution, and the preferential treatment the studio-owned movie theatres received in acquiring films, led to a significant degree of industry dominance by the major studios. During the 1930s, studio-owned theatres were granted favourable clearances and other advantageous terms from studio distributors to exhibit studio-produced films. The extensive vertical integration by the major studios led to allegations of anticompetitive practices. In 1938, the Department of Justice initiated a series of actions against the major studios3 on behalf of non-studio exhibitors, who claimed...
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