RKO Radio Pictures

by Richard B. Jewell

  The reputation of RKO's product grew steadily throughout 1939, but neither President Schaefer nor Pandro Berman were allowed sufficient time to enjoy their company's increasing status. In September, World War II began in Europe, provoking upheaval at RKO corporate headquarters. The warring nations of England, France, and Poland represented an estimated 30 percent of the worldwide revenue of American film distributors, and about 60 percent of their total foreign revenue.41 The closing of all theaters in these countries signaled the most immediate problem. While the situation was not expected to last, it seemed probable that film programs would be curtailed due to the vulnerability of cinemas to air raids. Another serious anticipated effect involved restrictions that would be placed on the transfer of funds earned by U.S. companies. France immediately halted the outflow of money, and all the Hollywood companies remembered vividly that they had suffered from transfer restrictions during both the Spanish Civil War and the undeclared Sino-Japanese war.42 The potential loss was infinitely greater this time because of the magnitude of the conflict.

  George Schaefer postponed a scheduled visit to the West Coast in order to study the developments. He examined the situation for a week, then dispatched telegrams to several important RKO employees. After describing the bleak conditions to Berman, the RKO president came to the point:

  All this…puts us in position where we must watch every dollar and for that matter every nickel…. Indications at present are that there will be curtailment of imports into England and possibly monetary restrictions and it is certain for some time to come we are going to be solely dependent upon returns from the Americas…. Show wire to Marcus and urge him do likewise on all his product. Present indications are that we will cut from eight to ten pictures out of his program. You can better appreciate the need of this when I let you know that we would have lost money on every important picture in the past five years had we eliminated revenue from Great Britain, France, Poland.43

  Berman was at that time producing one of the most demanding and expensive films ever undertaken by RKO, The Hunchback of Notre Dame. The problems, as outlined by Schaefer, appeared so severe that he began to believe Hunchback would be one of the last of the large-scale, costly pictures.

  It now appeared financially suicidal to make big-budget films when prospects for foreign revenue were so slender. Years later, Berman reflected on his belief: “I was quite wrong because there were plenty [of expensive spectaculars] made after that. In any case, it seemed to me like the end of an era while we were shooting it [Hunchback].”44

  Actually, Schaefer was wrong as well. His facts and figures were accurate, but he had failed to consider the possibility that an increase in domestic attendance might offset any decline in foreign revenue. As the Motion Picture Herald reported: “Box office receipts always go up in wartime. The situation may result in cutting out some of the costly mistakes made at the top and in cutting down costs of some of the million dollar pictures that ought not to cost that much anyway. And it may give some new talent a break.”45 Indeed, the war years proved to be the most profitable period in the history of the American motion picture industry, though top earnings came after the United States entered the conflict as a combatant.

  Of course, George Schaefer could not foresee the coming halcyon days. He looked at the deteriorating conditions across the Atlantic and saw nothing but problems for his business. His initial response was to revive a strategy employed during the Depression: salary cuts. On September 25, 1939, this announcement was sent to all RKO employees: “RKO has devised a broad program of intensified effort and curtailment of costs to meet the grave situation confronting our company due to serious loss of revenue from abroad caused by the war in Europe. Temporary reductions in pay are unavoidable, but such reductions will be confined to employees in the higher brackets. No employee receiving $4,500 per year or less will be affected. From this point upward a graduated scale will apply, so that the largest salaries will receive the largest percentage cuts.”46 Employees earning in excess of $75,000 took the most substantial hits—a reduction of 50 percent. This approach generated significant anger among those affected, mainly because several of the other studios did not resort to the same remedy.

