V E N I , V I D I , V I D E O

T H O M A S S C H A T Z , E D I T O R

Texas Film and Media Studies Series

Veni,
Vidi,
Video
The Hollywood Empire
and the VCR

FREDERICK
WASSER

University of Texas Press, Austin

COPYRIGHT © 2001 BY THE UNIVERSIT Y OF TEXAS PRESS
All rights reserved
Printed in the United States of America
First edition, 2001

Requests for permission to reproduce material from this work should be sent to Permissions,
University of Texas Press, P.O. Box 7819, Austin, TX 78713-7819.

�
� The paper used in this book meets the minimum requirements of ansi/niso z39.48-1992
(r1997) (Permanence of Paper).

Library of Congress Cataloging-in-Publication Data

Wasser, Frederick.
Veni, vidi, video : the Hollywood empire and the VCR / Frederick Wasser. — 1st ed.
p. cm. — (Texas film and media studies series)
Includes bibliographical references and index.
isbn 0-292-79145-3 (cloth : alk. paper) — isbn 0-292-79146-1 (pbk. : alk. paper)
1. Video recordings. 2. Video recordings industry. I. Title. II. Series.

pn1992.935 w37 2001

384.55�8— dc21 2001027585
 Contents

Acknowledgments ix
I N T R O D U C T I O N
1 Signs of the Time

The American Film Industry before Video 5

The American Film Industry and Video 10
The Political Economy of Distribution 14
Video and the Audience 17
Structure of the Study 18

C H A P T E R O N E
23 Film Distribution and Home Viewing before the VCR

A Brief Review of the Early Days of the Movie Industry 24

From Universal Audiences to Feature-Length Films 26
Movies at Home 28
Tiered Releasing 29
Broadcasting: The Other Entertainment Medium 31
Postwar Film Exhibition 36
Distributing Films to Smaller Audiences 39
Television Advertising and Jaws: Marketing the Shark Wide
and Deep 44

C H A P T E R T W O
48 The Development of Video Recording

Broadcast Networks and Recording Technology 51

Television and Recording 55
V E N I , V I D I , V I D E O

vi Home Video 1: Playback-only Systems 60

Home Video 2: Japanese Recorder System Development 70

C H A P T E R T H R E E
76 Home Video: The Early Years

Choice, “Harried” Leisure, and New Technologies 77

The Emergence of Cable 81
The Universal Lawsuit 82
VCR and Subversion 91
X-rated Cassettes 92
The Majors Start Video Distribution 95
Videotape Pricing 95
Renting 98

C H A P T E R F O U R
104 The Years of Independence: 1981–1986

Independence on the Cusp of Video 105

New Companies Get into Video Business 106
Hollywood Tries to Control Rentals 110
Video, Theater, and Cable 116
Pre-Selling/Pre-Buying 121
Video and New Genres 125
Vestron’s Video Publishing 127
Conclusion 129

C H A P T E R F I V E
131 Video Becomes Big Business

The Development of Two-Tiered Pricing 132

The New Movie Theater 135
Microeconomics 1: Overview 138
Microeconomics 2: Rental 141
Video and Other Commodities 145
Retailing Consolidation 146
Breadth versus Depth 149
Video Advertising 151
Video and Revenue Streams 152
Production Increase 154
More Money, Same Product 154
contents
C H A P T E R S I X vii
158 Consolidation and Shakeouts

High Concept 161

Disney Comes Back On-line 162
The Majors Hold the Line on Production Expansion 165
Vestron Responds 171
The Fate of Pre-Selling and the Mini-Majors 176
LIVE, Miramax, and New Line 180
Conclusion 183

C H A P T E R S E V E N
185 The Lessons of the Video Revolution

Media Industries after the VCR 185

Home Video and Changes in the Form of Film 194
Images of Audience Time 200
A Philosophic View of Film and Audience 202
Whither the Mass Audience? 204

Notes 207
Bibliography 227
Index 237
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 Acknowledgments

I stepped off the bus in Salt Lake City looking for a job in an independent
film company. Within several hours, I was hired to be an assistant editor on
a small-budget film that had sat on the shelf for several years, waiting for a
theatrical release. It was now being dusted off for the very new and very wide
open video market. I felt like a forty-niner stumbling onto Sutter’s gold mine.
I got more jobs on more films being made in hopes of capturing video profits.
I followed the trail of these films down to Los Angeles, and soon I graduated
to the big studios.
The small independent companies had a unique culture that attracted
filmmakers who loved alternative and cult filmmaking. James Bryan, who
had hired me off the bus, acted as a mentor for me, providing in his own ca-
reer the bridge between older exploitation films and the new cheapies. He in-
structed me in the poetry of independent film financing, an art form that fas-
cinated me even though I lacked any competency at it. He provided the
original inspiration for this study when he pointed out that the video market
was turning against the very companies it had initially spawned. I started
thinking about the cultural implications of this commercial shakeout.
I was fortunate that Thomas Guback, a leading authority in film industry
studies, unstintingly guided my academic research and helped me develop
my thoughts on the commercial/cultural nexus. Thomas Schatz was espe-
cially important in helping to transform the manuscript into this book. I am
extremely grateful for the intelligence and enthusiasm of both men. Also, I
would like to thank the anonymous reader and the copy editor, Sue Carter,
from the University of Texas Press, whose comments were extremely helpful.
I want to acknowledge Diane Carothers and Ellen Sutton of the Univer-
sity of Illinois Communications Library for their help. I want to thank James
V E N I , V I D I , V I D E O

x Carey for his generous efforts and our many talks. My writing was supported
by fellowships from the University of Illinois and the School of Journalism at
Columbia University, and a residency in the Department of Sociology and
Anthropology at Tufts University. Dean June Higgins provided resources
from the School of Arts and Sciences at Central Connecticut State University
for the completion of this book. I am thankful for discussions I have had with
John Nerone, Dan Schiller, Paul Lopes, Ira Robbins, Sheila McBride, Ann
Klefstad, Richard Casey, William Megalos, Nancy Salzer, and Shin Mizukoshi.
Solidelle Wasser and Henry Wasser have provided continuous support.
V E N I , V I D I , V I D E O
THIS PAGE INTENTIONALLY LEFT BLANK
 Introduction:
Signs of the Time

Sumner Redstone had a problem in the fall of 1993. He wanted to buy Para-
mount studio for his own company, Viacom. Redstone had been in the movie
theater business since 1954. In 1987, he took over Viacom, a television com-
pany that distributed syndicated shows and ran the MTV and Nickelodeon
cable channels. But now he wanted a show biz legend, he wanted Paramount,
the studio of Adolph Zukor and Cecil B. DeMille. This was the studio that pi-
oneered the Hollywood film industry, starting in 1914. It was still, to this day,
the only major U.S. studio actually headquartered in Hollywood, California.
But how could Redstone buy it? He had offered as much as Viacom could af-
ford, but still had not topped the counterbidding from Barry Diller and his
allies. In order to enhance Viacom’s resources, he contemplated another pre-
liminary merger. This merger was not to be with an old major media busi-
ness, but with a new force on the American media landscape, Blockbuster,
the world’s largest video rental chain. Phone calls were made. Negotiations
began. In January 1994, Blockbuster was merged into Viacom and on Febru-
ary 14, Viacom acquired Paramount. A film institution had been bought with
the cash flow of a video rental business. Home video had now arrived as a
mass medium institution.
Another video sign of the times occurred in that same season when
William Mechanic was named the president and chief operating officer of
Twentieth Century Fox on September 27, 1993. The item on his resume that
clinched the appointment? It was Mechanic’s nine-year stint leading the Walt
Disney Home Video division. He had built on the natural advantages of Dis-
ney product to take a dominant market position in the sale of prerecorded
videos. Still, there was enough of the old prejudice against the home video di-
vision that Disney’s chief, Michael Eisner, did not move quickly enough to
V E N I , V I D I , V I D E O

2 give Mechanic creative assignments. Twentieth Century Fox decided that it

was time for someone with a video background, now the largest segment of
the movie market, to take charge of the whole works. Mechanic was per-
suaded to become the first home video vice president to make the switch, to
take charge of another historic Hollywood studio.
This book examines the rise of home video as a mass medium. In today’s
world, mass media are woven together in a thick relationship that becomes a
total environment. Every change in one medium affects the balance of the
whole. Studies of media industrial relations reveal more than just the busi-
ness of media. Media relations must be understood before we can really un-
derstand the cultural value of the product itself, be it a mainstream film or an
episodic television show or a pornographic tape. After all, industry practices
determine which shows are made and how they are made. Industry relations
must be understood as a reflection of the audience itself, just as real a reflec-
tion of the audience as surveys, ethnographic studies, and other methods.
The worldwide audience’s fascination with video ignited the rapid-fire
success of Sony’s Betamax videocassette recorder (VCR) after its introduction
in 1975. Sony’s VCR competed successfully against various new media “de-
livery systems” such as Cartrivision and early prototypes of Laservision.
When a competing format, “VHS,” came out in 1976 and overtook the “Beta-
max” format, the video competition became a sporting event attracting the
interest of an international audience. VHS was the result of rivalries within
the Japanese electronics industry and was championed by the biggest elec-
tronic manufacturer, Matsushita, now resentful of and aroused by Sony’s up-
start success. These successive hardware (and ensuing software) wars showed
that no one knew how home video would succeed and that the strongest
manufacturers were not able to impose their version unilaterally on the au-
dience. Well-marketed video products suffered market failure because these
products did not satisfy audience desires. In turn, the audience did not reveal
these desires until they saw the product in the store. Certainly the instant
popularity of the VCR surprised powerful media players and upset quite a few
of them. American pundits and policymakers were particularly chastised by
the fact that both profitable formats belonged to Japanese manufacturers.
In addition to the uncertainty of the format competition, it was not clear
what the audience would do with the videocassette recorder. It could be used
to watch original programming, to watch television shows at times other than
the scheduled broadcast (time shifting), to watch pornography and other non-
introduction

mainstream movies, to watch current mainstream movies. Of course, the VCR 3

was used for all these purposes as well as for amateur home recordings. The
purpose of this book is to describe which function had the greatest impact on
extant media institutions and to describe, in turn, how this impact fueled the
growth of “home video” into a major global culture industry. Advertisers and
TV producers were very concerned that the VCR would erode the basis of
television economics. However, this threat faded as the audience quickly dis-
covered that they could use the VCR to watch movies. The rental of movies
became the primary use of the VCR, and certainly the one with the greatest
impact on an existing mass medium—the film industry. This historical study
focuses on the movie industry, as the VCR becomes widespread by the end of
the 1970s and becomes the primary means for viewing movies a decade later.
Even if the VCR disappears and new digital players and forms of download-
ing movies are adopted, its impact on the film industry has been profound
and will endure.
The VCR emerges in 1975 and achieves stability by the middle of the
1990s. This time stretch saw a remarkable transformation of the American
film and television industries. Among the more significant changes are:

• New styles of filmmaking (a new generation of filmmakers working on

expensive blockbusters).
• Hugely expensive advertising and marketing campaigns for films.
• Unprecedented levels of film revenues.
• Global domination of the film industry by the top Hollywood studios.
• The demise of competing independent distributors.
• A buildup of large transnational media conglomerates, uniting film,
broadcast, cable, print, records, and new media under one corporation.
• The breakup of oligopolistic networks in the United States and regu-
lated broadcast systems overseas.
• New markets.

The list is not exhaustive or particularly systematic. Among its omissions

are changes that require aesthetic judgment, such as the claim that there has
been a decline in cinema culture. Nonetheless, there are changes of cultural
importance in the above listing. The most striking is that the U.S. film indus-
try has managed to hold onto and expand its global audience while the net-
works have seen their audience erode. One crucial aspect of the changes has
V E N I , V I D I , V I D E O

4 been the relationship between the new market of home video and the mass
audience for film. And whereas it would be unwarranted to claim home video
had an equal impact on each of the transformations, this new medium di-
rectly fueled the most basic transformation of all—the increase in revenue
level. The unprecedented levels of film revenues over the past two decades
has been the enabling condition for new filmmaking styles, expensive mar-
keting, global domination, and buildup of transnational media conglomer-
ates. The numbers are staggering. The major studios had revenues of $2.1 bil-
lion in 1975, the year of the Betamax. By 1993, they had $17.4 billion.1 This
is better than an eightfold increase. In that same time the U.S. consumer
price index—a basic measure of inflation—had less than a threefold increase.2
The increased revenues are central to the current media environment, and
the videocassette sales are central to this increase. Home video emerged as a
mass medium in the course of the 1980s, when the combined dollars of mil-
lions of video renters and purchasers returned more money to film distribu-
tors than either the theatrical or television markets. This milestone was passed
in the period of 1987–1988. Estimates vary after 1987, because annual studio
reports generally stopped breaking out the actual amounts of home video
sales. Nonetheless, it is safe to say that from that time on, sales of videocas-
settes (to both rental stores and consumers) have contributed about 40 per-
cent of total film studio revenue. There are two ways cassette sales could have
made this impact. The cassette market could have simply grown faster than
the other markets, or it could have weakened the other markets, siphoning
off consumer dollars that would have otherwise gone toward cable and the
box office. This latter process is sometimes referred to as “cannibalization.”
The remarkable thing is that home video did not cannibalize the theatrical
revenue. It made its impact the first way. It grew so fast that it was new money,
contributing the bulk of the accelerated studio receipts.
Are video revenues central to every facet of the major film / TV transfor-
mations? This question has to be examined in detail. What does video have
to do with the breakup of the oligopoly of the networks? Alternatively, with
the demise of independent distribution? Or with global domination? The an-
swers are not obvious; a historical analysis is needed. A snapshot of any par-
ticular moment misses the point. We will see that each stage of video built
upon the previous and that home viewing builds upon older developments
and explorations in the film industry. The long view is the proper study of
video—a view that as yet has not been taken. Previous histories of video have
introduction

not been systematic and have not portrayed the phenomenon in context, pri- 5
marily because they were written too soon, before the full impact of video on
Hollywood—and the place of video in the complex weave of film history—
could be appreciated.

The American Film Industry before Video

In order to understand the impact of video, it is important to remember the

film and television world before home video, particularly in the United States.
In the first decades of the century, the film industry was just about the only
non-print mass medium in existence. Distributors and exhibitors had dis-
covered they could appeal to a range of audience interests and purse sizes
through a tiered releasing system. The first-run downtown movie palaces
were built with lavish decorations, showing the newest releases for highly
motivated viewers who were willing to spend more money on a ticket. Small,
third-run neighborhood theaters accommodated viewers who were neither
willing to spend much money nor to go far from home. Radio became a mass
medium in the 1920s, but it did little to change film distribution practices.
However, the changes that occurred when television came in after World
War II coincided with major disruptions in the film industry. These disrup-
tions were caused not only by television but also by the lifestyle changes that
Americans were undergoing at the same time. The film industry lost its mass
audience.
To be more precise, the postwar film industry could no longer count on its
mass audience. Sometimes people came out en masse to see the big movies.
Many times, they did not. Boom and bust cycles plagued the movie industry
during the 1950s and 1960s. Hits were followed by flops, sustained profits
were elusive, and overall attendance continued to decline. It seemed that
every time a cycle of hits started up, such as the epics The Ten Command-
ments (1956) and Ben-Hur (1959), it ended in a disastrous flop such as Cleo-
patra (1963). The musical cycle that culminated in the hit The Sound of Mu-
sic (1965) was killed off in 1967 by the notorious disappointments of Dr.
Dolittle, Star!, and others. Stability and growth continually eluded the stu-
dios in the postwar period. MGM actually had negative earnings in 1957. Co-
lumbia, Universal, and Warner Bros. suffered the same fate in the next year.
Twentieth Century Fox had three losing years from 1960 through 1962. Only
Paramount escaped such ignominy, until red ink finally caught up with the
V E N I , V I D I , V I D E O

6 studio in 1970 and 1971. These old powerhouses were forced to find new ways
of making money, from the sale of their real estate and other assets to pro-
viding production facilities for the burgeoning television industry. Theaters
also suffered, either from the loss of their audience moving to the suburbs or
from the loss of product as the major studios cut back on production.
New independent companies started producing and distributing films dur-
ing those turbulent years. Their earnings were insignificant even compared
to the now humbled majors, but their cultural impact was great. These inde-
pendents gave creative work to new talent. They attracted new niche audi-
ences. AIP (American International Pictures) made exploitation movies such
as Not of This Earth (1956), The Little Shop of Horrors (1959), and similar
films for teenagers and young adults. Sunn Classics circulated wilderness
films such as The Life and Times of Grizzly Adams (1974) to rural families.
They imported foreign films, attracting college students and others. They
filled the voids. For instance, mainstream studios hesitated to tackle adult
themes. Nimbler distributors such as Joseph Burstyn, Walter Reade, Grove
Press, and AIP Films imported the new and more daring European films such
as The Miracle (1951) and La Dolce Vita (1960) for the American art circuit.
The majors also largely left the development of the drive-in circuit and the
summer season to the independents. This season had been written off as a
time when the mass audience was away on vacation and unavailable to go see
movies. Studio executives watched cautiously as the summer drive-ins
screened the titillating and exploitative, such as horror, gang, and biker films
promoted by AIP, Roger Corman’s New World, et al.
Sometimes a major studio would try to reach this audience. Often, the stu-
dio did poorly. One notable lesson occurred in 1971. Warner Communications
was distributing an action film with a counterculture /New Age angle, called
Billy Jack, and was doing very poor business. Tom Laughlin, the producer
and star, wanted better treatment. He sued and settled by buying the film
back. He distributed it himself in 1973, and grabbed the attention of the in-
dustry when he grossed $32 million. Eventually the industry realized that
the key to Laughlin’s success was his innovative use of saturated television
advertising.3
Television was also vastly different before the video revolution. Since CBS,
NBC, and ABC switched their attention from radio to television programming
around 1952, television had been going from one success to another. The
dominance of the three networks, particularly CBS and NBC, was nearly
introduction

complete. In the 1950s, the federal government cooperated with the broad- 7
cast networks by establishing rules that weakened competition from cable
programming and Television Theater, and discouraged the movie industry
from moving into network distribution. As a result, most American house-
holds on most nights were tuned into network programming. By the 1970s,
the strength and profitability of the three networks caused the federal gov-
ernment to switch course and to promote alternatives to network domi-
nance. Cable operators benefited from this new attitude, which was expressed
through a series of favorable court decisions and Federal Communications
Commission rulings.
The networks were also becoming more competitive with each other at
this time. Even popular shows were cancelled if the shows were not attract-
ing the audience that the advertisers wanted—young adults. This audience
segment was hard to reach, particularly as their schedules were less pre-
dictable than those of other groups. In this competition, a question emerged.
How would the young adults watch their favorite programs with their long
working hours and long suburban commutes? Perhaps they would be willing
to buy equipment that would allow them to reschedule their television shows
to fit their schedules. Perhaps . . .
Although the movie industry had lost its dependable mass audience,
movies per se had not lost their popularity in the United States or abroad.
When recent movies were broadcast in prime time during the 1960s, they
achieved very high ratings. People were willing to watch the big movies on
the small screen in the living room. Perhaps they would buy movies to watch
at home whenever they wished. Or perhaps they would rent these movies.
Perhaps . . .
The VCR went through a two-stage process in terms of its impact on the
mass media environment. People bought their first VCRs to watch television
programs when they wanted to. As a critical mass was reached, an infrastruc-
ture of rental stores mushroomed, one or more in every neighborhood. People
got into the habit of renting movies. Naturally, the movie industry changed
as video came in. It was not the same business that had stumbled from hit to
flop anymore. It was a new hit-making factory that had made the long pil-
grimage back to sustained prosperity. The Hollywood establishment had
learned to fight for its audience. It was changing for the second time in the
postwar period. This change came to be loosely labeled “New Hollywood.”
What is New Hollywood? There are two answers. The first one has to do
V E N I , V I D I , V I D E O

