The Master Switch: The Rise and Fall of Information Empires - Tim Wu (2010)

Part I. The Rise

Chapter 4. The Time Is Not Ripe for Feature Films

In 1912, a small mustachioed man named Adolph Zukor sat patiently outside the office of the most powerful figure in American film: Jeremiah Kennedy, president of the Edison Motion Picture Patents Company of New Jersey. A Jewish immigrant whose accent indicated the Hungarian village he had left behind at age sixteen, Zukor was the owner of a small movie theater in New York’s Union Square, and he had already demonstrated a remarkable power of determination in being granted this meeting. He had an ambitious plan to change American film, but he needed a license from Kennedy’s Edison Company to execute it. He would find himself waiting alone outside that office for three hours.1

At the time, neither New York nor anyplace else in America was the global capital of the film industry. That was Paris, from which two firms, Pathé-Frères and Gaumont, ruled the world, with the Pathé studios alone distributing twice as many films in the United States as all American studios combined. From 1908 up until the Great War, French dominance gave birth to the first “feature”-length films (longer than twenty minutes), the invention of the newsreel, and the enduring genres of comedy, chase, and melodrama. French directors were the first to put famous stage actors before the camera and enlist well-known composers to write scores. The grandest theater in the world was the Palais Gaumont on rue Caunlaincourt, which sat 3,400 even before it was expanded to accommodate 6,000.2

Meanwhile, despite a substantial role in inventing motion picture technology, the United States was a cinematic backwater. Film was popular, but it remained a novelty, shown in combination with live comedy routines, dancing monkeys, and other vaudeville acts. What American films existed were short—many no longer than a few minutes—with rudimentary plots and no recognizable performers.

French-style film had not yet crossed the Atlantic, and Zukor’s plan was to bring the European experience to the United States. It was not as obvious a vision as it might seem: The American theaters, called “nickelodeons,” though wildly popular, had a reputation for unpleasantness. As a 1910 article in Moving Picture World described the experience:

I would have been more comfortable on board a cattle train than where I sat. There were five hundred smells combined in one. One young lady fainted and had to be carried out of the theater. I can forgive that, all right, as people with sensitive noses should not go slumming. But what is hardest to swallow is that the tastes of this seething mass of human cattle are the tastes that have dominated.3

But Zukor saw no reason that the medium should be an affair for the “seething masses” alone. In 1912, the immigrant who’d made a tidy sum as a furrier saw a perfect pilot project to elevate the U.S. market: Queen Elizabeth,* a film starring the French actress Sarah Bernhardt, who was exceptionally popular in the United States. So certain was Zukor of this opportunity that he had laid out a small fortune, $18,000, for the American rights to the film. Certain, and grandiose: as he later told journalists, “We believe that we are doing a sort of missionary work for the higher art—that we are aiding in the cultivation of a taste for better things.”4

But why the meeting with Kennedy of the Edison Company? While it may sound odd today, to screen Queen Elizabeth, even in his own theater, Zukor needed a license from the Edison Company. Edison was the leader of the “Film Trust,” a cartel of ten firms that, at the time, owned every important American patent on motion picture technology. Using the power of its patents to decide the availability of films to theaters, the Trust was the de facto arbiter of what films would be shown in the United States.

In many ways the state of film art in America was simply the Trust’s vision, under which only the short, the uncontroversial, and the uncomplicated were granted the right of production. As for stars or artistic credits, they were banned. Thus Queen Elizabeth, which ran forty minutes and included a marquee performance, while a typical European production, was way outside the bounds for American film.

