RKO Radio Pictures

by Richard B. Jewell

  One can understand why Sarnoff and Hiram Brown might have viewed Pathe as an attractive acquisition. The Pathe Corporation had a long and distinguished history in the movie business. American operations had begun in 1905 when J. A. Berst opened a New York office for the production of features and short subjects by the French concern. The company pioneered the newsreel and, over the years, its newsreels gained wide popularity. Indeed, the famous crowing Pathe rooster logo became a symbol of excellence in the visual news field.47 Pathe also owned a studio in Culver City and leased an adjacent tract of land, known as the “40 acres,” where standing sets could be constructed. Since RKO's Gower Street lot was small with very little room for expansion or the erection of exterior sets, the additional studio space would be a welcome addition. Finally, Pathe also had that precious commodity that William LeBaron had failed to develop in his first years as RKO production chief—movie stars. Constance Bennett, Ann Harding, Helen Twelvetrees, and William Boyd did not reside at the top of the fan magazine polls, but they were bigger names than anyone under exclusive contract to RKO.48

  What is more difficult to understand is why Sarnoff once again overpaid for a company fronted by Joe Kennedy. After the transfer of papers comprising the FBO and K-A-O deal, Sarnoff had learned that Kennedy's sales pitch had considerably overstated the financial health and value of the companies he was purchasing. Yet he allowed Kennedy to outfox him a second time.

  RKO's first offer was sensible; it entailed an exchange of stock that would have cost the corporation no hard cash. But after Pathe's directors refused the plan, RKO agreed to pay a fixed sum. The purchase price was approximately $5,000,000, with a cash down payment of $500,000 and the rest to be paid in 6 percent notes. They would mature in five equal annual installments beginning January 1, 1932.49 The agreement was finalized on January 29, 1931.

  There may have been one additional reason David Sarnoff jumped into the transaction without taking a careful look at what he was buying. Throughout 1930 and early 1931, constant maneuvering threatened to upset the balance of power among the major Hollywood companies. For a time, it appeared MGM and Fox would form an alliance. Then rumors began to spread of a Fox-Warner deal, and several other combinations were proposed. If any one of these mergers became a reality, some industry executives theorized, the new giant studio would dominate the film business, making it nearly impossible for less-powerful outfits to compete. RKO-plus-Pathe was more formidable than just RKO—at least that was the thinking. Because of the worsening Depression and the threat of government action against a monopoly, no “megastudio” arrangement was ever concluded. And RKO quickly discovered that its absorption of Pathe had come at a most inopportune time.

  Just how RKO and Pathe would be integrated was a mystery at first. In February 1931 the executives decided to operate RKO Pathe (the new name) as an autonomous unit within the corporate structure. Lee Marcus, who would later superintend RKO's low-budget production unit, was made president of RKO Pathe Pictures, Incorporated. His initial task was “reorganization,” which translated into wholesale downsizing. The Motion Picture Herald reported that “echoes of the standard, routine and customary statement that everybody's job was safe had hardly died to a whisper when the volleys of the firing squad began.”50 No major shake-up occurred in the newsreel arm of the company. In fact, “Pathe News and Reviews” was made a subsidiary corporation with Courtland Smith in charge.51 Smith, a former newspaperman, had organized Fox Movietone News and worked on the development of the sound newsreel.

  Charles R. Rogers signed a contract to head production at the Culver City plant. He had begun as an independent distributor in Buffalo, then tried the theater business awhile before migrating to Hollywood, where he became a producer. He specialized in Westerns starring Harry Carey and Ken Maynard and was credited with discovering the team of Jack Mulhall and Dorothy Mackaill. The company announced that his budget would be “at least $10,000,000,” and twenty to thirty features would be forthcoming, as well as 158 shorts and weekly issues of the newsreel.52 Once again, however, the heady plans would quickly be sabotaged, this time by forces largely beyond the control of the RKO leaders.

  The commitment to Rockefeller Center and the Pathe merger were not the only signs that RKO management still believed the company could be an industry pacesetter. Early in 1931, it released its first epic production, Cimarron.