8 with a new cohort of directors. The emergence of New Hollywood is often

dated from Francis Ford Coppola’s The Godfather in 1972, and Steven Spiel-
berg’s Jaws in 1975. The new era is marked not only by the unprecedented
earnings of these films and the later phenomenon of Star Wars (1977) but also
by the arrival of a new generation of filmmakers—most notably Coppola,
Spielberg, and George Lucas, who epitomized the influences shaping an en-
tire cohort of new filmmakers. These influences included new ways of train-
ing for a directing career, a greater autonomy from old craft guilds, and a will-
ingness to spend more time and money on every aspect of the film in order
to make it an “event.” Improvements in filmmaking equipment and the pop-
ularity of the 16mm film gauge (for amateur and documentary use) allowed
these filmmakers to learn their craft in school or on their own, “off the stu-
dio lots.” Only Spielberg was trained in a studio setting, but even his career
started with an amateur self-produced film called Amblin’. The others went
to film school and learned to appreciate the innovative practices of postwar
foreign filmmaking. Their attitude toward the classic Hollywood studio sys-
tem of the thirties and forties was ambivalent at best. The production disci-
pline of the classic system had severely eroded by the 1970s, but was still
prevalent enough to cause Coppola and his fellow film school graduates to
dream of working “outside the system.”
The irony was that the system was no longer a monolith. It had been
beaten down by box office disappointments for several decades. The surprise
success of Easy Rider (1969) reinforced the studio executives’ sense of dis-
connection with the increasing commercial power of youth culture. They
were willing to quickly promote a new cohort into the top ranks of major mo-
tion picture directing. After only one or two “apprentice” features, Francis
Ford Coppola, George Lucas, Dennis Hopper, Warren Beatty, Peter Bogdano-
vich, Martin Scorsese, and other relatively young directors were offered big
budgets to make high-profile films. Coppola et al. gave up their rebel dreams
(to some extent) in order to move up the director track much faster than any
group since the original filmmakers of the silent era. These new directors
responded to their opportunities with a mixture of awe and contempt for
mainstream commercial filmmaking, and their films, such as American Graf-
fiti (1973), Shampoo (1975), The Last Picture Show (1971), and Mean Streets
(1973), reflected this mixture. As a group they introduced stylistic inno-
vations and yet maintained a high level of conformity to the classic genre
conventions.4
introduction

The new filmmakers liked to tweak every element of the film. This not 9
only pushed up the budget but also reoriented the directors, the crew, and
the cast in their careers. Every film became a make-or-break proposition for
everyone involved. The new “hotshots” of course had every reason to treat
their projects as one of a kind. After all, they were the new generation, not
old hackneyed studio directors. Their arrogance and grandstanding was no-
ticed and reported in the news coverage of the time and continues to be a fea-
ture of historical and critical writing about the 1970s. What was less noticed
was how much the grandstanding fit the new studio emphasis on intensive
marketing of individual films. The triumphs of The Godfather and Jaws were
a result of and led to increased spending on advertising and wider releases,
which soon became the norm.5 Star Wars led to an increased emphasis on
elaborate advertising campaigns and on merchandising toys and other prod-
ucts associated with the film. It was not just film “auteurs” who treated every
film as an event, it was the marketing and distribution executives.
Therefore, another key aspect of New Hollywood was the new way of han-
dling a film once it was made. Distributors and marketers made New Holly-
wood as much as the directors. Marketing departments rebuilt themselves on
the big movies the New Hollywood filmmakers gave them. The best example
of this was Jaws, released by Universal in 1975. Universal had learned the
Billy Jack lesson. They ran countless television spots with devastating success
during the Jaws release. They combined the saturated advertising with a
wide release of the movie, placing the film in many different theaters at once.
They stole another lesson from the independent distributors by opening Jaws
in the summer. Jaws went on to earn $129.5 million in the United States. This
was a new record and was the first to break the $100 million barrier in rent-
als. The summer was not going to be left to the independents anymore. The
two paths of mainstream and independent distribution were now merging.
Jaws marked the comeback of the major studios. The trend paid off even
further when Twentieth Century Fox’s Star Wars became a phenomenon in
1977. At this point, it would have been legitimate to suspect that this trend
would last only a few years, just as previous cycles of runaway hits had run
their course. Previous eras of big-budget movies led to a cycle that usually ran
its course in half a dozen years succeeded by a cycle of relatively less expen-
sive filmmaking. The trend launched by Jaws might have dissipated, if only
because the audience was growing older and there was a noted falloff in
movie attendance as people reached middle adulthood. There was some talk
V E N I , V I D I , V I D E O

10 that the flop of United Artists’ Heaven’s Gate in 1981 would end the cycle just
as Cleopatra and Dr. Dolittle had ended previous cycles. It did not.
The New Hollywood way of marketing the film paid for itself, as first
cable and then home video revenues started to contribute substantial rev-
enues to cushion the added expense. The film itself became a more valuable
commodity when the video rental market took off. The isolated successes of
Jaws and Star Wars became the continuous blockbuster parade of the next
decade. The string of big blockbusters became possible because the video
markets restored some of the dependable audience revenues that the film in-
dustry lost after the late 1940s.

The American Film Industry and Video

These developments did not occur all at once. The great irony is that initially
Hollywood was still sufficiently old and set in its ways not to recognize the po-
tential salvation home video offered. Video sales and, in particular, video
rental developed despite the neglect and hostility of the major studios. New
Hollywood marketing and video revenues came together relatively slowly. In-
dependents and newcomers led the way in developing and exploiting the
rental market.6 As the market expanded in the early 1980s, independent pro-
duction increased, while the big studios hesitated and even cut back.
Why were major studios indifferent or hostile to videocassettes—when
they turned out to be a gold mine? First, executive attitudes had to undergo
a historical shift. In the beginning of the film industry, distributors deter-
mined that leverage and power never come from selling the film, always from
leasing it. Leasing ensured that the film distributor knew and controlled
every showing of a film. The prospect of millions of global customers owning
the film was frightening. How many times would they see it over again? To
how many of their friends would they show the tape? Would anyone still at-
tend theatrical reissues, or watch the repeat TV broadcasts? Would the film
still be valuable for television programmers? We will see that these questions
generated heated debates at the highest levels within the Walt Disney Com-
pany. The film industry also expressed concerns about viewers rerecording
cassettes. Universal and other studio executives worried that fewer viewers
would watch their movies on TV because of home taping. However, these
fears turned out to be economically meaningless, as the money from video
vastly exceeded expectations. In addition, theatrical income and network TV
introduction

sales continued on their own record paces, fueled (like the home video in- 11
dustry) by New Hollywood’s increasingly blockbuster-oriented production
strategy.
There were fears of piracy. In the early days, unauthorized video dupli-
cates started to show up in many markets. The Motion Picture Association of
America (MPAA) has spent a lot of time and money to stop video piracy and
has been largely successful in the more important developed markets. Piracy
has never been on a scale that threatened the emergence of home video as a
mass medium in affluent countries.
As fears about home video abated, strategies to maximize returns in every
film market emerged. These strategies depended on the big push into the
home video, cable, broadcast, and foreign markets, which collectively were
known as the ancillary movie markets. As ancillaries became more impor-
tant, studios redoubled their promotion of the primary market—the theatri-
cal release. This was counterintuitive since the theatrical box office was
actually contributing a smaller percentage of the total earnings, but it was
a successful strategy. The big theatrical release, with lots of TV advertising,
proved to be an effective means of showcasing a film; subsequent publicity
drove the successful film through the ancillaries. People would still remem-
ber the saturated TV blitz for a particular title when they browsed for films
in the video store. Disney became expert at timing the release and withdrawal
of videos from the market around past and future theatrical campaigns.
Toy and other product manufacturers contributed to the theatrical cam-
paign in order to push their own merchandise associated with the films. These
kinds of associations can be referred to as “branding”—using the elements of
a film such as characters to sell toy figures or film music to sell compact discs.
Tie-ins with fast food and other retailers became popular ways of maximiz-
ing returns from the heavy advertising for the movie. Tie-ins had existed
since the silent era but became particularly important in the age of video,
when the film itself could be sold as a videocassette, over the counter at local
fast food stores.
Video sparked an effort to sell the same film content in various markets.
It changed attitudes. Studios no longer wanted to share distribution tasks, as
they had in the beginning of the video revolution. They were no longer afraid
of selling films outright. The new revenue also emboldened them to trim their
profit margins. They wanted to sell every element of their films directly either
to the retailer or to the final user. They wanted to benefit from their internal
V E N I , V I D I , V I D E O

12 economies of scale, or, as it came to be known, “synergy.” However, it took a

lot of corporate power to push a film in every market here and overseas, on
the big and small screens, as a theme park ride and as a music sound track.7
The independents’ success built the video market. Now the explosive
growth of that market was paving the way for their ultimate doom. Video
wholesalers became a bottleneck. They felt their primary mission was to
stock current big hits, not to provide access to the widest range of choice.
They favored films that had received big theatrical releases. The huge con-
glomerates used the new video money to finance big releases. Therefore,
video rentals and sales served to facilitate the studio trend toward a few
big blockbusters. Despite their own occasional hits, the smaller distributors
could not keep up. They died off in the late 1980s and early 1990s as home
video stabilized. Vestron, Media Home Entertainment, Cannon, DeLauren-
tiis, Hemdale, and others went out of business. Orion, Goldwyn, Carolco, and
LIVE were crippled and either disappeared or were radically changed soon
afterward. Miramax, New Line, and other independents survived only by
seeking corporate mergers with major Hollywood studios. Artisan, the suc-
cessor to LIVE, is the only independent (not yet affiliated with a major stu-
dio) to have had a big hit in the last half of the 1990s. There are now far fewer
independent distributors than there were before the video revolution.
It is small wonder that in the era of synergy and branding, there would
be a new wave of corporate takeovers. This wave began when Turner Broad-
casting Systems acquired MGM (temporarily) and Rupert Murdoch’s News
Corporation acquired Twentieth Century Fox (permanently) in 1985. It
started to crest dramatically in 1989–1991 with the Time –Warner, Sony–
Columbia, and Matsushita–MCA /Universal mergers and is still cresting in
today’s headlines of the Viacom merger with CBS in 1999 and AOL’s acquisi-
tion of Time Warner in 2000. These mergers are a response to the new multi-
market opportunities that were initiated by the video revolution. However,
the calculation in each takeover was somewhat different one from the other.
The most intriguing alliance in the age of video involved the purchase of Co-
lumbia Records in 1988 and Columbia Pictures in 1989 by the Japanese man-
ufacturer Sony. These purchases were the direct result of Sony’s bruising loss
of the VCR market to the rival hardware format VHS. Sony executives were
convinced by this experience that the future for their various hardware prod-
ucts could be better secured by controlling the content. The alliance of hard-
introduction

ware manufacturing and content distribution had not been seen in the movie 13
industry since the days of Thomas Edison. The press expressed concern about
the advantages of such an alliance. After all, what would Sony executives
know about the vagaries of making movies? Despite these arguments, execu-
tives at Sony’s competitor, Matsushita, decided to follow Sony’s game plan by
buying MCA /Universal in 1991.
The purchase of two major studios seemed to augur a major transition. As
events transpired, however, the takeovers did little to change American film-
making. Sony had little confidence in its own ability to participate in film
industry decisions and spent excessively for the expertise of Hollywood insid-
ers. Matsushita developed strained relations with the executives at MCA /
Universal and displayed a lack of commitment and vision about the purchase.
Matsushita sold the film company to Seagram after four years, while Sony has
stuck by its purchases. Although the effects of Sony’s ownership have not
been stellar for Columbia Pictures earnings, the entry of a manufacturer into
the “content” businesses of music and film has been shrewd. Sony has not
suffered a format war since its purchases. Industry-wide standards for both
digital music and film are being set with Sony’s full participation and coop-
eration. It is unlikely that we will see another rivalry such as VHS versus
Betamax in the emerging consumer technologies. Sony’s position in the mu-
sic and film industries has undoubtedly given the company additional power
in format negotiations.
A manufacturer’s entry into the content-providing business is still rare. Far
more typical was the union of content providers and distributors across sev-
eral different media in order to pursue the multi-market opportunity. Here
the exemplary studio is the Walt Disney Company, which was uniquely posi-
tioned to take advantage of video. After initial hesitation, the company de-
cided to plunge ahead and rose to dominance. Disney was the one film stu-
dio that was not purchased. Instead, it purchased other companies, including
Miramax (in 1993) and the network ABC (in 1996), in its rise to the top three
of global media corporations.8 Home video was not the sole cause of Disney’s
emergence. Walt Disney himself had already set the stage for success in his
own lifetime by releasing and rereleasing his animated films for every new
cohort of children. He had produced television shows and theme parks that
recycled and cross-promoted the content of those films, and his vision bore
full fruit when video and cable came into the market more than a decade af-
V E N I , V I D I , V I D E O

14 ter his death in 1966. Walt Disney could only have dreamed of the schedules
of releasing, rereleasing, and cross-promotions across media that these tech-
nologies allowed.
The other big film studios joined or formed huge media corporations such
as Time Warner, Viacom /CBS, and the News Corporation. Home video be-
comes part of the oft-told story of media and film industries concentration.
If we focus on its effects within the film industry, we can clearly assess how
the proliferation of media technology and concentration of media industries
are linked. It is my argument that the film industry has learned how to retain
a mass audience for a narrow range of products, with, not despite, new media
technology. This argument has important implications for even newer tech-
nological developments. Home video confirms a point made by media theo-
rist W. Russell Neuman. Technologies that can lead to new audience forma-
tions will not do so if institutional economics are strongly structured toward
mass distribution and if audience habits are too ingrained.9
While video revenues contributed to media concentration, we should not
assume that power flows have been one way. We have episodes of resistance
to corporate power in this history. I have mentioned the triumph of Sony over
the MCA /IBM Laservision alliance and RCA, and the transitory flowering of
independent video distributors. In addition, there was the mushrooming of
video rentals despite the efforts of the film studios to control and limit these
operations. These were barriers and limits to corporate power. The audience
had needs that no one could anticipate. Corporate practices had to harmo-
nize with these unarticulated needs before success could be achieved. Al-
though the result was enhanced corporate power, the narrative is one of sur-
prises and improvisations. The media landscape today is largely a result of
media corporations trying to be flexible enough to outflank the surprises of
video technology. This is also how they hope to negotiate the coming digital
age, with the lessons learned in video distribution. A study of how film dis-
tribution practices adjusted during the first decades of video will be sugges-
tive of the challenges the audience may set in the digital future.