Kennedy finally admitted Zukor to his office. In his autobiography, Zukor wrote that he wasn’t offended by the wait, because at the time he wasn’t important enough to be offended. Kennedy listened politely to his proposal, but would do no more. “The time is not ripe for features,” Kennedy said, “if it ever will be.”5

Stuck with a giant investment, Zukor had little choice. He became, in the words of the film scholar James Forsher, “one more outlaw.”6 Zukor began to travel a path that would lead slowly but inexorably to the creation of Hollywood, and all it has meant for America and the world. If Kennedy was the most powerful man in American film in 1912, he little knew that the furrier seated in his office would soon, as the future president of Paramount Pictures, succeed him. Queen Elizabeth fulfilled Zukor’s hopes, and it anchored a whole new business model premised on “famous players,” or what we call bankable stars. Zukor would make for a different sort of despot than Kennedy, implacably driven, assuming a Don Vito Corleone-like status in early Hollywood, mixing favors and intimidation in equal measure. But in 1912 he was simply the ambitious owner of a small theater in Union Square. How he rose to the commanding heights of film is, as we shall see, essentially the story of the industry in America.

ORIGINS OF THE EDISON TRUST

Unless you are a film historian, you probably don’t know who invented the movie, at least not the way you know who invented the telephone or the lightbulb. Such ignorance is usually a sign that the inventor was somehow bought out or suppressed, or failed to found his own industry in the manner of Alexander Bell. The American film industry is, rather, an instance of the Kronos effect: most of film’s inventors were co-opted by the reigning power of the entertainment industry, such as it was, namely the phonograph. As a consequence, if the American film industry can be said to have had a founder, it would be none other than the godfather of the gramophone, Thomas Edison.

How about the inventors of film technology? In France, a man named Louis Lumière invented a working camera and projector in 1895, though he would soon abandon building an industry around them in favor of seeking out new inventions. Meanwhile, as so often happens, the very year that Lumière invented his projector, in the United States a man named Charles Francis Jenkins, together with a collaborator, invented another one he dubbed the “Phantoscope.” By September, the pair had set up a rudimentary movie theater at the Cotton States exhibition, in Atlanta, Georgia.

Like Lumière, Jenkins did not found the film industry, though in his case it was not for want of interest. Rather, it was his partner’s decision to sell out to Edison that scuttled his hopes. Edison immediately entered the market with the “Vitascope,” essentially the Phantoscope by a different name. Eventually Jenkins had little choice but to sell his own patent interest in the first motion picture projector—for $2,500. “It’s the same old story,” he would say, years later; “the inventor gets the experience, and the capitalist gets the invention.”7

Control of the Phantoscope empowered Edison, but not enough to ensure dominance of the emerging industry. Another company, Biograph, soon came out with its own camera, and the industry would be consumed for almost a decade by litigation over conflicting patents.

By 1908, the primary litigants decided to settle their differences by forming the Motion Pictures Patent Company, in the offices of which we first meet Zukor. The Film Trust, as it would be more commonly known, comprised the largest film producers (Edison, Biograph, and others) and the leading manufacturer of film stock, Eastman Kodak. In the name of avoiding “ruinous” competition, this cartel pooled sixteen key patents, blocked most film imports, and fixed prices at every step of filmmaking and exhibition. There was, for instance, a set price per foot of film that distributors would pay producers, another price (originally $2 per week) that exhibitors paid for the use of patented Trust-owned projectors, and so on. So long as its affiliates paid the set rates, a healthy profit was more or less guaranteed. And with all related patents pooled, the Trust was also able to end the acrimonious infringement lawsuits among its members.

Shortly after its formation, the Trust held a series of meetings to introduce its new rules to the rest of the American film industry, most importantly to the “exchanges,” as the key distributors were then called, and the major theater owners. In 1909, at one of those meetings, in the Imperial Hotel in New York, sat Carl Laemmle, a small elflike man, barely five feet tall. Laemmle was from Germany, and like Zukor and many other Jewish immigrants of that era, he had made his money in the garment trade before switching to theaters in 1906 or so. Now, Laemmle was attending the meeting at the Imperial as a major film distributor of the Midwest.8

What Laemmle heard in that meeting did not sit well with him. Only Trust members would be permitted to make films or import them into the United States, the penalty of doing so unsanctioned being a patent infringement lawsuit. Every theater owner had to hold a license to exhibit films, the licensing fee being $2 a week. And any distributor or theater that broke the rules would be subject to an immediate boycott, denied any access to films. As John Drinkwater, Laemmle’s biographer, describes one meeting, “the audience was not invited to express opinions; it was merely ordered to submit.”9

