RKO Radio Pictures

by Richard B. Jewell

  The remainder of the memo, written on February 3, 1933, but never sent, included other biting references to Aylesworth and also Selznick's overwhelming disappointment with David Sarnoff. Sarnoff, according to Selznick, had made various promises and given certain assurances, then backed Aylesworth against him at the crucial moment.76 David Selznick left RKO with a bitter taste in his mouth.

  Aylesworth allowed Selznick to slip away just as he was hitting his stride as a production chief. His 1933 releases, including Topaze, which was named “Best American Film of 1933” by the National Board of Review of Motion Pictures, could hold their own against product coming from the other studios. Their pictures, however, were completely overshadowed by the most famous film RKO would ever make: King Kong.

  Begun in August 1932, King Kong was not released until after Selznick departed RKO. Known at various times in its production history as The Beast, The Eighth Wonder, and Kong, the picture was unquestionably the creation of Merian C. Cooper. As described by the movie's star, Fay Wray, Cooper was “a fascinating combination of high imagination, an implicitly rebellious nature, a political conservative, an intellect, an adventurer, and a visionary.”77 He conceived the idea and codirected (with Ernest B. Schoedsack) as well as producing. Cooper's own love of adventure and Barnum-like qualities were captured in the character of Carl Denham (played by Robert Armstrong), who leads the expedition that ultimately transports the giant ape to New York City.

  Selznick actually had little to do with the picture, as he readily admitted.78 But when he and Kahane saw how the film was developing, they ferreted out extra funds to pay for the pioneering special effects that turned King Kong into a sensation. Considering the financial situation at the time and the growing strain between the studio and the New York office, this was no small feat. When finally completed, the film had exceeded its original budget by $300,000.

  As reports spread about Kong, telegrams were dispatched weekly from the distribution department to the studio asking when it would be ready. Everyone understood how much the company needed a major hit. The entire industry also knew that something unique was in the works at RKO; MGM executives even offered to buy the picture for $300,000 to $400,000 more than its production cost. Kahane informed Aylesworth but refused to sell.79

  The movie finally premiered in early March at both the Radio City Music Hall and the RKO Roxy. It was an instant success. The openings in other parts of the country were equally spectacular. Sid Grauman wired Cooper after its first night at the Chinese Theater in Hollywood: “Never saw greater enthusiasm at any premiere in my past experience of presenting premieres as that of King Kong. First time in history of any picture where applause was so frequent and spontaneous…. Every person leaving the theatre tonight will be a human twentyfour sheet.”80

  King Kong eventually earned $650,000 for RKO, an impressive figure but not as much as originally hoped. Its later, highly successful reissues suggest that the picture would have fared better if it had been released at a time other than the darkest hour of the Depression. Nevertheless, King Kong was like a desperately needed blood transfusion to RKO's corporate body. The film did not save David Selznick's job, nor did it stave off receivership, but it convinced the world that the beeping-tower studio still belonged in the movie business.

  David Selznick had gone back to work as a producer for his father-in-law, Louis B. Mayer, at MGM when King Kong began its triumphant theatrical run. He was surely pleased for his friend Cooper, but sad that he no longer occupied the most important office on the Gower Street lot. Back in November 1932, when Selznick's RKO contract negotiations had just begun, Mayer offered him the job, which must have been tempting since MGM was the most stable and prosperous studio in Hollywood at the time. But Selznick sent Mayer a long letter refusing the position: “Should RKO wish to continue with me on terms that are mutually agreeable, I feel that I owe them my allegiance. They gambled, and gambled heavily on me. They have permitted me to spend many millions of dollars entirely as I have seen fit. I think I have learned a great deal, and that they, as well as I, are entitled to the benefit of this learning.”81

  After explaining that he was inspired by the idea of making a success of RKO, despite the company's evident difficulties, Selznick ended his missive with additional words of gratitude: “[P.S.] RKO had an amazing faith in me at a time when my previous employers did everything to run me down, and when very few other companies in the business had even an appreciable respect for my ability. Notably, MGM did not change in its disrespect for these abilities from the time I left its employ about six years ago, until a few months ago. Faith, I feel, should be returned with faith.”82

