By the 1910s, movies had become a major industry. Among the first to try his hand at dominating the movie business and reaping its profits, Thomas Edison formed the Motion Picture Patents Company, known as the Trust, in 1908. A cartel of major U.S. and French film producers, the company pooled patents in an effort to control film’s major technology, acquired most major film distributorships, and signed an exclusive deal with George Eastman, who agreed to supply movie film only to Trust-approved companies.

However, some independent producers refused to bow to the Trust’s terms. They saw too much demand for films, too much money to be made, and too many ways to avoid the Trust’s scrutiny. Some producers began to relocate from the centers of film production in New York and New Jersey to Cuba and Florida. Ultimately, though, Hollywood became the film capital of the world. Southern California offered cheap labor, diverse scenery for outdoor shooting, and a mild climate suitable for year-round production. Geographically far from the Trust’s headquarters in New Jersey, independent producers in Hollywood could also easily slip over the border into Mexico to escape legal prosecution brought by the Trust for patent violations.

Wanting to free their movie operations from the Trust’s tyrannical grasp, two Hungarian immigrants—Adolph Zukor, who would eventually run Paramount Pictures, and William Fox, who would found the Fox Film Corporation (which later became Twentieth Century Fox)—played a role in the collapse of Edison’s Trust. Zukor’s early companies figured out ways to bypass the Trust, and a suit by Fox, a nickelodeon operator turned film distributor, resulted in the Trust’s breakup due to restraint of trade violations in 1917.

Ironically, entrepreneurs like Zukor developed other tactics for controlling the industry. The strategies, many of which are still used today, were more ambitious than just monopolizing patents and technology. They aimed at dominating the movie business at all three essential levels—production, everything involved in making a movie, from securing a script and actors to raising money and filming; distribution, getting the films into theaters; and exhibition, playing films in theaters. This control—or vertical integration—of all levels of the movie business gave certain studios great power and eventually spawned a film industry that turned into an oligopoly, a situation in which a few firms control the bulk of the business.

Production

In the early days of film, producers and distributors had not yet recognized that fans would seek not only particular film stories—like dramas, westerns, and romances—but also particular film actors. Initially, film companies were reluctant to identify their anonymous actors for fear that their popularity would raise the typical $5 to $15 weekly salary. Eventually, though, the industry understood how important the actors’ identities were to a film’s success.

Responding to discerning audiences and competing against Edison’s Trust, Adolph Zukor hired a number of popular actors and formed the Famous Players Company in 1912. His idea was to control movie production not through patents but through exclusive contracts with actors. One Famous Players performer was Mary Pickford. Known as “America’s Sweetheart” for her portrayal of spunky and innocent heroines, Pickford was “unspoiled” by a theater background and better suited to the more subtle and intimate new medium. She became so popular that audiences waited in line to see her movies, and producers were forced to pay her increasingly higher salaries.

An astute businesswoman, Mary Pickford was the key figure in elevating the financial status and professional role of film actors. In 1910, Pickford made about $100 a week, but by 1914 she earned $1,000 a week, and by 1917 she received a weekly salary of $15,000. Having appeared in nearly two hundred films, Pickford was so influential that in 1919 she broke from Zukor to form her own company, United Artists. Joining her were actor Douglas Fairbanks (her future husband), comedian-director Charlie Chaplin, and director D. W. Griffith.

Although United Artists represented a brief triumph of autonomy for a few powerful actors, by the 1920s the studio system firmly controlled creative talent in the industry. Pioneered by director Thomas Ince and his company, Triangle, the studio system constituted a sort of assembly-line process for moviemaking: actors, directors, editors, writers, and others all worked under exclusive contracts for the major studios. Those who weren’t under contract probably weren’t working at all. Ince also developed the notion of the studio head; he appointed producers to handle hiring, logistics, and finances so that he could more easily supervise many pictures at one time. The system was so efficient that each major studio was producing a feature film every week. Pooling talent, rather than patents, was a more ingenious approach for movie studios aiming to dominate film production.

