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Vertical integration in studio system

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1. Vertical integration in studio system The term "vertical integration" refers to the structure of a marketplace, which is integrated (rather than segregated) at a variety of crucial levels. In the case of the motion picture industry, the studio system established a market in which the studios owned production facilities, distribution outlets, and theaters. In other words, the studios controlled every level of the marketplace from the top down, from production to exhibition. "Vertical integration" began in the 1910s and inspired the postwar consolidation of the studio system as national distribution companies, such as Paramount merged with production companies, such as Famous Players and Lasky and subsequently began purchasing theater chains. ...read more.


The majors owned only a fraction of the nation's theaters, e.g. 3000 of the 18000. But these theaters were large, first run houses and located in big cities. Therefore they generated 70% of the box office receipts. The majors ensured the profitability of their own theaters and controlled the independents by instituting a series of special distribution practices. These were known as block booking, blind bidding, runs, zones, and clearances. Block booking refers to the rental of films in large quantity. If exhibitors wanted to rent films, they have to rent the entire yearly output. ...read more.


Distribution is also guided by a system of zones; only one theater in any particular area is allowed to show a new picture. The dismantling of the studio system began just before World War II when the U.S. Department of justice's Antitrust Division filed suit against the 8 studios for the use of their monopolistic methods block booking, blind bidding, runs etc. Hollywood avoided prosecution by agreeing to refrain from some of these practices. But in 1944 after hearing complaints from the independent exhibitors, reopened the suit. In 1948 the U.S. Supreme Court ruled against the studios and were forced to separate production and distribution from exhibition. They were also forced to sell off their theater chains to outside parties. ...read more.

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