Investing in the Movies

Hundreds of requests have been received by the editors of Photoplay Magazine from persons who contemplate investment in moving picture companies and who seek advice on the subject. In many cases investigation showed that these people were being solicited to invest money in concerns that, in the face of existing conditions, did not have one chance in a hundred to succeed. In accordance with its policy to serve its readers as well as to entertain them, Photoplay Magazine set about to find a man of recognized integrity, whose experience in the field of moving picture finance would give his words the weight of authority. The selection of Mr. Paul H. Davis is the result of this search. In his first article Mr. Davis gives a clear statement of the fundamentals of picture manufacture and sale, and sounds a warning against the wildcatter. Mr. Davis will be glad to answer any inquiries from readers.
 

Would it surprise you much to be told that you have mighty small chance in the picture industry- except under certain conditions? Unless you follow a path straighter and narrower than most men's feet can tread?

That's the truth.

You are going to see a lot of advertisements holding up the golden lure of the movies. Perhaps many gentlemen of sleek manners and smooth tongues are going to tell you where your thousand dollars can make a hundred thousand- in the movies. Some new Wallingford is going to orate to you about the financial possibilities of this new industry, which has made small exhibitors millionaires and small producers multi-millionaires. If you aren't the recipient of these slick attentions, and have money, you're the exception. Every great new industry's first tide of success is followed by a phalanx of kid-gloved gentlemen and well-meaning but worthless promoters. The motion picture industry, the mightiest, solidest new art of the epoch, is no exception to this rule of indiscriminate camp-following. Look out for the gentry who think your legitimate enthusiasm is the bleat of a sucker!

In this particular article I am not going to tell you into which particular slot to put your double-eagle. I shall try to give you an explanation of the business condition of motion pictures, as briefly and succinctly as I may, so that you will keep your money out of bottomless joke-places where it hadn't ought to go.

It has recently been said, by an authority on movie finance: "A new picture concern can succeed only when it combines an enormous amount of real money, close connections with present successful leaders in the business- and something absolutely new!"

It is not the purpose of this article to close and bar the door against any investment in picture corporations- Its purpose is to warn against wildcat investment and assurances of "sure dividends" or "cinch profits."

This statement is cryptogrammatic to the most informed of us; to the man just casually interested in the business side of motion pictures it is absolutely befogging.

To understand the business future, and the business present, you must understand, thoroughly, the business past, and the basis upon which production and exhibition are now conducted in the film industry of the United States.

Who is the ultimate consumer? The "fan," of course.

Theoretically, is there any reason why the man who makes the pictures shouldn't sell them directly to the man who wishes to see them? No.

As a matter of fact, there are very real reasons.

The standard unit of picture measure is a reel of 1,000 linear feet.

The average wholesale price of 1,000 feet of film is $100.

To install a machine and plant that will project a picture costs from $100 to $400- then there are salaries, compliance with fire laws, rents, advertising, etc. etc. Nor does the theater man present one reel, day in and day out, at a cheap price of admission. He presents usually, five reels, and he changes his bill every day. Therefore, if he purchased the films, he would have to have 5,000 paid admissions (at 10 cents) every day to make up the purchase price alone! Which is of course reductio ad absurdum.

Hence the birth of the Film Exchange which has grown into one of the mightiest institutions in the amusement world.

The Exchange has the expensive task of purchasing the film direct from the manufacturers. If the theaters were not so located and graded that films of different ages could be supplied, the exchange could not operate.

As for instance: the theater having all "first-run" films pays the highest price for service, a price which is, constantly, slowly advancing. This amounts, in some cities, to as much as $200 a week. From this high point, the cost of film service retrogrades to as low as $20 a week. But the $20 a week man does not get "first-run" pictures. His pictures are from four to nine months old.

Another difficulty for the Exchange man: each manager of a picture theater finds that his public develops certain preferences. If his patrons wish Keystones, or Vitagraphs, or Lubin pictures, he is going after those brands to the exclusion of others.

Now, since the Exchange can only operate by having many regular customers, it becomes equally apparent that there must be comparatively few exchanges. A few shall supply the multitude.

Arguing logically and as a matter of established fact right down this line: the only way an Exchange can get suitable subjects each week and be sure of its supply, is to purchase practically the entire output of a film company! It must be in a position to say to its manufacturer, with some authority: "Make so many prints of so-and-so," and be sure that so many prints will, actually, be delivered.

It is quite obvious that a single exchange located- say- in Chicago could not buy all of a big producing company's output without simply choking itself to death on an overly big mouthful of its business food. Therefore the exchange must not be local, but national, with many affiliated distributing points.

This situation has resulted in great concerns like the General Film Company, the Mutual Film Corporation, and the Universal Film Manufacturing Company.

These concerns, with one or two others, furnish practically the entire supply of pictures to 18,000 theaters throughout the United States.

Some theaters take all of their service from one concern; others rent from several at the same time.

