Universal Pictures Corporation

In view of the success which the Universal Pictures Corporation had had in its sale of films to nontheatrical exhibitors, the executive in charge of sales considered in 1926 the establishment of a separate department for the purpose of increasing these sales. Because of subsequent opposition on the part of some of the company's theatrical accounts, however, the company questioned the advisability of adopting a policy of promoting sales to its nontheatrical accounts.

The Universal Pictures Corporation, with studios in California and main distributing offices in New York City, was one of the oldest and largest companies in the industry. The distributing organization maintained 40 exchange offices in the United States and Canada, and 26 foreign offices. While the Universal Pictures Corporation sold to all classes of exhibitors, sales to the smaller theaters in the country exceeded its sales to the large first-run theaters.

For a number of years, the company had been increasing its sales to nontheatrical accounts in the several exchange territories. This business had grown in response to a demand on the part of nontheatrical exhibitors, including schools, churches, clubs, and public institutions, such as asylums, for films used in entertainment. Because of difficulty in distinguishing nontheatrical from theatrical accounts, the company lacked definite knowledge of the amount of nontheatrical sales. In 1926, however, the volume of such sales was estimated to be between $100,000 and $150,000, or approximately 1% of the company's total sales in the United States and Canada. The company believed that it could profitably increase its sales in this field. In order to increase the sales to this type of exhibitor, it would be necessary first to segregate such accounts and then engage in additional sales promotion activities in that direction.

The proposed plan was communicated to the distributing organization. While the exchange managers recognized the possibility of increasing sales to nontheatrical accounts, they questioned the advisability of developing this market. Their attitude was largely the result of opposition on the part of their theatrical accounts, as the exchanges had no difficulty in managing the nontheatrical business. The opposition of the exhibitor to nontheatrical exhibition was based on the belief that it reduced the patronage at his theater by satisfying elsewhere the demand for motion picture entertainment. In his desire to protect this patronage, he would often complain to the film salesman and the exchange manager concerning such distribution in his locality. The effect of these complaints was to discourage the exchange manager from the solicitation of nontheatrical business, even though it increased the profits at his exchange. Selling to nontheatrical accounts differed but slightly from selling to theaters. Only feature pictures and comedies were sold.

The price to nontheatrical accounts was largely determined by what the account could pay. It had been found that public institutions were restricted by budget to a certain definite amount for entertainment, and a sale to such an institution could be made only if the price of the film were reduced to conform to the budget. The films desired were usually the older pictures and it was possible to quote individual prices which were lower than were ordinarily quoted to a theatrical exhibitor. No films were released for nontheatrical exhibition prior to the release date for theatrical showings in that particular city or territory, nor were sales made to institutions for exhibition in competition with a regular theatrical account.

While the revenue derived from sales to nontheatrical accounts was, on the average, less per film than that from sales to theatrical accounts, the executives of the company considered it to be net revenue. Although there was no allocation of sales expense to nontheatrical sales, it was thought that the expense involved was slight in view of the belief that little additional time and effort were required for a salesman to call upon a nontheatrical account while in a city to visit the theatrical exhibitors. Furthermore, a large proportion of the business was handled directly by the exchange manager in response to mail inquiries from the institutions addressed to the exchange or to the New York office. The exhibition was booked in the same manner as a theatrical showing except that it was more often possible to substitute a picture other than the one requested. The fact that the pictures were older and therefore less in demand made booking less complicated.

In the event that a new department was established, nontheatrical buyers, as recorded in past sales, would be solicited by direct mail with a booklet and a series of letters, from both the main office in New York and the local exchange. Inasmuch as the largest cities were the location of many institutions using films, such as libraries and museums, it was also planned to assign a number of salesmen- two in New York, one in Chicago, and others at several other important exchange centers- to the work of securing new prospects and of selling to nontheatrical accounts exclusively. The company was unable to foretell the extent to which the nontheatrical sales might be increased; it was planned to expand the department as conditions warranted. No changes in the booking and physical handling of the pictures were contemplated. Executives of the company believed that a separate department might induce additional interest in the nontheatrical business on the part of the exchange managers.

The opposition of theatrical exhibitors and the effect of this opposition upon the exchange managers was believed by the company to be of great consequence, and accordingly the exchange managers were instructed to take all precautions to protect exhibitors. By distributing to nontheatrical buyers only those films that were not desirable for theatrical exhibition because of the date of release, and by selling only when exhibitors had no objection, the company believed that no ill will would be engendered. The probability of obtaining additional revenue from nontheatrical sources was considered worthy of recognition and of more attention than had been given it. A separate department, consisting of an executive and one assistant, was, therefore, established at the main offices under the supervision of the general sales manager. This department would carry on sales promotion, and would control the sales to nontheatrical accounts by the several exchanges.