The Political Economy of Distribution

This is a history strongly informed by concepts developed in the study of

the political economy of film. Political economic studies of communication
are driven by concerns for cultural power. Who gets to produce? What? For
introduction

whom? These questions go to the heart of the elusive relationship between 15

film distribution and film production. That is because these questions are
answered on a regular basis by distributors. They are the ones who ulti-
mately secure the funding for production and determine which types of films
to make.
Studio heads may spend a good part of their day meeting with stars and
directors and the agents who represent these glamorous, creative people.
They say yes, they say no, and the results are hashed over in the magazines,
newspapers, and TV talk shows. Nonetheless, these meetings are far less im-
portant than their meetings with the marketing executives. It is those meet-
ings that form the framework for why studios decide to make movies, which
movies, and how many.
Political economists have described the power of distributors by making
the distinction between allocative and operational control. Filmmakers for-
mulate the story, develop the look and feel of a film, cast the stars and sup-
porting players. These are operational decisions made on a day-to-day basis.
The activities of distributors are mundane by comparison to the filmmakers’
creative efforts. The distributor has to decide how many prints to make, what
deals to cut with movie theater owners, whether to price the videocassette
at a high price for rental or a low price for sell-through, how to package a
bunch of films together for a sale to cable. The sum of these decisions deter-
mines whether the studio will make $100 million fantasy epics or $2 million
slashers (that may not even be released in the U.S.). These are allocative de-
cisions. This is because the earnings that the distributor can put together de-
termine the overall allocation of production resources. It is only as second-
ary players that the writers, directors, set designers, et al., can make their
operational decisions in terms of actual filmmaking.
The allocative power of distribution companies is primary and therefore
sets the limits to the operational power of the producing team. It is also of
fundamental interest to the social theorist because allocative power derives
directly from the audience. I am not arguing that distributors have any great
personal insight into the audience. After all their relationship with the audi-
ence is strictly limited to dollars and cents. The meaning and intelligibility
of any particular revenue stream is severely limited. The distributors them-
selves can be rather inarticulate about the audience’s use of their product.
Nonetheless, over a period the structure of distribution will accommodate
the lifestyle of its audience. Otherwise, the structure collapses.
V E N I , V I D I , V I D E O

16 The relationship of distribution to cultural production leads to another

political economic concern—the health of independent distribution and its
importance to cultural diversity. Independent filmmaking is important to
cultural diversity. Independence, though, is often in the eye of the beholder.
People refer to the political independence of the message of a film. They also
talk of an independent film style that avoids the various conventions of real-
ism. Independence has also been defined in terms of financing or originating
the film outside the studio system. Non-studio financing may be very difficult,
but it occurs frequently. Often mainstream studios encourage it as a way of
lessening their own risk. If the studio likes the finished product, it will con-
tract to distribute the film (“negative pickup”). Therefore, independence in
this arrangement becomes a rather technical term. The various filmmakers
(Soderbergh, Smith, et al.) who have emerged at the Sundance Institute or at
the Park City film festival (a premier showcase for independently financed
films) fit this definition of independence. The independently financed films
are often made as apprenticeship pieces, intended to catapult the director
and other contributors into the “big leagues,” to enable these participants to
go on to make large-budget mainstream movies.10
In this study, “independence” is defined in terms of distribution, rather
than content or financing. There are good cultural reasons for studying the
relative levels of independent distribution in order to evaluate the social
impact of video. The rise and fall of independent distribution is a proper
measure of independence and diversity within the film industry. It is the in-
dependent distributor who, in the constant search for a market, explores un-
known genres and new ways of putting together a profitable audience. Today
we have very few independent distributors. Along with Artisan (the sole sur-
viving veteran of the once-new video companies) we have Roger Corman,
who operates at a lower profile than in his earlier periods, as well as Trimark
and Troma. Practically all other boutique operations we think of as inde-
pendent, such as Miramax or October, are parts of larger studios. They may
be operationally independent, but ultimately allocative resources reside in
the larger studio. Their autonomy in operational matters is tentative. At any
moment, those who control the company may reallocate their resources to
mainstream films and cut off their funding of quirky little projects. Indepen-
dent distribution is a shadow of its former self. In comparison to the handful
of such survivors, there are many independent film producers and directors,
who struggle from project to project.
introduction

17
Video and the Audience

Another theme of this book is to use home video to look at the evolving so-
ciology of the audience. My arguments build upon the book-length field
research conducted by Ann Gray11 and the various ethnographic articles col-
lected in Mark Levy’s and Julie Dobrow’s anthologies,12 and in various jour-
nals. These publications report direct research into various viewers’ behav-
ior. They describe how sample groups actually use the VCR. In my political
economic study, the method is to see how media institutions anticipated and
determined the way viewers use their products. It is not a direct look at people
using the VCR. Nonetheless, my study has to consider how audience behav-
ior was changing in order to explain the new opportunities and limits for film
distributors.
The VCR is merely the latest phase in a continual struggle of film distrib-
utors to accommodate its audience. We can look throughout film history and
realize that the audience, particularly in the U.S., has oscillated between
two modes: “staying in” and “going out.” “Staying in” should be interpreted
loosely to mean not just literally staying home to watch movies, but also
watching movies in convenient neighborhood locations with little or no
preparation, casually, without much regard to the specific movie playing, at
any time of the day, on any day of the week. “Going out” refers to more of a
theatrical experience of going to watch the movie in a central public space,
such as a downtown movie palace. In general, it means sacrificing conven-
ience for the sake of a heightened experience, such as going to a movie the-
ater far from the neighborhood, in order to see a relatively limited release
movie or a theater that features better sound and/or a wider screen, and so
on. It can also mean that audience members will strive to see a widely publi-
cized movie as soon as possible in order to participate in the current conver-
sations about that movie.
The age of video seems to represent a severe swing of the pendulum, one
where staying in approached a collective autism. Listen to this rather sour as-
sessment of early VCR users, offered to us by an anonymous electronics sales
clerk:

They don’t want any network or even a station to tell them when they
may watch or any radio station to tell them when to listen. They don’t
trust anything that they can’t control, and they feel that they have no
V E N I , V I D I , V I D E O

18 control of government, the press, and organized religion. The kind of

people who make the big buys here are two $30,000-a-year computer
programmers either married or living together and not planning to
have children. You start talking to them about city schools, budget, sup-
ply side and defense and they turn up their Walkaman [sic] to drown
out the noise.13

This colorful caricature of home video users has a glimmer of truth. Such
shut-ins are a new audience, perhaps massive in numbers but resenting col-
lective actions. Home video is the story of movie industry triumph despite
rampant agoraphobia.
Although these two modes are always present in every period, the balance
between them shifts historically. The successful film distributor will try to fit
the balance most appropriate to the times. The distributor has such an op-
portunity because film is such a plastic form. It has a great capacity to be all
things to all people, perhaps even more so than other cultural products. This
is why it is so interesting to do an integrated study of the movie industry, us-
ing both economic and cultural analysis. Movies are both pastimes and highly
expressive works of art. They can be simultaneously the products of a single
vision and a collective collaboration. Their presentation is well suited to both
staying in and going out. The history of movie distribution is the story of the
constant negotiation between the two.

Structure of the Study

Therefore the story of home video has a “prehistory” that dates back to the
first industrialization of film distribution and the earliest negotiations be-
tween staying in and going out. The first chapter briefly reviews this prehis-
tory. It summarizes misguided attempts to screen films in the home just the
way record players had become home entertainment at the turn of the cen-
tury. The more enduring organization was the tiered release system, which
did strike a practical balance between those who wanted to go out to the
movies and those who just wanted to sit in the local theater and watch what-
ever. Television finally did place movies in people’s living room and set the
groundwork for the acceptance of home video.
Chapter 2 turns to the technological history. Because of the economics of
broadcast networks, the radio industry was slow to adopt improved recording
introduction

techniques. Magnetic recording, for either audio or video, was not available 19
until after the adoption of television. After video recording was finally in-
vented in 1956, manufacturers started to explore mass market uses for it.
Over the next two decades various formats and systems were developed. The
American companies miscalculated and decided to follow the model of the
record player. They built and marketed machines only capable of playing
back prerecorded material. Consumer interest was lackluster. Sony not only
had a better idea, they stuck with it until it succeeded. They advertised that
their video recorder should be used to rearrange television programs to fit the
consumer’s schedule, and the global market responded.
How and why did the consumers respond to the VCR? Chapter 3 begins
with changes in the way the audience members worked and lived that might
help explain their need to shift programming. However, film companies were
not yet recognizing the value of video in reaching an increasingly mobile pop-
ulation. Universal and Disney sued Sony, and the case went all the way to the
Supreme Court. The American film companies lost the case. The VCR formed
a symbiotic relationship with pornography. The “adult” market built up
the necessary infrastructure for the sale and exchange of prerecorded tapes.
Later, Twentieth Century Fox became the first major studio to take a hesitant
dip. It allowed a small Michigan company to manufacture videocassettes of its
older movies. Soon, rental stores appeared all over the country like so many
nickelodeons. The next chapter of video as a mass medium had arrived.
Now, the Hollywood studios wanted to resist the rental stores. They tried
to impose leasing plans. They went to the U.S. Congress to seek exemption
from the “first sale” doctrine, which effectively allowed renting. Their strate-
gies did not succeed, except in creating a void for new distributors to enter
the field of video distribution. The bulk of Chapter 4 is concerned with these
struggles and, in particular, with the rise of independent distribution in video
in the period through 1986.
Chapters 5 and 6 are paired sides of a single argument. Chapter 5 is about
business practices emerging during the maturity of the video market. The
more important ones are two-tiered pricing, “breadth versus depth” inven-
tory strategies, wholesaling and retailing consolidation, and the refurbishing
of movie theaters. Some of these business practices worked against inde-
pendent distribution, and their struggles after 1986 form the narrative of the
next chapter. Chapter 5 covers the rise of Blockbuster Video while Chapter 6
covers the demise of the independents and the resurrection of Disney. The
V E N I , V I D I , V I D E O

20 majors were not expanding production. They were using their new ancillary
revenues to increase their advertising budgets. Video retailers and wholesal-
ers were demanding that cassettes have heavy theatrical exposure. The inde-
pendents could neither keep up with the expense of a theatrical release nor
avoid it. Vestron, Carolco, et al., faltered and disappeared. In fact, costs be-
came so high that even the majors started to worry about their own declin-
ing profit margins.
The concluding chapter reviews the changed media environment and the
purchases of the major film studios by highly capitalized, transnational me-
dia empires. It is at this point that we can finally assess the importance of
video in creating the new film industry. Particularly since in absolute terms,
Hollywood films are making more money than ever, all over the world. Video
accounts for much of the increased global revenues. In the response of the
film industry to video there have been changes in the ways it treats the audi-
ences and in the way it makes movies. Elements of film style have changed to
compensate for the loss of medium specificity, in other words, to enhance the
movie experience, be it on the big, small, or computer screen. Any video study
also has to tackle the question of the audience and why they choose to use
the VCR the way they do. It seems that the answer here is that the audience
is experiencing stressed leisure and that Hollywood used video to learn how
to market its products in this time of less free time.
The lasting hallmark of the video age is the total integration of film stu-
dios within the larger mass media industries. These media conglomerates
have special needs for the maximum sale of their product. Every film is un-
der pressure to be an instantly sellable commodity. Opening weekend grosses
have become very important since they determine how much more effort the
distributor will make in pushing the film to other markets. One film critic,
Timothy Corrigan, has noted that in response to this pressure the movie is
now “an advertisement of promises it usually cannot possibly keep.” 14 The
1990s saw one film after another break budget barriers, in an effort to become
an opening weekend event. This reached a high watermark with the 1997 re-
lease of Titanic, which was so huge that Twentieth Century Fox and Colum-
bia Pictures shared the expense in a coproduction deal. Soon after, the
renewed popularity of low-budget films encouraged some movement back to-
ward smaller films. Nonetheless these are relative terms; small films are big
by yesterday’s standards and most films are still expected to be instantly pop-
ular. This is the lasting effect of the ancillary markets. International films
introduction

continue to be a very hard sell in the United States, the largest film market. 21
Theater time is just too valuable to give over to the limited appeal of a typi-
cal foreign film. In both the United States and overseas, theaters respond to
the power of the big distributors, whose power derives from handling films
that earn large ancillary revenues. For the foreseeable future, there will not
be much room for independent distribution.
The future fate of analog magnetic tape, the underlying technology of the
VCR, is less clear. Digital video, probably in the DVD format, may well sup-
plant the videocassette. There is continuing speculation that downloading
films from central computers through a fiber-optic line to the home will cre-
ate a major market. This time the major media corporations will not just
stand by and watch these markets develop. The need for time flexibility has
become a defining feature of present-day life. The VCR was one of the first
technologies to reveal the strength of this need, particularly among the in-
ternational affluent classes, who use the computer and the internet in pursuit
of efficiencies in work, shopping, and leisure. Media corporations now un-
derstand this desire. They are already taking steps to ensure that they are
fully involved and that the lessons they learned from home video will be
applied. They now know that only institutions that can bear the cost of
marketing across several time-flexible media have a chance of thriving. They
seek alliances in order to outflank and be ready for new technologies of
distribution.
It is hard to overemphasize the importance of home video as the opening
of a new chapter in the media industries. Gerald Levin, the cerebral chair and
CEO of Time Warner, confirmed it on The Newshour with Jim Lehrer broad-
cast when he discussed the announced purchase of Time Warner by America
Online (AOL).15 He asserted that the media industries needed to formulate
strategies right now to deliver their products to an increasingly active audi-
ence. He was able to pinpoint his view of audience power by referring ex-
plicitly to the VCR. The audience wants to ingest media on its own schedule,
and people want to stop and start their viewing at their own pace. He prom-
ised that those future delivery systems that AOL and Time Warner develop
will preserve the flexibility and audience conveniences of the video rental
store. When the VCR is used to justify the motivation of the largest media ac-
quisition to date, we know its legacy will endure beyond its actual technol-
ogy. It is the time to examine in detail video’s history and its impact on the
film industry.
V E N I , V I D I , V I D E O

22 However, it is important to choose a point in this history that serves as a

stop point, when the legacy was clearly established. Since the stem of my ar-
guments centers on film distribution, I have used 1993 as a cutoff point. This
is not just because of the events described at the beginning of this introduc-
tion. It is also because the fate of independent distribution was fully under-
stood at that point. The purchase of Miramax and New Line in that year are
the coda to the era. In that year, the New Hollywood revolution had been go-
ing for a generation. The next generation was being recruited on an incre-
mental basis. A hundred years of cinema had come to terms with twenty years
of video.
 C H A P T E R O N E

Film Distribution and Home

Viewing before the VCR

When the audience adopted the VCR, they had already experienced several
historical evolutions in film showings. The VCR was not sui generis. It was
another evolution, triggered perhaps by a technological breakthrough, but
definitely flowing out of extant relationships. The examination in this chap-
ter of the prior histories of film and broadcasting is necessary in order to
understand these relationships. We will see that the VCR was only the latest
manifestation of home viewing of movies. There were premature attempts to
rent movies to individual households in the second decade of this century.
There was the earlier convergence of movies with broadcasting, as far back
as the early days of radio. There were also the protracted negotiations that
led to movies playing on prime time network television. In neither case was
the convergence straightforward or entirely satisfactory to the film industry
interests.
I follow the political economy model by analyzing these relationships from
the industrial side. The question here is not so much why the public wanted
to see a new movie every week or even every day, but how an industry or-
ganized itself to give them a new movie every week. I do not ask whether
people wanted to see movies in their neighborhood or in downtown palaces.
I do describe how exhibition circuits were set up to provide both options. The
American film industry strategies were highly successful, so we can make the
sociological assumption that these strategies reflected the predilections of the
mass audience.
The industry took two decades before it coalesced around the production
of relatively expensive feature-length films (over an hour in length, typically
one and a half hours long). The expense of these films necessitated an effi-
cient nationwide distribution system. Efficiency was achieved by the control
V E N I , V I D I , V I D E O

24 distributors had over both the production and exhibition schedules. This
control was successfully exercised within vertically integrated movie studios.
Indeed the film industry was so successful that the studios that emerged sev-
enty to eighty years ago are still the powerhouse studios of today. However,
this chapter also describes the serious challenges the film industry strategies
faced in the postwar era.
Lifestyles changed first in the United States and then in other industrial-
ized countries after the Second World War. In the U.S. these lifestyle changes
coincided with and facilitated the widespread adoption of television. The au-
dience lost the habit of going to the movies. The economic stability of movie
exhibition eroded. Yet, the popularity of feature films remained high as evi-
denced by the high ratings films attracted when they were shown on televi-
sion. Meanwhile new, independent distributors sought opportunities in this
era. They introduced new promotional schemes and new themes to attract
the audiences to the movie theaters. The chapter concludes in the mid-1970s
with the marriage between home viewing (i.e., television) and film only half
consummated and with an increasing synthesis between independent prac-
tices and major studio financial power. This heady brew becomes a new
Hollywood and inaugurates the new era of blockbuster moviemaking.

