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When producers of obvious propaganda themselves are ready to acknowledge that their effort is brutal isn't it time we were taking note to ascertain what perhaps was going on to destroy straight thinking, honest thinking, American thinking?

I have said, and I say it again, that the moving-picture industry has a very selfish interest at stake in this pending European war. Their interest lies in the success or failure of Great Britain. Not alone her success and failure in this war, but in her coming out of the war with ability to pay what they are owing American motion-picture producers for the films that have been shown in Great Britain.

The margin of profit enjoyed by certain American moving-picture producers is the amount of gain resulting by reason of sale of American films and their showing in Great Britain. A leading Wall Street investment house, Goodbody & Co., within very recent months—last December—made a study of moving-picture industries and reported to its clients quite directly that if Britain lost this war, a number of the leading motion picture companies would be wiped out.

This report by Goodbody & Co. revealed that the quarters and half dollars of the American movie patrons barely pay for the cost of producing these gigantic movie spectacles. The profits depend on the sales in the foreign market, which is now reduced to England and her dominions.

Take one of these companies alone. In 1940 the company collected $80,000,000. But 8 millions of that was collected in England. That 8 millions of dollars just exactly represented the profits of that company. That British market accounted for the profit. The company, it was estimated, could pay $5 a share. But if Britain loses, then that $5 would be reduced to zero.

Another company depends for 35 percent of its earnings on the British market. The war has already cut that to 20 percent. And if England loses, the company will lose all of that profit. Moreover, countless millions of dollars of these companies' earnings are tied up in England, held there in blocked sterling, frozen there, and they cannot be taken out unless the war ends and Britain wins. This movie industry has a stake of millions of dollars annually in Britain's success in winning this war.

I am submitting for the record of your committee that part of the Goodbody & Co. report which in detail covers this point I am making of large dependence of the American moving-picture industry upon British success in this war.

Mr. Chairman, I am going to read for the record of your committee that part of the report of Goodbody & Co. which in detail covers the point I am making of the large dependence of the American moving-picture industry upon British success in this war. The report in its entirety of Goodbody & Co. will be left for the subcommittee, and if it choses it might be printed in the record, but the subcommittee can determine that point later.

This report was made as of December 20, 1940. I read that portion under the heading “Motion-picture industry." It is as follows:

The fate of England is of major importance to nearly all American companies. To few, however, is it as grave a matter as to the motion-picture producers. In many cases, loss of the English market would transform satisfactory profits into sizable deficits. On the other hand, improved conditions could raise earnings immediately since many companies are charging off part of their foreign

income. Therefore, it seems appropriate to begin this industry analysis with a discussion of the foreign situation.

To understand the great importance earningswise of foreign distribution it is essential to keep in mind the type of product. The cost of a film is primarily in the making of the negative, not in distribution of the positive prints. Once the break-even level is passed, a very substantial portion of added film rentals comes down to net income. Contrariwise, loss of rentals means loss of nearly that much net.

Loew's may be used as a specific example. Of total production (film rental) gross of about $80,000,000, approximately $10,000,000 comes from England. Of this, nearly $8,000,000 is normally available in cash to be brought to this country. Should the English market suddenly be lost completely, the company's net income would decline by an amount approaching the $8,000,000, which incidentally is equal to the company's entire net profit. Gradually, cost would be adjusted to the lower distribution. To what extent this could be done is unpredictable. One estimate is that only some $4,000,000 would be lost permanently. The currently important fact is the severe decline in income the companies would suffer immediately following the loss of the English market. Of the companies shown in the table all would be badly in the red except Loew's, which would about break even, and Paramount which would still have moderate earnings.

The troubles facing American distributors in the English market do not await the collapse of England; they exist today in the exchange situation. This year American producers had about $50,000,000 gross income in England. Of this aproximately $35,000,000 was available in cash. However, the British Government allowed only $17,500,000 to be withdrawn. Therefore, each company had to leave about half of its cash income in England. Next year, it is understood only about $12,000,000 will be made available in exchange to the companies. This agreement virtually is completed, awaiting decision on only a few details for final confirmation. Of the $12,000,000 75 percent will be exportable during the first 6 months of the fiscal year ending November 1941.

