The Man Who Made the Movies

by Vanda Krefft

  Case’s first few films weren’t encouraging. “One was a rooster crowing and sounded exactly like a pig squealing. The other was a dog barking, which sounded like a cow, ” Fox recalled. “About thirty or forty days later, they said, ‘Here, this time we have it.’ On the screen, there came rushing before me a train photographed on the Jersey Central tracks and I heard the whistles blowing and the wheels turning, just as though the train were with me in that room. I said, ‘Now you have it.’ ” They would soon name the sound-on-film system Movietone.

  For Fox, no progress ever occurred without opposition and rivalry. Less than two weeks after the formation of Fox-Case, Lee de Forest, angered by what he saw as the hijacking of all his hard work as well as his alleged investment of more than $1 million, sued Fox, Case, Fox Film, and Fox-Case for patent infringement. A few days later, on August 6, 1926, Warner Bros. debuted its Vitaphone sound-on-disk system with a gala presentation of Don Juan, starring heartthrob John Barrymore, at the Warners’ Theatre in New York. Advertised as “the Greatest of All Screen Achievements,” with opening-night tickets priced at ten dollars, the movie wasn’t actually a talking picture. It had no audible dialogue, just a musical score and sound effects—the latter consisting mainly of a few minutes’ worth of clanging church bells that announce, about an hour and a quarter into the movie, the wedding of Don Juan’s lost true love. Even such a limited advance created a sensation. Reviewers praised Vitaphone’s “remarkable synchronization” and called it “unquestionably one of the wonders of the world.” For months afterward, Don Juan sold out every performance.

  Fox took these developments in stride. Legal challenges were routine business for a large, successful company; he denied de Forest’s claims and prepared to hold out. As for Don Juan’s enthusiastic public welcome, Fox saw no immediate case of alarm. Vitaphone still had all its insurmountable practical liabilities, and the industry at large remained highly skeptical about going in a radical new direction. No other studio took up an active interest in sound.

  A greater concern, though, beset Fox. Within weeks of forming Fox-Case, he began to suspect that the Case patents were worthless. He had thought they constituted a freestanding, self-sufficient sound system. Now Fox-Case general manager Courtland Smith told him that AT&T and General Electric claimed to own all the relevant motion picture sound patents. “I was amazed,” Fox said. Furthermore, while the Case system had performed reasonably well in a compact projection room, in larger spaces the quality of the sound couldn’t match that of Vitaphone or even of a good radio. Low and high frequencies were missing; voices tended to sound nasal or raucous, and musical instrument tones lacked “sparkle.” It was never going to work in the multi-thousand-seat theaters that were clearly the wave of the future. Equally worrisome was the fact that Case’s system was incomplete and useless without amplification devices, and those were controlled by the electric companies.

  As much as he wanted to maintain complete control of sound-on-film, Fox knew he had to join forces with one of the large electric companies. They had not only the necessary expertise and large-scale equipment manufacturing capabilities, but also a virtual guarantee against patent litigation. In 1920 and 1921, the big three, General Electric, AT&T, and Westinghouse, had signed cross-licensing agreements to share reciprocally all their major talking picture patent rights and licenses. Thus, none could sue either of the others for infringement.

  Among the three, Fox didn’t really have a choice. Westinghouse had joined with General Electric on talking pictures, and AT&T had already placed its bet on Warner Bros.’ Vitaphone sound-on-disk technology. By all appearances, AT&T was delighted with Vitaphone. On the opening-night program for Don Juan, Western Electric president C. G. Du Bois boasted of his company’s great pride in contributing to this “event of far-reaching significance in human affairs.”

  Even if he’d had a choice, Fox probably would have chosen General Electric anyway because of the public persona of its chairman of the board, Owen D. Young, an industrialist-statesman with a personal story that seemed to embody the best of the American dream. The son of upstate New York farmers who mortgaged their land to finance his undergraduate and law school education, Young had pursued a distinguished career in private practice before joining GE, where he rose quickly through the ranks. In 1919, at the request of President Woodrow Wilson, Young formed RCA as a subsidiary to offset fears of foreign control of the emerging radio industry, and in 1924, with future U.S. vice president Charles G. Dawes, he coauthored the Dawes Plan for German reparations. A tall, quiet figure in his early fifties, with salt-and-pepper hair parted in the middle, Young had an intense gaze and a measured yet friendly smile. Fox said, “I looked to him as you would to a demigod.”

