The Independent Producers and the Paramount Case, 1938-1949

Part 1:  The Hollywood Slump of 1938

As the studios recovered from the Depression, they knew that the provisional protection of the Roosevelt administration, which supported block booking with misgivings, would end once the NIRA was struck down. It was only a matter of time before the studio system was called into question. When Hollywood increased its production of A-list films in an effort to attract a broader share of audiences in the mid-1930s, the industry hoped that the improvement in overall film quality would make Hollywood less deserving of the government's antitrust indignation.

Joseph Schecnk, former United Artists executive and charter member of Twentieth Century-Fox.

A couple of years later when a noticeable dearth in topnotch studio releases hit Hollywood, the studios' plans to pacify the government's antitrust concerns were jeopardized. In 1938 the studios dealt with an increasing dissatisfaction from the public and the press complaining about the slump. Carl Laemmle, no longer in control of Universal, told the New York Times, "Everywhere I go and everybody I have spoken to during the past year has complained about the same thing-bad pictures."

That September, Joseph M. Schenck at Twentieth Century-Fox commented on a particularly miserable season, "Also, there was a period during the early Summer when there were practically no good new pictures coming along. Three or four weeks of poor pictures had a damaging effect upon business." The perceived decline in film quality came on the heels of the economic recession in late 1937 and early 1938. By the end of the first quarter of 1938, the combined profits of the Big Eight had already dropped 47 percent from the previous year.

Original movie poster for Snow White and the Seven Dwarfs, first released in December 1937.

Opponents of Hollywood observed, as the independents would have them believe, that the major studios were stagnant and dry of ideas. Out of the hundreds of films in release, there was one standout film that received practically universal critical praise, and surpassed all industry records to become the highest grossing film up to that point with over $8 million at the box office. That blockbuster was Walt Disney's Snow White and the Seven Dwarfs, not a star-studded studio prestige project but an independently-produced feature animation experiment that embarrassingly outdistanced the studio powerhouses. The majors referred to 1938 as an off season. (And of course, Hollywood's big year was just around the corner). However, at the time, the slump gave ammunition to the detractors of the studio system. An editorial in Variety blamed block booking as the culprit: "The wonder is not the scarcity of outstanding, smashing film hits, but that under the present system of industry operation there are any hits at all."

The United States Department of Justice took advantage of the window of opposition to announce its suit against the Hollywood oligopoly on July 20, 1938. The defendants included Hollywood's eight major studios, 25 of their affiliated companies, and 132 executive officers—all accused of monopolization in restraint of trade. According to the 22,600-word, 119-page complaint drafted by Assistant Attorney General Thurman Arnold, the government was reacting to "numerous complaints by independent producers, distributors, and exhibitors and by the theatre-going public." Film attorneys expressed surprise that the lengthy complaint abandoned the use of precise legal phraseology that was standard for almost every petition of its kind. The Paramount petition, they said, was written in the non-legal language of the trade.

CLICK HERE for a complete list of individual defendants in the Paramount case

MORE:

• NEXT—Part 2: The Studios Prepare for the Antitrust Battle, 1939
• RETURN—The Great Hollywood Antitrust Case Main Page

SOURCES:

Hollywood in slump 1938: Variety, December 14, 1938.
“Everywhere I go”: Thomas M. Prior, “Uncle Carl Speaks As He Pleases,” NYT, September 4, 1938, sec. X, p. 3.
“Also, there was a period”: Bosley Crowther, “In the Opinion of Mr. Schenck,” NYT, September 11, 1938, sec. X, p. 3.
Profits decline for Big Eight: “47% Decline Shown In Picture Profits,” NYT, June 12, 1938, sec. III, p. 1.
Justice Department initiates the Paramount suit: United States v. Paramount Pictures, Inc. et al, 334 U.S. 131 (1948); “The independent producer”: United States v. Paramount, petition filed July 20, 1938, p. 71; “Big Film Concerns Accused In U.S. Suit of Acting As Trust,” NYT, July 21, 1938, p. 1; “Govt. Files Anti-Trust Action: Eight Majors, Subsidiaries, Officers, Directors, Named In Justice Dept. N. Y. Bill,” HR, July 20, 1938, p. 1; “U.S. Wallup for Film Majors,” DV, July 20, 1938, p. 1; “Pic Stocks Down In Suit Reaction; Para. Pfd. Off $10,” HR, July 21, 1938, p. 1: Paramount stock down $10 to $90, Loews down 3 ¾ to 52 ¼.

See Bibliography.