Three secondary players were reported to be on the way out. Robert Armstrong was making $2,000 per week, a salary deemed “excessive,” and would not be renewed when his contract expired on October 18. Kahane thought that Helen Twelvetrees was “virtually through with us” and reported that Ricardo Cortez had failed to develop “a box-office following.”26 But Kahane decided to postpone a final decision about Cortez until just before his contract expired in October. Cortez was then making $1,750 per week.
Among the directors and writers, the only ones felt to be receiving too much money were Wesley Ruggles and Howard Estabrook, the Cimarron duo. Although no specific comment was made, it appears implicit that these two holdovers from the former administration were dispensable.
This kind of candid dissection of company personnel may seem coldblooded, but it was absolutely necessary as the company's financial condition approached a very dangerous plateau. Analyses of this kind would become even more frequent in the future.
Despite the frenzied studio economizing of B. B. Kahane and cuts to Selznick's production budget, RKO continued to lose significant amounts of money. The net loss for the first half of the year amounted to $1,375,170.27 One problem was vaudeville, formerly a financial asset that had become a decided liability. In the Brown-Schnitzer-LeBaron days, the popularity of vaudeville shows in RKO theaters partially compensated for the company's poor pictures. Now the studio was making better movies, but the variety programs no longer seemed to appeal to customers. In late August the company eliminated vaudeville shows completely in thirty-one of its houses. Harold Franklin, head of RKO's theaters, estimated the move would result in increased gross profit of 237 percent.28
Conflict between Aylesworth and Selznick began to develop in late July. Aylesworth wired Kahane refusing Selznick's request to hire Sam Jaffe as studio production manager because he considered the salary requirement exorbitant.29 He also criticized the studio's failure to complete productions on time (in order to meet distribution dates that Depinet and his staff had promised exhibitors) and mentioned cost overages on certain pictures.
When the telegram arrived in Hollywood, Kahane gave it to Selznick who immediately responded in a heated memo. With respect to Jaffe, Selznick stated emphatically that he considered him the best production manager in the business, a man who could save the company hundreds of thousands of dollars in production costs. The refusal to hire Jaffe because of his salary demands represented, according to Selznick, the worst kind of “false economy”: “We would be justified in overpaying a man a great deal in salary, for he could save a yearly overpayment to him in the course of a month's production in any major studio. This, believe me, is not theory or conjecture; it is fact.”30
He also lamented the inability of New York executives to understand that the studio “daily bulletin” contained only tentative release dates for pictures. “I cannot tell you, and neither can anybody else, how long it is going to take me to lick this story or that script,” Selznick explained. He concluded the memo with a defense of his administration's performance: “I do not know who in New York is back of Mr. Aylesworth's worries or criticisms…. I am both surprised and sorry, because I had hoped, and, indeed, thought, that he was fairly well impressed when he was out here. But I should like you to know that I have no apologies whatsoever to offer for the job we have done; on the contrary, I am proud of it.”31
Kahane enclosed Selznick's memo in his reply to Aylesworth, dated July 26. His letter amplified Selznick's remarks. He included lists of features and their planned release dates, showing that only three of the last fifteen had been delayed. In addition, Kahane reminded his boss that movie production is unlike other industrial undertakings:
After all, the production of pictures is not like the manufacture of some staple commodity—there are many delays that are inevitable and unavoidable—and some lee-way must be allowed. Knowing our cash condition and realizing how “close to the handle” we must work, I have impressed upon Mr. Selznick the necessity of doing all he possibly can to meet release dates punctually and I am sure we can count on his complete cooperation, but New York must not expect every production to come through exactly as scheduled.32
In regard to individual films going over budget, Kahane declared that this also was inevitable, but indicated the averages would be made up by bringing in other films under budget. Thus, the entire program would not cost more than the $9.5 million allowance. The Conquerors and Hold ‘Em, Jail were mentioned as films that would definitely exceed their budgets.
Aylesworth digested the information, along with some other reports he had received, and then dispatched a wire to Kahane designed to impress on him and Selznick the necessity of pinching every penny. He also attempted to mollify Selznick by praising him for giving the company “much better product.” Then Aylesworth outlined the seriousness of the current situation: “Fighting as we are here for reduced expenses in the entire RKO organization, we must necessarily strictly limit our expenditures in the studios…. Confidentially I had great difficulty in obtaining sufficient monies from our board to carry on our operations at this time due to the general feeling that past experience made it almost impossible for us to carry on successfully and that the present business depression did not warrant a continuation of any business on past financial performances.”33
The wire continued the complaint about overages on several pictures, and gently scolded Selznick for certain films that were not, in any sense, superior to the shabby efforts of the former regime. Roar of the Dragon, Roadhouse Murder, Westward Passage, Girl Crazy, and Young Bride were mentioned. Finally, Aylesworth conveyed the news that he had asked for a postponement of the August board of directors meeting, hoping that more definite financial progress could be demonstrated in September or October.
