The period of the 1920's to 1950's where known as the studio era in Hollywood. A few major companies monopolized the industry through vertical integration when the film companies controlled all production distribution and exhibition. The majors determined which movies were shown in which theatres, choosing their own over others. The theatres were often palaces, about spectacle and a night out more than the movie itself. Marcus Loew said , "we sell tickets to theatres, not movies" (pg 113 , Hollywood cinema, Maltby R, 2003). The majors forced independent theatres into block booking their movies. If they wanted to purchase an individual movie from the producers they had to buy them in blocks, which often included some low budget and less popular movies. "The system worked in the distributors best interest by ensuring a wider distribution for lower budget movies and preventing independent exhibitors from buying only the most successful product", (124, Hollywood cinema, Maltby R, 2003).
The Paramount decree was passed in 1948 when the US supreme court ruled that the Hollywood majors control over distribution and exhibition of its product constituted an illegal monopoly and ruled that production and distribution be separated from the exhibition of movies. It marked the end of the studio era and the beginning of decades of changes in the industry made in order for the ex-studios to remain in control of the film market.
After the paramount decree the Big Five studios , Twentieth century fox, MGM, Paramount, Warner Bros and RKO, were forced to sell off their theatre chains. The biggest problem the studios faced was that "the theatres had contributed more to profits than either production of distribution- production, of course, can only become a profitable activity as a result of distribution and exhibition" (pg7 Hillier J , 1992, The New Hollywood). Changes had to be made in order to make distribution of productions profitable. The studio system worked on permanent studio facilities with a highly paid roster of stars and an extensive payroll of technicians and staff. It soon became clear that the number of films produced had to be cut so the studios abandoned contracted staff and permanent studio facilities as they were on longer in constant demand.
Stars whos contracts were cut received tax breaks from investment credits in setting up their own production companies. "Burt Lancaster and his agent Harold Hecht formed the Hecht- Lancaster company in 1948 while Randolph Scott and producer Harry Joe Brown formed Ranown productions in 1955" (pg8 Hillier J , 1992, The New Hollywood). This rise in independent production did serve to diversify the industry as intended by the anti-trust cases. The film industry also took advantage of foreign government grants and cheaper labour by making films abroad. "between 1967 and 1972 some 45 % of the 1,200 features made by US companies- not all A pictures were made abroad" (pg8 Hillier J , 1992, The New Hollywood). The independents did not have the distribution facilities the majors had and their companies were set up to produce only one or two movies at a time. The big studios stepped in to co-finance the distribution of independent productions. "The rolling production programme of the studio system was replaced by one-off independent productions backed by a studio for all or part of their financing" (pg 9 Hillier J , 1992, The New Hollywood). As well as finance the studio backing the independent production would also rent them studio facilities.
The studios possessed lucrative assets from the studio era. The large studio lots were prime real estate and they had the libraries of old films. Film production in the majors was a good investment as the possessed established ditribution networks...