  Schaefer believed the problem could not be solved by salary cuts alone. RKO earnings from abroad would, inevitably, be reduced, and this loss of income would have an impact on all aspects of the corporation's functioning. Schaefer also wrote J. J. Nolan, the man in charge of studio commitments who had recently been designated Schaefer's Hollywood adjutant: “We must be careful of all our commitments and it is quite possible that there may be drastic revisions on our entire budget and program due to the international situation, therefore, proceed slowly as to final commitments. However, keep uppermost in mind that we must drive through but be ready to halt and pull in our reins at a moment's notice.”47

  Schaefer's immediate feeling was that “we cannot from this point on make pictures that cost more than $500,000, if the revenue is to be curtailed in Europe.”48 This meant a radical revision of the studio's production plans. Nothing could be done about large-budget pictures, such as The Hunchback of Notre Dame and Abe Lincoln in Illinois, already before the cameras. But savings could be effected elsewhere. For example, The American Way, a stage play by George S. Kaufman and Moss Hart that Schaefer acquired in the Gordon-Goetz deal, was put on the shelf. The play had an “Americanism” theme, highly topical at the time, but its estimated production cost was more than $1 million. Even though the studio had invested $250,000 for the rights, Schaefer believed the high budget requirement made it too risky to proceed.

  Orson Welles's first scheduled picture, Heart of Darkness, was postponed for the same reason. Welles was working on his script, an adaptation of the famous Joseph Conrad short novel, when the war broke out. Like Berman, he received a pessimistic wire from Schaefer urging him to make every effort to trim the budget of the picture to a bare minimum. Welles's reply to Schaefer read in part: “You have my word that because of conditions as you explained every cent will be counted twice in HEART OF DARKNESS. No single luxury will be indulged, only absolute essentials to effectiveness and potency of story. Because you have entrusted me with full authority in this, I will be the more vigiland [sic] and painstaking about costs.”49

  Nevertheless, the preliminary budget figures on Heart of Darkness amounted to a staggering $1,057,761.50 This was not only more than twice as much as Schaefer reckoned RKO could afford to spend on a film, but was also double the amount Welles's contract allowed him to spend. George Schaefer did not order immediate cancelation of the project, however. He wanted to keep Welles happy, and he wanted to get some pictures from his young Faustian talent. Negotiations were conducted that resulted in the following plan: Heart of Darkness would be kept on the company's schedule while efforts were made to chop at least $250,000 off the budget. Meanwhile, Welles would prepare another film, which he would write, direct, and star in for nothing. Thus, the package of two pictures could probably be made for a reasonable figure since the second film would certainly cost much less than $500,000.51 The proposed title of this second film was The Smiler With a Knife. Near the end of the year, the ongoing revision of Heart of Darkness had reduced the budget by $73,000 with more eliminations expected, and Welles was working feverishly to finish his Smiler script.52 It looked as if RKO would be producing two Orson Welles pictures for release in 1940.

  The concern for economy manifested itself in other ways. The first eight months of 1939 had been a period of prodigality, of unparalleled expenditure on studio operations. But after the war erupted, the kinds of worries that had plagued RKO during the Depression returned. President Schaefer, for example, began to fret about the total footage of pictures and the amount of eliminated material between first and final cut. Schaefer sent J. J. Nolan a memo listing five films completed after January 1, 1939, that showed a 20 to 37 percent elimination between rough cut and final cut. Noting that such eliminations add “that much more expens
e to the cost of production,” Schaefer asked Nolan to suggest ways of preventing the waste.53 Once again, studio executives were pinching pennies, worrying about details and mechanical problems rather than the overriding necessity of producing good pictures.

  At least the end of the agonizing receivership process became assured in 1939. The actual emergence of the company from 77B did not take place during the year, though it should have. As in the past, petitions, objections, delays, last-minute changes, and other complications interfered with the final reorganization.

  An indication that the long battle was drawing to a close came in January 1939 when Judge William Bondy approved the Atlas-sponsored reorganization plan.54 One of the provisions of the plan allowed stockholders who had already consented to its contents to withdraw their support within three weeks after the approval. This caused an initial delay that was prolonged when additional hearings proved necessary to determine if Irving Trust Company had to notify 20,000 stockholders of objections to the plan filed by Ernest W. Stirn, a holder of class A stock.55

  Summer arrived, but still nothing concrete had been accomplished. Judge Bondy was spending time weighing the makeup of the new board of directors while three more objectors to the plan filed suits against it in a New York circuit court of appeal.56 The proponents of the reorganization plan were vindicated in July when the appeals court unanimously affirmed Judge Bondy's original approval.57 Bondy also approved a thirteen-member board, leaving only one matter to be disposed of: the capitalization plan for the new RKO.