Once again, Kahane asked Selznick to reply. The forthcoming memo was more tempered than his previous effort. After once again explaining that budget overruns on certain pictures would be balanced by reducing the estimated costs of others, Selznick accepted blame for most of the poor films Aylesworth had mentioned. He rationalized the failures thus: “However, conceding…that all five of the pictures mentioned are poor, I should like to say that there will always be poor pictures from every studio. Nobody can hit the bull's eye every time, and if out of every group of pictures we send east, one or two of them do not live up to expectations, or are even complete clucks, we would still have the highest percentage of good pictures that any studio has ever turned out.”34
To prove his point, Selznick listed twelve recent MGM blunders that had been all but forgotten because of the successes of Grand Hotel and Letty Lynton. After stating that he appreciated “the spirit of Mr. Aylesworth's wire, and know what he is up against,” Selznick promised to “conscientiously do everything in my power to cut costs and ease the financial situation.”35 Kahane once again forwarded Selznick's memo with a cover letter assuring Aylesworth that the program would be completed within budgetary limitations.36
Apparently, Merlin Aylesworth was beginning to feel that Ben Kahane had become overly supportive of Selznick. He prefaced his next telegram to Kahane with a reminder that “as president of the picture company you must always assume position of New York executive as well as general manager at Hollywood.”37 The implication was that Kahane better start bearing down on Selznick because things were not developing as promised. One aspect that particularly upset Aylesworth concerned A pictures and B pictures. Sometimes the demarcation line between A and B product was indistinct, but usually there was no doubt about the designation of a picture. The RKO program called for forty pictures, alternating regularly between As and Bs. So far, nine pictures had been finished, and Aylesworth was shocked to discover that only one represented the B class. At that rate, the studio would surely exceed its production budget. After instructing Kahane to press Selznick while keeping both the production head and Merian Cooper “inspired,” Aylesworth reported that “the next three or four months are the vital perio
d and will tell the future story of RKO and Radio pictures.”38
Kahane's reply emphasized comprehension of the obligations of his position, of the problems at hand, and of the necessity to produce the correct number of movies within budgetary limitations. Since box-office receipts had fallen even more, he promised to shoot for a $9 million program, rather than one costing $9.5 million:
I have made all this clear to Mr. Selznick and Mr. Cooper and not a day goes by that we do not discuss the cost of the pictures in production and being prepared for production, as well as commitments, overhead and other factors affecting cost. I go over every preliminary production estimate and if it is in excess of the appropriation I will not pass it unless I am satisfied that the overage is justified and, if justified, can be made up by reducing the appropriation on other productions.39
Kahane was telling Aylesworth that he was doing his job. Significantly, however, the letter contained no mention of the A versus B problem.
Fall arrived, but the movie business could not pull out of its tailspin. RKO's board of directors decided to cut the production budget by $1 million, necessitating the elimination of four pictures from its program. Aylesworth was worried about the new budget and conveyed his feelings to Kahane:
The entire motion picture business is in precarious position, and the business interests that furnish money have lost confidence in Hollywood production. With all our complications of entering Radio City which is most important to future of Radio Pictures and RKO and with determined successful attempts to cut theatre expense and general RKO expense, it is absolutely essential we show our board of directors we can live up to our word. If we do this successfully, I have no doubt of the future of RKO and Radio Pictures.40
Although President Aylesworth was giving most of his attention to financial issues, he had not set aside his commitment to the prospective alliance between radio and movies. There is no evidence his efforts had as yet had any effect on the other studios, but he made sure RKO was doing its part. In August the studio launched an extensive advertising campaign around the joint radio-film exploitation of a mystery called The Phantom of Crestwood.
The idea worked as follows: The studio would release Bartlett Cormack's original screen story throughout the United States on October 14. Beginning August 26 and continuing weekly for six weeks, the NBC radio network would present a dramatization of The Phantom. The final episode, however, would not be broadcast; instead, listeners would be encouraged to submit their own endings to the story. Awards totaling $6,000, including a first prize of $1,500, would be parceled out for the best dramatic solutions. The winning ending would not, unfortunately, end up in the picture; there would not be enough time to shoot it, since RKO planned to open the film shortly after the final radio broadcast.
The Motion Picture Herald was enthralled by the concept: “The ramifications of the campaign will be tremendous. Radio set owners, motion picture fans, newspaper readers, fan magazine readers—and inevitably, all persons with whom these vast potential audiences come in contact, will learn about the picture well in advance.”41 The results of the advertising gimmick, however, were less than earthshaking. The big problem was the story, which had no real freshness to it. The Phantom of Crestwood was just another convoluted murder mystery, and its film version starring Ricardo Cortez, Karen Morley, and Pauline Frederick did not excite the audiences of the time. The radio serialization may have helped somewhat—the movie made a modest profit—but it was not deemed worthwhile to offer a sequel to the experiment.
