Senator CLARK of Idaho. Suppose, then, that we recess until 2 o'clock.

(Whereupon, at 12 noon, a recess was taken until 2 p. m. of the same day.)

AFTERNOON SESSION

The subcommittee resumed at 2 p. m., on the expiration of the

recess.

Senator CLARK of Idaho (chairman of the subcommittee). The subcommittee will please come to order. Unless there are some questions by the committee to start with, Senator Nye may now proceed. Senator NYE. Thank you, Mr. Chairman.

STATEMENT OF HON. GERALD P. NYE, SENIOR SENATOR FROM NORTH DAKOTA-Resumed

Senator NYE. At the risk of perhaps repeating a few words let me say that there has been argument, and I expect it will be presented in a larger way to this committee, that there may have been a little propaganda creeping into the pictures. But that it has been insignificant, that if there are only 12 or 15 or 20 pictures that can be classified as carrying propaganda, after all, that is a very small percentage of the hundreds upon hundreds of pictures that are being turned out of the production studios annually. For my own part, I am not going to be misled by any such contention as that. The truth of the matter is that we go to pictures, we Americans, to see features, outstanding features. Except for them you wouldn't get as many people into the theaters as go there weekly now. The truth is that there are only between 200 and 225 of what are called "quality" pictures produced by American producers annually. A so-called "quality" picture is one, I am told by the trade, costing $250,000 or more to produce. It is in that field of production that any percentage of propaganda ought to be estimated. Not in that field made bulky by reason of the "shorts" and the so-called western pictures or comedy or slapstick production. If out of 200 quality pictures, 15 or 20 or more of them should be proven to be propaganda pictures, it could hardly be said that the percentage was low. Nor could it be said, as one trade journal editor put it, namely, that this percentage was the result alone of a "bottleneck of blurred judgment."

These alleged propaganda pictures, if they were conceived and produced for a purpose, would seem to have in mind a purpose growing out of knowledge that you can't take the American people to war until you can make them hateful toward something. These alleged propaganda pictures do promote a larger will and larger reason for going to war. They have served to drive some Americans under their very beds for fear of Hitler and his minions. They have served, these propaganda pictures, to change if not warp, a lot of clear thinking in American minds. I have talked to many Americans, those without a prejudice, those who detest the whole Nazi showing, but who nevertheless are determined that our country cannot afford to let itself become involved in the European wartalking with such Americans again and again and again I have found them confessing an influence, for a moment at least, upon them

by these propaganda pictures. And more and more every day I find the Americans bitterly charging that the pictures seem to be in control of men entertaining vengeful spirits, born in the pain being visited upon their own people abroad.

We cannot shut our eyes to these facts, gentlemen of the committee. They cannot be rubbed out by any undertaking to show that a request for an investigation or for a check upon this production is occasioned by causes that do not exist at all. I insist that this whole motion-picture program of propaganda should be most thoroughly and earnestly investigated and the findings made public whether the findings be adverse to my contentions or in support of them.

The news reels must of necessity be a part of any study which your committee may choose to undertake in furtherance of the purposes expressed in the resolution.

A news reel can so easily be made an instrument of progaganda inspiring hate, however actual the pictures themselves might be. The order in which pictures are presented on the news reel, the verbal narration that may accompany the showing of the picture, the titles that might be flashed upon the screen to attend a picture, the excessive portion of a whole news reel that might be devoted! to the instruments of war, all can be cleverly woven into propaganda of the first magnitude. In other words, live, true moving pictures. can be perverted into instruments of propaganda with ease.

In this connection permit me to suggest that this regular feature entitled The March of Time is not a news reel. It is part actuality, part fiction, part scenic, part faked, and part acted. Which sums up in some instances to the purest kind of manufactured propaganda of a most brutal nature. No one realizes how brutal this feature can be as well as the producers themselves. The more recent portrayal of The March of Time was bad enough to scare even its own producers. When their job had been done and they had viewed the result of their effort, they themselves became frightened over what might be the public reaction and reception of the picture. Indeed, Louis de Rochemont, one of the producers, under date of July 28, 1941, wrote on his letterhead the following letter, to how many people I cannot know, but to far more than one, a letter inviting friends to stand ready to defend The March of Time against what they feared might be the need for the helping hand of friends. I quote his letter in its entirety:

The Hitler peace offensive is on, and lots of good well-meaning people will be taken in by it. We at The March of Time are not. We know the record of Nazi Germany and know that Hitler means war, not peace, and war against America at the end of it all.

I have had our staff put the whole thing down in film, and called it "Peaceby Adolf Hitler." It will be the next issue of The March of Time.

It isn't pretty

This is the producer speaking:

and it's no fun to see, but in it is the essence of what we've been saying for years, and must say again now-stop Hitler.

This film is so vital and brutal

This is still the producer speaking:

it will need friends who will talk about it to put it across to the American people. May I count on you?

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 1941, 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-O 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 a 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