  Young was interested and, Fox learned happily, wanted not the sort of arm’s-length licensing arrangement that Western Electric had with Warner Bros., but to form a new company owned fifty-fifty by Fox and RCA. During their discussions, Fox’s admiration of Young deepened. Fox would recall, “He is the type of man when you meet him, it wouldn’t take long to have explicit confidence in anything he does. He does it in a very smooth way while smoking his pipe. It wouldn’t take long to trust him absolutely in any way he would expect you to trust him.”

  In awe of Young, Fox welcomed GE and RCA into Fox Film’s Tenth Avenue studio. He held nothing back, sharing all his company’s information and offering access to all departments working with sound. Fox’s attitude was, an RCA employee noted, “extremely liberal.”

  On September 23, 1926, Fox cleared away the main obstacle to the GE deal, Lee de Forest’s patent infringement lawsuit. Taking a $1,000 two-week option to buy the controlling stock of de Forest’s Phonofilm Corporation for $2.52 million and to hire de Forest for five years at $50,000 annually, Fox persuaded de Forest to suspend legal action. If de Forest’s claims had any merit, Fox would bring him into the fold. Fox and Young might have signed their contract then. However, because Fox and several GE executives had tickets for the Dempsey-Tunney fight in Philadelphia on the night of September 23, Young suggested they finish up the following morning. Fox agreed, assuming they had a gentleman’s agreement.

  “When we got back the next day, the deal was changed. It was to be 75 percent to the Radio Company and 25 percent to the Fox company,” Fox said. RCA also wanted to change a number of other terms that would reduce Fox Film’s role and profit sources. Fox refused to sign. Ominously, Young backed off from the negotiations, referring Fox to RCA’s president, James G. Harbord, a U.S. Army major general who had been appointed as a figurehead in 1923 and who’d had no previous experience in the electronics business.

  Fox had been shunted off into no-man’s land. He tried not to see it. For another month, rumors of an impending partnership with RCA fluttered around financial circles, and Fox remained hopeful enough not to deny them publicly. On October 7, 1926, he renewed his option to buy de Forest’s Phonofilm company, paying $100,000 for an extra four weeks and then, for nominal consideration, extended the option again to November 24. He believed he was making progress with RCA. He managed to push Fox Film’s ownership position in the proposed new company up to 35 percent. Then, the truth struck bluntly. One morning, RCA recalled its engineers and sent trucks to collect all its equipment from Fox Film. By mid-November 1926, the deal was dead.

  One person had killed it: David Sarnoff, RCA’s ambitious young vice president, who effectively ran the company. Sarnoff had been in Europe on business for several months and had returned to New York on September 1, 1926. When he learned about Young’s arrangement with Fox, he was not at all pleased. RCA didn’t need anyone else, Sarnoff believed. His company could develop sound-on-film by itself. Fox didn’t like Sarnoff either. At their first meeting, he recalled, Sarnoff “boasted of the fact that he was a ‘horse trader’ and wanted me to know it.” Perhaps they were too similar. A Russian-Jewish immigrant who, like Fox, had been raised in the Lower East Side slums and who, also like Fox, had an ineffectual father, Sarnof
f was just as determined to make a name for himself.

  Sarnoff won the tug-of-war over Young, who as RCA’s chairman of the board made the ultimate decision to abandon the planned Fox partnership. In early 1927, RCA would form Photophone to develop sound-on-film as a rival to Fox’s Movietone sound-on-film system. “There is no doubt in my mind that they [RCA engineers] subsequently used the information they got from me,” Fox said. He had no legal recourse because he had invited them in and he’d had no written agreement with GE or RCA.

  Young’s violation of honor stunned Fox. He never would understand why someone of such high standing would go back on his word. Of course it was for money, but Fox couldn’t quite let go of the idea that whatever one had to do to get there, nobler values ought to prevail at the top.