In 1928, considerable agitation developed in certain territories in connection with the sale of pictures to nontheatrical accounts. The following quotations from the Film Daily indicate the attitudes of the exhibitor and the Federal Trade Commission on this question:

Officers of the Oklahoma Exhibitor Unit are preparing to carry out the mandate of the recent convention against nontheatrical competition and are now studying the situation. The convention denounced nontheatrical competition and exchanges serving them. Film Daily, April 15, 1928.

Columbus- Nontheatrical competition can be restricted only in specific instances, because unified action against nontheatrical exhibition clashes with the Sherman Act, the Ohio Exhibitor Unit concluded at its convention here. Film Daily, November 25, 1928.

Efforts of the industry made at the Trade Practice Conference in New York in October, 1927, to have service of films to nontheatricals branded as unfair practice were balked by the Federal Trade Commission which disapproved the resolution. The Commission's action was not taken as an endorsement of nontheatricals but rather a disapproval of the resolution on the ground that it was illegal. Film Daily, December 27, 1928.

Whereas, throughout the United States today more than 1,500 public, private, and charitable sectarian and non-sectarian institutions for caring for "shut-ins" are showing motion pictures; and such motion picture programs are furnished to these various institutions by national and regional distributors through the various film boards of trade under a plan whereby the responsibility for such distribution is divided among all members of each board; and in most instances such motion picture programs are furnished free of charge to such institutions as orphan asylums, homes for the aged, tuberculosis hospitals, and institutions housing war veterans; and

Whereas in some cases they are furnished upon payment of the postal or express charges to ship and return the films, and in other instances where institutions have appropriations available with which to purchase entertainment for the inmates, nominal charges are made; and

Whereas in all instances motion picture films are furnished to such institutions with the understanding that they are to be shown only to the inmates and attendants of their respective institutions and that the general public is not to be admitted either free of charge or for an admission charge: Now therefore be it

Resolved, That the admission of the public, either free of charge or for an admission charge, to any such motion picture entertainment or performance is an unfair trade practice and unfair competition to theater owners; and

Resolved, That the showing of motion pictures in such institutions where the public is not admitted, either free of charge, or for an admission charge, is a fair trade practice.

The competition from schools, churches, and like institutions is sought to be eliminated by exhibitors' Resolution No. 1, which, as amended and finally passed, is intended to prohibit producers from contracting for the exhibition of pictures at any place where motion pictures are shown to the public, if such exhibition is found to be in competition with a regularly operated motion picture theater. The question of whether such exhibition does so compete is to be determined by arbitration. Educational and scientific films are specifically exempted. From the record it appears that films of the kind in question are sold to such tax-free institutions at prices less than those charged to established theaters.

The wording of the resolution is not as clear as it should be. The situation presented is somewhat similar to that which exists between the itinerant merchant or peddler and the established retail dealer, relief from which is sought in the various States by providing for the collection of a large license fee from itinerants.

The legality of the purpose of the resolution is questionable. It may be regarded as in restraint of trade, although the trade involved seems neither material in amount nor consequential in character. On the contrary, however, it may be legal for an industry to agree on a classification of customers. This matter, in some form, will probably be considered with the revised contract. The resolution reads as follows:

Resolved, That the practice of distributors contracting for the exhibition of motion pictures known in the trade as "entertainment," as distinguished from educational or scientific pictures, at schools or churches, or any other places where motion pictures are shown to the public, found by an impartial arbitration body to be in competition with any regularly operated motion picture theater, is unfair trade practice.

(Adopted without objection as a resolution of the conference, p. 343.)

This petition is brought under the provisions of Section 4 of the Act of Congress Of July 2, 1890, entitled, "An Act To protect trade and commerce against unlawful restraints and monopolies," (26 Stat. 209), commonly known as the Sherman Antitrust Law, to prevent and to restrain the aforesaid defendants from further engaging in this district and elsewhere in the United States in violation of Section I of the said Act of Congress, in the conspiracy in restraint of interstate trade and commerce in motion picture films, which is hereinafter more particularly described.

The defendant and certain individuals, each well knowing all the matters and things hereinbefore alleged, unlawfully have engaged in a conspiracy in restraint of said interstate trade and commerce in motion picture films so carried on as aforesaid by said distributors and by said exhibitors of motion pictures in the United States; that is to say, a conspiracy now here described in restraint of and which throughout the period of time herein mentioned in fact had unlawfully restrained and is now restraining interstate commerce, to wit:

Since on or about February 13, 1928, the defendant and certain individuals have restrained the aforesaid interstate trade and commerce in motion picture films in accordance with and pursuant to an understanding and agreement between said defendant and certain individuals:

To prevent every "nontheatrical" exhibitor of motion pictures from securing said films and said film service from any exchange located at Oklahoma City, Oklahoma, hereinbefore described. or elsewhere.