  Thus, Selznick sincerely wished to remain with Radio Pictures, but Aylesworth's intransigence drove him to MGM. No one can say what would have developed had David Selznick continued to function as RKO production chief. But the record of films he brought forth during the following eight years—including Dinner at Eight, David Copperfield, Anna Karenina, A Tale of Two Cities, A Star Is Born, The Prisoner of Zenda, Intermezzo, Gone With the Wind, and Rebecca—is unequaled in American film history. David Selznick could have given RKO precisely what it needed—a continuity of tasteful, intelligent, and profit-making productions. But Selznick was jettisoned, and the studio never found a comparable replacement. Merlin Aylesworth's decision to drive Selznick away, and David Sarnoff's complicity in the decision, would be one of the most devastating mistakes in the history of RKO.

  4. “All this is very distressing to me”

  The Aylesworth-Kahane-Cooper Regime (1933-1934)

  B. B. Kahane and Merlin Aylesworth were prepared for the departure of David Selznick. They had decided in January that if negotiations with Selznick failed, they would ask Merian C. Cooper to take charge of production.1 When the opportunity was presented, Cooper first asked Selznick's permission. He felt considerably indebted to Selznick, who had brought him to RKO and supported him throughout his association with the studio. Selznick had no objections, and Cooper accepted the position. Merian Cooper had a big job ahead of him, for at that very juncture the “Titan” was entering equity receivership.

  On January 27, 1933, Judge William Bondy of the United States District Court in New York appointed the Irving Trust Company as receiver of the Radio-Keith-Orpheum Corporation. The action came after three separate petitions for receivership were filed in New York, Newark, and Baltimore.2 The specific circumstance that forced RKO into receivership was its default on some $3.5 million in gold notes, issued to raise operating capital, which came due on January 1, 1933. When the company could not make good on these obligations, court intervention became a certainty. Paramount, a company that reported a deficit of $21 million for 1932, went into receivership at precisely the same time. Warner Bros. and Fox were also tottering on the brink of disaster. The former piled up losses of $14.1 million, and the latter $17 million in the same year. RKO's final corporate loss for 1932 was $10,695,503.

  Information disclosed in the subsequent hearings revealed that the theaters were the primary contributors to the company's financial plight: “In spite of subsequent economies which have been effected, profitable operation of these theatres under present business conditions has proved impossible because of the burdens of excessive rents and fixed charges,” said Aylesworth. “A number of these theatres could be profitably run if necessary revisions of rentals and other fixed charges could be effected,” he continued. “We hope that a reorganization of such theatres can work out such reductions.”3 Business Week referred to the Paramount and RKO situations as retribution “for boom-time financing and new-era purchases.”4

  What was receivership and how would it affect RKO? Put simply, the laws of receivership for corporations were roughly equivalent to the laws of bankruptcy for individuals. When a huge organization could not pay its obligations, wrote prominent attorney Louis Nizer, the “question is not only how to relieve the corporation of its debts but how to permit it to retain its beneficial property, operat
e its business and divest itself of obligations which are draining its assets.”5 These problems now became the responsibility of the court: “When a corporation goes into receivership the court takes over the administration of its affairs. The receiver is the hand of the court. He is not an agent of the corporation; he is the officer of the court to receive, collect, care for and dispose of the property which has come into the court's custody. The object of the receivership is to avoid the immediate, forced sale of the corporation's property to satisfy pressing creditors.”6 Thus, with the protective wings of the court shielding RKO from its creditors, the company could begin a retrenchment and reorganization that would, it was hoped, lead to a settling of its accounts and the establishment of profit-producing conditions.