  General Electric’s desertion left Fox with a new, expensive company, Fox-Case, going nowhere. Acquiring de Forest’s Phonofilm company would not solve the problem. Upon investigation, Fox came to believe that de Forest had sold important motion picture patent rights to AT&T. De Forest insisted that those rights pertained only to radio, but he was hardly a reliable source. Fox let his option to buy Phonofilm expire, causing de Forest to reactivate his lawsuit with a $2 million demand and to go off the deep end psychologically, writing in his diary that Fox was a “hell-hound” who “kyke-like as he is, sought through his devilish machinations . . . to wreck us.” Fox countersued to recover his $100,000 option payment. In October 1928, de Forest would give up on Phonofilm, selling the company to the General Talking Pictures Corporation, which was owned by a South African theater chain. However, de Forest didn’t drop his lawsuit against Fox, which languished on the books until June 1937, when a federal judge dismissed it because of de Forest’s failure to pursue the case.

  Neither could Fox rely on the set of German sound-on-film patents he’d optioned in October 1926 for $10,000. Although the Tri-Ergon patents, based on the work of Berlin-based scientists Hans Vogt, Joseph Massolle, and Joseph Engl, represented seminal and possibly even preeminent research, no one in Europe had ever been able to make any money from them. The owners before Fox, three Swiss companies (two large textile manufacturers and a bank), had come the closest. In 1925 they’d licensed the Tri-Ergon system to the German government–supported UFA studios for use in making the talking picture The Girl with the Matches. The movie flopped so badly that UFA withdrew it from circulation almost immediately and canceled its contracts with Tri-Ergon. Within the United States, the patent application filed by the three German inventors on March 20, 1922, hadn’t yet been approved. It might not ever be. Patent approval was an extremely complicated process, requiring proof that an invention constituted a novel leap forward rather than just the logical next step of prior knowledge.

  Then, unexpectedly, events took an odd turn. Walter Rich, the outside agent who had brought Warner Bros. together with AT&T’s Western Electric to launch Vitaphone, asked Fox to come to the phone company’s offices. In fact, sugary public statements to the contrary, John Otterson, Western Electric’s general commercial manager, detested the Warners and couldn’t wait to throw them overboard.

  An Annapolis graduate with a master’s degree from MIT, a fifteen-year Navy veteran, and the former president of the Winchester rifle company, Otterson valued decorum and found very little of it in the Warner Bros. alliance. The difference in status was unseemly. In 1926, AT&T ranked as the fourth-largest U.S. corporation with $1.6 billion in total assets—or, including its affiliated and leased companies, in first place with $2.9 billion in total assets. Warner Bros. ranked seventh within the motion picture industry, with assets of only $5 million. Undoubtedly personal differences also irked the conservative, conventional Otterson. The four Warners were a loud, scrappy bunch uninterested in acquiring social graces, and head of production Jack Warner seemed to revel in his image as “a blunt, often tactless, vulgarian.”

  Otterson had tried for months beforehand to sabotage the April 1926 agreement by which Warner Bros. became Western Electric’s marketing partner for sound, asking for so many concessions that even the AT&T lawyer who drew up the contract found it “too burdensome” upon the Warners. The four brothers, however, really wanted the deal and kept agreeing. Finally, because no other studio was interested, Otterson’s superiors overruled him and ordered him to accept the Warners. By the end of 1926, Otterson was surer than ever that Harry, Jack, Sam, and Albert Warner would ruin the introduction of sound. As of August 1926, mostly because they had neglected film production to concentrate on Vitaphone, the Warners had amassed a deficit of nearly $1.3 million. By the end of the year, despite Don Juan, they still hadn’t signed up a single other movie studio for Vitaphone. In a December 17, 1926, internal memo, Otterson blasted Vitaphone’s management as “incompetent” and lacking “the confidence of practically all who have come in contact with it.” He concluded that the Warners had to be removed from authority at Vitaphone in order to avoid “a most embarrassing dilemma” for Western Electric.

  Fox Film would do as a replacement. The company had an eleven-year history of profitability, and it anticipated record revenues of $25 million for 1926. Additionally, Fox Film, unlike Warner Bros., had an extensive worldwide distribution network that could be used to generate business internationally.