A Brief Review of the Early Days of the Movie Industry

The cinema was introduced to the public in 1894 –1895. The film manufac-
turers had great hopes for the new medium but little certainty on how to re-
alize its potential as a mass medium. A decade of starts and stops ensued
after the introduction, with movies popping up at amusement parks, the var-
ious World’s Fairs, downtown arcades, as part of live vaudeville acts and in
traveling lecture shows. It was not until the Spanish-American War of 1898
that movies even got beyond the novelty stage (where audience interest goes
beyond the demonstration of the moving image) in the United States. The
war enthusiasm sparked Americans’ interest in any film depicting the war.
Filmmakers were learning to lure viewers with attractive content.
A critical mass started to build. By 1903, there were storefronts devoted
exclusively to showing movies. These theaters (often referred to as “nickelo-
deons”) soon mushroomed. They were omnipresent—in centralized down-
town locations, in small farming towns, in residential neighborhoods, in shop-
ping districts. It is estimated that by 1908 there were 6,000 movie theaters.
film distribution and home viewing before the vcr

The number more than doubled in the next five years.1 Russell Merritt esti- 25
mates that approximately 28 percent of the total U.S. population attended the
movies every week in 1910.2 The American audience was, from the start, the
largest in the world, although the Western European film industry was also
developing and sometimes surpassing American rivals.3 The largest film pro-
ducer and distributor at this time was the French Pathé Frères. In 1907, Pathé
decided to stop selling film prints, which had been the normal way for pro-
ducers to make money from their films. Instead of selling, Pathé would only
rent prints for limited periods in order to gain power over exhibitors by con-
trolling the circulation of its films. Many vendors were astonished and called
this new practice a coup d’état.4
The theater boom had made the movies a big business. It was too big to
waste energy on squabbling over key patents. In September 1908, Thomas
Edison and other patent holders rationalized the movie industry by organiz-
ing the Motion Picture Patent Company (MPPC). They organized a closed
system of production and exhibition. Member theaters were not allowed to
buy films from non-members of the MPPC. One MPPC member was the
American subsidiary of Pathé. The MPPC members were undoubtedly im-
pressed by Pathé’s leasing program because they soon introduced the prac-
tice into their own rules. They agreed that no film print was to be sold, but
only to be leased at a fixed rate per foot of the film’s length. Leasing thus be-
came the sole basis of film exchange for seventy years, until the arrival of the
videocassette.
The leasing provision was one of the defining moments of the formation
of the film industry. The lessor, otherwise known as the distributor, became
the primary broker between the audience and the filmmaker. The distribu-
tor now exercised leverage over the theater owner by setting conditions of
guaranteed minimal payments and often arranging to split the box office take.
The theater owner had little to say about the scheduling and circulation of
prints. The distributor became the only one who could coordinate the adver-
tising and promote the film for its entire run. The film producer stepped back
from such activities. It was the distributor who collected and redistributed
the film profits from the film to the producer, after deducting distribution
expenses.
Leasing was one enduring legacy of the MPPC. Another legacy was a fully
rationalized national distribution system. A loose system of local exchanges
had emerged spontaneously during the boom. Film exchanges had operated
V E N I , V I D I , V I D E O

26 just as their name suggested; to circulate and exchange film prints in order
to feed the local theaters’ perpetual hunger for new shows. In 1910, all of the
MPPC members joined to form the General Film Company. General Film
quickly became a central nationwide distributor for the MPPC producers and
theater owners, by buying up the various local film exchanges. The company
set up forty-two outlets throughout the country to facilitate the rapid circu-
lation of prints.
Many vibrant film companies were frozen out of the patent pool. Carl
Laemmle, a prominent Chicago film exhibitor, and others who found them-
selves on the outside, soon formed their own independent centralized ex-
changes. The MPPC and General Film started to lose power due to rivals such
as Laemmle (who went on to create Universal Pictures) and to a court suit
filed and successfully litigated by William Fox (another legendary founder of
a movie studio which still bears his name). However, even though the MPPC
and General Film faded away after 1915, the leasing and national distribution
systems remained intact.5 The only difference was that new alternative inde-
pendent companies were distributing.6

From Universal Audiences to Feature-Length Films

Movies with story lines proliferated and the audience soon started to patron-
ize storefronts and theaters that did nothing else but show movies. Although
audiences were seeking out story lines and other special content, they were
not going to great lengths to do so. The theater owners took maximum ad-
vantage of the low cost of reproduction and transport of film prints to make
it as easy as possible to see a movie. Unlike the live theaters, the movie the-
aters were not confined to downtown but sprang up in various locations. The
movies went further than even vaudeville in charging the customer less and
thereby appealing to all classes, to a mixed audience of men and women, and
to adults and children. Movie houses tried to play seven days a week, often
lobbying against local Sunday restrictions. If circumstances permitted, they
showed films at all hours of the day and evening. These theater owners
wanted everyone to attend, from shoppers to workers on their lunch break,
to kids, to those out on the town for the evening.
The technology lent itself to this universal appeal because it was relatively
easy to put together shows with films on every subject. A reel of film could
only hold slightly more than fifteen minutes of images. Most films were even
film distribution and home viewing before the vcr

shorter. Therefore shows of a half-hour or longer consisted of several differ- 27

ent films with several different subject matters. This type of viewing tried to
offer something for everybody.
There was one other requirement for film shows in addition to universal
appeal. The audience instantly learned to avoid seeing the same thing twice.
Therefore, shows had to be changed at least once a week or even more often.
The exhibitors did this even if the new films were hackneyed or formulaic.
Many theaters reported that even their most dedicated regulars disappeared
when they repeated reels or could not get a new program in. Theaters had to
exchange their prints in order to change their shows. Elaborate distribution
was necessary because it was so easy to use up the inventory of films lying
around. Rapid circulation of prints became easier with the practice of leas-
ing and the rationalization of national distribution systems.
The MPPC members favored shorts mounted on one reel, which lasted no
longer than fifteen minutes, because production costs were easy to control.
Italian and French filmmakers were already making multi-reeled historical
films. These films lasted from one to two hours. An American, Adolph Zukor,
was convinced that expensive multi-reelers were the future and that dis-
tribution systems were capable of handling longer shows. He raised his own
money to get the American distribution rights to the French film Queen Eliz-
abeth in 1912 and earned great enough profits to form his own production
company. Ambitious filmmakers such as D. W. Griffith also longed to make
such “feature” films. In 1915, Griffith released his own epic-length Birth of
a Nation, destined to become the most famous if not the most profitable fea-
ture film of the silent era. Now, more and more film producers turned to mul-
tiple reelers, contributing to the obsolescence of General Film single-reel
distribution.
Zukor and Griffith can be credited with the first American “event” movies.
An event movie creates its own momentum through word of mouth. So many
people are interested in the movie because so many others are talking about
it. Birth of a Nation drew tremendous attention, inspiring comment from
President Woodrow Wilson and protests from the NAACP since the film
praised white supremacy. Nevertheless, the “event” nature of the film was not
just due to its racist message. It also derived from Griffith’s mastery in con-
veying meaning through the cinematic means of editing, composition, and
pacing. Zukor was also creating events, such as paying Mary Pickford the
highest salary in the country so that she would star in his high-priced movies.
V E N I , V I D I , V I D E O

28 When the American public showed a willingness to pay higher prices to see
the films of Griffith and Zukor, they demonstrated a new appreciation of film
as something special, not just a pastime but a mythic art form. Audience
members were quite willing to “go out” to see this new art.

Movies at Home

Thomas Edison was one of the first inventors of cinema, introducing it in

1894. His first claim to national fame (he was soon to be dubbed “the wiz-
ard of Menlo Park”) came after he invented the phonograph in 1877. It had
taken two decades before the phonograph found a consumer use as the play-
back device for prerecorded music. Although he had not anticipated this use,
Edison became fascinated with the prerecorded music and eagerly took a
hand in selecting the music. The inventor’s interest was remarkable since his
hearing was poor. On the other hand, film content did not seem to engage his
interest much. His actions and comments treated film as secondary to re-
corded sound, particularly his attempts to market film as if it was a phono-
graph. Even after the development of feature films, Edison continued to treat
film as a pleasant pastime for a “stay-in” audience.
The primary markets for phonographs were the arcade and the home.
Edison explored both venues for filmed entertainment. He made small view-
ing machines suitable for arcades and did not build theatrical projectors un-
til others demonstrated their popularity. Even after the triumph of theatrical
films, the Edison Company did not encourage feature-length filmmaking.
Edison’s people just were not tuned in to larger-than-life showmanship or
to film as a theatrical epic. The Edison Company’s corporate culture was such
that they rarely held on to producers or directors interested in higher ambi-
tions of creative expression.7
In 1912, the same year Zukor started importing big expensive films, the
Edison Company developed and introduced the Home Projecting Kineto-
scope for domestic and other noncommercial spaces. Edison was interested
in selling portable projectors that teachers and traveling salesmen could use
in their demonstrations. The business model tried to follow the phonograph.
The home projector was priced only somewhat higher than the phonographs.
However, the cost of the hardware was not as much of a problem as the cost
of content. Even short films were expensive to print and sales cost far ex-
ceeded the cost of selling prerecorded music. Therefore, the home projecting
film distribution and home viewing before the vcr

system offered home viewers the option to rent short films. Rental films 29
would be shipped and returned through the post office.
The home projector failed. Only 500 machines were sold. Rentals of films
added considerably to the already high cost of the projector. Cost alone seems
sufficient to explain the disappointing lack of customer interest. There were
the additional factors of the skill and energy needed to set up a screen and
operate a projector and the lack of films available on the narrow gauge that
the projector used.8 Edison abandoned the home projector in 1914.9
Edison was not the only one interested in home viewing. There are tes-
timonials from successful film entrepreneurs as early as 1906 about the po-
tential of home viewing of films, for entertainment and the dissemination of
news and political discussion.10 Pathé Frères had some success with a home
projector that it introduced in the same year as Edison’s. Pathé had the ad-
vantage of offering its home viewing customers its own larger library of films.
It also moved more adroitly than the Edison Company into the school and
church film markets.11 However, the parent company’s position eroded dra-
matically in the next few years, due both to the world war and to a corporate
fight with Eastman Kodak. The Pathèscope slipped from view during WWI.
Kodak developed the 16mm film gauge in 1924 and that system achieved rel-
ative market success (in industrial, educational, and some home usage), but
still as a tiny fraction of the film market.
Home viewing as a mass medium stalled until the development of broad-
cast television and home video. This was not just due to technological ob-
stacles. People were simply more interested in going out to the movies than
in staying in, during this phase of mass entertainment’s history. We can spec-
ulate that although people were use to staying at home to make music and
therefore to listen to prerecorded music, they were still in the habit of going
out for their theatrical entertainment. Edison had made a false analogy be-
tween home viewing and home listening. He would not be the only one.

Tiered Releasing

By 1915, the U.S. film industry was prospering with the elimination of foreign
competition because of the First World War, the elimination of the rigid mo-
nopoly of the MPPC, and the triumph of Birth of a Nation. Zukor, in partic-
ular, had found a profitable niche. He was now producing his own films and
rolled over his rivals by outspending them. However, he did not feel safe.
V E N I , V I D I , V I D E O

30 With high overheads, he needed guaranteed support from a powerful dis-

tributor. He felt that he could not rely on the business arrangements he al-
ready had. He had to take over a big distribution company. When he ac-
quired such a company, he renamed it Paramount, a simple statement of his
imperial wish fulfillment. He was now at the top of the film industry.
The other producers imitated his actions in an effort to keep up. William
Fox, Carl Laemmle, Marcus Loew, the Warner brothers, and others were ex-
panding by building their own vertically integrated movie companies. In
other words, what the MPPC tried to do for the entire industry, they did for
themselves. They tied together production, distribution, and exhibition divi-
sions together into one studio. This way they were not beholden to any other
company for product, theatrical outlets, or distribution. Loew’s MGM, Na-
tional Theaters and Warner Brothers, Twentieth Century and Fox, RKO and
Laemmle’s Universal emerged in the 1920s as fully integrated as Zukor’s Para-
mount. Each had national distribution, centralized production studios in
Southern California, and ownership of key theaters in various big cities. Co-
lumbia and United Artists were two of the few significant film companies that
did not own movie theaters. However, they both had formidable distribution
arms. From this point, some seventy years later, it is truly remarkable how
many of these companies are still the most powerful film studios in the world.
These constituted the American film oligopoly that would respond to the
home video.
A rising middle class had disposable income to treat itself to the occasional
evening at the most expensive movie theaters for a special film. On other oc-
casions, these same audience members would just want to pop into the local
theater for a more modest fee to watch whatever was showing. The film in-
dustry used the flexibility of film to try to accommodate every one of those
motivations. The studios produced films for all audiences and relied on a mix
of the occasional big-budget spectacular, general interest films, drama and
genre films, and “cheapies” and short films to keep the theaters filled all year
round. The potpourri offered something for everyone—those who wanted
something special, those who wanted the safe and routine plot, and those who
wanted something in between.
“Tiered” releasing was another effective way of enticing the various
moviegoers on a range from the “big spenders” down to children with a few
spare dimes in their pockets. This system was based on the classification of
the theater and time “windows.” If the theater was in the first-run circuit, it
film distribution and home viewing before the vcr

would receive the film as soon as the film was released. The distributor would 31
guarantee that the theater had the film on an exclusive basis in its locale dur-
ing the first run. No other theater could run the film at that time. In turn, the
theater would guarantee the distributor that its ticket prices would be set at
a high rate and the two parties would negotiate their split of the box office.
The publicity effort was timed for the first-run release and the momentum
from that release would hopefully drive the film through for its subsequent
runs. Many first-run theaters were directly owned by the studios. Many were
also highly ornate “movie palaces” so luxurious in décor and appointments
that the box office rarely covered the overhead. These first-run theaters
served as lost leaders.
After a few weeks or months the film would be released to second-run the-
aters. These second-run venues would charge correspondingly less per ticket
than the first run. After a set period, the film would be leased to third run and
subsequently to any theater willing to lease the film. Those viewers who were
patient or indifferent enough to wait for a third-run showing paid very little
to see the movie.
The tiered release system got America hooked on going to the movies reg-
ularly. In 1922, an average American went to the movies three times every
eight weeks. Attendance leaped forward after the introduction of sound films
in 1927, and fell back during the depression. The historic high point of this
system was from 1946 to 1948, when it was estimated that the average at-
tendance was five times every eight weeks. The system maximized revenues
in the domestic market so that most movies earned profits even before they
were exported to other countries. For this reason, Hollywood’s priority was
to capture the American audience. Distribution executives viewed the rest
of the world as found money, although they did quite well with the global
audience.

Broadcasting: The Other Entertainment Medium

The 1920s was a time of growth for other forms of commercial entertainment.
Radio networks were emerging and transforming radio into a mass medium
of entertainment. Radio’s popularity did not harm moviegoing. Nonetheless,
the introduction of a new mass medium will always change the strategies and
logic of other mass media. Film executives started thinking about broadcast-
ing. What was it revealing about the mass audience? Was it logical for film
V E N I , V I D I , V I D E O

32 companies to get into the radio game? Were film stories appropriate for an
aural medium? Was the audience for radio different from the movie audi-
ence? If the two audiences overlapped, how should film companies utilize the
radio?
The film companies tried to buy into radio to create the first media con-
glomerates. Zukor knew from his own experience that the most powerful
position in mass culture was that of the distributor. The most powerful dis-
tributors in radio were the national networks such as NBC and CBS. Zukor
arranged for Paramount to extend credit to CBS in exchange for a future
merger of Paramount and CBS stock. The intervening depression drove Para-
mount stock down while CBS stock rose. The head of CBS, William Paley, was
able to buy out of the agreement. The film industry had been effectively
frozen out of the radio distribution business.
The studios, nonetheless, used radio to promote their films in a way that
was a true first step toward home viewing. They were early pioneers in the
use of radio as an advertising medium in 1922.12 A decade later, various ra-
dio shows started presenting audio enactments of Hollywood movies. These
shows included “Screen Guild Theater,” “Warner Brothers’ Academy The-
ater,” “Academy Award Theater,” and the very successful “Lux Radio The-
ater.” A further integration occurred as radio stars started their own movie
acting careers (Will Rogers, Eddie Cantor, Bob Hope, Bing Crosby, Abbott
and Costello, et al.).
The American audience appreciated the media crossover from radio to
film and back again, and yet the film studios could only benefit from radio
in a peripheral manner. They could hire radio stars to appear in the movies.
Their music publishing divisions increased sales due to radio and movie ex-
posure of their copyrighted music. They could give the home audience a taste
of the upcoming movies through the film on radio shows. Nonetheless, they
were frustrated in their attempt to earn directly even a part of the millions of
advertising revenues passing into network coffers. The Hollywood studios be-
came even more frustrated when the networks switched their resources to
television programming and distribution in the period 1948–1953.
The frustration was twofold. The development of television as an exten-
sion of radio ensured that the film studios would be in a subordinate position
despite the close fit between film and television. The networks seamlessly
transformed their distribution operations from the aural to visual medium
without competition. At the same time, the U.S. government forced the Holly-
film distribution and home viewing before the vcr

wood studios to change their way of doing business. The Department of Jus- 33
tice had received numerous complaints, over the decades, about the collusive
behavior of the major movie studios in the field of exhibition. They investi-
gated how “tiered” releasing, with its promises of exclusivity and its pressure
on independent theaters to accept disadvantageous contracts, had amounted
to a conspiracy to behave as a trust. The specific onerous practices were block
booking (forcing an exhibitor to take an entire slate of films, not just the pop-
ular ones) and blind selling (forcing exhibitors to bid on films that they had
not had the opportunity to view). The crisis of the depression and WWII had
forestalled drastic action. After the war, the department decided that the
proper cure was to force film studios out of the theater business altogether.
In 1948, the Paramount et al. consent decree stipulated that the five majors
had to sell their theaters. It was anticipated that this would force them to deal
with independent theater owners on a more equitable basis.
In this atmosphere, the film studios’ pursuit of power in the nascent tele-
vision industry seemed predatory. The Federal Communications Commission
(FCC) took the view that such pursuits would only renew Hollywood’s con-
spiratorial practices. Wayne Coy, the chairman of the FCC in 1948, told
motion picture company representatives that he opposed motion picture–
television ownership tie-ups.13 The Justice Department obstructed the Para-
mount /DuMont partnership from forming a profitable fourth TV network,
and discouraged other studios from purchasing stations.14
In hindsight, it seems that the government was unfairly coddling the net-
works, helping them avoid sharing power with the movie studios. American
broadcasting was an advertising medium. In order to attract an audience to
the advertising, broadcasters used the popular entertainment values estab-
lished by Hollywood films. American filmmakers realized that their films had
paved the way and they wanted to share in television’s riches. Christopher
Anderson has shown that even David Selznick, the producer of the biggest
Hollywood movies, was eager to reach the audience in their living rooms. He
went on to produce one of the early big television shows, Light’s Diamond Ju-
bilee, in 1954.15 The fact that even the maker of Gone With the Wind wanted
to produce for the stay-at-home viewer suggests that mainstream film pro-
ducers did not disdain the small screen, as some film historians have argued.
Current film histories have thoroughly debunked previous explanations that
film executives purposely ignored or were instinctively hostile toward this
home medium. If they were hostile, it was because they had been kept out of
V E N I , V I D I , V I D E O

