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. Mr. Davis will be glad to answer any inquiries from readers.
The other day I was the silent umpire of an argument vigorously engaged in by a successful photoplay producer, the manager of a large film exchange and the proprietor of a "regular" movie theatre. The producer said "I am convinced, after watching the business for a long time, that my end of the business becomes less profitable each year. You exchange men and exhibitors are making all the real money."
The exhibitor had a different story. "There is nothing big in my end of the business any more. You fellows get the cream. A comparatively short time ago five or ten dollars rented a corking feature. Now you hold us up to the tune of twenty-five and fifty dollars for a feature film, to say nothing of the regular program releases. I wish I were in either of your places."
The exchange man felt that he was getting the little end of the business all the way through. When cornered on the point of profit, however, each owned up that he was showing "a little money to the good," still it was the old story- the butcher wants to be a baker.
This conversation hinged entirely on who makes the most money. Nothing was said directly about the risks in each phase of the business. Most of us in analyzing a business venture take a point of view similar to that of these movie men. We say to ourselves "Where can I make the big money," without first carefully considering the risks involved.
If you are thinking of Investing in the Movies it is of vital interest for you to look into the different phases of the moving picture business, not only from the standpoint of dividend returns but also from the standpoint of relative safety. What are the hazards!
The producing end sounds easy. All you need is a studio- a staff of directors- bunch of actors- a camera man- a scenario- turn the crank- develop and print the picture- sell the films and count your profits. That's what all of the circulars of new companies say. The essentials of producing, however, entail numerous risks.
Let us look at the motion picture plant. A motion picture studio equipped efficiently to turn out the kind of films that the public wants costs from fifty thousand to two hundred thousand dollars. A building constructed for motion picture producing is of such peculiar design that it can be used for practically no other line of business. The equipment is also highly specialized. The "props"- all manner of odds and ends of furniture, scenery, costumes and the like, necessary in the staging of a production, are junk except in use.
The motion picture studio and all its accessories depreciate so rapidly that if the producing company is compelled to go out of business even soon after it is established, the stockholders get mighty little money from the sale of the plant and equipment. In most manufacturing businesses the investment in the plant can be protected against fire loss. Films are highly inflammable. A plant devoted to any phase of the motion picture producing business is such a bad fire risk from the fire underwriters' point of view that it is difficult to get insurance except at a price practically prohibitive.
The directors, the much talked of men who command the actors and make the scenario into a finished production, are variable factors. You probably have noticed a number of concerns that are capitalized in-part on the reputation of unusually talented directors. While these men are on the job the producing company has a most valuable asset. But directors sometimes die or resign to work with competitors, or lose their lunch. That art of your investment which is capitalized in directors is not absolutely safe.
A well-known motion picture producer recently said "My greatest worry is the actors that I engage for my films- an actor or actress, who is making fifty to seventy-five dollars a week on the dramatic stage, won't work for me for less than one hundred and fifty dollars a week- and I must pay the price. If I don't some other producer will. As soon as I develop a film, star and am just ready to make a profit on my investment of time and money some other producer offers my star more money than I can afford to pay. I lose not only some of the good will that I acquired by educating the public to like my actor I am featuring, but I also have developed a star for some other company."
The scenario department of a producing company is a source of constant worry. It is mighty hard to judge from a scenario exactly how the film will look when it is screened. The manufacturer is always gambling on his ability to choose a story that will get by with the public. Last year a prominent producer released a society drama, featuring a well-known actress. The success was so great he at once made another along the same general line. The first made a profit of over fifty thousand dollars, while the second lost more than that. The public's taste had changed in a few months.
Probably most important of all to the producer is his market. As I have mentioned in other articles. a producing company must be able to sell from twenty to thirty prints or copies of each photoplay that it produces to make expenses. Film that is being made today will probably not be released for several months. The manufacturer must be able to gauge how many copies he will sell a long time before release date, so that he can estimate the amount of money he can invest in each production. Some manufacturing companies have a definite contract arrangement with a strong distributing company which takes its entire output. Other manufacturing companies have no definite written contract but have what amounts to the same thing, a working arrangement with a distributing company. This market risk is most important. Before investing in any producing company it is well to make sure that there is an absolutely certain outlet for the product. I have noticed recently several new companies that lay great emphasis on their studio, their directors and their stars yet say little about what they are going to do with the films when they are made. If I were investing in these companies I would be as interested in the market as in the facilities for making the film.