  Joseph Schnitzer had purchased the movie rights to Edna Ferber's novel about the birth of the state of Oklahoma for $115,000. Bill LeBaron then assigned Howard Estabrook to write the adaptation and Wesley Ruggles to direct. From the beginning, Cimarron was conceived as a special project, but it continued to grow in scope until it far surpassed anything the studio had ever attempted. Final costs amounted to $1,433,000; the combined budgets of Rio Rita and Dixiana were less than that.

  The completed picture received near-unanimous approbation from the tough New York critics.53 Even Franklin D. Roosevelt, then governor of New York, penned an appreciation: “It is not often that I really wax enthusiastic over a picture, but I think a really big thing has been done in the production of ‘Cimarron.’ There are so many millions of our present population who have no real conception of the great drama of the opening up of Oklahoma and of Cherokee Strip, that this representation will, for many years to come, have great historic value, even long after it is a ‘best seller.’ ”54

  A giant advertising campaign accompanied the film throughout its American release, and its reputation grew. It was included among the “Ten Best” of 1931 by both the National Board of Review and Film Daily. The climactic accolade came when Cimarron received the best picture “Oscar” awarded by the Academy of Motion Picture Arts and Sciences. No other RKO picture (except The Best Years of Our Lives, a 1946 Samuel Goldwyn production distributed by RKO) would ever win the coveted statue. Movie companies, however, run on box-office receipts rather than kudos, and here the movie failed its makers. The mammoth production cost was simply too much to recoup; Cimarron was carried on the studio books at a loss of $565,000.

  The hugely disappointing financial performance of Cimarron signaled the end of RKO's short-lived period of prosperity. The corporation reported net profits of $3,385,628 for 1930, but late in that year box-office admissions began to plunge and red ink replaced the black on its balance sheets. Company executives did not express alarm, but they did begin to look for ways to make better, more audience-pleasing pictures.

  Early in 1931, Joseph Schnitzer offered the unoriginal theory that production problems were actually story problems. He outlined the following cost-efficient procedure for the development of better material: “We will pay the free-lance writer so much down for an idea submitted and which we approve. Later on we will pay so much more for the story's development. And upon its completion we will make the final payment.”55 This, apparently, is one of the earliest formulations of the so-called step-deal that became popular during the post-studio system era. RKO, however, did not implement the concept with any effectiveness in 1931; instead, it invested in literary properties that were then adapted to the screen by studio writers, or it combed the files looking for silent scenarios to remake as sound vehicles. Only a few new ideas made it into production.

  By midyear, everyone in Hollywood recognized that the movies were not “Depression-proof” after all. RKO's leaders had placed their new company in a particularly vulnerable position. The theater expansion of 1929 and 1930 now seemed ill-advised because most houses were losing money. Its productions were among the least appealing in the industry; the studio was spending an excessive amount of money on its pictures, but not getting much value on the screen. There was also something of a war going on between William LeBaron and Joseph Schnitzer concerning who would have the final say in production decisions.

  Friction had also developed between Lee Marcus and Charles R. Rogers at RKO Pathe. The economy-minded Marcus became alarmed by the costs of Rogers's initial pictures and the fact that some of his films had begun shootin
g without finished scripts or final budgets. On May 1, 1931, Rogers wrote Marcus defending his approach. He asked the RKO Pathe president to get the accountants off his back, because “we are not manufacturing shoes and hats. After all, we are producing pictures and it is simply impossible to give definite final budgets until we are almost ready to start shooting.” He begged his boss “to have confidence in our judgment out here…in order that we may give you the kind of product we are striving for.”56 But Marcus was right to express concern, for his studio was fast becoming a major burden to the corporation.

