Business & Finance: Profitless Paramount

Left to the generosity of his employer was the sum which Joseph Patrick Kennedy was to receive for writing a report on Paramount Pictures (TIME, June 29). Last week it was learned that the sum would be $50,000, only one-third of the fee the onetime Securities & Exchange Commission chairman received for devising a recapitalization plan for Radio Corp. of America (TIME, Feb. 10). From the mephitic mystery that cloaked Mr. Kennedy’s report ever since he handed it in early in June it looked as if Paramount had certainly got its money’s worth.

Hushed was any discussion of the report at the annual Paramount meeting last month, though Mr. Kennedy was understood to have urged that a copy be sent to each & every security holder. Finally the company offered to show any of its interested owners a prepared summary, which quoted Mr. Kennedy at length but omitted confidential figures and some of its author’s more acidulous opinions of Paramount personalities. This summary was not released for publication but it did not take the Press long to find obliging stockholders who would accompany newshawks to Paramount’s inner offices in Manhattan. Thus last week the Kennedy report finally became a matter of public record.

First thing discovered was that Mr. Kennedy never got beyond a preliminary investigation of the troubles which have beset Paramount since it emerged from a 77B reorganization a year ago. He made a thorough study of the production department, Paramount’s real weakness, took a sharp look at the rest of the business, consulted his staff, then wrote to Paramount’s directors:

“I am frank to state that it would be an inexcusable waste of your money and a senseless waste of our time to proceed further with the work of survey unless and until such changes are made in management as I deem an essential preliminary to any continuation of my work.

“At the time when any well-managed picture business should be making substantial profits, Paramount is not making money and, as now managed, gives no hope of doing so. While current unsatisfactory results are cumulative effects of a chain of incompetent, unbusinesslike and wasteful practices to be detected in every phase of production, this pervading incompetence is directly traceable to a lack of confidence in the management and direction of the company’s affairs in the New York office.”

This was the nub of the Kennedy report. Though the management has been turned upside down, Mr. Kennedy did not proceed with his work, his connection with the company having ended July 1. Old Chairman Adolph Zukor had already been shipped to Hollywood to try to straighten out production. President John Edward Otterson was fired, Barney Balaban, an experienced showman taking his place (TIME, July 13). Other showmen were added to the board to replace businessmen directors. Since Mr. Kennedy first looked at it last May, the Paramount Picture has brightened considerably.

Mr. Kennedy held no particular brief for Hollywood’s way of doing things, but he never missed a chance throughout his report to ridicule the spectacle of Wall Street trying to run Hollywood. In tracing Paramount’s history he showed that the old company which evolved from Adolph Zukor’s Famous Players with its conservative Kuhn, Loeb & Co. tradition, had “on paper every element for success.”

“Yet,” said Mr. Kennedy, “it failed completely when the motion picture industry was subjected to its first real test. And it failed when smaller, less conspicuous companies, managed and directed by practical theatre men, unaided by ‘businessmen,’ succeeded. It was while the best downtown business brains were advising the ‘showmen’ executives of Paramount that the company was committed to the program which expanded its real estate investments from $17,000,000 to $200,000,000. Today, the new company is at a crisis, after having been set up for a year with quality businessmen at the helm and on the directorate, with $20,000,000 of cash and no current obligations pressing for settlement. So that it would seem that Paramount’s present problems cannot be solved by merely condemning the practices and habits of the picture industry and calling in big business.”

The report referred to the need of having control of production “outside of New York” and “unhampered by New York.” It observed that where accepted “business methods have been most rigorously adopted the best results have not necessarily followed.” It concluded that what was really needed was “positively and definitely good pictures,” and that these were not the “byproduct of businesslike administrations.” It noted that good pictures are usually “fortuitous happenings or ‘breaks’ which come to every company once in a while in the picture industry, yet cannot by any known scheme be assured to anyone.” Such “breaks” are born and nurtured, however, “on production lots, not in directors’ rooms.”

Indeed one reason for the demoralization of Paramount’s studio given in Mr. Kennedy’s detailed study of production was “influence of the board of directors on studio operations.” Other reasons: “Unfortunate experiences in dealing with producers and directors. . . .Ineptitude in dealing with stars and production problems. . . . Extravagance in completing acceptable scenarios. . . . Excessive total studio overhead expense. . . . Failure to prepare scripts, final cost estimates and shooting schedules on time. . . . Large expenditures on stories, scenarios and artists’ salaries subsequently written off.” Costs of pictures for the 1935-36 season exceeded budgets by $7,000,000, almost precisely equal to the loss recorded by the studios.

Mr. Kennedy’s darkest facts dealt with the 1936-37 feature schedule. This schedule was first considered last November and by May included 50 pictures. Many were so vaguely conceived that as soon as some attempt was made to flesh out the title with narrative detail they had to be dropped because suitable casts were unavailable, costs were too high or the sales department did not like them. Three weeks later the original list of 50 was down to 29, only three of which were in production. Not one had a completed script. Meantime other cinema companies were nearly ready to start releasing for the new season.

On a score of pictures produced last season Mr. Kennedy found that “camera work began on the average 20 days after the starting date set.” On 14 features the cost of such delays in terms of idle artists’ salaries alone amounted to $23,000 each. On one picture no less than 19 writers were engaged in a desperate attempt to express an inarticulate producer’s ideas. Nearly one-half of Paramount’s total studio overhead of $5,500,000 last year represented provisions for losses on stories and scenarios later abandoned and artists’ salaries for idle and excessive time spent on pictures.

Said Mr. Kennedy ominously: “It would be little short of criminal, if, on the threshold of prosperity for the industry, this opportunity to eliminate waste and substitute profits were to be passed by without action. It might subsequently be difficult to explain such inaction to litigious stockholders or to enquiring Congressional committees.”