To go it alone against the Trust was a most daunting prospect. Cooperation, obviously the path of least resistance, seemed much more sensible, and as a major distributor, Laemmle was large enough to have been well rewarded for his assent. While we’ll never know for sure, according to his biographer it was pure outrage that goaded Laemmle to undertake industrial combat instead. “He was convinced on the spot that the Trust was in every way an evil thing, menacing the whole future development of the industry,” says Drinkwater. To Laemmle, “the whole character of this new tyranny was corrupt and demoralizing—so he believed, and the belief was not captious but a deep, a passionate conviction.”10

And so on April 24, 1909, Laemmle became the first to openly and publicly challenge the Trust, declaring himself “an Independent.”11 His mission was a long shot at best. And he was risking the simple starvation of being denied films, the sine qua non of his business. He was also inviting patent lawsuits and all manner of personal attacks the Trust might mount. It was in many ways a suicidal path for a moderately successful immigrant businessman.

Laemmle’s bold decision, like Zukor’s earlier, presents an interesting example of dynamics we have observed before. We have seen how important outsiders are to industrial innovation: they alone have the will or interest to challenge the dominant industry. And we have seen the power of considerations beyond wealth or security—factors outside the motivations of the ideal rational economic actor—in inspiring action to transform an industry. Laemmle’s instinctive loathing of the Trust’s domination, his desire to be free, would have a deep and lasting effect on American film.

In his 1909 declaration of independence, Laemmle exhorted his “fellow fighters” to denounce the “film octopus,” boldly if not quite rationally arguing that the defeat of the Trust was inevitable. The “Independents,” he said, “as sure as water runs down hill, will win this fight with flying colours.” He called others to join what amounted to a campaign of civil disobedience, including a refusal to pay the $2 per week to “smoke your own pipe.” And he made a personal pledge he had no obvious way of honoring: to supply films to any who joined his cause, an “ironclad promise to give you the best Films and the best service at all times in spite of Hades itself.”12

Unfortunately for him, most of Laemmle’s peers, lacking the appetite to fight the Trust, either accepted the rules or gave up the business. In 1910, the Trust began to consolidate the film exchanges by systematically buying them out, acquiring, according to Upton Sinclair, 119 of the 120 major exchanges.13 Among those deciding to throw in the towel were three brothers, Jack, Sam, and Harry Warner. Harry Warner planned to become a grocer, and so, following an alternative course of history, Warner Bros. might today be a supermarket chain.14

Laemmle, however, did have a few allies, among them very useful friends overseas. In 1909, a group of French, Italian, British, and German producers formed the International Projecting and Producing Company, whose goal was to challenge the American Trust that was blocking their imports. And so European productions, of which Zukor’s Queen Elizabeth was only the first, began to give the Trust’s films a run for their money.15

But Laemmle’s most important supporter was the sole exchange owner who’d refused to sell out, the owner of the Greater New York Film Rental Company, one Wilhelm Fuchs (later William Fox). Fox was another Jewish immigrant, albeit with a much harder life story than even Zukor’s. A destitute childhood on New York’s Lower East Side, selling candy and stove polish to support his family, had left him with a dead arm and a paranoid sensibility.

The name Fox continues to loom large in American media, whether as Twentieth Century-Fox, or Fox News, or Fox Broadcasting. And here is the proverbial source of the Nile: an angry rebel with socialist leanings who refused to knuckle under. When Fox rejected their offer, the Trust not only stripped him of his license, but publicly accused him of renting their films to a brothel in Hoboken. But their hope of crushing or embarrassing Fox into submission was a major miscalculation. The Trust’s assault energized the man, and with Laemmle, he would emerge as their fiercest opponent in the New York area.