How to treat this unavailable cash income presents a difficult accounting problem which each company is solving differently. Some are including this cash in income and using it to pay off debt in England. Others are including it without so using it, and others are charging it all off. Loew's, it is understood, will charge off about half of the unavailable cash income. Columbia probably will not have to meet the problem until after the end of the present fiscal year, June 1911, because of the withdrawal terms of the new British agreement (see above). Paramount has sufficient debt abroad to be liquidated so it will probably inake no charge offs. R-K-0 probably will include it all in income while Twentieth Century-Fox probably will include none. Warner Bros. charged off a small part, having eliminated debt with the balance.

A tremendously important development to these companies would be the repeal of the Johnson Act, or some other credit arrangement between the United States and English Governments which might well result in a more liberal English cash withdrawal policy enabling all available cash to be drawn to the United States, instead of the present percentage.

Then, Mr. Chairman, there follows a break-down showing the situation confronting each of the producers and distributors separately. That portion of this print, at least, I do feel ought to be included in

your record.

Senator CLARK of Idaho. Might I interrupt you briefly?
Senator NyE. Certainly.

Senator CLARK of Idaho. I do not know as to this but perhaps you do: Is it or not true that a very considerable part of these block credits have been used to purchase additional theater chains?

Senator NYE. I have been so advised. However, I am not prepared to testify to any charge in that matter.

Senator CLARK of Idaho. Was there not a Maxwell chain?
Senator NYE. I do not know.

Senator CLARK of Idaho. I thought you might have that data. That is all. Go ahead.

Senator NyE. I do not recall sufficiently well the names involved to be able to tell you.

Senator MCFARLAND. Might I also ask if you have made an analysis of other industries in the United States that would be more or less likewise involved in event England failed in this trouble ?

Senator NyE. No; I have not. Yet we know that every industry and every individual in the United States would in some degree be å loser in that event. But Goodbody & Co. in this report, which I wanted to stress, have made a point of the fact that no industry in the United States would stand to lose as the motion-picture industry stands to lose in that eventuality.

Senator McFARLAND. That would only be a loss to a greater extent, according to your opinion. But do you blame everyone for wanting to see England win for entertaining that opinion?

Senator NyE. Oh, no. I would not deny that opinion to anyone. I undoubtedly entertain some of it myself. But I am particularly anxious that the inquiry of this subcommittee should go to the end at least to find out whether this motion-picture industry is having an influence upon the propaganda being woven into motion pictures today.

Senator MCFARLAND. Do you not think that the interest of the people of the United States influences everyone in his desire to see England win this war?

Senator NYE. Do you mean financial influences?

Senator McFARLAND. I mean other people, but you might include the financial people.

Senator NYE. I expect it does. But I would not argue that that gives to anyone a license to go out and inflict upon a people determined to stay out of the war propaganda of any sort or kind that would have as its purpose a break-down of the American resolve and determination to keep this country out of the war; especially in the light of what has been our experience once before, when almost the same identical interests were challenging our thinking. No; I have no bone to pick with anyone who is interested in Great Britain winning this war if and when they have a direct interest in it. But I do not think those with direct interests are fair with the American people when because of that selfishness they ask the rest of the American people to share it.

Senator MCFARLAND. What do you call “direct interest” ?

Senator NYE. I think the moving-picture industry have a very direct interest at the moment.

Senator MCFARLAND. Do you think that protection of American life is a direct interest?

Senator NYE. Is of direct interest?
Senator MCFARLAND. Yes.
Senator NYE. Certainly it is.

Senator McFARLAND. Then those that believe if England fails the lives of the people of the United States are in danger entertain a view that is in conflict with your views on this subject?

Senator NYE. Yes. That is what they feel, no doubt; but I do not share it to the extent that some people do.

Senator MCFARLAND. Then you would suppress any opinion, whether expressed in the case of the moving-picture industry or otherwise, in the case of those who hold that opinion?

Senator NYE. I would suppress it if it were within my own power to do it so far as propaganda is concerned which is so obviously in

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tended to drive the American people away from their resolve to avoid a repetition of what was their experience 25 years ago, when we thought we were protecting great and important causes, and yet afterward we found we had lost everything we said we had been fighting for. We are dealing now with the same people who denied to us the things we were fighting for then.

Senator McFARLAND. Of course, you are only expressing your opinion. Pardon me for interrupting you. I will wait until you conclude your statement.