  The Atlas proposal called for the issuance of 2,230,000 shares of new common stock that would be given to RKO creditors in settlement of their claims, and 4,367,554 shares, some of which would be reserved for options warrants and the rest sold to raise working capital. This stock would have an initial market value of approximately $4 per share. Also part of the capitalization was $13,000,000 in 6 percent cumulative convertible first preferred stock with a par value of $100.58 Atlas promised to underwrite $1,500,000 of the new stock if the federal court accepted the offer by August 29. The date came and went with proceedings still snarled, prompting Atlas to withdraw its offer.59 Once again, the reorganization had descended into limbo.

  Judge Bondy grew angry in October. Calling the proceedings “interminable,” he insisted that immediate progress be made.60 Seemingly in answer to Bondy's request, Floyd Odlum revealed that Atlas had not abandoned RKO but needed more time to formulate a new capitalization proposal. The outbreak of war in Europe had considerably altered the future prospects of motion picture companies, and Odlum wanted his staff to evaluate the situation before presenting a second offer to underwrite the RKO stock.

  In mid-December, Atlas submitted its new offer to underwrite 500,000 shares of RKO common at $3 per share. There was actually very little difference between this offer and the original one. Only the $3 price (down from $4) was different; according to Floyd Odlum, “changing world conditions” had necessitated a lower price than Atlas had proffered in August.61 The procedure contained the following ground rules: “An offer of shares must be submitted by December 31st to holders of unsecured claims and to Rockefeller Center, Inc. These creditors will be allowed 20 days to exercise their option to buy the stock. Within two days of the expiration date of the option to creditors, RKO must notify Atlas of the number of unsubscribed shares remaining. Atlas binds itself to purchase and pay for all unsubscribed stock at the $3 price within two to seven days after the notice from RKO.”62

  And so, finally, the long, debilitating process was drawing to a conclusion. All indicators pointed to the emergence of a revitalized, self-directed RKO early in 1940.

  Pandro Berman, who had enjoyed many triumphs and suffered many disappointments while RKO was in receivership, would not be an RKO employee when it finally ended. On December 28, 1939, Harry Edington, a former agent with limited production experience, was named to succeed Berman “in charge of all the important pictures to be made on the RKO lot.”63 Pan Berman abandoned his world travel plans, signing a contract to produce pictures for MGM.

  Berman's parting gift to RKO was The Hunchback of Notre Dame. Victor Hugo's famous novel was in the public domain, yet RKO was forced to buy the rights to the story from MGM. Metro had acquired those rights from Universal, which had made a famous silent version starring Lon Chaney. Such interstudio arrangements imposed order on the wild scramble for good story material, even taking precedence over copyright laws. The cost to RKO was $125,000, a figure partially offset by the sale (for $85,000) of Rio Rita to MGM.64 In essence, the two properties had been traded, with RKO sweetening the deal by $40,000.

  Pandro Berman decided to personally supervise Hunchback. Since this would be his last major production for RKO, he vowed to make it a proper finale to his career at the studio. George Schaefer encouraged Berman because the undertaking supported his own belief in prestigious productions. Academy Award winner Charles Laughton was signed to play Quasimodo, William Dieterle was borrowed from Warner Bros. to direct, and the production staff began the most ambitious (and costly) set construction in the history of RKO. By the time they finished building the Cathedral Square, the Court of Miracles, and the Palace of Justice at the studio ranch in the San Fernando Valley, the outlay for this facet of the production alone was approximately $250,000.65 The original $2 million budget estimate was reduced to $1,833,866 by casting a pair of unknowns in important roles: Maureen O'Hara as Esmeralda and Edmond O'Brien as Gringoire, the poet.66 Still, it is a testament to the talents of Berman and Dieterle that they were able to complete the picture within the budget allowance. That fact alone makes Hunchback an impressive technical and logistical achievement.

