and America: The Battle for Early Film
Around 1910 the film industry was very balanced, with American and European film industries holding large shares in each other's markets. By the 1920s, there was a totally different picture: in the American market, American companies held about 95 to 100 percent of the total market, while in Europe, American companies held anything between 60 and 90 percent of the market, depending on the country. European film companies had run into serious problems. Many went bankrupt; others could only survive because of government support. Very few films were being produced in Europe in the early 1920s. The question that has taxed film historians is, What happened between 1910 and the early 1920s?
American film achieved dominance during the First World War, and as a result, many historians think that the war must somehow have been the cause of the decline of the European film industry. Two major reasons have been put forward for this. One states that during the war, European film companies were hardly making any profits; the home market was very unstable, and people simply were not going to the cinema. The second reason put forward is that film companies were cut off from the export markets outside Europe and North America, such as Latin America, Asia and Australasia. American companies could use these export markets, but European companies were deprived of these revenues. However, these reasons do not fully explain the decline of the European film industry.
As for the European film industry being hurt by the closing of the markets outside North America and Europe, the problem is two-fold. First, these markets accounted for only a small percentage of the total world film market--at the very most, 10 percent, but more likely between 3 and 5 percent. Second, sources from several European film companies show that they actually were trading films to Latin America and Australia during the war, and some companies did make profits. In addition, films were very easy to transport and so it is very difficult to prove that Europe was totally cut off from external markets.
For these reasons, it seems clear that the First World War did not cause the decline of the European film industry.
Audience tastes in the United States
Film historians such as Richard Abel in his book The Red Rooster Scare have argued that around 1910 a change took place in the tastes of American consumers and that a feeling against foreign films emerged. Before that people were happy to watch every film as it was a new product, but suddenly people became averse to foreign films. If you look at the trade press of the time, there are articles complaining about foreign films. These complaints fall into two broad categories: Some claim that European films were full of sex and violence and that they were aimed at the lowest common denominator. All over the United States, censorship boards emerged to withhold films the boards considered improper. Others claim that some European films were too intellectual. European companies would film operas, theatre plays or very highbrow literary and dramatic works. American audiences found them very elitist and sometimes just plain weird.
This reaction was so marked that some European film companies felt forced to adapt to these changes. In an effort to continue selling in the American market, they made the production of Westerns their first priority. Some film companies produced them in Europe, France or Britain. A more effective strategy, which several European film companies followed, was simply to set up a studio in the United States and make Westerns there for American consumers. Some argue that this change in the taste of the American audience was the cause of the decline of the European film industry because when the European companies lost the American market, the largest market in the world, their industry was no longer viable. However, because there is evidence that European companies began to adapt to this change, this argument does not seem very credible. The change in American tastes is an important point in the cultural history of film, but did not play a major role in the decline of the European film industry.
Market structure and escalation strategies
The real reason the European film industry declined comes down to something that happened in the American markets between 1915 and 1917. At that time, the size of the American film market grew very rapidly, and entrepreneurs began spending enormous sums on film production. Although they knew they would never recoup these costs in existing markets, their rationale was that, by the time the film was distributed, the market would have grown enough to cover the costs. At the same time, because the film would be of a higher quality, it would attract more people. People who might otherwise go to a theatre play or to a restaurant would now pay their money into films.
How did this escalation strategy work? Companies paid a lot of money to hire star actors and actresses (or made them into stars by spending on advertising), to acquire rights to famous novels and plays and to construct large studio complexes with several different sets, as well as spending on special effects and location shootings and paying qualified technicians, such as lighting specialists, camera men and directors. This was very risky, and many companies went bankrupt. There was a very chaotic phase in the American market that lasted from 1915 until the late 1910s. But out of this chaos of bankruptcies, mergers and dissolutions emerged eight major film producers and distributors, which eventually became the eight Hollywood studios that would dominate the film industry for the rest of the twentieth century.
One could ask, Why didn't the European film industry participate? This is where the First World War is significant. While European companies were doing well and making profits in the existing film industry structure, they could not afford to participate in the very risky escalation strategy by multiplying their film budgets. Some thought that the feature film, which emerged at this time, would be short-lived. Between 1915 and 1917, however, all the extra spending on film production was on feature films, which became the industry standard. There still remained companies that made shorter films, such as newsreels, cartoons or travelogues, however these remained minor companies at the margins.
