The studio system (which was used during a period known as the Golden Age of Hollywood) is a method of film production and distribution dominated by a small number of "major" studios in Hollywood. Although the term is still used today as a reference to the systems and output of the major studios, historically the term refers to the practice of large motion picture studios between the 1920s and 1960s of (a) producing movies primarily on their own filmmaking lots with creative personnel under often long-term contract, and (b) dominating exhibition through vertical integration, i.e., the ownership or effective control of distributors and exhibition, guaranteeing additional sales of films through manipulative booking techniques such as block booking.
The studio system was challenged under the anti-trust laws in a 1948 Supreme Court ruling which sought to separate production from the distribution and exhibition and ended such practices, thereby hastening the end of the studio system. By 1954, with television competing for audience and the last of the operational links between a major production studio and theater chain broken, the historic era of the studio system was over.
The period stretching from the introduction of sound to the beginning of the demise of the studio system, 1927–1948/1949, is referred to by some film historians as the Golden Age of Hollywood. The Golden Age is a purely technical distinction and not to be confused with the style in film criticism known as Classical Hollywood cinema, a style of American film which developed from 1917 to 1963 and characterizes it to this day. During the so-called Golden Age, eight companies constituted the major studios that promulgated the Hollywood studio system. Of these eight, five were fully integrated conglomerates, combining ownership of a production studio, distribution division, and substantial theater chain, and contracting with performers and filmmaking personnel: Fox Film Corporation (later 20th Century Fox), Loew’s Incorporated (owner of America's largest theater circuit and parent company to Metro-Goldwyn-Mayer), Paramount Pictures, RKO Radio Pictures, and Warner Bros. Two majors—Universal Pictures and Columbia Pictures—were similarly organized, though they never owned more than small theater circuits. The eighth of the Golden Age majors, United Artists, owned a few theaters and had access to two production facilities owned by members of its controlling partnership group, but it functioned primarily as a backer-distributor, loaning money to independent producers and releasing their films.
The years 1927 and 1928 are generally seen as the beginning of Hollywood's Golden Age and the final major steps in establishing studio system control of the American film business. The success of 1927's The Jazz Singer, the first feature-length "talkie" (in fact, the majority of its scenes did not have live-recorded sound) gave a big boost to the then midsized Warner Bros. studio. The following year saw both the general introduction of sound throughout the industry and two more smashes for Warners: The Singing Fool, The Jazz Singer's even more profitable follow-up, and Hollywood's first "all-talking" feature, Lights of New York. Just as significant were a number of offscreen developments. Warner Bros., now flush with income, acquired the extensive Stanley theater chain in September 1928. One month later, it purchased a controlling interest in the First National production company, more prominent than Warners itself not long before. With the First National acquisition came not only a 135-acre (0.55 km2) studio and backlot but another large string of movie theaters. Warners had hit the big time.
The last of the "Big Five" Hollywood conglomerates of the Golden Age emerged in 1928: RKO. The Radio Corporation of America (RCA), led by David Sarnoff, was looking for ways to exploit the cinema sound patents, newly trademarked RCA Photophone, owned by its parent company, General Electric. As the leading film production companies were all preparing to sign exclusive agreements with Western Electric for their technology, RCA got into the movie business itself. In January, General Electric acquired a sizable interest in Film Booking Offices of America (FBO), a distributor and small production company owned by Joseph P. Kennedy, father of future president John F. Kennedy. In October, through a set of stock transfers, RCA gained control of both FBO and the Keith-Albee-Orpheum theater chain; merging them into a single venture, it created the Radio-Keith-Orpheum Corporation, Sarnoff chairing the board. With RKO and Warner Bros. (soon to become Warner Bros.–First National) joining Fox, Paramount, and Loew's/MGM as major players, the Big Five that would remain for thirty years were now in place.
Although RKO was an exception, the heads of studios on the west coast, the 'movie moguls', had mostly been in place for some years: Louis B. Mayer at MGM, Jack L. Warner at Warner Bros., Adolph Zukor at Paramount, Darryl F. Zanuck (at 20th Century Fox from 1935), Carl Laemmle at Universal, and Harry Cohn at Columbia.