There was a third principal player on the Independent side, a Westerner named William W. Hodkinson, a theater patron turned owner (in Ogden, Utah), and later an exchange man. Hodkinson was a rarity among the key Independents, being neither a Jew nor a New Yorker. He had initially joined the Trust, helping to run the General Film Exchange in Salt Lake City. But he was also something of an idealist, his motto being “Better Pictures, Higher Admissions, Longer Runs, for a Better Audience.” Having failed to bring the film powers around to his thinking, he would quit the Trust in 1913, citing its “non-progressive attitude.” He would go on to found Paramount Pictures as a competitor to the General Film Exchange, the new firm’s enduring mountain logo originating as a doodle from his own hand.16

For all their bravado, however, the Independents obviously faced many daunting practical challenges, first among them the Trust’s film embargo. Laemmle had promised prospective coconspirators “the best Films” even while his break with the Trust cost him his access to the only films available. However improbable, the only conceivable options were to violate the Trust’s ban on imports, or to create their own competing supply. The former—Zukor’s course—held its own limitations, and so, not without misgivings, Laemmle and Fox became film producers. Thus was the Hollywood studio born, not out of choice, let alone glamour, but of brutal necessity.

The studio Laemmle opened near Union Square soon began making films as quickly and cheaply as it could, relying on French sources for raw film stock (since Eastman Kodak was part of the Trust). He named his firm the Independent Motion Picture Company (IMP); it would later be known as Universal Studios.17 Fox soon followed, creating Fox Features, whose first production would be Life’s Shop Window. At this point they crossed paths with Zukor; fresh from his rebuff by Kennedy, he joined in 1912, making his star-centered films in the European style.18

With the rise of insurgent producers allied with Paramount, the industrial warfare reached a new level of intensity. To distribute films illicitly was one thing; but to produce them was to attack the very heart of the Trust’s legal monopoly. Merely to operate a camera without a license was to violate patents owned by the Trust. Beginning in 1910, the Trust commenced a scorched-earth legal campaign meant to make an example of Laemmle. Over three years, their lawyers would sue him 289 times. Laemmle’s biographer describes the Trust’s strategy thus:

Injunction suits—let there be injunction suits in large numbers, let them flock in from all quarters, let the federal courts and the state courts buzz with them. Scour the country for infringements, set spies on every independent camera, projecting machine, reel of film, that could be found. Let actions breed and multiply …19

Rarely has an essential tension between free expression and intellectual property been laid so bare, made so explicit, as it was in the Trust’s patent suits. The Trust, using its economic power and the patent laws, was able to harness the power of the state in the attempt to destroy its budding competition and their new type of films, leaving them only one choice. Now and again, in the course of the Cycle, a little lawbreaking will prove a useful thing.

THE ORIGINAL WEST COAST–EAST COAST FEUD

As the historian Lewis Jacobs writes, “Independents fled from New York, the center of production, to Cuba, Florida, San Francisco, and Los Angeles.… The safest refuge was Los Angeles, from which it was only a hop-skip-and-jump to the Mexican border and escape from injunctions and subpoenas.”20 Whatever it stands for today, Hollywood was once a place for industry outlaws on the lam.

Often, though, film history, written mostly by cinéastes, can tend to romanticize the great move west as something akin to the von Trapp family’s escape over the Swiss Alps. Here, for instance, is Maurice Bardèche’s account:

For all their audacity and their ruses, the outlaws faced defeat when salvation suddenly opened before them.… They quickly gathered together their cameras, their painted scenery and their make-up boxes and set forth on an exodus to the West.… Here were sunny skies which made elaborate studio buildings unnecessary. A few planks, some trees, a bungalow to sleep in, a café for leisure moments were sufficient. If detectives showed up, they could pile actors, scenery and cameras into a car and disappear across the border for a few days.21

Less romantically, Tino Balio points out that the Trust itself had been producing films in Los Angeles before the Independents got there.22 Suffice it to say by the mid-1910s the suburb of Hollywood was clearly the new home for the Independents, with seventy independent production companies, including Fox and Universal, located in the vicinity.

We should pause to ask: What exactly was at stake in this cross-country feud? The Trust was a cartel intent on monopolizing the industry. Economics textbooks portray the harm of monopoly as its tendency to restrict supply and set high prices. But in the case of the Trust, the goal was to make a cheap product, and so the effect was to depress prices—can there be any harm in that? Yes, and in fact this is a case where the greater harm of monopoly reveals itself to be not economic but expressive. The Trust’s rules controlled not just costs, but the very nature of what film, as a creative medium, could be. In an information industry the cost of monopoly must not be measured in dollars alone, but also in its effect on the economy of ideas and images, the restraint of which can ultimately amount to censorship.