Each of these companies has from forty to fifty branches, or affiliated exchanges.

In order to promote efficiency, to clarify its functions of service, and to concentrate its efforts, each Exchange organization buys practically the entire output of an affiliated group of film manufacturers, and buys very little if any from concerns outside that regular group.

For instance: The Mutual Film Corporation takes practically the entire output of the American Film Manufacturing Company, the Reliance and Majestic Corporations, the Thanhouser Film Corporation and the New York Motion Picture Company- which last subdivides into the two grand divisions of comedy (Keystone) under Mack Sennett, and drama, under Thomas H. Ince. These directors are named merely to illustrate this explanation.

The Universal Film Manufacturing Company owns its own films and distributes through none but affiliated exchanges.

These companies spend enormous sum of money for films. One of the above-named organizations pays its manufacturers, every seven days, more than $100,000. This company can keep up its service, make its payments and prosper, only because of its enormous clientele built up through the years when the picture industry was in process of formation, when picture habits were forming in the minds and lives of America's hundred million.

The promoters of a new Exchange could point to the enormous profits said to have been made and probably made, indeed by these great Exchange corporations; but they overlook the fact that any new company, to be as successful, would have to be developed along similar gigantic lines. It is estimated by film men that from $5,000,000 to $10,000,000 would be required to finance such a venture.

Numerous companies have tried to break into the producing end of the business and have met with disaster because they couldn't market their product.

Numerous companies have tried to break into the producing end of the business and have met with disaster because they couldn't market their product.

Why?

The angry and independent questioner speaks right up, and he will be as promptly answered. Making and marketing pictures is far from being on a par with growing and marketing radishes, or making and marketing barrel staves.

Through bitter years the Exchange men and the manufacturers have not only faced the problem of finding and holding, in intense competition, their respective publics, but of getting the cost of production down to a practical basis. The problem of the manufacturer in one way is that of the Exchange man: he must deal in great volume.

To produce a negative from which positive prints can be made costs from $800 to $2,000 for regular one-reel subjects. Cost can only be held down in well-organized companies. Few realize the detail and expense of actual company production; and after the picture is once taken, and securely carted to the developing room, come the expensive processes of perforating, printing, developing, tinting, joining, cutting, etc. Then must be added the cost of the raw stock, which is from 2 5/8 to 3 cents per foot. Before a producing company organized on the most economical basis can make any profit it is estimated that it must sell from twenty to twenty-five prints from each negative.

In the past two years special and serial feature films have attracted much attention. If a new concern had enough money to establish branches all over the country it might succeed- provided the picture was what the public wanted- but to insure success it would have to make its own film, and compete with features released and tremendously advertised by well-established corporations.

It is said that a serial company made during the past year, upon a very well-known feature film, a return of $700,000 upon $100,000 invested. On the strength of this particular company's triumph many other serials have been floated- yet it's well to remember that this company had access to all the money that it could possibly use, at the start, and also unusually close connections with established leaders in the film industry.

Now it is not the purpose of this article to close and bar the door against any investment in picture corporations; it is the purpose to warn against wildcat investment and the cheap assurance of a "promoter" who knows nothing of the business, that great dividends are "sure," or profit "a cinch."

For another thing: let the picture beginner be warned lest he underestimate the constantly advancing artistry of some of the manufacturing organizations. There are actors, actresses and directors who are setting standards so high that any newcomer will have to stand on tiptoe to reach them or in the same measure, to reach the public whom they have, perhaps unconsciously elevated.

Here is a phase of the industry which is all future- a phase in which they organization is so far, exceedingly primitive or absolutely lacking: the exhibiting end of the game.

Although many small motion picture theaters are being crowded out of business by larger theaters, there are doubtless many locations in which new houses, large and small will pay.

I believe that these houses will surely be brought together in paying groups under central control after the manner of the country's vaudeville circuits; or perhaps as a friend of mine said, an organization somewhat similar to that of United Cigar Stores. The selection of new theater locations, and the consolidation of established theaters will, however, be done by specialists- by men who know. If you are in on this certainly coming phase of "greater pictures," be sure that you are with "the man who knows." If you are not, you will presently be "the man who knows" yourself- on the outside, looking in.

In conclusion, certain of the established motion picture companies have demonstrated that they are managed and have shown an earning capacity. It would be much wiser for the man who wishes to invest in the movies to buy stock in established concerns- at the present time- rather than risk his coin in a new venture; unless he is convinced, after careful investigation, that this new venture is recommended by reputable bankers who know the inside of the industry- and further, unless the said venture is planned on a scale which gives it sufficient cash resources to compete with powerful and wary organizations.
 

Mr. Davis will be glad to answer questions regarding moving picture finance. This is just another real service to the readers of Photoplay Magazine.

Paul H. Davis, "Investing in the Movies," Part One, Photoplay Magazine, August 1915, pages 55-58.

© 1999, David Pierce, on editing and revisions (if any)

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