34 the TV market by the combined strength of RCA and CBS and by overt gov-
ernment action.
In this situation, the major studios could only act as program suppliers to
television (not as distributors or exhibitors). By the mid-1950s, major and in-
dependent studios were shooting TV shows on their lots. One film studio, Dis-
ney, was able to take full advantage of its role as a program supplier. Walt Dis-
ney had decided to seek an investor in the theme park that he was building
called Disneyland. This was his condition for setting up a television show.
ABC decided to accept it since they were the weakest of the three networks.
Disney was able to use the show to promote his films and his theme park. His
vision was to sell many different products to his core market—parents—in an
atmosphere he called “total merchandising.” 16 His business plan enhanced
the company’s power to the point where its products became a central stem
of American popular culture. As we shall see, Disney’s idea was far reaching
enough to bear even fuller fruit with the advent of the VCR, almost two de-
cades after his death. However, the Disney TV show did not show films in
their entirety. Major theatrical films did not appear on regular network pro-
gramming until 1961.
In the first decade of TV, CBS and NBC had their own reasons not to lease
films from Hollywood. There were also symmetrical reasons for the studios
to resist broadcasting their recent films. The primary reason for such hesi-
tancy was that the networks simply did not wish to spend the amount of
money it would cost to lease recent feature films. There were also a few strate-
gic motivations to keep Hollywood movies off the air. In the early years, the
networks were anxious to establish that television offered something differ-
ent from the movies. This would build prestige for the new medium and an
added purpose for the networks, since they would be the only experts in TV’s
unique power. Television promoters subscribed to a rhetoric of “live”ness as
the best feature of television.17 ABC was more willing to get away from live
shows; its weakness relative to the other networks led it to explore all possi-
bilities. Even NBC’s and CBS’s rhetoric on this matter faded as networks built
up an inventory of programs and developed economic interests in recording
and repeating broadcasts.
Network executives had other considerations for not wanting the audi-
ence to view television as a primary medium for movies. One reason was that
movies could be leased by stations directly from the film studios or their sub-
distributors. Therefore, a station could use a film as an inexpensive substitute
film distribution and home viewing before the vcr

and turn down network offerings, or use the movie as a counterprogram 35

against network shows. Executives wanted to discourage station owners from
thinking that film programming would attract as many advertising dollars as
network offerings.
Advertisers were also hesitant about movies on TV. A movie is a single pro-
gram appealing to a singular audience. Some movies draw a large audience
only once. Others take a long time to build an audience. Television thrives on
repeat audiences week after week. Advertisers want predictable, regular rat-
ings. One director of programming stated that films are a “stopgap, . . . They
don’t represent a direction that is fruitful for us, and they don’t give us con-
sistent ratings either.” 18 TV programmers may have some ability to predict
a film’s appeal, but the room for error is far greater than that for episodic
television. The length of feature films also ran counter to programming phi-
losophy. In 1946, an unnamed communications attorney warned that the
hour-and-a-half-long feature film will not hold the attention of the television
audience.19 Although subsequent practice proved the attorney wrong, the
two-hour slot for a feature film in prime time unbalanced the hours of eve-
ning programming.
Despite these institutional hesitancies, films were broadcast from the be-
ginning of television. The first instance was in 1933, when W6XAO (the fu-
ture KTSL of Los Angeles) experimentally broadcast a World Wide produc-
tion of The Crooked Circle (1932).20 As TV matured, individual stations
sought more movies, but film distributors were reluctant. For one thing, they
did not want to anger their principal clients, the movie theater owners, by
selling films to television. They also were uncertain about the claims of com-
posers, actors, and writers to additional payments if movies were shown in a
new medium. The old contracts rarely broached the subject of exploitation
in a new (ancillary) medium. The fiery Petrilli, leader of the American Fed-
eration of Musicians, and other labor leaders were demanding a share of any
television sales of movies.
If the studios were to face such exhibition and union headaches, they
wanted adequate compensation from their television sales. Such compensa-
tion was not forthcoming. As late as 1952, Paramount reported that a national
broadcast of a first-quality film would bring in, at most, $55,000. This was a
pittance compared to the $1.4 million that the average film cost to produce,
or even to the $125,000 to $750,000 a film often earned in a rerelease.21
Foreigner distributors and bankrupt studios without much concern for fu-
V E N I , V I D I , V I D E O

36 ture relations with exhibitors and unions were the first to lease their libraries.
The first major film sale was in 1948 when the unaffiliated WPIX of New York
acquired twenty-four films from Alexander Korda, the British producer.
RKO was in trouble and was sold to General Teleradio in 1955. This company
owned the WOR station in New York and used the RKO library (740 features
and 1,100 shorts) for its Million Dollar Movie series. Other sales were made to
television distributors by such “poverty row” studios as Republic and Mono-
gram. They had reached an agreement with the American Federation of Mu-
sicians. Important unions also allowed sales of pre-1948 films. The Screen
Actors Guild (SAG) continued to pressure producers for additional compen-
sation (residuals) to its members for television sales of later movies. It finally
won a comprehensive settlement regarding residuals in its 1960 contract with
all major American producers.
The settlement was fortuitous for the Hollywood studios. They had lost
their habitual audience in 1948 and had had varying luck over the next ten
years. By 1958, whatever luck the top nine film companies had had was run-
ning out. In the period from 1958 to 1963, only Paramount did not suffer a
losing year. Some of the others had huge losses, and the television sale of
their libraries meant the difference between corporate life and death. It is in-
structive to see how the studios came to this reversal of fortune at this time.

Postwar Film Exhibition

The dichotomy between “staying-in” and “going-out” is useful in under-

standing the dynamics of media rivalries from the early time of the MPPC
through the maturity of television. The tiered releasing system that flour-
ished from the 1920s through the 1940s was an attempt to balance both im-
pulses. In the 1940s and 1950s the balance was breaking down, first because
of the extraordinary situation of the war and then because of the radical
changes in the media environment following the war.
Through the classic studio era, the pendulum swung between big and
medium-size films, although both always coexisted. Big-budget musicals were
prevalent in the early thirties. In the thirties and forties, the Hollywood stu-
dios scaled back on “event” movies (increasingly referred to as “blockbust-
ers”).22 As the depression took hold, exhibitors increased their use of adding
a second “B” grade film to the featured film. “B” movies are defined by their
film distribution and home viewing before the vcr

use of extremely limited budgets, formulaic plots, and a lowest common de- 37
nominator appeal to the general audience.
There were exceptions. In the middle of this period, filmmaking ambition
flared up again; 1939 was a year of the extraordinary with the releases of sev-
eral large-budget films, most notably Selznick’s Gone With the Wind. How-
ever, as America entered a war economy (even before our entry in Decem-
ber 1941), the film industry had less and less competition for the consumer
dollar. Hollywood responded with medium-sized films. This continued, after
the war, as the film industry earned record profits with only modest efforts.
The films themselves could have serious ambitions as dramas. This was the
period when dark urban thrillers, subsequently labeled “film noir,” became
a mature genre. Serious adult issues were dealt with in such Academy Award
winners as The Lost Weekend (1945), Best Years of Our Lives (1946), and
Gentleman’s Agreement (1947). Filmmaking in these years was not a high-
budget search for breathtaking technical breakthroughs. These films did not
need expensive promotional campaigns. There was little motivation to daz-
zle the audience, since the patrons were already attending in record numbers.
This situation soon changed dramatically, partly due to television, which
itself was symptomatic of a larger change. People had more money to spend
and more time and things to spend it on as the economy shifted from a war
to a postwar footing. It would be too simple to say that the postwar subur-
banization led to a stay-at-home audience. We must realize that film was now
competing with longer vacations and other outdoor leisure activities, as au-
tomobile ownership became universal, with education and other non-work
pursuits available to an increasingly affluent public. In these circumstances,
the habitual film going of the depression and war years was due for a decline.
Affluence did not immediately return to the rest of the world and for that rea-
son, Hollywood films continued to export well. Nonetheless, this was of little
consolation for the loss of the American audience. The foreign audiences had
less money and therefore paid far less, and many countries placed restrictions
on the repatriation of American film earnings.
The major film studios were finally motivated to go back to some old show
biz razzle-dazzle as they suffered a 32 percent decline in domestic attendance
from 1946 to 1952.23 They concentrated on the going-out audience by cutting
back on the number of productions and trying to turn away from routine
moviemaking. Actors, writers, and other employees on long-term contracts
V E N I , V I D I , V I D E O

38 were let go and became freelancers, moving from project to project. The stu-
dios also reduced risk by forming alliances with independent producers, who
took on more of the financing responsibilities. In the short run, focusing re-
sources on a few big movies worked. The decline of the revenues was tem-
porarily reversed. Combined profits for the major studios had an annual
increase of 50 percent, to $35.3 million, in 1954 and a further increase to
$37.4 million in 1955.24 It was hoped that film could maintain its economic
health by producing spectaculars, blockbusters, and other out-of-the-
ordinary movies. In short, films should be everything that television was not.
The movie producers adopted the two major technical innovations of color
and widescreen. Previously, the expense of color cinematography had limited
its use. Now, in the age of black-and-white television, there was a rush to
color. Eighteen percent of movies were shot in color in 1949. A decade later
that figure had risen to over 50 percent.25 The widescreen lens and the multi-
projector system had been around since the 1920s, on a limited basis. Start-
ing with This Is Cinerama in 1952 and other widescreen formats such as Cin-
emascope, Todd-AO, and VistaVision, various studios switched to widescreen
filmmaking. They also resorted to the fad of three-dimensional films. Both
the widescreen and color represented a deliberate attempt to make film go-
ing a more exciting and unique experience than television. We can label this
the “if you can’t join ’em, lick ’em” approach.
Another bigger-than-life strategy came about from the combination of
necessity and opportunity. American film companies decided to use their
blocked foreign earnings to finance foreign productions. European locations
and crafts personnel were a bargain compared to U.S. counterparts. Labor
was so cheap in Italy and Spain that Hollywood went ahead and made films
that were particularly labor intensive in these countries, such as various
costume epics with “casts of thousands.” These epics became an additional
source of blockbusting moviemaking. A postwar cycle of biblical and histor-
ical epics began with Samson and Delilah (1949), peaked with DeMille’s 1956
The Ten Commandments, and dramatically declined with the money-losing
Cleopatra (1963). The use of relatively cheap exotic locations continued
through the 1960s.
The profit level of 1955 proved to be temporary. The audience lost inter-
est in widescreen movies per se. A particularly bleak year was 1958, with
profits of only $12.6 million.26 The studios now needed the television money.
They switched back to “if you can’t lick ’em, join ’em.” The 1960 resolution
film distribution and home viewing before the vcr

of the residual dispute paved the way for wholesale leasing of the various li- 39
braries to network television. The first network regular prime time film pro-
gram was NBC’s Saturday Night at the Movies in 1961. ABC followed with a
Sunday movie program the next year and CBS started a Thursday series in
1965. The video display of movies was now an established part of the Amer-
ican landscape.

Distributing Films to Smaller Audiences

During this time, independent film distributors found and exploited market
niches and product shortages in the movie theaters. They wanted to become
alternatives to the majors, not just adjuncts. Their stories, while economically
miniscule, were important because these independents became one of the
catalysts for the current “new” Hollywood. Their history began with the post-
war disappearance of the “poverty row” studios, such as PRC, Monogram, and
Republic, that had churned out B movies during the depression. The newly
freed employees of these companies formed new distribution outlets such as
Allied Artists. Another important independent eventually became famous as
AIP (American International Pictures). These companies exploited several
new market developments. Unlike the poverty row studios, which made low-
budget films for a general audience, the new independents directed their ef-
forts at the emerging teenage market. They were aggressive in tackling sensa-
tional and violent themes. Their topics were precisely those that would never
be shown on television.
Theaters were also changing in response to the new media landscape.
They were now suffering product famine as the major studios cut down pro-
duction in search of big blockbusters and as B movies dried up. These the-
aters encouraged the new independents to make “exploitation” films. In ad-
dition, outdoor exhibitors had taken advantage of suburbanization by quickly
setting up “drive-ins” on cheap land on the fringe of developments. These
exhibitors discovered that an important audience was teenagers seeking the
slightly subversive pleasures of horror, scandal, or titillating looks at girls and
juvenile delinquents in trouble. Because of the tie-in between drive-ins and
exploitation, the summer season (which the majors ignored) was important
for independents.
Exploitation films nurtured a new generation of filmmakers and sensibil-
ities about the relationship between the audience and the film. Exploitation
V E N I , V I D I , V I D E O

40 films were different from B movies since they were not fillers on a feature pro-
gram. If they were double billed, it was with other exploitation or specialized
films. In this manner, exploitation films formed an economic continuity with
the Euro-art film (despite their disparity in formal experiment and narrative
ambition). The theater circuits that used either of these film genres were not
trying to attract everybody. They were targeting those groups of spectators
who wanted to go to the movies to see something outside the mainstream.
By the late 1950s and 1960s, various European production centers had re-
emerged, helped in part by Hollywood’s overseas spending on the exotic lo-
cations.27 Rossellini, Fellini, DeSica, Bergman, Kurosawa, et al. made films
that were regularly released in the U.S. One quantitative measure of the im-
portance of foreign films at that time is their percentage of all releases. Im-
ports were 20 percent of all U.S. film releases in 1946. Twelve years later, they
were 50 percent. They remained above 50 percent of total releases until 1969,
when imports started dropping sharply.28 These films sometimes received
major distribution but often just played major cities and college campuses. To
a large extent, independent distributors introduced foreign films here, al-
though major distributors stepped in as the trend continued.
The older Hollywood film studios followed the independent development
of “niche” audiences and occasionally imitated them. For example, in 1952,
the U.S. Supreme Court allowed the independent distributor Joseph Burstyn
to import Rossellini’s The Miracle, despite the banning of the film by the New
York State Board of Censors. The next year, Otto Preminger and his Holly-
wood distributor, United Artists, decided to release the film The Moon Is Blue
without a seal of approval from the major studios’ own censorship board, the
Production Code Administration. They were able to distribute the film suc-
cessfully without the seal. Independent distributors made money from for-
eign films because American audiences were interested in the way these films
treated sex and other adult topics. This put pressure on the major film stu-
dios to emulate sophisticated European themes. The MPAA finally scrapped
the Production Code and substituted a ratings system in 1968. The majors
ventured into producing and distributing the adult films that independents
had pioneered.
This was a time of eliminating the final remnants of the old system. A
watershed of sorts was reached with the runaway successes of big movies
such as Dr. Zhivago and The Sound of Music in 1965. However, the aftermath
of these big-budget triumphs was a string of big-budget flops such as Dr.
film distribution and home viewing before the vcr

Dolittle, Hello, Dolly! and Star! The general audience was fickle, again. Box 41
office volatility lowered the value of the studios to the point where they be-
came attractive acquisitions. Gulf + Western took over Paramount in 1966.
United Artists was purchased by Transamerica in 1967, and Warner by Kin-
ney National Services in 1969. These companies gave the film distributors
deeper financial resources and coincided with a shift in management to a new
generation. However, this wave of conglomerate takeover did not, in itself,
change film industry practices.
The brightest spot in the major distributors’ ledger sheets was leasing to
television. During the wave of conglomeratization, movies shown on televi-
sion achieved consistently high ratings. Table 1.1 charts the rise and fall of
films on television as measured by their hit ratings. The chart is compiled
from Variety’s listing of movies that have drawn a rating of 24 or better on
network television. The second column counts those movies made for the-
atrical releases that were subsequently shown on television. The third col-
umn counts the high-rated movies made directly for television. This type of
production originated in 1966 with the NBC broadcast of Fame is the Name
of the Game. A comparison of the second and third columns shows that the
popularity of made-for-television movies paralleled the popularity of the-
atrical movies. The window between a theatrical showing and a network
showing narrowed over the years until it stabilized at approximately three
years in 1975. Networks leased films for an average of $2 million. At times,
they would go much higher for individual titles.
Showing movies on television became very popular after the start of reg-
ular network showings in 1961. Early in 1966, the advertising agency BBDO
issued a report stating that feature films on television were the best buy for
advertisers. Six months later, The Bridge on the River Kwai broke all records
for a broadcast film, with a 38.3 rating. This was a watershed, particularly
since ABC paid $2 million to Columbia for the broadcast. Feature film show-
ings became part of the arsenal used to seduce audiences to stay with one net-
work. When one network programmed a very popular special, another net-
work was sure to program a box office hit. The network sales force could also
count on getting a high-powered corporate mix of advertisers for the feature
film, companies that were less interested in direct sales and more interested
in building corporate awareness. IBM, Citicorp, American Express, Coca-
Cola, Pepsi, et al. were the prominent advertisers during feature films.29
The movie industry could now rely on television sales as an important rev-
V E N I , V I D I , V I D E O

42 table 1.1 Number of High-Rated Movies on Television, 1962–1989

Average Years
betweeen Theatrical
Hit Theatrical Hit Made-for-TV Total Hit Release and First
Year Movies Movies Movies TV Showing

1962 3 0 3 8.0
1963 4 0 4 5.5
1964 3 0 3 10.0
1965 10 0 10 11.0
1966 11 2 13 7.0
1967 45 2 47 5.5
1968 21 3 24 6.0
1969 18 1 19 4.3
1970 14 13 27 7.0
1971 21 24 45 6.5
1972 22 19 41 5.8
1973 18 14 32 4.3
1974 13 18 31 6.3
1975 9 9 18 3.3
1976 26 17 43 6.1
1977 14 21 35 2.0
1978 11 12 23 3.8
1979 11 6 17 2.6
1980 6 9 15 2.5
1981 4 7 11 2.8
1982 2 6 8 2.5
1983 3 6 9 2.7
1984* 2 9 11 5.0
1985 0 2 2 n /a
1986 0 7 7 n /a
1987 0 2 2 n /a
1988 0 3 3 n /a
1989 0 3 3 n /a
Total 295 214 509
* 1984 results are skewed because Star Wars finally made it to network after seven years.
Sources: Variety, October 7, 1981, pp. 176 –177, 186; Variety, January 24, 1990,
pp. 166 –170.