And the defendant and certain individuals acting in accord with and pursuant to an understanding and agreement between said defendant and said individuals and intending to prevent every nontheatrical exhibitor of motion pictures from securing said films and said film service from said exchanges in Oklahoma City, Oklahoma, or elsewhere, have-

a. Threatened and suggested to said exchanges that the theaters which are represented by the individual members of the defendant corporation would discontinue service from any said exchange serving said "nontheatrical" exhibitors;

b. Threatened and suggested to said exchanges at Oklahoma City, Oklahoma, that the theaters which are represented by the individual members of the defendant corporation would not deal with any of said exchanges serving any of said nontheatrical exhibitors;

c. Adopted a resolution to fight exchanges serving nontheatrical exhibitors;

d. Threatened and suggested to the said exchanges that the theaters which are represented by the individual members of the defendant corporation would refuse to arbitrate before the Board of Arbitration (as provided in every Standard Exhibition Contract) all disputes to which any of said exchanges serving nontheatrical exhibitors were or should be parties;

e. Urged the said exchanges at Oklahoma City, Oklahoma, not to deal with the said nontheatrical exhibitors; and

f. Urged the said exchanges at Oklahoma City, Oklahoma, not to deal with the said nontheatrical exhibitors, and attempted to induce and coerce the said distributors to agree not to serve the said nontheatrical exhibitors; and

g. Threatened to distribute to members of the defendant corporation the names of all exchanges serving said film to nontheatrical exhibitors.

The defendant and certain individuals in the manner and by the means aforesaid have been and are engaged within the Western District of Oklahoma and elsewhere in a combination and conspiracy within the United States in restraint of trade and commerce among the several States in motion picture films in violation of the Act of Congress of July 2, 1890, entitled "An Act to regulate trade and commerce against unlawful restraints and monopolies."

Officers, directors, members, and employees of the Oklahoma Exhibitor Unit are restrained from coercing distributors to refuse to deal with or cease to deal with nontheatricals, and from distributing or threatening to distribute to members of the association, lists naming distributors serving nontheatricals, in the consent decree filed in Federal Court at Oklahoma City.

The decree disposes of the Department of Justice conspiracy case against the exhibitor association, which charged the organization had entered into the conspiracy to restrain trade through preventing nontheatricals from securing films. The action was brought under the Sherman Antitrust Law. Film Daily, December 28, 1928.

Injunction secured by the Department of justice in the consent decree in Federal Court in Oklahoma City is a permanent order. This ends any activities against nontheatricals so far as the association is concerned and disposes of the government's suit against the organization. Film Daily, January 7, 1929.

Commentary: In the face of widespread opposition on the part of customers of the Universal Pictures Corporation in the Oklahoma territory, the company's decision to stop selling pictures to nontheatrical accounts in that territory was wise. Though this action might result in some irritation on the part of such nontheatrical accounts, it may be said that a company is always justified in protecting the customers upon whom it relies for the bulk of its distribution as against other accounts.

The question may be raised, however, as to whether or not this opposition on the part of the theater owners was justified. On the whole, it must be said that such an attitude is open to question. Sales to nontheatrical accounts fall into two classes. First, there are those which are made to prisons and to other institutions in which those in attendance probably could not attend any theatrical performance. There can be no objection to the exhibition of pictures to such groups where the public is not admitted and where no admission price is charged. A different question arises with reference to the sales made to churches, schools, etc. Relative to such pictures it should be noted first that many of those attending such exhibitions never do attend theaters under any circumstances. Secondly, the pictures so shown are very frequently old pictures having little entertainment value for theatrical purposes. Third, many of the pictures are of the type exemplified by scenics and travelogues which most exhibitors feel have no particular place in the theater program. Fourth, the total number of persons attending such exhibitions has always been comparatively small. Fifth, persons seeing such pictures may very readily develop a habit of attending theater exhibitions.

Aside from these factors, the attitude of the exhibitors in this case was wholly defensive rather than aggressive. Instead of seeking to attract patrons by alert showmanship, they were seeking to protect profits by making it impossible for patrons to go elsewhere. Such an attitude is not progressive.

In this particular case it was not the actual facts as to the extent of such competition but rather the belief of the exhibitors as to its existence which had to be recognized by the distributor. Operating in a field in which competition was extremely keen, the company could ill afford to sacrifice the goodwill of any considerable group of exhibitors.

November, 1929 H. T. L.

Howard Thompson Lewis (commentaries), "Universal Pictures Corporation, Market Selection- Increasing Sales of Motion Pictures for Nontheatrical Exhibition," Harvard Business Reports, Volume 8, Cases on the Motion Picture Industry, (New York: McGraw-Hill, 1930), pages 341-348.

© 1998, David Pierce, on editing and revisions (if any)

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