The U.S. government lawsuit regarding theater ownership and block booking, unresolved in 1939, carried over into 1940. This, plus the European conflict and growing concerns about America's possible entrance into the war, troubled all of RKO's workers and investors. In addition, the industry's economic rebound had been reversed; despite arguably the greatest release year in Hollywood history, every studio except Universal and United Artists made less money in 1939 that it had in 1938. Notwithstanding all these uncertainties, there was one indubitable fact that engendered hope: RKO finally had a vigorous and experienced president, a man determined to involve himself in all important decisions and to run the company his way. The future of RKO rested firmly in the hands of one person: George J. Schaefer.
9. “Quality pictures are the lifeblood of this
business”
The Schaefer- Edington Regime (1940-1941)
George Schaefer's determination to make RKO the preeminent company in the industry might have been motivated by a desire to please Nelson Rockefeller. Besides being Schaefer's major supporter, Rockefeller was an art collector and, along with his mother, Abby Aldrich Rockefeller, one of the most active patrons of the Museum of Modern Art in New York. Given that MOMA was the first museum in the United States to recognize motion pictures as an art form and to begin to amass a film collection, Rockefeller undoubtedly would have been pleased to see RKO become a leader in the artistic development of the medium.1 But Nelson Rockefeller was also a businessman who expected his family's investment in RKO to be a success, and there is no evidence that he ever prodded George Schaefer in the direction he chose.
Rather, it seems more likely that Schaefer's vision for RKO took shape during his time with United Artists. That company existed to distribute films made by independent producers, and its major suppliers while Schaefer worked there were David Selznick and Sam Goldwyn, both of whom favored prestigious pictures based on eminent works of literature. Thus, it was not surprising that RKO's new president immediately began recruiting independents who he believed could supply his company with similar product. Later, in a July 1940 report to the RKO board, he stated that he had decided on this course of action because of his belief that “quality pictures are the lifeblood of this business, since they affect both theatre and picture company earnings.” To upgrade RKO's substandard releases in the shortest possible time, Schaefer continued, “the only conservative answer…was to secure the best independent producers available to strengthen the company's product with a minimum of financial risk.”2
But Schaefer's rationalization is hard to swallow, because significant risk did exist. Unlike most of the UA arrangements, a number of the deals he set up were not straight distribution agreements. Each one was different, but some offered total financing by RKO (the Welles-Mercury Theatre operation, for example), while others required bank loans that would have to be repaid by RKO if the pictures did not perform well at the box office (Gordon-Goetz). United Artists also employed a very different business model; it did not own a studio or theaters and thus had much lower overhead costs than RKO. But George Schaefer believed he could combine the best elements of the UA approach with the advantages of a vertically integrated company in his master plan for RKO.
In spite of concerns about the world war, President Schaefer's confidence level was high early in the new decade. On Friday, January 26, 1940, at 2:30 p.m., RKO officially emerged from receivership.3 The actual return of assets from Irving Trust into the hands of RKO took place when representatives from each company sat around a table and exchanged papers until the transaction was completed. The date itself was significant—it was exactly seven years, less one day, from the time the company filed its bankruptcy petition in federal court. According to Variety, this case held the record for longevity of receivership proceedings.4
The final stumbling block to reorganization had been cleared when the Supreme Court denied a writ of certiorari to two companies that held stock and securities in RKO, both of which had opposed the plan for some time. The new stock offer went forward smoothly, with Rockefeller Center subscribing to 163,629 shares and Atlas taking up some 249,280 unsubscribed shares, as it had promised.5 The event represented a strangely tranquil culmination to a process that had almost always been agonizing. The company now appeared to be on solid ground. During the seven years administered by the trustee, RKO and its subsidiaries had reduced their fixed debt by more than $11 million, and gross income had grown from $44 million in 1933 to $52 million in 1939. The new company was starting fresh, with “no outstanding indebtedness” and working capital of “more than $8,000,000,” an amount almost twice as large as its liabilities.6
The end of receivership was not as simple as it seemed. Atlas Corporation and a battery of lawyers bombarded Judge William Bondy with requests for reimbursements of expenditures generated in the reorganization proceedings and payments of fees for services rendered. These pleas continued throughout most of 1940, with the funds for their payment expected to come from purchases of new common stock. Atlas alone was asking for $875,037 plus 100,000 shares of RKO common.7 Total claims amounted to $3.1 million.8 George Schaefer urged Bondy to reduce the claims drastically. RKO's president invoked the perilous conditions brought on by war in his affidavit to the judge. “In my opinion,” Schaefer said, “the motion picture industry is now confronted with the most serious crisis in its history. Recent statements by various leaders of the industry give evidence that major and drastic readjustments are inevitable if the industry is to survive.”9 Bondy was sympathetic. His final decree slashed the original request to $638,073. Atlas, naturally, received the largest amount: 120,000 new common shares, $170,000 for legal fees incurred, and $20,517 for disbursements.10 Still, this was far below the amount originally requested.