  Irving Trust Company, a powerful New York banking concern, thus became the agent of the court for RKO. Its job would be to participate in the formulation of economizing and reorganization plans, not to run the corporation. In effect, Irving Trust became the guardian and conscience of the company, constantly prodding RKO executives to set their house in order. A. H. McCausland was named chief representative of Irving Trust with respect to RKO's affairs.7 Since the theaters were of major concern, the film production company, as well as distribution and the newsreel unit, were exempted from the receivership action.8 However, when a condition as serious as this grips any corporation, all of its subsidiaries are affected. Radio Pictures was expected to contribute significantly in the all-out drive to get Radio-Keith-Orpheum back on its feet.

  One of the questions that must have occurred to many RKO stockholders was why RCA hadn't bailed the movie company out rather than allowing it to collapse into receivership. In fact, RCA was also passing through a difficult time. In May 1930, the U.S. Justice Department had sued RCA, General Electric, Westinghouse, and other companies, charging them with violations of the Sherman Antitrust Act. The goal was to pry these large affiliated organizations apart, opening up competition among them and offering more opportunities for smaller companies to enjoy success in the electrical and electronics marketplace. David Sarnoff was actually in favor of divestiture, but only on his terms.9 He would work tirelessly for the next two years to make certain that RCA emerged from the action with its core businesses intact and with reasonable working capital to move forward.

  He accomplished his goal, and RCA became a freestanding corporation in November 1932. But while he was concentrating on the task, the Depression was lashing his company just like most others. After years of making money, RCA reported a $3.5 million loss for 1931 and would also post deficits in 1932 and 1933. Its common stock, historian Robert Sobel writes, “collapsed from an unadjusted $572 per share in 1929 to $55 in 1930, and then sank to $10 in 1931, as the most spectacular success story of the Bull Market was followed by the Bear Market's most dismal flop.”10 Thus, David Sarnoff was in no position to ride to RKO's rescue. He had his own battles to fight.

  B. B. Kahane's commitment to trimming studio costs picked up momentum after the onset of receivership. It would not be said that Radio Pictures had failed to help alleviate the crisis. On February 13 Kahane dispatched a letter to Aylesworth outlining a variety of money-saving moves.11 Eight highly paid individuals, including writer Howard Estabrook, montage specialist Slavko Vorkapich, and production manager Sam Jaffe, were being dismissed. This alone would save $7,500 a week. The writers' payroll had been cut in half in less than six months, picture costs were being reduced, and average weekly overhead was $9,243 less than it had been during the first six months of 1932. Most important, long-range commitments to stars, directors, writers, stock company players, and the like had been cut back from a figure of $2,172,610 on November 1, 1931, to $731,340 as of January 1, 1933. “The Studio was never in such good condition so far as commitments are concerned,” wrote Kahane.12 All this looked marvelous from an accounting standpoint, but how would it affect the quality and commerciality of RKO productions?

  In March, around the time that Franklin D. Roosevelt became the thirty-second president and immediately declared a four-day bank holiday, the Hollywood studios banded together and imposed substantial salary cuts on their employees. Merian Cooper explained the circumstances in a telegram to Katharine Hepburn: “Present nationwide bank situation has so curtailed incoming available cash and has so frozen bank deposits that not one of major companies is in position to carry on as at present this shortage of money has stopped flow of funds necessary to continue production…. Only alternative to closing is have every employee in every branch accept fifty percent reduction of salary for eight week period commencing March sixth. Employees in all studios have voted unanimously to accept such cut.”13 The situation was not quite as Cooper described it. Many employees refused to accept the cut in pay, forcing the studios to close down for a few days while negotiations were conducted.14 The workers were finally convinced to accept an amended proposal, and pay cuts were imposed on the more highly compensated wage earners. In mid-April, the studio made good Cooper's promise and restored full salaries.15 There is no record of how much RKO saved during the period, but the figure must have been substantial.

  By this time, all the companies had formulated strategies designed to help them ride out the hard times. MGM, whose parent, Loew's Inc., boasted a small but well-positioned chain of theaters, powered its way through the rough days. Its star-studded pictures with top-notch production values remained highly popular during the Depression, a period in which it posted enviable corporate profits every year. Even in the horrific year of 1932, MGM made $8 million.