The producers of feature films have still another risk which has not been mentioned. The regular program, or one-reel productions, cost from one thousand to two thousand dollars a subject and the manufacturer usually makes a number of these at the same time. The feature film producer often bets his entire capital on one production. If an ordinary feature, costing from ten to twenty thousand dollars, is not artistically good, or if the producer is not able to market a satisfactory product, either through some exchange system or by selling state rights, he is sure to suffer a real solar plexus blow. On the whole the producing end of the business is not as rosy as some people believe it to be.
The exchange end of the business also has many hazards. An exchange system to be highly successful must necessarily be of wide scope with offices all over the country. The reason for this I explained in detail in my first article. It is a difficult matter to control from thirty to fifty branch offices. The exchange companies have difficulty in getting efficient, honest managers, able to keep up with the pace. I know of an exchange in a large city that changed managers four times in one year. The exchange manager must always be on his toes to meet competition. He is at all times obliged to deal with exhibitors who are renting films from other distributing companies. One or two bad films will certainly hurt the business in his locality. He is continually harassed by details. A train due at Centreville at 6:00, carrying five reels of film for the Star Theatre's evening bill, is two hours late. The exhibitor is up-in-arms and blames the exchange for the delay that is really the fault of the railroad. The exchange probably loses its customer.
The exchange business, however, has this big advantage. Its numerous offices are situated in all kinds of localities, and each exchange serves several hundred exhibitors; so that if the exchange system is properly managed the risk is widely distributed. A distributed risk is much more desirable from the standpoint of the investor than one that is concentrated into one point.
The exchange is of course dependent on the manufacturer of the films. It always runs the risk that the manufacturer may not turn out the kind of films that will please the theatre's patrons. Most exchange companies have been in the past so organized that they have only a moderate control of the output of the individual producer. Exchanges, like producing plants, are bad fire risks. A few weeks ago one exchange concern suffered a fifty thousand dollar fire loss in a southern city. Circulars concerning motion picture companies often fail to refer to the above hazards.
The exhibitor has his share of troubles. The first, of course, is the choice of location. If he builds a theatre he wagers a considerable amount of money that he is choosing the right comer. If he leases a building he assumes a heavy obligation that may break him if his judgment is not good. He must gauge accurately the public's taste. He runs the risk of not being able to judge the kind of films that his audience wants and what is more often the case he runs the risk that the exchange will not give him the kind of films that he orders. There is also a chance that he will not fix his price of admission at the right figure.
The exhibitor must work out with infinite precision the cost of his operation and the exact amount of money he can put into his bill and give the public its money's worth- an entertainment that will please, at a cost that leaves a margin of profit. After he has his business developed he must be able to meet competition. I know of several desirable theatres, doing a most profitable business, that failed because better business men opened theatres in the same vicinity- men able to give the public better entertainment. Numerous exhibitors have been put out of business by larger theatres. The theatre proprietor must at this time be mighty good business man to make money.
The serial end of the film business has attracted considerable attention recently. Most serial companies are intermediate concerns. They arrange with newspaper syndicates for a wide publicity campaign, contract with a producing company to make the serial and arrange with a distributing company for their distribution. Some of these concerns have been unusually successful. The hazard of the serial company is that all the eggs are in one basket. If the serial is successful the enterprise is highly profitable, if the serial is not granted the public's approval the proposition is financially a fizzle. Besides, serial popularity appears to be diminishing.
It is obvious that these numerous hazards of the motion picture business can only be overcome by efficient executives.
This brings us again to the ever important point of management. Before investing in any motion picture concern be sure that the men in charge are honest and have a reputation for success- in the motion picture business. Don't be misled by fellows who talk big. Let them show what they have done. In the motion picture business, like all new industries, great emphasis is laid on the enormous possibilities for profit, little is said concerning failures.
All of the advertisements and circulars of both old and new concerns emphasize the good points of the business but say little about the risks. I am very sure that the motion picture business has great possibilities for profit if one can locate the proper place for one's money. But I want you not only to see the industry from the standpoint of dividends but also to appreciate that the hazards of the business give you a real run for your money;- that the risks should make you exceedingly cautious.
Paul H. Davis, "Investing in the Movies," Part Six, Photoplay Magazine, January 1916, pages 69-72.
© 1999, David Pierce, on editing and revisions (if any)
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