All of this must have felt anticlimactic. The important thing, though, was that RKO had thrown off its economic shackles. In fact, the company had not actually been in danger of collapse for years; nevertheless, there was a stigma attached to receivership, and company officials greeted its removal with equal measures of relief and optimism. Stories like the following circulated to alert the industry that RKO's executives were bullish about their company's future: “Strengthening of manpower in all branches with a view to making the company second to none in the business, including in that step various promotions from the ranks as well as some possible shaking up of personnel and solidifying of policies, is reported to be in the cards for RKO following the long period of receivership from which the company recently emerged. The wheels are already in motion and various changes are likely to come.”11 Indeed, RKO would make a number of forceful moves shortly after reorganization was complete, despite the worsening world situation. George Schaefer wanted to demonstrate that RKO was a revitalized company.
The first of President Schaefer's “appointments from within the ranks” named J. J. Nolan “vice-president in charge of the RKO studios.”12 Nolan, who had worked for RKO since its early days, represented an important conduit of information for the president. Nolan's new title was, however, misleading. He did not supersede J. R. McDonough, who still administered the filmmaking plant. Nor did he take over as the new production chief; he would have some input into production decisions, but most would be made by Schaefer in consort with Harry Edington and Lee Marcus. In truth, Nolan's principal activities would remain as before: contacts with agents, commitments, and negotiations for artistic talent. RKO desperately needed to shore up its acting talent, and Schaefer must have believed that Nolan's new title would help the company compete for the most attractive individuals.
In February the studio continued its aggressive campaign of acquiring high-profile literary properties, spending $390,000 in a seven-day period. The extraordinary outlay of cash bought RKO rights to Too Many Girls ($100,000 price), a Broadway musical hit to be produced and directed by George Abbott; Two on an Island ($50,000) by Elmer Rice; Mr. and Mrs. ($60,000), an original story by Norman Krasna, who had written Bachelor Mother; B
enjamin Franklin ($50,000), the Carl Van Doren biography in which Schaefer hoped to star Charles Laughton; Sister Carrie ($40,000) by Theodore Dreiser, a novel no one else had dared touch because of censorship concerns; Half Rogue ($40,000) by Garrett Fort, another Laughton project; The Unbreakable Miss Doll ($25,000) by Grace Perkins, bought with Carole Lombard in mind; Sanda Mala ($15,000) by Maurice Collis; and A. P. Herbert's Water Gypsies ($10,000).13 George Schaefer's belief in critically acclaimed plays and novels as the key to prestige and box-office rewards, as well as his determination to elevate RKO to a more important position among the major companies, fueled this amazing buying spree.
Schaefer also implemented some fresh, unusual strategies. Chief among them was his hiring of Dr. George Gallup, head of the Institute of Public Opinion in Princeton, New Jersey, to conduct “a scientific study of the motion picture public and the tastes, habits and interests of picture patrons.” The function of Gallup's new organization, called the Audience Research Institute, would be to “scientifically assist and guide the studio in its selection of stories, cast and titles.”14 The notion of scientific public opinion “pretesting” to determine audience interest was bold and forward-thinking, but whether it would actually work remained an open question.
George Schaefer became one of the most visible executives in the film business during 1940. In addition to the long hours he spent running his own company, Schaefer campaigned vociferously against the government's continuing attempt to end block booking and force the Big Five to sell their theaters. When final hearings were held on the Neely bill, which contained a provision that would have prevented the selling of movies in blocks, Schaefer became the industry's point man in Washington. He told the politicians that RKO did not “force” all of its product upon exhibitors, stating that 67 percent of the company's contracts for the past season “called for the exhibition of less than the number of pictures we had to offer.” Schaefer added that the bill was untimely because “it would add vastly to the burdens of an industry gravely affected by the war.”15 Spokesman Schaefer must have made an impact because the bill never became law. Instead, a compromise consent decree that included new rules concerning block booking was negotiated later in the year.
Schaefer also assumed the chairmanship of the motion picture industry's Coordinating Committee on National Defense. This group was formed to further the contributions of the film business to the national defense effort. Schaefer clarified his committee's mission in November 1940: “It is to be emphasized that the voluntary organization being developed by the industry is not intended in any way to limit the initiative, contribution, or service which any elements within it may apply to the problems of national defense. The intention is to provide a clearing house for such plans as may best serve our national needs, insofar as the screen is properly concerned.”16
In addition, Schaefer presided at a ceremony in which RKO turned over Pathe news footage, shot between 1910 and 1930, to Nelson Rockefeller's favorite repository, the Museum of Modern Art.17 Clearly, the RKO president enjoyed the roles of industry spokesman, leader of Hollywood's national defense effort, and preserver of America's film heritage. Schaefer took his position very seriously and seemingly intended to become the most “public” executive in RKO history.