Why did Europe fail to catch up after the war?
Many people assume that it would have been very simple for European film companies to catch up after the war. One could imagine that several European film companies that had built studios in Nice, Naples or Madrid could have paid for famous actors and directors to make large-scale films. However, these escalation strategies resulted in an enormous increase in the average film production costs. In America, even the smaller steps in this escalation strategy were very risky and led to the bankruptcy of many companies. To make all these steps in one big jump would have been virtually impossible, and European companies would have found it very difficult to find bankers or stock marketers willing to finance this escalation strategy.
In addition, because Hollywood studios were the first to escalate their spending, and the film industry was concentrated in Hollywood, they could outbid the European companies on talent, such as star actors and directors. So although the film industry did experience a growth period in some European countries after the war (for example, the Swedish film industry in the early 1920s and the German industry in the mid-1920s), American studio bosses would inevitably travel to these countries and buy away all major actors, actresses and directors, and their boom would end. Actors and actresses found it very difficult to resist Hollywood contracts because studio bosses would offer them the ability to work with the best camera people, directors and makeup artists in the world. In addition, with so many film companies in the same location Hollywood was able to earn more revenue by additional creative input. If they were able to get an extra actress in Hollywood, all the other companies were there and there were huge cost savings by having everything in one place. This created a network effect that made it possible for Hollywood studios to pay more money for actors than European studios could.
Hollywood studios also colluded on export markets. The studios formed an export cartel, and whenever foreign governments or companies created problems, the studios acted as one, as was allowed under American law. At this point, studios were turning out 50 to 60, sometimes 70 films in one year, so they could offer films to exhibitors in large blocks. They would go to exhibitors and say, for example: "I have these Charlie Chaplin and Mary Pickford films. You can buy them, but you will also have to buy my 40 other films." When European film companies came around with one or two films, cinemas would already be fully booked. Block booking made it very difficult for European countries to enter film distribution.
Protectionism and Hollywood subsidies
During the 1920s and 1930s, the most common way to protect the European film industry was regulation, by limiting the foreign film supply. Many countries, such as Britain, France and Germany, didn't give direct subsidies to the film industry: they only protected it with quotas. When the Nazis took power in Germany after 1933, they introduced a direct subsidy system, and a committee of government officials and film industry executives decided who was to make which film. This tied very closely into the Nazi propaganda apparatus.
Interestingly, this kind of system (without the political implication of the Nazi Party) was applied in most European countries after 1945. Most European countries had a government organisation that would fund film production and would appoint a committee of government and industry officials who were to decide who was to make which film. This was a very important switch, and it redirected European filmmaking to more artistic projects. But the government had a serious problem. If they supported commercial films outright, people would say that tax money was being wasted. Why would one want to spend tax money on purely commercial films aimed at the lowest common denominator? On the other hand, if the government supported highly artistic films, people would say that they spent tax money on films that hardly anybody would watch. So there was always a big dilemma about how to hand out money to filmmakers.
The American government has also strongly supported the film industry, but through a different system. Before the 1970s it allowed its film companies to collude on foreign markets, so American film companies would act as one when there were problems. When they were negotiating with foreign governments, they would all work together to boycott if their demands were not being met. This also happened when they met with foreign companies. In the late 1940s, the American film studios wanted to force a new contract upon Dutch cinemas. These cinemas did not comply, and so all Hollywood studios withheld their films for several months. This behaviour, which is now completely illegal under European antitrust legislation, was allowed by the US government at the time and widely practiced by the Hollywood studios.
In the 1970s, there was a big change in the US strategy of protecting its film industry. The Hollywood studios had big problems during the 1960s, so the US government introduced various regulations that gave the Hollywood studios tax breaks. People would invest money in films and accrue enormous tax advantages. This stopped in the mid-1980s, when Hollywood was making large profits again and had a lot of success. Coincidentally, it is exactly the time when the European community started to subsidise the European film industry, and the American government was criticising the European union for all these subsidies.