Senator NYE. Very well. To return to the report of Goodbody & Co.:

Now, it follows, I cannot deny, that I feel that this selfish interest in dollars may be playing a considerable part in prompting some of the picture producers in visiting film propaganda upon a people with a view to getting America into that frame of mind which will make certain that America will not let Britain fail. This, I acknowledge, is a terribly cold statement, but I cannot escape this conclusion, nor I am sure can anyone, inclined to be fair, escape this conclusion. All the more reason then why we ought to have sweeping investigation of propaganda and its causes at this time.

In this connection I do not have sufficiently well prepared any memoranda but I shall prepare it and submit it to the committee very shortly, going to the question of how large an ownership and control is possessed and practiced by American moving-picture producers in the theater properties of Great Britain. Such information will only enlarge upon the possible relationship existing between propaganda in the movies here at home, and selfish dollar interests in a foreign country.

I have heard it said, and you of this committee are going to hear it said, that the motion picture industry is helpless at this time and in producing these pictures allegedly carrying propaganda are doing it because of public demand. That theater goers are demanding this kind of picture. This, I insist, should make a most interesting study. For so many contradictions are presented. First of all, there is evidence of producer and theater complaints that these propaganda pictures are not a box-office success. In other words, that they are money losers to the producers and to the theaters that show them. Yet they would tell us that they are producing these pictures because of boxoffice demand; and then, when they are shown, there isn't any public desire to pay admission and see them.

I have been shown by the best of authority, as you can be shown if you will carry on in this investigation, producers guilty of putting out these propaganda pictures and other producers that are laying off of the production of pictures of that kind. It is pointed out to me that generally speaking, those producers who are not guilty of pouring propaganda pictures into the theaters are the ones who are operating on their own capital. At the same time it is pointed out that those who are producing these pictures of propaganda are operating largely upon stockholders money and bank money.

Senator Clark of Idaho. Do you intend to amplify that?

Senator NyE. I am not going to do it at this time, but am sure that is a phase that ought to be amplified and that the subcommittee should

Senator CLARK of Idaho. You probably refer to Metro-GoldwynMayer and Ranger on the one side using their own money, and

go into it.

Warner, Loew, and Paramount, who have shareholders scattered throughout the country, on the other side ?

Senator NYE. Generally speaking, that would be the division.
Senator CLARK of Idaho. All right.

Senator NYE. Again I insist that here is a field inviting of most thorough scrutiny. I am told that if you do enter into that particular phase you are going to encounter difficulty in ascertaining the cost of producing a propaganda picture as against a feature picture. That there may have been large juggling of the books that would permit of a showing that money was being made by reason of these propaganda pictures, and that the only way to ascertain the facts would be to set the study be made by expert accountants for the committee, who could have access to all of the records.

Senator CLARK of Idaho. You mean there might be fictitious allocation of costs to the nonpropaganda pictures ?

Senator NYE. That is directly the representation made to me by one who, were I to speak his name, would be accepted by everyone in this chamber as an authority worthy of hearing.

Senator CLARK of Idaho. We will try to get the cost sheets. I do not know what they will show.

Mr. WILLKIE. You may have them.
Senator CLARK of Idaho. Thank you.
Mr. WILLKIE. I do not know who Senator Nye's authority is.

Senator CLARK of Idaho. I hope you will furnish a corps of accountants to explain them.

Mr. WILLKIE. Oh, there will be no difficulty about them. And if you will give us the name of the authority referred to it will help us.

Senator CLARK of Idaho. I do not know the name. ceed, Senator Nye.

Senator NYE. Again and again have I heard and seen a representation that propaganda pictures were money losers to the producers. But in the very recent issue of the Hollywood Reporter I find a frontpage story of encouragement to the producers going to the plans of the Government to double theater capacity in the Army camps. This paper represents that “the industry will gain $4,000,000 yearly in giving rookies their chief entertainment."

The committee is, of course, conversant with the recent publication by Lowell Mellett, administrative aide to President Roosevelt and in charge rather generally of the dissemination of governmental information-his publication of an article or book revealing large compliments to the motion-picture industry for the part which it has and is playing in his hour. This has interested me, since I have felt that perchance what the motion-picture industry was doing in the way of producing propaganda pictures was at the request of or with the encouragement of our Government, or some agency of it. I have had reason to believe, though difficult for me to explain reason for that belief at the moment, that the picture producers have been asked, even required, to produce some of these films which have lent themselves to the charge of being propaganda.

Senator McFARLAND. Charge by whom?
Senator NYE. By whom?
Senator MCFARLAND. Yes.

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