The ranking of the Big Five in terms of profitability (closely related to market share) was largely consistent during the Golden Age: MGM was number one eleven years running, 1931–41. Paramount, the most profitable studio of the early sound era (1928–30), faded for the better part of the subsequent decade, and Fox was number two for most of MGM's reign. Paramount began a steady climb in 1940, finally edging past MGM two years later; from then until its reorganization in 1949 it was again the most financially successful of the Big Five. With the exception of 1932—when all the companies but MGM lost money, and RKO lost somewhat less than its competitors—RKO was next to last or (usually) last every year of the Golden Age, with Warner generally hanging alongside at the back of the pack. Of the smaller majors, the Little Three, United Artists reliably held up the rear, with Columbia strongest in the 1930s and Universal ahead for most of the 1940s.
Hollywood's success grew during the Great Depression, possibly because films helped audiences escape their personal difficulties. President Franklin Delano Roosevelt said of Shirley Temple, "When the spirit of the people is lower than at any other time during this Depression, it is a splendid thing that for just fifteen cents an American can go to a movie and look at the smiling face of a baby and forget his troubles". By 1939 there were 15,000 movie theaters in the United States, more than banks; the number of theaters per capita was twice that of the mid-1980s. The cinema industry was larger than that for office machines. While only the 14th largest by revenue, it was second in the percentage of profits that its executives received. Top stars such as Bing Crosby and Claudette Colbert were paid more than $400,000 a year ($7,037,321 today).
One of the techniques used to support the studio system was block booking, a system of selling multiple films to a theater as a unit. Such a unit—five films was the standard practice for most of the 1940s—typically included only one particularly outstanding film, the rest a mix of A-budget pictures of lesser quality and B movies. As Life magazine wrote in 1957 in a retrospective on the studio system, "It wasn't good entertainment and it wasn't art, and most of the movies produced had a uniform mediocrity, but they were also uniformly profitable ... The million-dollar mediocrity was the very backbone of Hollywood."
On May 4, 1948, in a federal antitrust suit known as the Paramount case brought against the entire Big Five, the U.S. Supreme Court specifically outlawed block booking. Holding that the conglomerates were indeed in violation of antitrust, the justices refrained from making a final decision as to how that fault should be remedied, but the case was sent back to the lower court from which it had come with language that suggested divorcement—the complete separation of exhibition interests from producer-distributor operations—was the answer. The Big Five, though, seemed united in their determination to fight on and drag out legal proceedings for years as they had already proven adept at—after all, the Paramount suit had originally been filed on July 20, 1938.
However, behind the scenes at RKO, long the financially shakiest of the conglomerates, the court ruling came to be looked at as a development that could be used to the studio's advantage. The same month that the decision was handed down, multimillionaire Howard Hughes acquired a controlling interest in the company. As RKO controlled the fewest theaters of any of the Big Five, Hughes decided that starting a divorcement domino effect could actually help put his studio on a more equal footing with his competitors. Hughes signaled his willingness to the federal government to enter into a consent decree obliging the breakup of his movie business. Under the agreement, Hughes would split his studio into two entities, RKO Pictures Corporation and RKO Theatres Corporation, and commit to selling off his stake in one or the other by a certain date. Hughes's decision to concede to divorcement terminally undermined the argument by lawyers for the rest of the Big Five that such breakups were unfeasible.
While many today point to the May court ruling, it is actually Hughes's agreement with the federal government - signed November 8, 1948 - that was truly the death knell for the Golden Age of Hollywood. Paramount soon capitulated, entering into a similar consent decree the following February. The studio, which had fought against divorcement for so long, became the first of the majors to break up, ahead of schedule, finalizing divestiture on December 31, 1949. By this time, there were 19,000 movie theaters in the United States. The Golden Age was over.
Through Hughes's deal with the federal authorities, and those by the other studios that soon followed, the studio system lingered on for another half-decade. The major studio that adapted to the new circumstances with the most immediate success was the smallest, United Artists; under a new management team that took over in 1951, overhead was cut by terminating its lease arrangement with the Pickford-Fairbanks production facility and new relationships with independent producers, now often involving direct investment, were forged—a business model that Hollywood would increasingly emulate in coming years. The studio system around which the industry had been organized for three decades finally expired in 1954, when Loew's, the last holdout, severed all operational ties with MGM.
Hughes's gambit helped break the studio system, but it did little for RKO. His disruptive leadership—coupled with the draining away of audiences to television that was affecting the entire industry—took a toll on the studio that was evident to Hollywood observers. When Hughes sought to bail out of his RKO interest in 1952, he had to turn to a Chicago-based syndicate led by shady dealers without motion picture experience. The deal fell through, so Hughes was back in charge when the RKO theater chain was finally sold off as mandated in 1953. That year, General Tire and Rubber Company, which was expanding its small, decade-old broadcasting division, approached Hughes concerning the availability of RKO's film library for programming. Hughes acquired near-complete ownership of RKO Pictures in December 1954 and consummated a sale with General Tire for the entire studio the following summer.