  Lacking a basis to nullify the Warners’ contract, and with the brothers holding on tenaciously, Otterson could arrange only a sublicensing agreement for Fox to make and exhibit talking pictures. Fox would have the same access to Western Electric technology that the Warners had, and at the same prices, but he would pay royalties to the Vitaphone company, which Vitaphone would then split between Warner Bros. and Western Electric. The Warners had no say whatsoever about the terms of the contract between Vitaphone and Fox. Western Electric dictated every word and presented the agreement for execution to the Warners, who were sufficiently intimidated not to protest. Fox signed on December 31, 1926. The next day, Western Electric formed Electrical Research Products Inc. (ERPI) as a subsidiary to concentrate on the motion picture business, with Otterson as general manager. (A year later, he would become ERPI’s president.)

  According to Fox, Otterson didn’t want to accept sound-on-film technology, but simply to have Fox take over for the Warners in marketing sound-on-disk to the motion picture industry.* Two strong wills collided for what would not be the last time. Within a week, Fox began a campaign to prove the superiority of Movietone sound-on-film. He later said, “[I]t was not an easy matter to have them see it.”

  Rather than feature films, Fox used the snappier, cheaper newsreel format. On January 21, 1927, sixteen days after a demonstration to the press, he debuted Movietone sound to the public at a screening of What Price Glory at Broadway’s Sam H. Harris Theatre. It was a low-key event, unadvertised beforehand, with the program consisting of several experimental short subjects that unfortunately called attention to Movietone’s shortcomings as well as its achievements: the canary that Fox had admired still sang all right, but hissing sounds preceded the scene of a baby crying, and imprecise synchronization marred the performances of German opera soprano Frieda Hempel and Spanish vaudeville star Raquel Meller. The response was ho-hum. But they would fix the problems, Fox knew, and then audiences would love Movietone. He was so sure of that vision that he gave away four weeks’ worth of Movietone talking newsreels for free to about sixty of his theater owner customers who had already installed sound equipment. (The main part of the setup, amplifiers and loudspeakers, was common to both Vitaphone and Movietone; Movietone required that an optical sound reader be added to the Vitaphone projector.) At the end of the trial period, all the exhibitors signed up to continue Movietone News, even though Fox charged more than any other newsreel service.

  Otterson was only mildly impressed. Unwilling to abandon sound-on-disk as Fox believed he should, he did at least agree to modify recording and reproducing equipment so it could be used for sound-on-film as well. Now more than ever, AT&T wanted to sever ties with the Warners, whose existing
contract would give them a share of Movietone licensing fees, even though they had contributed nothing to that technology. In order to buy back the Vitaphone contract, phone company officials decided to try to buy Warner Bros.—with Fox negotiating the deal because the two principals were nearly at war with each other. However, AT&T wanted to pay no more than $4.5 million. “That was to take over the entire company, lock, stock and barrel,” Fox said. Warner Bros. president Harry Warner refused, explaining to Fox that he and his brothers had $3 million in debts. “He said to divide $1.5 million between the four of them would leave each of them very little, and that if they would be broke anyway, they might just as well continue.” However, Warner added that he was “perfectly willing” to accept $6.5 million. Fox urged AT&T to pay the extra $2 million. The phone company could well have afforded to do so, having earned a net income in 1926 of $155 million. Disdainful of the Warners, AT&T refused. Fox commented, “It was a great mistake.”

  If not money, then force: on March 14, 1927, Otterson visited the office of the Warners’ banker, Waddill Catchings of Goldman Sachs, and handed him a typed piece of paper demanding termination of the Vitaphone contract. That day or the next, Catchings went to see Otterson’s boss, Western Electric president Edgar S. Bloom, who threatened to announce publicly that the Warners had defaulted on their contract by not getting a sufficient number of theater installation contracts. (The Warners claimed that Western Electric had charged prohibitive prices, ignored sales leads, and stalled on equipment delivery.) According to Catchings, Bloom warned that if the financial community were to hear such news, “it would be impossible” for the Warners to raise the money they needed to keep going. Feeling “intimidated, terrorized and coerced,” on May 18, 1927, the Warners signed a series of agreements that, retroactively to April 2, 1927, canceled their exclusive contract with Western Electric and gave the ERPI subsidiary full control of licensing other producers and selling sound equipment to theaters. As a result, Fox’s December 1926 sublicense was replaced by a new agreement that put him in a direct relationship with ERPI.