One wonders how Schaefer ever found time to sleep, considering that in addition to all his other activities, he was still riding herd on studio production. His new production chief, Harry Edington, had worked in Hollywood since the silent days as an agent or manager (or both) for Erich Von Stroheim, Greta Garbo, Marlene Dietrich, Douglas Fairbanks, Jr., Nelson Eddy, Ann Harding, Cary Grant, Joel McCrea, and others. His production experience, however, consisted of only one film, Green Hell, which Universal released shortly after Edington took up his position with RKO. So why did Schaefer choose him to head filmmaking at 780 Gower Street? It's not possible to say for certain, but it seems plausible the RKO leader viewed Edington's lack of experience as a plus. Schaefer expected Edington to carry out his instructions without complaint (unlike Pandro Berman). And that appears to be precisely what happened; if Harry Edington ever initiated any film projects at RKO, there is no evidence of it. He was production chief “in name only,” to borrow a title from one of the company's 1939 releases.
Schaefer and Edington paid close attention to what was happening in Europe. The surprising success of the Nazi war machine brought gloom to much of America during 1940. In sync with the general industry trend, Schaefer decided to steer clear of any stories based on contemporary realities. Fearing isolationist factions and believing American audiences desired cheerful, diverting material that would take their minds off the European hostilities, Schaefer frowned on any story of a potentially controversial nature.
In March, for example, Schaefer decided to eliminate Man Without a World, a picture that Lee Marcus wished to make. In a letter to J. J. Nolan, Schaefer explained that his decision was based on the fact that Man Without a World dealt “with Dictatorships and the foreign situation and I want to be so careful that we do not make something that is apt to either cause us trouble or be outmoded by some sudden turn in world events.”18 Schaefer's feelings were reinforced by Harry Edington. In April, Edington wrote New York story editor Leda Bauer concerning the company's needs:
I went over this with Mr. Schaefer…and I believe he was quite in accord, especially with the idea that a good portion of our program should be made up of romance, romantic comedies, and romantic dramas. I think this is especially true for the following year. Nobody can tell how much more the world is going to become entangled in this war situation and it is my opinion that, more than ever in the past ten year history of the business, we should strive for nothing more than “entertainment.” I dont [sic] think we should allow ourselves to take sides or carry a torch for either side or even get involved in anything that has to do with the so-called present day moral problems having to do with world affairs.19
Thus, even though the conflict was wreaking havoc on RKO's business, the prevailing production philosophy would be to pretend World War II did not exist. Other studio executives were also reticent, though a few anti-Nazi films did appear in 1940 following the success of Confessions of a Nazi Spy, which Warner Bros. released in May 1939.
Getting a head start on its competitors, RKO announced in late March that it would release between sixty-one and sixty-six pictures during the 1940-1941 season.20 The announcement was remarkable for two reasons. First, this represented the largest number of features the company had ever promised in a single season. Second, it came at a time when most studios were cutting their production schedule due to the loss of foreign revenue. According to a story in the Motion Picture Herald, the gross budget for the films would be $29 million, with twenty of the new features to be made by independents, twenty to be “top budget” studio productions, twenty to come from Lee Marcus's “program” unit, and six to be inexpensive Westerns.21
In fact, this bold proclamation was pure propaganda. Actual plans for 1940-1941 fell well short of sixty productions. Earlier in March, Schaefer, Depinet, Edington, Nolan, and other company executives met at La Quinta, where they outlined the following plans for the coming season:
12 “A” Specials
6 Outside Specials to be independently produced
6 Specials—Marcus unit
12 Program pictures—Marcus unit
6 O'Brien Westerns
6 Pictures, independently produced in which we have no interest except making available our releasing facilities.22
This totaled forty-eight pictures, not sixty.
One can only speculate concerning why RKO's publicity department purposely circulated erroneous information of this kind. In all probability, it was part and parcel of the hype surrounding the “new RKO” campaign, the buildup that had been under way since emergence from receivership and included announcements concerning the story purchases and the continuing addition of more independents.
According to the actual blueprin
t, RKO looked to release twelve A specials, made for an average cost of approximately $670,000 each. This represented a total expenditure of about $8 million. The biggest change concerned the low-budget unit, where Lee Marcus was promised $1,400,000 to make six “specials,” pictures costing about twice as much as the normal B offerings. Marcus would also be responsible for twelve “program” releases to be made for $1,500,000 and six George O'Brien Westerns costing $480,000.23 Despite its grandiose announcements, the “new RKO” remained conservative. There would be no big-budget extravaganzas, and the total expected budget for the new season was well below that of the previous year. The unknown factor in these plans was the independent product. Schaefer had set up so many different deals, and the financing of these deals was so variable, that it was hard to guess how much the new season's expenditures would actually be.
One sour note in this regard was sounded by the release of Abe Lincoln in Illinois early in the year. In February 1939 George Schaefer was about to finalize the deal with Max Gordon and Harry Goetz when he received word that Twentieth Century-Fox planned to make a film about Abraham Lincoln starring Henry Fonda. The news was especially disturbing because a major element of Schaefer's arrangement with Gordon and his partner involved the rights to Robert Sherwood's play Abe Lincoln in Illinois. Since Fox's Lincoln film would be finished and into theaters before RKO could release its picture, this jeopardized the entire arrangement.
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