enue center. Nonetheless, feature film marketing practices remained rela-

tively untouched by the television release. Since the films were leased for flat
fees and often in packages of several titles bundled together, the individual
film distributors had little economic incentive to be concerned about the
share of the television audience that watched a specific film. The window be-
film distribution and home viewing before the vcr

tween theatrical release and broadcast was several years. This furthered the 43
lack of influence the TV market had on financing and production practices.
On a title-per-title basis, there was minimal “marginal” incentive for the film
distributor or producer to worry about the television success of the film. Tele-
vision remained a truly secondary market.
Despite television’s afterthought status in film distribution, the high rat-
ings demonstrated that the public had not abandoned feature films. Yet, the
post-1965 big-budget failures led to the major studios feeling disconnected
and bewildered by the elusive movie theater patrons. This disconnection was
part of the general social atmosphere. The late sixties were a time of ferment.
The ferment was hard to characterize since it was a new mixture of political
and cultural. It was not specific either to the struggle for racial equality or to
the anti–Vietnam War movement, although both political stances were part
of the ferment. Another important component was a sense of a community
by generation. Influential segments of the youth audience definitely wanted
cultural products that were different from those of the adult audience. This
was most clearly expressed in music and rock’s radical separation from other
music formats.
The radical separation was also percolating in American films. Warner
Communications’ Bonnie and Clyde in 1967 celebrated an earlier genera-
tion of young outlaws. In 1968, MGM produced Stanley Kubrick’s altered-
consciousness space fantasy 2001, and the independent company Avco
Embassy had a hit with Mike Nichols’ The Graduate. Exploitation films, in
particular, were exploring the young side of the “generation gap.” These
films expounded rebellion, sexual liberation, and alternative senses of com-
munity. However, films did not seem to interest the youth audience as much
as music did. Several producers had the obvious idea to combine the two. Fes-
tival movies such as a documentary on the Monterey Pop Festival earned
modest sums. In 1969, Dennis Hopper combined a wall-to-wall rock sound
track with a narrative about drug-dealing bikers in Easy Rider. This film made
box office history when it earned $19 million for Columbia Pictures. The ma-
jors were now inspired to pursue the young “counterculture” audience.
Dennis Hopper and the other principal contributors to Easy Rider had
worked for Roger Corman, who started as a producer for AIP and was now
distributing his own exploitation films. The surprise success of Easy Rider
was a harbinger that the future key to health for the studios was somehow
combining their own strengths as major distributors with the sensibility of a
V E N I , V I D I , V I D E O

44 new generation, coming up through the independent ranks. At first, studios

issued a bunch of “copy cat” movies directly catering to the counterculture.
These rarely ignited the box office.
The more lasting legacy of Easy Rider came when Hollywood (a notorious
closed shop industry) opened its doors to a new cohort of filmmakers. Steven
Spielberg, George Lucas, Francis Ford Coppola, Brian DePalma, and Martin
Scorsese got their first big studio assignments around the time of Easy Rider.
This new generation had cut its collective teeth by working for Corman or
other independent distributors (with the notable exception of Spielberg).
They aspired to combine European “art” filmmaking and “counterculture”
ideas. Thomas Schatz argues that Francis Ford Coppola’s 1972 film The God-
father was the first major success of this new group.30 Coppola’s film absorbed
some of the themes and techniques of contemporary foreign directors. The
other members of this new wave, American style, also showed interest in new
hybrid forms of moviemaking, breaking boundaries between different genre
conventions and taking a looser approach to storytelling. Another example
was American Graffiti (1973), coproduced by Coppola and Lucas and directed
by the latter. This new cohort was already achieving success in combining
new sensibilities and old-time studio distribution power. Their achievements
were still tentative. It was not until Spielberg and Lucas reached full stride
with Jaws (1975) and Star Wars (1977) that the majors would have a distri-
bution formula that reunited the stay-at-home viewer with the going-out au-
dience. Before this happened, the major distributors had to learn two more
lessons from the independents.

Television Advertising and Jaws: Marketing the Shark Wide and Deep

Tom Laughlin was angered when he read the 1971 box office statement from
Warner Communications about Billy Jack, the film he wrote, produced, and
starred in with his wife. The studio distributors did not understand how to
handle such a special project. The film combined kung fu action with Native
American spirituality and counterculture sincerity. Nonetheless, the execu-
tives were positioning it as a typical genre piece. Laughlin demanded to know
what Warner was going to do about the low figures. Dissatisfied with the an-
swer, he decided to handle the film himself.
The Warner people were not prepared to let the movie go. Laughlin went
film distribution and home viewing before the vcr

to court and finally got the film back. What he did next was distribution his- 45
tory. He took the film print from town to town, rolling the first town’s profits
over into the marketing and advertising for the next town. In order to maxi-
mize the power of his advertising, he put most of his money into local tele-
vision spots. The audience came out to see the film and the campaign gained
momentum. By the time he was done in 1973, his company had pocketed
$32 million.
Major film distributors had been curiously circumspect about using tele-
vision advertising. From 1970 to 1972, MPAA members together spent $4 mil-
lion per year on network television advertising, about 2 percent of their total
movie advertising budget.31 There was no change for those three years. Ex-
ecutives did not like the expense of TV advertising since they viewed TV as
a rival medium and TV audiences as separate from their own. Perhaps they
also did not like the shotgun nature of television promotion, with its broad
range of who sees it and when. In contrast, newspaper advertising can be run
precisely on the day and the week the movie opens, and radio advertising
can be targeted at specific groups. Nonetheless, the power of the TV medium
could not be ignored forever. At the same time Laughlin was rolling out Billy
Jack, Lester Persky at Columbia was achieving success for several movies
by running TV spots.32 The other studios now had two examples of TV power.
They increased their network advertising by 50 percent in 1973, and by
73 percent in 1974. By 1974, network advertising was 4 percent of the total
advertising budget.33
Steven Spielberg’s second feature film, Jaws, released in 1975, eventually
earned $129.5 million in the North American market for its distributor, Uni-
versal. The earnings were unprecedented. It was the launch of the “New
Hollywood.” It confirmed large changes in the industry’s production and dis-
tribution practices. It was released in the late spring and played during the
summer, a season previously reserved for cheap drive-in movies. In content
and marketing practices, it can be argued that Jaws combined major studio
clout with exploitation thrills. Jaws was a movie about a shark terrorizing a
beach resort community. The community displayed ambivalence about pub-
licizing the danger. The movie ended with a final successful hunt for the
shark that only one of the original three crew members survives. Jaws may
hint at Ibsen and Melville, but its real pleasure is the terror of shark attacks
on vulnerable teenage swimmers and anything else that gets in the way. Nei-
ther the ad campaign nor the opening of the movie missed the opportunity
V E N I , V I D I , V I D E O

46 to present the innocent female swimmer taken by the huge shark. It was defi-
nitely exploitation material.
Spielberg worried about being typecast as an exploitation director. His
consolation was that he would make it better than any low-budget thriller.
He spent more and more money— on the mechanical shark, on the sets, by
shooting in a real ocean rather than in a tank, and on the crowd scenes. The
movie was initially budgeted at $3.5 million. It came in at over $10 million.34
The producers and Universal reluctantly put up with this kind of overage.
Dimly, without much discussion, the executives realized that they could pull
in a bigger audience, beyond the traditional appeal of the thriller or other ac-
tion genres, with the added production values of a big budget. The big budget
enticed a wide audience to look at a hitherto narrow genre such as horror,
or comic book films such as Superman (1978), previously only attended by
young males.35
The high budget reinforced the distributor’s decision to spend heavily on
television advertising, since the added money paid for spectacular visual, au-
dio, and music effects that, in turn, could be featured in the television adver-
tising. Universal decided to push the new post–Billy Jack importance of TV
advertising. It opened Jaws simultaneously in 464 theaters.36 This wide re-
lease took maximum advantage of the television campaign, which featured,
in graphic terms, the movie’s ability to terrify. The final budget for Univer-
sal’s promotion campaign was a high $2.5 million. Jaws became an event film,
which is to say that the success of the movie fed upon itself. Infrequent movie-
goers felt as if they were missing something if they did not go to see Jaws.
The ability of the new Hollywood cohort to make and market an event
movie was confirmed when Star Wars, directed by Lucas, came out in 1977.
Previously science fiction had a following limited to the Saturday matinee au-
dience. In 1968, Kubrick’s 2001 used the genre to explore metaphysical
themes and drew attention from a more cerebral audience. Nevertheless, it
was Star Wars that found the right balance between formulaic action and
mythic concerns to draw in both adults and children. The plot of Star Wars
was action driven, although Lucas was skillful in publicizing his use of mythic
devices borrowed from mythologist Joseph Campbell. Critics noted the
mythic elements and labeled the film a sophisticated space epic. Heavy mar-
keting, critical acclaim, and hybrid appeal made Star Wars an event film. It
combined big-budget special effects with a wide release, heavy advertising,
and exploitation of the film through merchandising products associated with
film distribution and home viewing before the vcr

the film’s characters. It was made for $11 million and earned rentals, in its ini- 47
tial release, of $193.5 million. It was the top box office earner of all time for
five years and then briefly regained the honors in its rerelease in the 1990s.
The film industry had made two advances at once. The directors had fash-
ioned hits by combining a new sensibility with traditional matinee genres.
The distributors had learned to market and effectively advertise the new
blockbuster. The advertising was increasing in expense, and there was an up-
per limit. After all, not every film was Jaws or Star Wars. Lesser films could
not justify expensive advertising if they did not make money in their initial
theatrical run. Theatrical advertising could not really boost the sale price of
film to television since there was a three- to four-year gap between the the-
ater run and the network broadcast. From the audience’s perspective, there
were technical drawbacks. Theaters only showed the movie several times a
day, not necessarily at convenient times. Indeed, what was a convenient time
to take the children to the movies if both parents were working?
The new practices set the stage for the twenty-plus year boom in major
motion picture production. It created a global audience that was now eager
to watch recent movies, if not at the theater, then at home. The year of Jaws,
1975, was also the year of the first satellite transmission of Home Box Office
(HBO), a cable channel devoted to showing movies. Finally, it was the year
when Sony introduced Betamax.
The old Hollywood had balanced its distribution and production practices
for both the going-out audience and the neighborhood viewers. Television
and suburban living had ruined the tiered releasing system in the U.S. Dis-
tribution practices initially responded to television by targeting separate seg-
ments of the moviegoing audience. They did this with widescreen presenta-
tions, with exploitation films with the drive-in, midnight cult, and art house
circuits. By the late 1970s the new Hollywood was reuniting these segments.
This sets up the argument that will be developed below about the role of
home video in sustaining the New Hollywood. Home video restored the au-
dience—which Hollywood had to share with television. It also restored the
economic power of the old studios because the audience was willing to spend
money to watch movies at home on the VCR. Indeed, Bruce Austin argues
that home video restored the old tiered releasing system of the studio sys-
tem.37 In any case, we will see too that the video market would also change
the relationships between the independent distributors and the majors. The
next chapter turns to the technological development of video.
 C H A P T E R T W O

The Development of
Video Recording

David Sarnoff, the head of RCA, was already a media legend when he joined
the service, where he rose to the rank of brigadier general during World
War II. After the war, General Sarnoff often exercised a military style of com-
mand and strategy as he redirected huge resources to tackle seemingly in-
surmountable problems. When, on September 27, 1951, RCA staged an elab-
orate celebration of Sarnoff’s forty-five years in the radio business,1 the
general directed his engineering staff to present him with three more break-
through inventions in the next five years. One of the breakthroughs he wanted
was a “videograph,” a video playback unit using magnetic tape.2 He got his
wish. Unfortunately for Sarnoff, it was RCA’s rival, Ampex, that achieved the
breakthrough by demonstrating a practical videotape recorder in 1956. The
irony deepens since Bing Crosby was one of the financial backers of Ampex.
The popular singer had left Sarnoff ’s NBC in 1946, after the general turned
down Crosby’s request to broadcast recordings of his radio show.
This chapter is about the development of video recording technology and
the creation of a mass market. This is not just a chapter about inventors, it is
also about manufacturers, broadcasters, content providers, and content dis-
tributors, and, finally, the audience. Technology is not an autonomous pur-
suit, it is the conjunction of scientific opportunity, corporate vision, and mar-
ketplace struggles. The relationship of technologies of communication to
culture is a fascinating one. It is not a task for the fainthearted to explain this
relationship. The landscape is littered with abandoned theories that have
tried to reduce this relationship to a single cause or a single moment. The evo-
lution of any communications tool shows that different institutions will facil-
itate or hinder development depending on the entire media mix at the time.
the development of video recording

For example, broadcast institutions initially invested in circulating cul- 49

tural products (i.e., radio shows) in “real” time. Many radio executives de-
plored the use of recordings until the advent of television. We can therefore
ask the question: Is it sheer coincidence that the phonograph stagnated and
the magnetic recorder never emerged while broadcast institutions had this
attitude? History is merely suggestive on this score. We have the story of
Sarnoff driving Crosby away from NBC over the recording issue and then
seemingly having a change of heart, four years later, when he asked his en-
gineers to develop video magnetic recording. The argument is that Sarnoff’s
change parallels changes in the media environment, changes that no one
could anticipate, not even Sarnoff himself.
Magnetic recording, which is the underlying principle of video recording,
was invented at roughly the same time as radio broadcasting. While radio
quickly captured the public imagination, fifty years would pass before the av-
erage citizen would even hear of magnetic recording. What factors had to fall
into place before magnetic recording could become a consumer item? To an-
swer that question we have to review the tangled history of broadcasting and
recording media up to 1951. Only then can we ask what further factors had
to line up for the home video machine. Assumptions are embedded in tech-
nology. Sometimes these assumptions doom the technology. Ampex, RCA,
CBS, Avco, MCA, Philips, IBM, and even Sony suffered failures as they tried,
over the course of a decade, to move video recording from professional use
to consumer use. The American companies suffered disproportional losses
because they were not nimble enough in adjusting their attitudes about the
audience. The relatively small Japanese manufacturer Sony was the one
to finally unlock the market, only to lose it again to its big Japanese rival,
Matsushita.
In the previous chapter, I showed how film distribution changes as it tries
to negotiate a balance between the stay-ins and the going-out viewers. In this
chapter, we shall see how inventors and manufacturers have their own rela-
tionship with the media audience. Their relationship is mitigated by their
concurrent relations with content distributors. The VCR arose not as the re-
sult of one company’s vision but as the result of a three-way relationship; be-
tween manufacturers, content distributors, and customers.
The VCR is one of the great success stories of consumer electronics. None-
theless, its rapid rate of adoption can be exaggerated—not unlike the vaude-
V E N I , V I D I , V I D E O

50 ville comic who worked thirty years to become an overnight success. VCR
adoption has been compared to television’s rate of adoption. Television was
introduced by RCA as a ready-to-use machine (unlike the early radios, which
were sold as kits), and it encountered few obstacles as it became the most ubi-
quitous piece of hardware in the world. The only major change in the first
four decades was the switch to color TV sets, although we are now on the
verge of several more major changes. In contrast, the VCR was the result of a
series of intermediate stages. It was only after a series of incremental ad-
vances that the rate of VCR adoption approached that of television. Each one
of these stages fulfilled one of the potential uses of the machine and built a
market appropriate to that use.
There are four stages in the development of home video recording ma-
chines.3 The first stage dates from the 1956 Ampex machine. This technology
led directly to the industrial market and indirectly to future visions of an
expanded consumer market. The second stage was reached a decade later
when both business and educational professionals starting using the 3⁄ 4-inch
U-matic. But hopes for general consumer adoption of the U-matic fizzled,
and Sony went to work on the time-shifting capabilities of 1⁄ 2-inch tape cas-
sette that Sony and its rival VHS manufacturers started selling in 1975, which
became the third stage of home video development. Sony sold the Betamax
home video recorder as a tool of consumer empowerment. This claim must
be taken with a grain of salt; nonetheless it succeeded in making the VCR a
global mass medium. This market led without further technical develop-
ments to a fourth stage around 1979, which was characterized by the in-
creasing use of prerecorded material, preponderantly adult programming at
the beginning and subsequently mainstream feature films. Sony’s Betamax
system had already lost ground to the VHS by 1978, but still maintained a
healthy market share. The development of the prerecorded market eventu-
ally led to the demise of Betamax by 1988. We are still in the fourth stage.
Throughout this multistage process there was the alternative technology
of laser disc. In the early 1970s many thought the laser disc would be more
important than the video recorder. Even a year after the introduction of the
Betamax, the U.S. media continued to emphasize disc over tape.4 I will de-
scribe below how alternatives to videotape failed to find a mass market dur-
ing this period. In 2000, the rollout of recordable videodiscs signaled perhaps
yet another stage when the video recorder becomes united with laser disc
technology. The market has yet to make that decision.
the development of video recording

51
Broadcast Networks and Recording Technology

The career of David Sarnoff is illustrative of the issues involved in early re-
cording technology. He was not an inventor, nor was he a cultural producer.
He was not even a distributor. Yet, he helped create an integrated company
that was a leader in all these activities. The Radio Corporation of America
(RCA) under the guidance of Sarnoff took up the gauntlet of home enter-
tainment where Edison left off. As a young executive, Sarnoff announced his
vision of radio as a national music box, maybe as early as 1916.5 In order to
realize this vision, he proposed that RCA, at that point still just a company
making radio sets, start a radio entertainment network. Sarnoff argued that
radio could attract the finest music by building a national audience listening
to various stations networked together by the same broadcast signal. He was
more vague when asked who would pay for this programming. The question
of who would pay puzzled most observers.6 The British provided one answer
when their government set up the British Broadcasting Corporation (BBC)
by charging radio owners an annual license fee. U.S. policymakers rejected
the BBC model. American political and social conditions favored the rise of
commercially sponsored broadcasting.
Advertising financed the national network for the distribution of radio
programs. AT&T, the telephone company, had already networked a few sta-
tions in 1922 by sending broadcast signals through its telephone lines. AT&T
stations were accepting advertising. In 1926, they accepted a bid of $1 mil-
lion from RCA for their network. RCA renamed the old AT&T network
the National Broadcasting Company (NBC), and stations rushed to affiliate
with NBC.
One of the reasons AT&T decided to sell illustrates the relationship be-
tween radio networking and recording technology. The radio networks did
not want to rely on records; they wanted to distribute their programs live.
The radio signal degraded significantly after short distances, and AT&T sup-
plied the telephone lines that would allow radio programs to be carried long
distances. The cost of leasing these lines from AT&T was very high, and the
telephone executives realized that this was the best way to make money from
the emerging radio industry. They got out of owning stations and networks in
order to lease their lines to other networks such as NBC and its upstart rival,
the Columbia Broadcasting System (CBS).
Despite the high cost of leasing lines and other expenses, NBC was prof-
V E N I , V I D I , V I D E O