  The Hunchback of Notre Dame was rushed through postproduction so that it could open during the Christmas holidays at Radio City Music Hall. At the eleventh hour, an incident transpired that brought a number of personal tensions into focus. It seems a relatively minor disagreement, yet it reveals how obsessed Pan Berman had become with the production, how bitter the rift had grown between him and George Schaefer, and how determined Schaefer was to exercise final authority regarding all production decisions.

  Alfred Newman's musical score sparked the controversy. At the urging of Charles Laughton, Schaefer decided to eliminate the musical background to three scenes: the pillory sequence after the whipping of Quasimodo, the poignant scene between Quasimodo and Esmeralda in the bell tower, and the climactic flight-chase sequence involving Lord High Justice Frollo (Cedric Hardwicke) and Quasimodo. Schaefer and Laughton believed these scenes would play more successfully without musical underscoring.

  When Pandro Berman learned what the New York office had in mind, he exploded. The following telegram was sent to Schaefer on December 15: “Am so shocked by information your instructions to studio regarding THE HUNCHBACK that hardly know how to speak. I wouldn't treat a dog the way you have treated me in this situation by your extreme lack of courtesy in even discussing it after I have spent one year nursing this terrific endeavor for screen masterpiece. Know that you will live to regret actions such as these and can only hope they will not weigh too heavily on your conscience in the future.”67

  George Schaefer replied on the same day: “Your wire is so typical…that I am again going to refrain from making any comment. However, since in the last analysis it is the company's investment and since many important people who have seen it here agree that the particular scenes would play better without music and especially since Laughton advised me that both you and Dieterle promised him not to put any music behind those scenes, I felt it most important to do what I thought was for the company's best interest and am terribly sorry you don't agree.”68

  A few days later, Schaefer changed his mind and decided to leave the music under the pillory scene, eliminating it in the other two sections.69 The picture opened, as scheduled, in late December. It performed quite well, earning $100,000, despite its huge production cost, and bringing in more than $3 million in gross film income. This seems eve
n more extraordinary when one recalls that its chief competition was Gone With the Wind, which opened around the same time.

  For RKO, it was not only the end of a decade, it was the end of an era—the Pandro Berman era. He had been a fixture on the lot since the FBO days and had endured the many ups and downs and executive shuffling that took place during the thirties. Without question, he was the company's most respected employee when he departed. And his final year at the studio's helm became a personal testament: one of the most memorable release years in RKO history.70 It is important not to inflate Berman's achievements or abilities. He made mistakes during his RKO tenure, and his batting average as a production head does not rival those of Irving Thalberg at MGM, Hal Wallis at Warner Bros., or Darryl Zanuck at Twentieth Century-Fox. Still, these men had their share of disappointments, and they were not appreciably superior to Pan Berman. Certainly no producer or executive at RKO during the last half of the 1930s could compare to him, and thus, his loss represented a tremendous blow to the company.71 George Schaefer, however, seemed blithely unfazed.

  At the end of 1939, RKO was a very different company than it had been one year before. During Schaefer's first full year as president of RKO, the studio underwent a radical transformation. After a period of producing nearly all of its own pictures, it suddenly became the home of a number of independents that would be responsible for a significant percentage of future RKO releases. Turning away from an era of Depression-forced neglect, RKO began competing for the most expensive literary properties. In 1939 alone, Schaefer's company invested $550,000 in the acquisition of plays and books. This was some $260,000 more than MGM, $290,000 more than Paramount, and $355,000 more than Warner Bros. (the nearest competitors).72 With The Hunchback of Notre Dame setting the tone, it became clear that George Schaefer intended to turn RKO into a “quality” studio—one known for serious, ambitious, bravura productions rather than the escapist musicals, run-of-the-mill melodramas, and erratic comedies that had characterized its past. Orson Welles's Heart of Darkness, still in preparation at the end of the year, was part of the Schaefer program for glory.