The new owners quickly made some of their money back by selling the TV rights for the library they treasured to C&C Television Corp., a beverage company subsidiary. (RKO retained the rights for the few TV stations General Tire had brought along.) Under the deal, the films were stripped of their RKO identity before being sent by C&C to local stations; the famous opening logo, with its globe and radio tower, was removed, as were the studio's other trademarks.
Back in Hollywood, RKO's new owners were encountering little success in the moviemaking business and by 1957 General Tire shut down production and sold the main RKO facilities to Desilu, the production company of Lucille Ball and Desi Arnaz. Just like United Artists, the studio now no longer had a studio; unlike UA, it barely owned its old movies and saw no profit in the making of new ones. In 1959 it abandoned the movie business entirely.
While the studio system is largely identified as an American phenomenon, film production companies in other countries did at times achieve and maintain full integration in a manner similar to Hollywood's Big Five. As historian James Chapman describes,
In Britain, only two companies ever achieved full vertical integration (the Rank Organization and the Associated British Picture Corporation). Other countries where some level of vertical integration occurred were Germany during the 1920s (Universum Film Aktiengesellschaft, or Ufa), France during the 1930s (Gaumont-Franco-Film-Aubert and Pathé-Natan) and Japan (Nikkatsu, Shochiku and Toho). In Hong Kong, Shaw Brothers adopted the studio system for its wuxia films throughout the 1950s-'60s. India, which represents perhaps the only serious rival to the U.S. film industry due to its dominance of both its own and the Asian diasporic markets, has, in contrast, never achieved any degree of vertical integration.
For instance, in 1929 nearly 75 percent of Japanese movie theaters were connected with either Nikkatsu or Shochiku, the two biggest studios at the time.
|“||We find ourselves ... dealing with corporations rather than with individuals.||”|
|— Harry Cohn of Columbia Pictures, 1957|
In the 1950s Hollywood faced three great challenges: The Paramount case ending the studio system, the new popularity of television, and post-World War II consumer spending providing its audience with many other leisure options. The scale of both box office successes and flops grew, with a "dangerous middle" consisting of films that in the previous era would have made money. A filmmaker stated in 1957 that "[t]he one absolute disaster today is to make a million-dollar mediocrity. One of those you can lose not only your total investment but your total shirt." By that year Hollywood was only making about 300 feature films a year, compared to about 700 during the 1920s. Darryl F. Zanuck, head of 20th Century Fox, had no direct involvement with the studio from 1956 to 1962, and Louis B. Mayer, sacked in 1951 from MGM, died in 1957. Harry Cohn of Columbia, who died the following year, informed investors in the studio's annual report of 1957 that:
We find ourselves in a highly competitive market for [stars, directors, producers, writers]. Under today's tax structures, salary to those we are dealing with is less inviting than the opportunity for capital gains. We find ourselves, therefore, dealing with corporations rather than with individuals. We find ourselves, too, forced to deal in terms of a percentage of the film's profits, rather than in a guaranteed salary as in the past. This is most notable among the top stars.
Financial backers increasingly demanded star actors, directors, and writers for projects to reduce risk of failure. The growing importance of the overseas market—40 to 50% of Hollywood's total revenue by 1957—also emphasized stars' names as box-office attractions. With their new power, "working for nothing"—receiving a percentage of profit instead of a salary—became a status symbol for stars. A top actor could expect 50% of profit, with a minimum guarantee, or 10% of gross revenue. Cary Grant, for example, received more than $700,000 from his 10% of the gross for To Catch a Thief (1955), while director and producer Alfred Hitchcock received less than $50,000. In one extreme case, Paramount promised Marlon Brando 75% of the profit of what became One-Eyed Jacks (1961). (Because of Hollywood accounting, studios still received much of the revenue before any profit sharing; thus, they preferred 50% of profit to 10% of gross.) The larger paychecks also increased the power of talent agents such as Lew Wasserman of MCA, whose office was now nicknamed "Fort Knox".