52 itable by 1928. CBS also quickly earned profits and both were the boom
growth companies of the period despite the onset of the Great Depression. In
contrast, the record industry was deteriorating as more people decided to lis-
ten to the music on the radio. From 1923 to 1925, record sales fell by almost
50 percent, from $238 million to $125 million. They were already weak when
the economic downturn set in; sales had almost disappeared by 1931, down
to $17 million.7 One survey done at that time found that in North Carolina,
many people kept the radio on all the time, and that the Victrola (record
player) only got used when the radio static was too harsh.8 Radio proved se-
ductive. It was “free” and it had a large selection of music. It also had a tech-
nically superior quality since the equipment provided a wider range of sound
than the records, although, as surveyors noted, the static was a weakness.
As a result of the record crisis, RCA bought Victor, the largest record com-
pany, in 1929. Victor had suffered as the phonograph market softened with
the advent of radio as a mass medium. RCA’s primary motivation was to ac-
quire more manufacturing plants, such as Victor’s facilities in Camden, New
Jersey, and to take advantage of Victor’s distribution system in order to sell
radio sets. RCA was not concerned with the record business or with improv-
ing the technology of recording sound. Recording scholars lamented that “the
management of RCA had no real interest in the talking machine.” 9 After the
purchase, RCA changed over Victor’s Camden factory to make radio sets, with
some activity in manufacturing combination sets of radio and record players.
RCA’s lack of interest in the declining consumer record market paralleled
NBC’s hostility toward the use of records on the radio. The explanation of
network hostility toward records goes beyond the record market decline,
however. The national networks possessed power for two reasons. The first
was the rather straightforward fact that NBC and CBS owned the best radio
stations in the largest cities. The second was their ability to deliver a national
audience to the advertisers. The networks are not content distributors in the
same way that film studios are content distributors. The networks are audi-
ence distributors, selling listeners to the advertisers. This understanding
helps us pinpoint some of the key differences between the broadcast indus-
try and other cultural distributors. For example, during the interwar years of
radio, advertisers originated and produced many shows for their clients
directly. They did not just buy time for advertising, they bought the entire
fifteen- or thirty-minute network time block. Therefore, advertisers and their
agencies often had the leverage to demand when their show should be aired.
the development of video recording

Network programmers were only relayers. Their power came from their 53
power over radio stations. If advertisers started to contact radio stations di-
rectly, they would need the networks less. However, the networks had the su-
perior equipment and the AT&T lines.
NBC and CBS executives did not hesitate to disparage the alternative
means of circulating radio shows, which was by making records and send-
ing these records out to the individual stations. This campaign was directed
mostly against the use of popular music records. Merlin H. Aylesworth, the
president of NBC, expressed this attitude in 1930. He regretted that stations
were using records out of economic considerations and stated: “If radio is to
become a self-winding phonograph, it would be better to discard radio en-
tirely and go back to buying phonographs and records than to waste the all
too few wave lengths available for living speakers.” 10 Hostility of networks
was measured by the stigma that came to be attached to recorded programs.
Eric Barnouw notes that the term “transcriptions” was substituted for “re-
cordings” in order to avoid the stigma.11 Despite technical improvements, the
stigma remained. As late as 1946 the Federal Communications Commission
was writing: “Through the years the phonograph record, and to a lesser ex-
tent the transcription, have been considered inferior program sources.” 12
There was some improvement of recordings and several obscure experi-
ments with magnetic tape before World War II. Lee DeForest’s invention of
the “audion” tube in 1913 initiated electronic amplification of sound. West-
ern Electric, a subsidiary of AT&T, bought his patent. Eleven years later, in
1924, Bell Laboratories, owned by AT&T, unveiled electrical recording. Elec-
tronic amplifiers improved both the sensitivity of the recording microphone
and the amplitude of the playback. These improvements were part of the
technological campaign that resulted in sound film, which became an instant
smash hit with the public in 1927. Electronically amplified record players
were adopted at a slow pace, with a modest impact on the market.
Magnetic recording developed at an even slower rate. An American, Ober-
lin Smith, published a suggestion for this method for recording in 1888.13
In 1898, the father of magnetic recording, Vladimir Poulsen, a Danish sci-
entist, built a prototype, the “telegraphone,” that recorded varying mag-
netic impulses on a piece of steel to convert sound into electricity and back
again. He demonstrated it at the 1900 Paris International Exhibition. This
exhibition brought the method to the attention of AT&T executives. Poulsen
started manufacturing telegraphones in Europe and the United States, but
V E N I , V I D I , V I D E O

54 prospects were poor and he shifted his attentions to radio improvements. U.S.
research and development into magnetic recordings was sporadic and short-
lived. Bell Laboratories did devote some resources to investigating the use
of magnetic recording for a telephone-answering device. By 1937, executives
had decided to suspend these efforts. There is no written evidence that
Bell feared that the use of magnetic recordings would bypass the distribution
of radio programs over telephone lines. Historian Mark Clark has found in-
ternal memos indicating that AT&T suspended the magnetic recording pro-
gram because it might have sparked consumer fears over the privacy of phone
conversations.14
Whereas Bell Laboratories lost interest in alternate recording techniques,
the radio engineers never had any to begin with. Radio transcriptions were a
cheap fix to be used as “bridge” music on the radio, as a source of secondary
radio programming, and to distribute prerecorded advertising. CBS and NBC
engaged in the business of producing and selling transcriptions to radio sta-
tions. In 1938, RCA controlled 26 percent of the transcription business.15
Barnouw describes network control of the transcription business as a pre-
emptive move against competitive uses of recordings. He writes that the net-
works “virtually controlled the phonograph field and through it the making
of transcriptions. Transcribed programs were potential rivals to network pro-
grams; control could inhibit such competition.” 16 Although both CBS and
RCA owned record companies (Columbia and RCA Victor, respectively), they
did little to further recording technology until 1946.
From the start, European radio favored the use of recordings to a much
greater degree than American broadcasters. It is thus not surprising that work
on magnetic recorders continued on the continent while it stagnated in the
United States. Austrian and German inventors were able to improve the mag-
netic recorder in the 1930s. Fritz Pfleumer invented a process for coating pa-
per tape with magnetic powder, which became the basis for modern magnetic
recording. American engineers, unaware of these developments, became puz-
zled as they monitored German radio during World War II. The Americans
noticed that the same recitals were broadcast on different days. These recitals
must have been recorded. However, their duration was longer than the ca-
pacity of the familiar disc transcriptions. The secret was not discovered until
the occupation of Germany, when the U.S. military uncovered long-playing
magnetic tape recorders at German radio stations.17
After the war, the U.S. broadcast industry became more accepting of the
the development of video recording

development and use of professional recordings, both for record sales and for 55
broadcast purposes. They wanted to do more to expand their consumer rec-
ord divisions to capture postwar leisure dollars. CBS’ Columbia Records
financed Peter Goldmark’s successful effort to create higher fidelity records
with longer playing time by using 12-inch vinyl platters, introducing the
resulting “LP” to the market in 1948. RCA quickly followed with its new
45-rpm disc.
The use of records for broadcast purposes also started to gain wider ac-
ceptance, although NBC continued to resist. In 1947, singing star Bing Crosby
failed once again to convince Sarnoff and NBC to record his radio program
and to use the recording for retransmission. He was tired of having to do the
show twice, once for the east coast time zone and again for the western time
zone. Crosby was also tired of the general’s anti-recording bias. He switched
to another network, the American Broadcasting Company (ABC),18 and an-
other sponsor that year. ABC allowed the show to be transcribed onto record-
ing discs. Although audience members complained, detecting the loss of qual-
ity due to the transcription, Crosby was not about to give up and return to the
daily grind of dual performances. In June 1947 he had attended a demon-
stration of the war-confiscated German tape recorder “Magnetophon” in San
Francisco. The singer decided to take a chance and adopted tape technology
for his show.19 At the same time, he invested in a small California electronics
firm, Ampex, because it was engaged in improving magnetic recording tech-
nology.20 Crosby’s gamble paid off. With the improved sound, the complain-
ing subsided, and Ampex was soon a major player in magnetic recording.
Crosby turned out to be prescient because television changed everything.
As the networks switched their attention and their most popular shows from
radio to television, radio stations had to adopt new survival techniques. They
relied heavily on programs featuring music records. The higher fidelity of the
new LPs and 45s eliminated sound quality complaints. The new record for-
mats were part of a sea change in American leisure habits and a new focus on
home entertainment. The new acceptance of using recordings in radio would
now work itself into television, but not without a detour.

Television and Recording

It is a truism in media history that new media pioneers promote their systems
with reference to other media that the public already knows. Sometimes it is
V E N I , V I D I , V I D E O

56 a positive reference, as in this new “x” does it bigger and better than the pre-
vious “y.” Just as often it is a negative one: “x” does what “y” could never
hope to do. Early television pundits used both strategies. They proclaimed
television as a positive improvement over radio since it added picture to
sound. They also compared television positively to film by noting that the
new medium brought moving pictures into the home. More often, they made
a negative reference to what the movies could not do that television could.
The proudest claim that television executives, from Paley and Sarnoff at the
top through the middle- and low-level ranks, made was that television was
“live.” The viewer received the representation of the event in the very in-
stance that the event transpired. In 1937, Paley predicted that TV would be
most interesting when it presented current events as they happened. A de-
cade later, David Sarnoff was less specific on the charms of the new medium
but was equally sure that they would be unique:

A first-class radio program is unlike any theatrical or motion-picture

presentation. It is a new thing in the world. Similarly, it is quite likely
that television drama will develop in novel directions, using the best of
the theater and motion pictures, and building a new art-form based on
these.21

In 1949, Hollywood executives became very interested in rumors that

Sarnoff had met with Nicholas Schenck, the head of MGM studios, to discuss
a partnership.22 They wondered if the general wanted to fill the NBC sched-
ule with filmed programs rather than the live shows coming out of New York.
Perhaps he had learned his lesson from Crosby’s desertion two years previ-
ously. In actuality, nothing happened and Sarnoff continued to openly sup-
port NBC’s president Sylvester “Pat” Weaver’s strategy of programming as
much live material as possible.
The general rule of thumb in the late 1940s and early 1950s was that live
shows were cheaper than filmed shows. Film had the considerable cost of film
stock, laboratory processing, editing, and printing. In addition, the use of a
film camera necessitates lighting and production techniques that were more
expensive than the equipment needed for a live show. As late as 1955, a live
“upscale” hour-long drama was budgeted at $45,000; its filmed equivalent
ran to $125,000.23 In order to match or undercut the budget of live shows, in-
dependent film producers improvised low-budget techniques.
the development of video recording

Film gained a permanent advantage when an after-market developed in 57

the mid-1950s. In 1951 the I Love Lucy show was filmed rather than broad-
cast live. The network now had the possibility of using reruns during sum-
mer, the off-season. The production company, Desilu, made the film process
pay for itself when it started reselling the episodes after the network run. In
1955, the British government allowed the development of commercial televi-
sion in Great Britain, after an intense lobbying campaign by advertising in-
terests. Other countries expanded their television services and were desper-
ate for a source of programming. American producers started to export their
filmed programming. In the U.S., there was also a continuing hunger for pro-
gramming, even of shows that already been aired. Film producers easily syn-
dicated their shows to individual stations after a network airing. The network
interest in the after-market for television shows became substantial and cor-
responded to decreasing network interest in nonrecorded live shows. This
was a sea change in broadcasting. However, the networks were interested in
a cheaper electronic recording alternative to film.
Back in the 1920s, several inventors realized that some kind of scanning
process could generate the electrical impulses appropriate for broadcasting
and recording the image. John Logie Baird (1888–1946), a British inventor,
recorded electronic images on a videodisc in 1928. He sold discs to a curious
public for seven shillings apiece. One surviving copy is now on display at the
New York Museum of Broadcast as an archaeological curiosity (it cannot be
deciphered).24 Baird’s mechanical system was an inventor’s dead end, since
it produced a very poor image. The entire approach was abandoned when
Philo T. Farnsworth (1906 –1971) invented the “image dissector,” which used
electronic scanning. Farnsworth’s machine vastly improved the transmitted
image. At the same time it complicated the problem of recording. A stopgap
solution known as the kinescoping process allowed films to be made off the
image on the TV monitor. The resulting photographic image was high in con-
trast and suffered other degradations in image quality. Nonetheless, it was
used extensively in retransmissions of television shows before the develop-
ment of coast-to-coast co-axial lines by AT&T in 1951 and afterward by net-
works and stations that did not have access to the lines. Even the major net-
works relied on kinescoping for syndication and reruns in the early fifties.
Broadcasters still promoted the excitement of live television, even as their
hostility to recordings lessened. The tremendous popularity of television
secured network power. Advertising revenue levels were rising to the point
V E N I , V I D I , V I D E O

58 where filming scripted television shows had become profitable. Profits would
rise even further if engineers could come up with a cheaper, more flexible
method of recording. By 1951, General Sarnoff had a vision of the economic
advantage of video recording. He could anticipate several advantages to re-
cording electronically over filming. The electronic recording would eliminate
kinescoping. The electronic recording would not need developing or other
processing. There would be no need for chemicals. Video recording would be
available for instant use, particularly for popular sports broadcasts. Sarnoff
could also anticipate that the preservation of the image as electronic data
would facilitate creative uses of the image that were difficult and laborious
when the image was manipulated as a photograph in film technology.
When Sarnoff urged his staff to go forward and invent video recording, we
are not sure if it was only for professional broadcast purposes. Perhaps the
general was also anticipating home usage. Business historian Margaret Gra-
ham speculates that RCA’s interest in video always had a consumer compo-
nent. In 1939, Sarnoff already had “a picture of a population which may in-
creasingly center its interest once more in the home; a population with ample
leisure time . . . in individual small houses which they will be able to afford
because of the development of low-cost construction and increased in-
come.” 25 He had taken a visionary risk by directing RCA to put $50 million
into the research and development of television in the 1930s and 1940s, gam-
bling on its successful adoption in the postwar years. RCA won twice in the
success of TV— in the sale of TV sets and in the increased profits of NBC. This
success could be amplified by an increasing stream of new products. By 1950,
Sarnoff was actively promoting color television, though it would still be an-
other decade before color TV sets earned significant profits. The general lav-
ished more and more resources on the different RCA laboratories and even
allowed the Princeton facility to explore projects without an immediate goal.
He was encouraging RCA to continue to introduce new products and to main-
tain its manufacturing momentum after the maturity of the television mar-
ket. Perhaps the videograph would be another consumer item.
Graham wonders whether RCA’s home video system was “the fulfillment
of a promise RCA made long ago to its public. In a sense it was the product
that David Sarnoff . . . had imagined would free television viewers from com-
mercial broadcasting, the part of the entertainment electronics industry he
himself had helped to create but had long despised.” 26 In contrast to CBS’
the development of video recording

William Paley (running his operation five blocks away), Sarnoff never fully 59
embraced the commercial support of broadcasting. His interests, as head of
RCA, were in manufacturing and selling the technology of the future, not in
serving as America’s pitchman. The general may have anticipated that video
would redirect television away from its worst excesses. Graham’s speculation
introduces a continuing theme in the development of video: giving control
back to the audience. This theme was reintroduced in the 1970s, when Akio
Morita at Sony and Kenjiro Takayanagi of JVC openly articulated video re-
cording as a corrective to commercial television.
We will never fully know Sarnoff’s motivations for the videograph. But we
do know that he was frustrated in his desire for RCA to be first. After Sarnoff ’s
1951 announcement, the still-tiny company Ampex, having profited in the
field of audio recording, plunged into a video research program that par-
alleled RCA’s. Direct application of audio recording techniques led to cum-
bersome and unworkable tape lengths since video information was so much
greater than audio information. Ampex solved this problem by recording di-
agonally on the tape with spinning recording heads, rather than vertically.
The company was able to introduce a practical video recorder at the National
Association of Broadcasters’ conference in 1956. RCA was chagrined not to
be first, but it was not standing still, either. RCA’s own research led to the
development of color video recordings in 1959, and so both companies con-
trolled vital patents to the emerging video technology. The first video ma-
chines cost over $50,000 and were large units suitable only for studio work.
The early video did not lend itself to editing. Its use was initially confined to
tape-delayed broadcasts. A string of inventions improved the video recorder
to the point where it could take on more production functions. For instance,
in 1965 CBS used a magnetic disc machine built by Magnetic Video Record-
ing to provide stop action and instant replay during football games.27
By 1960, many research and development teams were actively exploring
the possibility of building video machines for the consumer. I group the var-
ious approaches to home video into two technological categories. The first
group is those technologies that did not feature home recording capabilities.
This promised several advantages to the manufacturers of these systems. They
could enjoy dual revenue streams, from the playback machines and from the
discs and tapes that provided the content for those machines. They could
more easily negotiate with content providers (such as the film studios) since
V E N I , V I D I , V I D E O

60 these providers did not have to worry about unauthorized home recordings
of their products. Of course, these advantages could only develop if a large
enough market adopted the system. American manufacturers, by and large,
decided to offer the consumer playback-only machines without a recording
capability.
The second group consists of the home recorders, a Japanese effort. Eu-
ropean manufacturers explored both options but did not succeed with either.
The most successful television manufacturer, RCA, hesitated through the
critical 1960s decade. It explored both playback-only and recording systems
for awhile, and only in the late 1970s did it opt for the former.