  In June 1931 Hiram Brown arranged a loan of $6 million from the Chemical National Bank to keep RKO Pathe afloat. Marcus's cost-cutting policies and Rogers's productions were not paying off; the subsidiary was losing between $10,000 and $50,000 per week. Reasons offered for the difficulties included a “low inventory” of completed pictures, “markedly increased operating costs of the newsreel under the new regime,” and “payments from income to Pathe Exchange, Inc.”57 The operating costs were figured to be $100,000 weekly. However, Marcus and Herman Zohbel, treasurer of RKO, did not appear to be overly distressed. With new capital assured, they predicted that the company would be running in the black by August 15.58

  They were mistaken. In October, business was so grim that all the Hollywood companies began calling for a reduction in admission prices throughout the nation.59 RKO Pathe continued to be a millstone around the corporate neck, and something had to be done. A partial solution was reached in early November; the separate distribution systems of the two studios would be merged, saving an estimated $2 million a year.60 Not surprisingly, this was the first step in a process that would eventuate in the disappearance of RKO Pathe. The move was also the first in a startling series of events that would continue into early 1932.

  The next major surprise was the signing of David O. Selznick as the company's new production head in November 1931. Selznick was an enfant terrible. Son of pioneer producer Lewis J. Selznick, from whom he had learned a great deal about filmmaking, Selznick had weathered stormy tenures as a producer for MGM and Paramount. Nevertheless, he did an exceptional job of selling himself to the chairman of the RKO board, David Sarnoff. Sarnoff decided to give Selznick a chance, even though the twenty-nine-year-old had never run a studio before.61 It was a brilliant, though poorly timed, decision.

  In the beginning, no one was quite sure how Selznick would function. Uncertainty arose from the fact that LeBaron was still on staff and Charles Rogers remained the apparent head of RKO Pathe production. Indeed, Rogers, who was in New York when the Selznick deal was completed, must have received mixed signals from upper management about his position. He sent a wire to his second-in-command at the studio, Harry Joe Brown, asking him to “correct the erroneous impression” that Selznick would have oversight of all future production.62 Brown dutifully copied Rogers's wire and circulated it to all the RKO Pathe department heads. In it, Rogers stated emphatically he would continue “in complete charge of all RKO Pathe pictures with the definite understanding that I am not to supervise any…Radio Pictures and Selznick is not to supervise any…RKO Pathe Pictures.”63 By late December, however, David Sarnoff had clarified the situation. Selznick would indeed be supreme commander of production at both RKO and RKO Pathe, while the others would fade into the background or soon be looking for new jobs. Charles R. Rogers was the first to go.64

  Selznick was hired to make superior, successful pictures, a scarce recent commodity at the company. During 1931, RKO and RKO Pathe had released fifty films. Thirty-three were unprofitable and two broke even. Of the winners, only three posted profits of $100,000 or more. The Common Law, starring Constance Bennett, and Cracked Nuts, featuring Wheeler and Woolsey, topped the list, each bringing home a profit of $150,000. But Beau Idea lost $330,000, Friends and Lovers $260,000, Rebound $215,000, and Fanny Foley Herself and The Woman Between $200,000 each, while five other pictures generated losses of at least $100,000 apiece. And let us not forget the mammoth box-office belly flop of Cimarron. It was a horrible year for company product, which helps to explain why Sarnoff decided to take a flier on the inexperienced Selznick.

  The fact that RKO's talent cupboard was inadequately provisioned made Selznick's new job even more daunting. The reputations of the RKO Pathe actors had not been bolstered by their 1931 films, and LeBaron continued to strike out in his efforts to attract or develop any star personalities for the Gower Street lot. Appearances in Cimarron did lift the careers of Richard Dix and Irene Dunne a bit, but character actor Edna May Oliver probably profited more from the picture than either of them. By the end of the year, she was ranked third behind Dix and Wheeler and Woolsey in the hierarchy of RKO players.65 A concerted effort was under way to make her the equivalent of MGM's surprisingly potent star, the elderly but vibrant Marie Dressler.

  Bebe Daniels left RKO for Warner Bros. during the year, prompting LeBaron to sign Dolores Del Rio. But, otherwise, 1931 was characterized by the wholesale dismissal of many creative personnel. The financial crisis cost the jobs of producer Myles Connelly, directors Harry Hoyt and Paul Stein, and writers Tim Whelan, Anthony Coldeway, Charles Whittaker, and Graham John.66 Although the studio was not exactly a ghost town when he took over, Selznick would at least have considerable latitude in building his own production team.

