Second. Since the formation of the Hays association, cancelations have been brought forth to meet crises in public relations such as the Legion of Decency campaign of 1934, the passage by the Senate of the Neely bill in 1938 and 1939 and the filing of the Government suit in 1938. I ask this committee to ponder deeply what would be the future of cancelations if the Neely bill were defeated. Third. All cancelation privileges have been hedged about by so many conditions and limitations as to make them of doubtful value. In the first place, they contemplate and make effective compulsory block booking because invariably they are conditioned upon the exhibitor taking all of the pictures. Other conditions embodied in the proposed code, and contemplated in the announcements based thereon, are: (a) First-run exhibitors must give notice of an election to cancel within 14 days after the mailing by the distributor of the first notice of availability. (b) Other exhibitors must give such notice within 14 days after close of the first run in the city or town. (c) The exhibitor must not be in material default under his contract. Thus the cancelation privilege becomes an ally of the stop picture in keeping exhibitors up in their playing time. (d) Cancelations must be made proportionately among the several price brackets, but any number of cancelations to which the exhibitor is entitled may be made from the lowest price bracket. I think the committee already has had posed to it the question as to what is 10 percent, 15 percent, or 20 percent of a high price bracket containing one, two, three, or four pictures. Also, the committee will recall Mr. Yamins' testimony regarding reallocations after top bracket prictures have been canceled. (e) If an exhibitor fails to exclude one or more pictures from the higher brackets, he shall, for each such picture, have the right to exclude one from the lowest bracket. In other words, having failed to exercise his privilege at the top, he must go to the bottom; he cannot exercise the privilege in the intermediate brackets. To illustrate how rigidly these conditions are enforced, and how technical the distributors are in taking advantage of them, there are offered for the record the letter I referred to, from A. Stone, of Albany, with attached letter from Warner Brothers to him. (The letters referred to follow :) Mr. ABRAM F. MYERS, Securities Building, Washington, D. C. STONE'S EAGLE THEATER, DEAR MR. MYERS: I am enclosing herewith a letter I received from Warner Bros., which is self explanatory. My reason for sending you this letter is because of the articles I have been reading in the trade papers and also the testimony of the opponents of the Neely bill who are making certain statements as to the cancelation privileges the distributors are now giving us. To my way of thinking, this is all false propaganda, because it is almost an impossibility to get them to accept a cancelation on a picture. You will note in their letter they tell me when the pictures played first-run and then I had 14 days in which to cancel them. The fact is that my contract with Warner Bros. was not approved until January 20, 1940, so how could I cancel something that I did not have under contract? I would appreciate it if you would acquaint the hearing committee on the Neely bill with this fact to prove to them how insincere this cancellation privilege is. Kindest regards. Sincerely yours, A. STONE. WARNER BROS. PICTURES, Mr. A. STONE, Eagle Theatre, Albany, N. Y. DEAR ABE: Acknowledging receipt of your letter of May 28, requesting cancelation of On Your Toes and British Intelligence, we wish to refer you to your standard contract, covering these pictures. This contract specifies that in the event you decide to cancel any pictures under clause No. 15, we must receive written notice within 14 days of the territorial release on the pictures in question. In the case of On Your Toes and British Intelligence, these pictures had their first run in Albany, Oct. 19-24 and Dec. 30-Jan. 5, respectively; therefore, your written notice should be forwarded to us within 14 days following these release dates, and under the circumstances, we must ask you to give us an early date on both On Your Toes and British Intelligence in the Eagle Theatre, Albany. Very truly yours, F. RAY POWERS, Office Manager. My. MYERS. The letter is important and Mr. Stone requested that I bring it to the attention of the committee. To illustrate his point that "it is almost impossible to get them to accept a cancelation on a picture," he points out that he did not have the pictures in question under contract when the 14-day periods for giving notice expired, yet cancelation was refused for failure to give such notice. "How could I cancel something I did not have under contract?" inquires Mr. Stone. Variation in number of contracts. At every hearing on this legislation figures have been submitted by the opponents purporting to show "cancelations" or "rejections" or "bookings" of certain pictures. These figures, presumably taken by the Big Eight from their own records, show a wide variation as between particular pictures. This year Mr. Pettijohn presented such statements to the committee and some of the hardy perennials are still in the list. I will not take time to discuss the merits or demerits of pictures having the highest or lowest number of cancelations or rejections. Members of the committee who are interested may pursue the subject in the Senate hearing, pages 