The Evolution of Hollywood: From Studio System to Conglomerate Era
The Studio System and Conglomerate Hollywood
(Tom Schatz)
In August 1995, Neal Gabler, a Hollywood observer, wrote an op-ed piece entitled “Revenge of the Studio System” in response to recent events that, in his view, signaled an industry-wide transformation (1995). For him, the Disney deals (a quarter-billion-dollar deal with Mike Ovitz of Hollywood’s top talent agency, Creative Artists) confirmed “a fundamental shift in the balance of power in Hollywood – really the third revolution in the relationship between industry forces”.
Revolution 1
occurred nearly a century before with the formation of the Hollywood studios and the creation of a “system” that enabled them to control the movie industry from the 1920s through the 1940s. Revolution 2 came with the postwar rise of TV and the dismantling of the studio system by the courts, which allowed a new breed of talent brokers, “most notably Lew Wasserman of the Music Corporation of America (MCA)” to usurp control of the film industry.
By the 1990s
however, the combined forces of media deregulation, globalization, and new digital technologies were tipping the balance of power back to the studios, thus auguring Revolution 3, a new form of vertical integration. In the years that followed, it became obvious that Gabler got it only half right. There had been a significant power shift in Hollywood, and the Powers That Be were indeed devising new modes of vertical (and horizontal) integration to minimize risk and maximize profits.
The new rulers of Hollywood were not the studios but their parent companies, the media giants like Viacom (owner of Paramount Pictures), Sony (Columbia), Time Warner (Warner Bros), and News Corporation (20th Century Fox), which controlled not only the movie industry but the US TV industry as well. Disney, the one studio that had not merged with or been swallowed by a media giant, had in fact become one. This tectonic shift in the structure and economics of Hollywood actually began a decade earlier when News Corporation bought 20th Century Fox and launched the Fox Broadcasting network.
The movie studios, along with the conglomerates’ “indie film” divisions, TV and cable networks, and myriad other holdings, have become players in a game they no longer control.
The Rise and Fall of the Classical Hollywood Studio System
From the 1920s through the 1940s, the “studio system” referred both to a factory-based mode of film production and also to the vertical integration of production, distribution, and exhibition. The studio system coalesced in the 1910s and early 1920s via expansion, merger, and acquisition, and by the 1930s the film industry had evolved into what economists term a “mature oligopoly”.
Control of the movie industry was exercised by the so-called Big Eight studios:
- Big Five: MGM, Warner Bros, 20th Century Fox, Paramount, and RKO
- Little Three: Universal, Columbia, and United Artists (UA) (only ones who didn’t own theaters)
The studio system flourished during the Depression and World War II, two national crises that induced the government to sanction (or at least tolerate) the studios’ monopolistic control of the film industry.
The 1940s proved to be a watershed era for Hollywood, with an unprecedented boom due to war-related social and economic conditions early in the decade, followed by a drastic industry decline and an abrupt end to the studios’ long-standing hegemony.
Foremost among these was the Supreme Court’s 1948 Paramount decree, an antitrust ruling that resulted from persistent legal challenges by independent exhibitors, which forced the Big Five studios to sell their theater chains and prohibited the collusive trade practices that were crucial to the studios’ control of the motion-picture marketplace. Another was the rapid growth of TV that changed the postwar American lifestyle.
The studios responded (and survived) by changing the way they made movies and did business, concentrating on financing and distribution rather than production. This meant ceding creative control to independent producers and freelance directors.
The TV Era and the New American Cinema
By the mid-1950s, all of the studios had weathered the postwar storm except RKO (1948). Columbia and Disney had hit series on prime-time network TV. The major studios moved headlong into telefilm series production. The 1960s also saw an unprecedented surge in film imports and international co-productions, a trend that had been growing throughout the postwar era, and one which threatened the studios’ control of the marketplace as well as their narrative and stylistic traditions.
In the course of the 1960s, five of the seven Hollywood studios (Universal, Paramount, Warner Bros, UA, and MGM) changed ownership in a merger-and-acquisition wave unlike any since the formation of the studio system a half-century earlier. Four of the five purchasing companies had no experience of – and little interest in – media entertainment. The only studio acquisition involving a media-savvy buyer was the first of the five buyouts: the 1962 purchase of Universal Pictures and parent company Decca Records by MCA, who dissolved its talent agency after that to concentrate on film and TV production, distribution, and syndication.
Kerkorian was the financier and real-estate tycoon interested in MGM for its brand name and its library. He dismantled the studio in the early 1970s, selling the distribution operator to UA and cutting production to only a half-dozen films per year.
The Rise of the New Hollywood
Kerkorian’s demolition of the once-mighty MGM indicated a widespread loss of confidence in the movie industry at the time, as the combined effects of youth-marketed art cinema and a glut of big-budget flops led to a severe industry recession from 1969-71, with 20th Century Fox, UA, Warner Bros, and MGM all suffering record losses.
MCA-Universal was a major force, vaulting to the top of the movie industry with a string of hits, including, among others, Jaws. This film proved to be a genuine industry watershed, marking the birth of the New Hollywood in several crucial ways. Besides putting Spielberg on the industry map, it also provided a prototype for the modern blockbuster: a high-cost, high-speed, high-concept entertainment machine propelled by a nationwide “saturation” release campaign. The first film to gross over $200 million at the box office and to return over $100 million in rental receipts to its distributor.
Star Wars surpassed Jaws as Hollywood’s top all-time box-office hit and quickly evolved into the model New Hollywood “franchise”.
The industry recovery accelerated in the early 1980s, fueled by other mega-hits and also by the rapid emergence of the home-video and cable industries. Home Box Office (HBO), which in 1975 became the nation’s first pay-cable, with the overseas markets taking off in the decade.