Later in the year, the necessity of reducing the size of the program spawned a new idea in the minds of the Hollywood executives: unit production. This concept was a variation on the United Artists model. A group of independent units might be signed to produce a fixed number of pictures. Financing would be shared by RKO and the independents, with profits to be divided after RKO's standard distribution fee was subtracted. This would assure the company a steady stream of films to meet its exhibitor commitments, while reducing the cash expenditures for production. It would also enable the head of each unit to devote all his time and energy to a limited number of pictures. This appealed to Selznick, who was beginning to tire of managing an entire slate of productions. “A production schedule of forty or more features is too much for one man to supervise in one season,” he said.42
B. B. Kahane liked the idea. He argued for the unit concept in a letter to Aylesworth dated November 1, 1932:
I am convinced that in a plan of decentralized production lies the industry's best chance to control costs and schedules and improve the quality of product. For such a plan to be successful, the producers in charge of the independent units must be reliable men of experience and ability and they must have some of their own money invested in their productions, or, if they cannot be induced to share in the cost, they must operate under an arrangement which will penalize them if they exceed their budgets or fail to meet release schedules.43
Kahane further explained that no one, in his opinion, would work as hard on a straight salary as he would if he had a stake in the outcome of his efforts. Although convinced of its efficacy, Kahane cautioned that unit production “should be worked out slowly and gradually and without a sharp disruption of the present administration.”44 Pandro Berman, Walter Wanger, and King Vidor were mentioned as potential unit heads.
Remarkably, the year 1932 would be one of the most vital in the history of RKO for talent acquisition, thanks to David Selznick's keen instincts. Despite intense pressure to produce successful pictures, Selznick devoted considerable time to building a solid production team. He turned out to be an astute judge of character as well as capability.
George Cukor, for example, moved to RKO from Paramount, along with Cooper and Schoedsack. Cukor had been part of the influx of New York theater veterans lured to the movie capital by the arrival of sound. After serving as dialogue director for Universal on All Quiet on the Western Front, he had been given an opportunity to direct by Paramount. One of his early assignments, One Hour With You, resulted in open conflict between the neophyte Cukor and two of Paramount's most powerful men—B. P. Schulberg, then head of production, and Ernst Lubitsch, the company's most famous director.45 Thus, when Selznick asked him to come aboard at RKO, Cukor was happy to accept. And Paramount seemed pleased to have RKO take over Cukor's contract.
Another individual who would soon become an important RKO employee, Kenneth Macgowan, was signed by Selznick as story editor in January 1932. A cultured gentleman, Macgowan had enjoyed some success as a producer of plays in New York. In short order, he would migrate from the story department to producing pictures.
Without doubt, the company's most serious personnel problem was in the acting arena. The RKO stock company was woeful when Selznick took charge. Even formerly potent stars like Constance Bennett and Ann Harding had been adversely affected by appearances in poor pictures. Selznick knew he would have to build stars; company finances were not in any shape to discuss contracts with expensive talents. If he could sign unknowns to long-term arrangements, then groom them quickly, the production head might be able to pull together a coterie of stars at a modest expense. In light of this approach, the signing of Katharine Hepburn seems a logical, though still rather daring, move.
Hepburn had gained some attention for her New York stage work by the time Selznick and Cukor became interested in her for A Bill of Divorcement. In late May, a screen test was made of the actress in New York. She and her agent were both unsatisfied with the results, but the RKO executives decided to look at the test anyway. Lee Marcus was not impressed. He wired Selznick in June stating, “Her salary is one thousand per week which is all out of proportion to her capabilities and experience.”46 Cukor felt differently: “With David Selznick,…I saw a test that she'd done in New York. She was quite unlike anybody I'd ever seen. Though she'd never made a movie, she had this very definite knowledge and feeling right from the start.”47
Selznick evidently concurred, for he overru
led Marcus and signed Katharine Hepburn on June 22. The agreement called for one picture to begin production within sixty days, with three weeks guaranteed at $1,250 per week. If the company was pleased with her work, the options in the contract could keep Hepburn in RKO pictures exclusively for five years thereafter. She was, however, free to do theatrical work when not toiling in Hollywood.48 As B. B. Kahane told Aylesworth, the salary investment in the actress was “comparatively very little if Hepburn makes good.”49
Late in the year when David Selznick's continuation with RKO became an open question, he nevertheless kept pursuing new talent. He became interested in a dancer who had gained recognition in a stage act featuring his sister Adele as his partner. Once again, Selznick ordered tests to see if the subject photographed well. After viewing the film, Selznick recommended the signing of the performer in this wire to New York story editor Katharine Brown, who doubled as a studio talent scout: “Definitely interested in Fred Astaire for lead in musical to be directed by Sandrich if we can get him on reasonable terms, for period of years; possibly allowing him time off to do play if this becomes absolutely necessary. Conceding that his ears and chin are drawbacks, his personality seems to come through and feel we might be able to drum up considerable publicity interest if we sign him.”50
Fred Astaire did not sign his first contract with RKO until 1933. As he correctly recalls in his autobiography, the initial commitment was for one picture, three weeks guaranteed at $1,500 per week. With just a trace of bitterness, he stated: “The only risk the studio took at signing was the total sum of $4500. If I had failed, I would have been dropped.”51
One other 1932 personnel matter involved new contract negotiations with Wheeler and Woolsey. In October, Kahane offered the team $50,000 a picture against 10 percent of the gross receipts, but they held out for a guarantee of $75,000 a picture. Kahane considered this figure too risky. One of his letters reveals how carefully such matters were factored:
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