543-544. At the outset it is necessary to understand just what these figures mean. They have given rise to much confusion. In the past they have been palmed off as cancelation figures. That claim was exploded at the Senate hearing-record, 56-57, 543. Nevertheless, the effects of the early misrepresentations concerning them still persist. Mrs. Loeb and, I think, another lady have cited these figures to show the kind of pictures that exhibitors "cancel." Actually, the figures show nothing more or less than the number of play dates that the particular pictures received. They are properly referred to on one of the exhibits as "bookings." As such, they comprehend many factors and cancellation is only of them. It would be impossible to extract from the figures even an approximation as to the part played by cancelation. Among other variables, we would have to ascertain what cancellation privileges, if any, were in effect when the pictures in question were released. The number of play dates a given picture may receive is affected by many circumstances. It is not to be assumed that the greatest number of bookings received by any picture represents the number of contracts which the company named sold on all its pictures for the year in question. Some pictures receive an abnormally large number of bookings, others an abnormally small number of bookings, whatever may be the normal number contemplated by the outstanding contracts. For example, take the case of an unusually successful picture. It may receive an abnormally large number of bookings because (a) all affiliated and chain theaters having selective contracts accept the picture and do not reject it; (b) the picture may be given a repeat run by the first-run houses or it may be moved to another downtown house for an extended first run, as, for example, from the Palace to the Columbia or from the Earle to the Metropolitan; (c) it may be given repeat runs by the subsequent-run houses; (d) independent exhibitors do not exercise whatever cancelation privilege they may have as against that picture; (e) the picture is not "washed out" at the end of the season-a privilege sometimes given exhibitors on the condition that they contract for the whole of next year's product from the distributor in question. In like manner a picture may have an abnormally low number of bookings because (a) the affiliated and chain houses reject it; (b) it receives no extended first runs or repeat engagements; (c) it is canceled out by independents wherever possible; (d) it is "washed out"; or (e), as sometimes happens, the picture is so bad that the distributor will retire it voluntarily because he thinks it will damage his prestige and goodwill. All these things can happen, causing the wide variations shown by the distributor's figures, without proving or implying that compulsory block booking does not exist, or that community selection prevails, so far as the independent exhibitors are concerned. The biggest factor is the selection and rejection of pictures under selective contracts by the 2,500 affiliated theaters and the 1,000 to 1,500 theaters belonging to the powerful circuits, such as Schine, Griffith, and Crescent, which are being sued by the Government. I imagine that somewhat similar advantages are enjoyed by the larger buying combines such as the Cooperative Theaters of Michigan and the theaters booked by Harry Brandt. They are indistinguishable from the circuits so far as their buying power and suppression of competition are concerned. Because of the conditions surrounding its exercise, use of the cancellation privilege does not involve real selectivity and its main use is to relieve against an overbought condition that results, not from the exhibitors' bad judgment, but is a byproduct of compulsory block booking. In like manner, "wash-outs" rarely reflect selectivity because under the standard contract an exhibitor is required to play pictures in the order of release. I have already described the use of the "stop" picture to force an exhibitor to clear his unplayed pictures and there is an example of this in the record in the statement subnitted by Ben Ashe, of Minneapolis. Therefore, the pictures washed out are usually the last releases under the contract without regard to content or quality. And do not forget that "wash-outs" perpetuate block booking and preempt screen playing time, since they are allowed only on condition that the exhibitor contract for the next year's program of pictures. They constitute interlocking block booking. Gentlemen of the committee, it is idle for the opponents of the Neely bill to say that compulsory block booking is not practiced. I would certainly not be here arguing for this bill if that were true. Except for the few who have appeared here and said that block booking is not now compulsory because of the cancelation privilege, I have never heard any exhibitor say that the practice is not enforced. Certainly the Department of Justice, based on its extensive investigations, believes that it is. You have already had read to you the allegation on that point contained in the verified petition in the suit against the Big Eight. And when the Neely-Pettengill bill was before this committee in 1936, and on March 2 of that year, Attorney General Cummings transmitted to Representative Pettengill a memorandum by Assistant to the Attorney General Harold M. Stephens, who is now an associate justice of the Court of Appeals for the District of Columbia. In that memorandum