  Warner Bros. and Columbia, two of the most carefully managed of the majors, became even more cost conscious. The Warners closed or sold a number of theaters and imposed strict budgetary procedures at the studio. By 1935 the corporation was back in the black, and it would continue to make solid profits for the rest of the period. Harry Cohn tightened a leash around Columbia operations that was already remarkably short. Functioning without theaters and stars, making mostly B pictures and a few As directed by Frank Capra and others, the Cohn studio never posted a loss during the era. While its profits were always modest ($1.8 million in 1935, its best year), Columbia was arguably the most stable of the dark decade's movie companies.

  Fox and Universal had more difficult battles. After losing $21 million in 1931 and 1932, Fox reduced payroll in every area as well as pruning underperforming houses from its large theater chain. This enabled the company to post modest profits in 1933 and 1934, but the big turnaround would not come until 1935, when Joseph Schenck took charge as corporate president of the newly formed Twentieth Century-Fox and Darryl F. Zanuck became head of production. Schenck's enlightened managerial skills and Zanuck's excellent story sense and ability to develop stars (such as Shirley Temple, Alice Faye, Tyrone Power, and Don Ameche) enabled the studio to post impressive profits every year except 1940 (a $500,000 loss) until the beginning of World War II. Like most of these companies, it would fare even better after that.

  Universal, like Columbia, specialized in B pictures and shorts, with a few A pictures sprinkled in. But it was never run with the same commitment to frugality as Harry Cohn's shop, at least not while Carl Laemmle and his production chief son, Junior Laemmle, were in charge. To fend off catastrophe, the company placed its small theater chain in receivership in 1933 and then sold off the houses. Nevertheless, the Laemmles were still forced out in 1936, but their immediate successors did not do much better. The company lost money every year from 1932 through 1938. Then, a new regime headed up by former RKO employees Nate Blumberg and Cliff Work began to produce more popular pictures. From 1939 on, Universal became a solid if unspectacular profit center.

  Under Aylesworth, RKO undertook a careful assessment of its theater operations, but Merian Cooper did not, as expected, implement unit-independent production at the studio. Louis B. Mayer of MGM adopted this model following the illness of his renowned executive producer Irving Thalberg in 1932 and the arrival of David Selznick on the lot in 1933. But Cooper evi
dently decided he could carry the load, and Kahane announced that the 1933-1934 program would comprise as many as fifty-two features, with the studio prepared to produce almost all of them: “I believe there will not be very many independently made pictures on our new program,” said Kahane. “The bulk will be produced in our studio under the supervision of Mr. Cooper and his staff of associate producers. We may arrange deals with outside producers if they have the proper stories, personalities, and so on. We might arrange to release pictures as would be financed by outside producers, or we might even aid in the financing. But we have no definite intention of going out for independent productions.”16 Nevertheless, it was privately hoped that Cooper might use his considerable contacts to lure someone, such as John Hay Whitney, into an independent filmmaking arrangement with RKO.17

  Cooper's production plan was to work closely with a group of associates who would oversee the individual productions. He promised not to micromanage their efforts.18 Chief among the associate producers would be Pandro Berman. Merian Cooper's contract, finally signed in May, gave him a salary of $1,500 per week plus 20 percent of the net profits resulting from the distribution of the pictures produced by him or under his supervision.19 Berman was so highly regarded by Cooper that the production chief granted him one-eighth of his own profit participation and convinced the studio to add another 2½ percent. Thus, Berman now would receive 5 percent of the studio's net profits plus a salary of $1,250 a week. Kahane considered Berman well worth the expense, telling Aylesworth, “I have a very high regard for his judgment, showmanship and ability.”20

  Figure 6. The Most Dangerous Game (1932). Producer Merian C. Cooper, actors Joel McCrea and Leslie Banks, and directors Ernest B. Schoedsack and Irving Pichel pose with the film's hunting dogs. Less than a year after this photograph was taken, Cooper would be placed in charge of filmmaking at the studio. (Courtesy of the Academy of Motion Picture Arts and Sciences)