Distribution

An early effort to control movie distribution occurred around 1904, when movie companies provided vaudeville theaters with films and projectors on a film exchange system. In exchange for their short films, shown between live acts, movie producers received a small percentage of the vaudeville ticket-gate receipts. Gradually, as the number of production companies and the popularity of narrative films grew, demand for a distribution system serving national and international markets increased as well. One way Edison’s Trust sought to control distribution was by withholding equipment from companies not willing to pay the Trust’s patent-use fees.

However, as with the production of film, independent film companies looked for distribution strategies outside of the Trust. Again, Adolph Zukor led the fight, developing block booking distribution. Under this system, to gain access to popular films with big stars like Mary Pickford, exhibitors had to agree to rent new or marginal films with no stars. Zukor would pressure theater operators into taking a hundred movies at a time to get the few Pickford titles they wanted. Such contracts enabled the new studios to test-market new stars without taking much financial risk. Although this practice was eventually outlawed as monopolistic, rising film studios used the tactic effectively to guarantee the success of their films in a competitive marketplace.

Another distribution strategy involved the marketing of American films in Europe. When World War I disrupted the once-powerful European film production industry, only U.S. studios were able to meet the demand for films in Europe. The war marked a turning point and made the United States the leader in the commercial movie business worldwide. After the war, no other nation’s film industry could compete economically with Hollywood. By the mid-1920s, foreign revenue from U.S. films totaled $100 million. Today, Hollywood continues to dominate the world market.

Exhibition

Edison’s Trust attempted to monopolize exhibition by controlling the flow of films to theater owners. If theaters wanted to ensure they had films to show their patrons, they had to purchase a license from the Trust and pay whatever price it asked. Otherwise, they were locked out of the Trust and had to try to find enough films from independent producers to show. Eventually, the flow of films from independents in Hollywood and foreign films enabled theater owners to resist the Trust’s scheme.

After the collapse of the Trust, emerging studios in Hollywood had their own ideas on how to control exhibition. When industrious theater owners began forming film cooperatives to compete with block-booking tactics, producers like Zukor conspired to dominate exhibition by buying up theaters. By 1921, Zukor’s Paramount owned three hundred theaters, solidifying its ability to show the movies it produced. In 1925, a business merger between Paramount and Publix (then the country’s largest theater chain, with more than five hundred screens) gave Zukor enormous influence over movie exhibition.

Zukor and the heads of several major studios understood that they did not have to own all the theaters to ensure that their movies would be shown. Instead, the major studios (which would eventually include MGM, RKO, Warner Brothers, Twentieth Century Fox, and Paramount) only needed to own the first-run theaters (about 15 percent of the nation’s theaters), which premiered new films in major downtown areas in front of the largest audiences, and which generated 85 to 95 percent of all film revenue.

The studios quickly realized that to earn revenue from these first-run theaters they would have to draw the middle and upper-middle classes to the movies. To do so, they built movie palaces, full-time single-screen movie theaters that provided a more hospitable moviegoing environment. In 1914, the three-thousand-seat Strand Theatre, the first movie palace, opened in New York. With elaborate architecture, movie palaces lured spectators with an elegant décor usually reserved for high-society opera, ballet, symphony, and live theater.

Another major innovation in exhibition was the development of mid-city movie theaters. These movie theaters were built in convenient locations near urban mass transit stations to attract the business of the urban and suburban middle class (the first wave of middle-class people moved from urban centers to city outskirts in the 1920s). This idea continues today, as multiplexes featuring multiple screens lure middle-class crowds to interstate highway crossroads.

By the late 1920s, the major studios had clearly established vertical integration in the industry. What had once been a fairly easy and cheap business to enter was now complex and expensive. What had been many small competitive firms in the early 1900s was now a few powerful studios, including the Big Five—Paramount, MGM, Warner Brothers, Twentieth Century Fox, and RKO—and the Little Three (which did not own theaters)—Columbia, Universal, and United Artists. Together, these eight companies formed a powerful oligopoly, which made it increasingly difficult for independent companies to make, distribute, and exhibit commercial films.