Judge Stephens approved the legislation and in the course of the memorandum said (hearing, pp. 83-84): During the course of extensive investigations growing out of complaints by exhibitors that the Federal antitrust laws had been violated, it has been found that the practices of block booking, blind selling, and blind booking are widely used by the motion-picture producing and distributing companies and place the exhibitors, especially independent exhibitors, at a disadvantage in dealing with the producer-distributors. THE CONTENTION THAT UNDER THE BILL PICTURES WILL HAVE TO BE SOLD ONE AT A TIME At first this contention was wholly founded upon deliberate misrepresentation as to language of the bill. Last year opponents shifted their ground and said this would necessarily result from the synopsis provision. At this hearing the committee has heard both grounds asserted. WORDING OF THE ACT Colonel Cole informed the committee of a full page advertisement in a national publication by the Interstate Circuit of Texas, a Paramount affiliate, containing this abbreviated quotation from section 3 of the bill: It shall be unlawful for any distributor of motion-picture films in commerce to lease or offer to lease for public exhibition films in a block or group of two or more films This seems a childish device but some of the exhibitors who have appeared here brought that belief with them to the witness stand. Among those obviously influenced by this propaganda were the Witnesses Berry, Costello, Williams, and Wilson. The complete answer to the contention is to be found in the remaining language of section 3. SYNOPSIS PROVISIONS Representatives of the major companies now contend that because of the alleged hazards incident to supplying a synopsis, "under criminal penalties"--that phrase is always included-the companies under the bill will be forced to sell completed pictures one at a time after a trade showing. The association I represent has not hesitated to brand this a hollow threat designed to frighten independent exhibitors into opposing the bill. It is important to trace the evolution of this contention. At the hearing on this bill before a subcommittee of this committee in 1936 the Big Eight made no such contention as is now advanced, and the bill had not then been modified by the Senate amendments. Indeed, Mr. Kent, president of Twentieth Century Fox, advocated a bill that would prohibit the distributors from selling more than one picture at a time. He said: Why not put a bill in here and pass it that keeps us from selling one motion picture [sic] until it has been finished and exhibitors have had an opportunity to see it? Keep the exhibitor from buying it in the same way. And make the exhibitor select it before he buys it, and then he would not have any alibi. I would vote for that bill * * * * * * Let them propose that we sell pictures one at a time * Page 245. George J. Schaefer, then general sales manager of United Artists, verified the interpretation that the bill only prevented compulsory block booking and did not prevent optional block booking-page 288 and endorsed Mr. Kent's suggestion for a bill that would limit contracts to completed trade-shown pictures page 234. It was not until the Senate hearing last year that the Big Eight got around to basing the one-at-a-time argument on the synopsis provision. The strongest statement made at that hearing was by Mr. Kent and was directed to the impossibility of furnishing a synopsis under the provision as it then stood. He said that it would require a scene-by-scene description of the film; it was in deference to the statements by Messrs. Kent, Joy, and Block that the proponents of the bill suggested the amendments that were subsequently adopted by the Senate. The most extreme position taken on this general question was by William F. Rodgers during the code negotiations in 1938. Allied had sought to have pictures designated in the exhibition contracts. You will recall that Mr. Samuelson submitted contracts going back 10 or 15 years in which the pictures were identified by titles or at least by stars. All suggestions along this line were spurned. Finally the Allied group asked if the companies would not identify the pictures that were actually completed when offered for sale. But Mr. Rodgers and the other sales managers said "No." Knowing that the major producers are dead set against any legislation which might affect their monopoly, I was not surprised when Colonel Joy indicated that a synopsis could only be based on the final shooting script. Mr. Block said it could only be based on the film as shipped from the studio and Mr. Freeman declared that it could not be furnished under any condition-even after the picture had been wholly completed. As stated, these objections are always coupled with the words, "under criminal penalties." One gets the impression that if the provision were enforceable only by civil proceedings, the required synnopsis could be furnished. This makes necessary a brief review of the actual requirements of the bill. The requirement is that the exhibitor be given an "accurate synopsis of the contents of such film." But this is qualified by a specification as to what the synopsis shall include. First, it shall include "a general outline of the story." So far as the story is concerned, that is the measure of what the synopsis shall contain. I was entertained by Mr. Block's statement that some stories were incapable of epitomization. He cited, among others, |