This is not free speech idealism for its own sake. As we’ve seen, the ban on most imports kept Americans from enjoying or participating in the developments in film taking place in Europe. The severe domestic limits on length (in general, films were to run ten minutes and could rarely go over twenty) made complex filmmaking difficult, if not impossible. The ban on “stars” was also a hindrance. Hoping to prevent the problem of “celebrity”—an actor’s gaining a following that might lead to unreasonable salary demands and higher costs—the Trust unwittingly neutralized the incentive for film acting to develop as an art or a serious profession.

Last and perhaps most damaging was the Trust’s arrogation to itself of the role of official censor. The Trust simply did not allow films it deemed inappropriate to be made or exhibited. It took its cues from the National Board of Censorship, a private organization formed in 1909 to review films for immorality. In this judgment, its view was expansive. Not only lewdness could be banned; even scenes that, for instance, made burglary seem easy could violate the imperative of moral uplift.23 And so the National Board and the Trust, private institutions outside the reach of any constitutional scrutiny or accountability, were in effect America’s film censors.

Not that the Independents, though rebels, were ideological crusaders either. They wanted to break open the film industry for their own reasons of commerce, not as agents of free speech. The open era of film was not, as that of radio was, launched by idealistic amateurs. But whatever the motive behind Laemmle and Fox’s instinct to fight the Trust, the effect was to blow open a new and incredibly powerful medium of expression and one with greater economic potential than had been allowed before. The film industry, once cracked, would be an extreme example of how an open industrial market and an open economy of ideas can overlap entirely.

As the battle between the Independents and the Trust wore on, the Trust, perhaps increasingly desperate, began taking the law into their own hands. In came the private enforcers, on the theory that “though an injunction will not stop a man from making films, a broken camera will.”24

THE OUTCOME

In 1912 it was by no means clear whether Hollywood or the East Coast Trust would dominate the future of American film (nor, for that matter, whether American film would be dominant in relation to European). There was no reason to bet on Hollywood. As the historian Paul Starr writes, “The Trust consisted almost entirely of Anglo-Protestant businessmen, and their central figure, Thomas Edison, was an American legend, while the Independents were nearly all socially marginal Jewish immigrants, originally without significant financial backing or political connections.”25 The Edison Company and the Trust had their patents, plenty of money, control of the theaters and distribution, and all of the advantages that go with being a “first mover.”

And yet as the 1910s progressed, the Trust grew ever weaker, and the Independents grew stronger. Why?

We can make the matter more perplexing by comparing the struggle in the film industry to what was happening concurrently in the telephone industry. Both featured a group of “Independents” opposing a would-be monopolist, in one case the Edison Trust, in the other, AT&T. And yet we see opposite outcomes: AT&T would bury the farmers and their barbed wire, going on to rule American telephony for decades, while Tinseltown would reduce film’s East Coast origins to the subject of a trivia question.

While there was no one key to the film Independents’ victory, we might say they won by a process of funded innovation—by guessing right about what the next step in film could be and attracting capital to their guess. Rather than the endless pulp offered by the Trust, the Independents imported big European pictures (such as Queen Elizabeth) or produced films of similar ambition and complexity, creating the demand their product was fulfilling.

In An Empire of Their Own: How the Jews Invented Hollywood, Neal Gabler makes this point a different way, by comparing WASP and Jewish cultural sensibilities at the time. For the former, movies “would always be novelties.” These “aging WASPs,” he writes, “were increasingly losing touch with the predominantly young, urban, ethnic audience—the audience from which the Jewish exchangemen and theatre owners had themselves recently risen.”26

Hollywood’s entrepreneurs, moreover, were adept at gaining Wall Street financing, at a time when the idea of a bank funding a cultural product was unheard of. In contrast, the Trust was slow to turn to banking, doggedly relying on its system of fixed prices.27 But the set fees paid to producers meant an upper limit on budgets, limiting production flexibility and ensuring that a Trust film would never be as unusual or eye-catching a confection as independent or foreign films. As Zukor once put it: “what they were making belonged entirely to technicians. What I was talking about—that was show business.”28

We might say, more simply, that the Trust, unlike AT&T, did not have the House of Morgan behind it, and perhaps that is all that need be said. For as we shall see, the history of American culture is as often a story of financing as of artistic merit. The Trust overrelied on its prices, the patent law, and lawyers, whereas AT&T relied on its financial power, a much more dependable asset.