By 1957, independent producers made 50% of full-length American films. Beyond working for others, top actors such as Gregory Peck and Frank Sinatra created their own production companies and purchased scripts. Top independent directors George Stevens, Billy Wilder, and William Wyler also saw their paychecks increase, in part because their involvement attracted star actors. Studios increasingly provided funding and facilities to independent producers as opposed to making their own films, or just like United Artists, they focused on distribution. While television had damaged Hollywood, TV production companies such as Desilu and the film studios' own TV divisions helped save the industry by using otherwise-unused facilities.
At the beginning of the 1960s the major studios began to reissue older films for syndication and transformed into mainly producing telefilms and b-movies to supply TV's demand for programming. Between 1969 and 1971 the industry underwent a severe recession, due in part to big-budget flops, but soon recovered artistically with such films as The Godfather (1972) and Chinatown (1974).
The onset of George Lucas's Star Wars (1977) became the prototype for the modern blockbuster. The release of films at hundreds of venues became the norm with hits such as the sequels to Lucas's Star Wars, The Empire Strikes Back and Return of the Jedi, Spielberg's back-to-back successes with Raiders of the Lost Ark and E.T. the Extra-Terrestrial, and the development of home-video and cable television. Meanwhile, the uncontrolled budget of Heaven's Gate (1980), and its limited box-office revenue, led to the sale of United Artists.
From 1990 to 1995, New Hollywood turned into more of a conglomerate Hollywood and quickly dominating the global entertainment industry. As of 2007, five of the Golden Age majors continue to exist as major Hollywood studio entities, each as part of a larger media conglomerate: Columbia (owned by Sony), 20th Century Fox (owned by 21st Century Fox), Warner Bros. (owned by Time Warner), Paramount (owned by Viacom), and Universal (owned by Comcast/NBC Universal). In addition, the Walt Disney Motion Pictures Group has emerged as a major, resulting in a "Big Six." With the exception of Disney, all of these so-called major studios are essentially based on the model not of the classic Big Five, but of the old United Artists: that is, they are primarily backer-distributors (and physical studio leasers) rather than actual production companies.
Sony, in addition to ownership of Columbia, also has effective control of the relatively small latter-day incarnation of MGM and its subsidiary UA; under the Sony umbrella, MGM/UA operates as a "mini-major," nominally independent of but closely associated with Columbia. In 1996, Time Warner acquired the once-independent New Line Cinema via its purchase of Turner Broadcasting System. In 2008, New Line was merged into Warner Bros., where it continues to exist as a subsidiary. Each of today's Big Six controls quasi-independent "arthouse" divisions, such as Paramount Vantage. Miramax Films (which originally was an independent studio) was owned by Disney until 2010. Most also have divisions that focus on genre movies, B movies either literally by virtue of their low budgets, or spiritually—for instance, Sony's Screen Gems. One so-called indie division, Universal's Focus Features, releases arthouse films under that primary brand. Both Focus and Fox's arthouse division, Fox Searchlight, are large enough to qualify as mini-majors. Two large independent firms also qualify as mini-majors, Lionsgate and The Weinstein Company. They stand somewhere between latter-day versions of the old "major-minor" - just like Columbia and Universal was in the 1930s and 1940s, except Lionsgate and The W.C. have about half their market share—and leading Golden Age independent production outfits such as Samuel Goldwyn Inc. and the companies of David O. Selznick.
In the mid-2010s, major studios shifted towards producing mainstream films that appeal to the audience (genre films, sequels, 3-D, and superhero films). As these films risk losing money at the box-office (and some, in fact, have), an opportunity opened up for independent companies to produce films that in recent years have upset other major studio films for the Academy Award for Best Picture. The Academy of Motion Picture Arts and Sciences (which produces the annual Academy Awards) generally award Best Picture Oscars to films of substance and high quality rather than the popular mainstream film. Between 2014's Birdman and 2017's The Shape of Water (both produced by the same major studio, 20th Century Fox), the multiple award wins for independent films such as Spotlight (Open Road, 2015) and Moonlight (A24, 2016) had a major impact on box-office intake of other major studio films, and possibly the fate of major studios themselves, and even so today with the latest wave of independent films. This continuing dominance of the independent film is proof that its success is not dependent on any film format, whether it be 3-D, CinemaScope, or any large-format such as IMAX. The recent outcomes of the Cannes Film Festival and the lack of American films winning these awards may also have had an impact on the dominance of independent film.
The upshot of all of this is the filmmakers that produce independent film are free to create their vision free of major studio influence and, in some cases, on low budgets.