  Besides Selznick, one other important executive became associated with RKO in 1931. Ned E. Depinet had worked as sales manager for Universal, First National, and Warner Bros. before accepting the position of vice-president and general sales manager of RKO Pathe in February.67 In a company that became notorious for its executive revolving door, the baronial Depinet would demonstrate remarkable longevity. He soon took control of RKO's distribution arm and remained one of the company's most engaged and visible administrators for more than twenty years.

  Depinet and David Selznick's new jobs would be further complicated by their company's frightful financial situation. During the month Selznick was hired, reports that RKO was in danger of total collapse began to circulate. B. B. Kahane, RKO's general counsel, attempted to explain what had happened: “Up to and including May of 1930, RKO boasted of an average daily bank balance of $800,000. Little did we think then that economic conditions and business activities within the company would make it so difficult in May and again in September of 1931 to secure financing.” Kahane added that current problems necessitated the procurement of at least $4 million by January just to continue operations. In addition, extra money was required to cover obligations that would come due early in the year. RCA had already advanced $1 million to RKO, but this was only a stopgap.68

  RKO leaders quickly developed a strategy to salvage the infirm “Titan.”69 Stockholders were asked to approve a recapitalization plan that would give them one new share of RKO stock for four old ones, thereby reducing capital stock by 75 percent and clearing the way for issuance of new stock and ten-year 6 percent debentures totaling $11,600,000. RCA agreed to underwrite the debentures. If stockholders rejected the plan, the company would, almost certainly, fall into receivership.

  As expected, several minority stockholders were not enthusiastic. Some considered the deal a stratagem by which RCA planned to acquire total control of the movie organization. Despite management statements that RCA naturally wanted to aid a company it had created and that RKO would be no prize package for RCA, a number of stockholders filed suits and petitions for receivership. Their stock was not worth much, but they could not comprehend the logic of trading four of their RKO shares for one new one.

  In early December, Hiram Brown invited twenty newsmen to his office and publicly accepted the blame for RKO's precipitous decline. In addition to the production of bad pictures, Brown listed such disparate causes of company trouble as “the warm summer spell and protracted hot period of 1931, [and] the British going off the gold standard.”70 Variety advanced the idea that Brown's biggest mistake was failing to select “showmen as his closest advisors.”71 The same story chastised RKO's leadersh
ip for remaining nonchalant about its dreadful productions for almost two years. The decision to place someone new in charge of the studio was considered long overdue.

  A majority of RKO stockholders eventually decided that the refinancing plan was best for the future. The plan was ratified during the week of December 12, with the company to receive $11,600,000 on January 2, 1932.72 As guarantor of the advance, RCA would secure more than one-half the stock and over three-quarters of the debentures; there was no question that David Sarnoff now controlled RKO.73 Still, the film corporation was no bargain, as both RCA and RKO executives constantly reminded the press. Its stock had plummeted from a high of 50 to a low of 1⅞ in less than two years. A great deal of work would be required just to prop the studio back on its feet.

  Watching as RKO's leaders churned their way through the year-end financial imbroglio, exhibitors began to wonder if both RKO and RKO Pathe would deliver product as promised. Some conjectured that the films might be rushed and inferior due to the crisis situation. Lee Marcus assured the theater owners that the companies would discharge their obligations and that there would be “no foolish economies sacrificing either negative quality or distribution efficiency.”74 Despite such promises, RKO production ended 1931 under a very dark cloud. Before most Americans, including President Herbert Hoover, realized what was happening, their country had plunged into a frightening depression. Millions of workers lost their jobs, thousands of businesses failed, and the combined profits of the eight major film studios fell from more than $50 million in 1930 to $6.5 million in 1931.75

  And, thus, the Radio-Keith-Orpheum age of innocence came to an abrupt end. From a beginning filled with glorious possibilities, through a period of aggressive growth when its theaters prospered and many of its bad pictures made money, RKO awakened in late 1931 to a problematic future. The corporation reported a net loss for the year of $5,660,770 with $3,716,865 of the deficit stemming from production operations.76 From this point on, nearly every year of the company's history would be a struggle. Only during the movie-crazed World War II era would studio executives be able to smile and watch the profits pour in.