As a general rule, cartels try to stay away from courts, just as a fugitive, even one wrongly accused, advisedly steers clear of the police station. Oddly enough, the Trust spent most of its time in court, and that is where it met its final fate. For in an act of industrial jujitsu, in 1912 Fox and Laemmle both filed antitrust actions against the Trust in their defense against the patent lawsuits.

The Trust was in name and fact a tempting target for the antitrust laws, as it made no secret of being a price-fixing cartel, and as James Grimmelmann writes, “the Ninth Circle of antitrust hell is reserved for price fixers.”29 The countersuits gained the attention of the Taft administration, which began its own investigation.

The Trust’s defense against price-fixing charges was fascinating and colossally unpersuasive. In court, they openly admitted their purpose of dominating the film industry. But they argued that their existence was necessary both to “improve the art” of cinema and to perform censorship on behalf of the government, fulfilling a “neglected function of the State.” The Trust proposed, in effect, that it was due an exemption from the law because, as a private regulator of free speech, it was performing a public service.

The claim to be a surrogate censor probably seemed less bizarre in that jurisprudential and cultural climate than in our present one. Nevertheless, the theory failed to impress the courts, and the Trust was unable to strike a lifesaving deal. Not that there was much to save by then, the Trust’s ranks and coffers having been depleted. In 1915, a federal district court finally ordered the tattered Trust be dissolved.30 The American film industry was, for the first time, an open industry.

As American film opened up, it took off in directions few could have imagined. An industry famous for its lack of imagination entered an era of astonishing creative breadth, soon to challenge Europe as it never could before. The sheer volume of producers and exhibitors now working meant that every genre could be explored to its outer limits, and the demand was there to meet supply. Four thousand, two hundred and twenty-nine films were reviewed by the industry press in 1914 alone (an average of more than eleven new films every day). Specialty films proliferated for every niche market perceived: for blacks, Jews, and Irish, for socialist, racist, anarchist, trade unionist and antilabor. As the film historian Steven Ross writes, “the relatively inexpensive costs of production and the constant demand for films allowed producers to indulge their political sentiments, or those of their directors and writers.”31 Film in the late 1910s through the 1920s was consequently an astonishingly diverse and fecund medium—“as diverse as human thought,” to borrow the description a Supreme Court opinion of the 1990s would use for the Internet.32

The beginning of the First World War in Europe gave the Americans a wide-open path to global supremacy. The European film industry, like other aspects of the culture, would never fully recover from the Great War, and Paris lost its place as the world capital of film. Once-mighty Pathé was sold off in pieces. George Méliès, the most famous director of the early 1900s, met a harsh fate. With his studios commandeered by the French army, Méliès, desperate for cash, sold his entire film archive to a junk merchant who melted it down to make footwear. In the 1920s, Méliès was discovered selling candy and toys in a booth at the Montparnasse train station.

What happened to the Edison Trust? All its members quickly passed into obscurity or were bought out, with the exception of Eastman Kodak, which had already left the Trust by the time of its collapse. By the 1920s, the cartel that a decade before had ruled American film, seemingly invincible, had been completely eliminated.

The founders of Hollywood, for the most part, went on to riches and fame, including the very first rebels, Laemmle, Fox, and Hodkinson. Their studios—Universal, Twentieth Century–Fox, Warner Bros., and Paramount—continue to dominate American film. But as we shall see, more important still than any of these would be that man waiting outside that office in New York City, Adolph Zukor. It was he, above all, who would manifest that rare trait Schumpeter described as “the dream and the will to found a private kingdom.”

* The French title is Les Amours de la Reine Elisabeth.