Home Video 1: Playback-only Systems

evr

Peter Goldmark at CBS was looking around for the next great thing after his
triumphant invention of the long-playing record. He decided to initiate one
of the earliest video projects for the consumer market. In 1960, he asked Pa-
ley and the leadership of CBS for $75,000 to develop a way of recording onto
miniaturized film for the purposes of home playback.28 Paley was the first
man in America to demonstrate a clear understanding of the logic of selling
broadcast audiences to advertisers. He had refined the whole business of
affiliating stations with the network in a way that allowed a small upstart,
CBS, to challenge the NBC leviathan. In order to stay ahead, NBC was forced
to imitate his tactics. Now well into the television age, Paley had pushed CBS
into the number one spot, beating out NBC and the perennially weak sister,
ABC. He listened to Goldmark with intense skepticism. He already had doubts
about the man, and he certainly did not understand why CBS should finance
a machine that would give an alternative for the time viewers already devoted
to watching CBS.
Goldmark went away empty-handed, but he kept the project going by re-
ceiving an exploratory grant from the U.S. military. In 1964, he approached
his superiors again with the playback unit, now labeled as electronic video
recording (EVR).29 Frank Stanton, president of CBS, supported the project
and overcame Paley’s objection by framing the device as a tool for schools
and other educational purposes. The EVR was unveiled to a sympathetic
press in 1968.30 But the transition from prototype to manufacturing was too
difficult for the delicate system. By 1970 CBS had sunk $14 million into EVR
the development of video recording

and it still was not suitable for the market. Two years later Paley killed the 61
project.
EVR was the first high-profile home video unit, and it stimulated key in-
stitutional players to think through the logic of their positions regarding the
consumer application of such technology. Paley had gone back and forth on
his support of the EVR, since neither did he want to miss a potential money-
maker nor did he want to destabilize network dominance of the television re-
ceiver. At this stage, Paley’s concern was whether the TV set should be used
for anything else but the display of broadcast shows. His ambivalence caused
him to call off research before the EVR received a market test. His decision
was correct. Subsequent players would find out that the development of home
video required tremendous investments, and even the most tenacious pro-
gram did not result in commensurate success. CBS got off with relatively light
losses. Paley would get back in the game when home video was an extant
technology, this time not as a manufacturer but as a distributor, when he
signed a deal with Twentieth Century Fox in 1982.
Jack Gould, an influential critic for the New York Times, had become ex-
cited over the possibilities of home playback systems for the very same rea-
sons that made Paley hesitate. He had been an early vocal supporter of live
drama on television. His columns were increasingly hostile as the networks
turned toward filmed television shows and away from innovations. For Gould,
television had become what Newton Minow famously called that “vast waste-
land.” But what technology imposed, more technology could possibly cure.
The EVR promised a new positive use of the TV set. Gould wrote in 1967, “By
far the most interesting aspect of the innovation is its promise to introduce
into the television medium the element of individual selectivity that up to
now has been lacking.” 31 He even anticipated that educational and other new
programming would be created for the playback system and would be avail-
able through rental.32 A video machine would finally break the monotonous
pattern of television. It would redeem it from the wasteland. But salvation
had to wait, and enthusiasm began to wane as technical difficulties continued
to plague the system.33
The demise of EVR research and development not only dashed hopes for
TV redemption, it also forestalled any attempts by a television network to
provide programming for the home machine. Other manufacturers would
have to find their own source of video programming. The next system did try
to come to grips with these issues, but not in a satisfactory way.
V E N I , V I D I , V I D E O

62
cartrivision

The Cartrivision video system was an interesting American hybrid of a

record/playback unit, introduced to the marketplace for a brief year in 1972.
It was a magnetic video recorder/player that substantially looked and per-
formed like the future VCR. Its developers took the software question seri-
ously and designed Cartrivision to give program providers, particularly the
film studios, maximum control of sales and rentals. In retrospect, Cartrivision
executives wondered whether the anti-piracy design might have actually con-
tributed to market failure.34
Playtape, Inc., the developers of Cartrivision, formed a company called
Cartridge Television, Inc. (CTI). They went to obtain both manufacturing
and cash support from Avco Industries. Avco was diversifying from its aero-
military background by acquiring an insurance company, real estate, and
several entertainment companies, including television stations and Avco Em-
bassy, primarily a distributor of independent motion pictures, but also a pro-
ducer. Avco executives agreed to supply cash to manufacture the system. In
exchange, Avco received 32 percent ownership of CTI.
CTI wished to market Cartrivision both as a recorder and as a playback
unit for prerecorded movies. In order to get the rights to Hollywood movies
and to maintain control over prerecorded tapes, Avco manufactured two
different tapes: an ordinary cartridge for recording and playback and a non-
rewindable red-coded cartridge for viewing a prerecorded movie once. After
the viewing was complete, the consumer would return the cartridge to a
rental dealership. On this basis, several studios made their product available,
and Columbia Pictures became an actual partner in the rental network. The
non-rewind function led to consumer complaints. In addition, rental dealer-
ships were hard to line up.
The system was a marketplace failure. Cartrivision suffered fatally from
being introduced before engineers and distributors had worked out the tech-
nical and marketing flaws. Customers lost patience. Before these flaws had a
chance of being reduced to less than disastrous proportions, Avco decided to
stop funding, and CTI went into Chapter XI bankruptcy in June 1973. It was
never revived, and Avco wrote off $48 million.35 Avco soon lost interest en-
tirely in the entertainment sector and sold off the broadcasting stations and
record company in 1975–1976. It sold off the film distribution /production
the development of video recording

arm in 1981. One spinoff, Embassy Pictures, was destined to have an inter- 63
esting afterlife as a video distributor and producer.

ted

The German company Telefunken and the British Decca were the first to in-
troduce a disc system, in March 1975. Their technology was an application
of phonograph technology to the reproduction of images. The disc resembled
a long-playing record with grooves cut into it, and the machine featured
a needle that rode up and down in the grooves. Of course there were many
modifications, since the amount of information needed for visual reproduc-
tion was several magnitudes greater than that for audio. Instead of audio’s
331⁄ 3 rpm, the TeD (Television Disc) speeded up to 1,500 rpm. The TeD never
was able to give more than ten minutes worth of playing time per disc. Tele-
funken and Decca were never able to get much programming for the system.
They brought it to the market, but it was rated a failure after a year of slug-
gish sales.

discovision

One major Hollywood studio, MCA, the owner of Universal Studios, entered
the home entertainment market with its own disc technology, three years af-
ter TeD. This technology was not based on magnetic recording or on needle
vibrations, but on laser technology that recorded an electrical pattern on
photosensitive emulsion sandwiched in a plastic disc. Retrieval of these pat-
terns by a playback unit was translated into a video image on the TV screen.
MCA publicly demonstrated the laser system at the end of 1972, dubbing it
“DiscoVision.” 36 This technology paralleled similar research being con-
ducted by Philips, the giant Dutch electronics firm. The two companies
formed a partnership in September 1974. Philips would manufacture and dis-
tribute players, while MCA would manufacture and distribute the software.
MCA continued to search for a disc manufacturing partner and even ap-
proached Sony.37 However, by this time Sony had introduced its own Beta-
max magnetic video recorder and was already defending itself against an
MCA lawsuit. It did not appreciate the irony of an alliance with a legal ad-
versary. MCA eventually found two partners: Pioneer of Japan in early 1978
V E N I , V I D I , V I D E O

64 and IBM in September 1979. The film trade journal Variety reported the ru-
mor that IBM invested $70 million. If this was true, MCA had neatly recouped
its own research and development costs.38 The MCA /Philips laser disc player
was brought to the market in 1978, selling at $695 per player, and MCA priced
discs in a range from $6 to $16.
The manufacturing of laser discs was a very delicate affair and the Carson,
California plant had an excessively high rate of rejected discs. This put pres-
sure on the price, and in 1979 most feature films on laser disc went up in price
to $25.39 Competition from both magnetic recorders and another incompat-
ible disc system introduced by RCA in March 1981 slowed sales and elimi-
nated profits. Among the various maneuvers to counter sluggish sales was a
name switch to “Laservision” in 1980. Although rejection rates improved,
sales did not improve enough, and the MCA /IBM partnership called Disco-
Vision Associates (DVA) closed Carson in February 1982. MCA was out of the
disc business (although it continued to make money from patent royalties).
Philips went on to successfully launch the compact disc for audio playback in
1983, using the same technology with some modification as the laser disc.
Sony’s U-matic (1969) and Betamax (1975) magnetic recorders had al-
ready changed the market by the time Laservision entered the field. These
recorders gave the consumer additional options, and MCA had to compete by
providing satisfactory programming. MCA rejected the cumbersome rental
plan of Cartrivision. Because MCA owned Universal Studios and was a major
owner of films, it was not timid about selling feature films. Universal supplied
almost 25 percent of the initial 202 offerings in the Laservision catalogue.
Paramount, Warner, and Disney also supplied a few feature films but confined
their offerings to shows that had been out for at least six years. The studios
were satisfied that laser technology eliminated home recording (although the
more adventuresome owners could transfer a laser disc to a magnetic tape).
However, this control of content proved to be a double-edged sword. MCA
had to provide enough new titles to inspire the potential Laservision owner
to buy the system. The catalogue might not seem large enough to prospective
adopters.
An interesting drawback for discs was corporate policy on pornography. A
major American corporation such as MCA could not be seen as a smut ped-
dler. Therefore, it refused to transfer X-rated material to laser disc. Since any-
one could set up to record on the VCRs, hard-core and soft-core pornographic
shows soon became available on VHS and Betamax. This gave another edge
the development of video recording

to the competing magnetic recorders. VCR owners were perfectly willing to 65

pay high prices for these shows and to arrange for rental networks that cir-
culated X-rated material.
Pioneer of Japan was left to continue laser disc manufacturing, as it does
to this day. One of the first changes Pioneer introduced after the departure of
MCA in 1982 was to press movies with “X” ratings and eventually even hard-
core titles.40 The company found niche markets for Laservision, which is par-
ticularly popular in East Asia and Japan because of its use in karaoke bars and
clubs.41
The final entry in the first group of playback-only systems was RCA. As the
last arrival, RCA had the full benefit of learning from other companies. It also
had the ultimately insurmountable challenge of competing with a quickly
maturing video recorder market.

selectavision

RCA made a heavy investment in home playback systems that ultimately cul-
minated in its “Selectavision VideoDisc.” In the spring of 1964, the RCA labs
decided to develop a practical and low-cost video recorder that would lead to
a mass market. RCA accelerated its efforts to reach the consumer market
when it heard rumors of CBS’ EVR.42 Meanwhile the original video leader,
General Sarnoff, retired in 1969 and died two years later. The 1960s had been
good, with consumers finally buying color TV en masse. At the end of the de-
cade, after the departure of the general, RCA started to experience its first
major market failures. For example, the success of transistor radio imports
from Japan had alerted RCA to a new generation “on the go” for audio prod-
ucts. They became successfully involved with audio magnetic recorders and
became part of a four-way deal to put eight-track audio cartridges into Ford
and other American cars in 1965. Eight-track had a short but profitable life.
In the 1970s, the eight-track cartridge steadily lost market share to the
audiocassette tape. RCA also overreached with a heavy investment in audio
quadraphonic sound in 1973, a format that appealed only to audiophiles and
that was phased out five years later. The pressure was on to make another
successful consumer item, hopefully a home video system. However, the
video project suffered from the lack of the firm hand of David Sarnoff. There
was now a degree of drift and lack of focus as RCA committed resources to
V E N I , V I D I , V I D E O

66 various magnetic tape recording systems and nonrecording disc systems, in-
cluding both lasers and a capacitance reader.
During the various stops and starts that characterized the separate re-
search programs, RCA executives told their researchers that the company
wanted effective control of the video machine. They wanted distribution of
the machines, and they wanted control of the content to be sold for use in
those machines. This strategy was a traditional component of RCA culture.
For instance, RCA did not introduce pieces of television piecemeal and did
not seek development cooperation from other research teams.43 The com-
pany had been vindicated in its total approach when it introduced and sold a
complete television system ready for average consumer use.
RCA wished to make a similar complete system entry into home enter-
tainment. However, complete system manufacturing was getting out of date,
since competitive electronic development was accelerating on a global basis.
The days when one company sold both the player and the content exclusively
were disappearing. Not only was the competition fiercer, the consumer was
more demanding, particularly about flexibility. Even record players featured
both LP and 45 formats within the same machine. In the realm of video,
RCA’s internal surveys were revealing consumer resistance to playback-only.
In the late sixties, RCA executives could already read focus group summaries
saying that “respondents showed a strong preference for tape over records
because of its recording capability.”
Despite the surveys, executives did not want a consumer video recorder.
The RCA development team could not work out the problems with their re-
cording prototype: Magtape. When Sony was able to demonstrate to the pub-
lic a recorder that was far more advanced than Magtape, internal company
support for developing recorders evaporated. Other executives cited new
studies that showed strong consumer interest in prerecorded material, and
downplayed recording systems.44
The gem of the RCA empire was consumer electronics, and the gem of
consumer electronics was the distribution system. Above all, the company
wished to keep feeding the distribution pipeline. The distribution outlook
colored the marketing outlook. RCA developed the comforting delusion that
the stores would make the added effort to convince their customers that play-
back-only was better than the VCR. They would do so in order to promote
their sale of video records. There was no compelling reason to assume that
the development of video recording

store clerks would have such influence. Nonetheless, this belief sustained 67
RCA’s effort to introduce “Selectavision.”
Delays had stretched the research program for years after General Sar-
noff ’s demise, into the late 1970s. In addition to dropping work on magnetic
tape, RCA also abandoned work on an optical system when the rival Laser-
vision was revealed. By 1978, RCA had problems that they did not have at the
start, particularly the strong presence of actual VCRs in the stores. How
would they regain market advantage against the existing Betamax and VHS?
RCA executives decided to compete on a price and convenience basis. The
VCRs were retailing above $1,000 at this time. RCA established a target price
of $400. RCA focused its efforts on a cheap yet reliable “capacitance” system
that would be stored (similar to but not compatible with Laservision) on a
plastic disc. All programming would have to be manufactured by RCA or its
licensee.
The decisive points of competition for the Selectavision system would be
the RCA distribution network, simplicity of operation, pricing, and finally, a
wide selection of software for the system. In 1968, RCA estimated that an ad-
equate library of software would cost at least $9 million. Within three years
RCA scrapped the original planning as inadequate and announced that it
would devote $50 million to purchase rights to film and other programs.45 By
the time Selectavision was in the final stages, cable, the VCR, and Laservision
had raised the cost of programming further. As an example, in 1981 a pack-
age of eleven James Bond titles was estimated to cost RCA $2 million.46
Nonetheless, RCA, like MCA, rejected advice to put non-mainstream “adult”
material on its discs.
RCA finally began marketing Selectavision in March 1981. VCRs were now
selling above $900. Selectavision was priced at $495 and was further dis-
counted within two months.47 Video recorders started coming down in price
to cut into Selectavision sales (see Table 2.1, column 4). RCA’s huge advertis-
ing campaign did not help Selectavision sales, although it was credited with
raising consumer awareness of the video industry. The other systems were too
well established and Selectavision could not sufficiently distinguish itself.
Dealers complained that the 100 titles RCA was able to provide (priced from
$15 to $28) 48 were not enough for the rollout in an already established mar-
ket. The consensus was that it was too late. RCA struggled on until it closed
Selectavision in April 1984, taking a total loss of $580 million.49
V E N I , V I D I , V I D E O

68 table 2.1 Growth of U.S. Home Video, 1978–1992

Cumulative Average
VCRs U.S. VCRs as wholesale price
Cumulative purchased by percentage of per unit of
manufactured U.S. dealers U.S. TV U.S. VCRs
Year VCRs* (thousands) (thousands) households (dollars)

1978 2,232 402 811

1979 4,431 877 819
1980 8,872 1,682 2.40 771
1981 18,370 3,043 3.10 828
1982 31,504 5,078 5.70 640
1983 50,030 9,169 9.90 528
1984 79,464 16,785 17.60 471
1985 112,108 28,121 27.30 368
1986 148,624 40,126 37.20 331
1987 183,013 51,828 51.70 294
1988 219,970 62,576 62.20 259
1989 257,244 72,336 67.60 270
1990 296,182 82,455 70.20 241
1991 337,009 93,173 73.30 231
1992 371,109 105,502 75.60 239
* The production figures are global totals for U-matic, Betamax, and VHS.
sources: Column 2—Electronic Industries Association of Japan, Facts and Figures on the
Japanese Electronics Industry (Tokyo, 1993). Columns 3 and 5—Electronic Industries Associa-
tion, The U.S. Consumer Electronics Industry in Review (Washington, D.C., 1993). Column 4—
Motion Picture Association of America, U.S. Economic Review (Encino, Calif., 1995).

At least the RCA distributors hedged their bets during the various delays
of Selectavision. Feeding the pipeline was so important that RCA agreed to
distribute the JVC / Matsushita Video Home System (VHS) magnetic recorder
to the U.S. in 1977. This turned out to be quite fortuitous, as Selectavision
flopped. Nonetheless, RCA was demoralized by a string of product failures, of
which Selectavision was the last straw. Within two years, in 1986, General
Electric took over the Radio Corporation of America.
There are several observations to be made about the failure of Selectavi-
sion, Cartrivision, and the weak sales of Laservision. American corporations
had invested in playback-only systems. They were not naïve, as they proved
by arranging to provide software even before their machines went to market.
They were inspired by the thought that they would sell visual products the
the development of video recording

way record companies sell LPs and 45s. However, consumers wanted the 69
greater flexibility of recording their own programs.
The straitened situation of the playback-only manufacturers resulted from
the unique circumstances of the media scene in the United States. The vari-
ous developers had different alliances with program suppliers. MCA owned
Universal, a major film studio. Avco owned a minor one. CBS and RCA owned
broadcast networks. All the American manufacturers operated in an environ-
ment where they were very sensitive to the needs of program suppliers and
copyright owners. Peter Guber, early in his long career as a powerful Holly-
wood producer, articulated the creative community’s feelings when he linked
RCA’s and CBS’ fears of piracy and prime time audience erosion with their
interest in playback-only video.50 American media companies were torn be-
tween their anticipation of a new market and the loss of control of programs.
Magnetic technology had already subverted control in the music industry.
While bootleg vinyl records had been a small-scale problem in the early years
of rock’n’roll, unauthorized taping and selling of illegally copied audiocas-
settes grew along with the adoption of cassette recorders. By 1970, Jack Smith
of Warner–Reprise Records was complaining that tape bootleggers were net-
ting $130 million in U.S. sales.51 His estimate was considered high. In any
case, not all bootlegged tapes displaced legitimate sales. Nonetheless, copy-
right holders were concerned that piracy hovered at around 5 percent of U.S.
recorded music sales. The film community knew that the public played mu-
sic over and over again, whereas they generally went to a movie only once.
But the film community could not predict whether this difference would safe-
guard video from the piracy that was occurring in music. Therefore, there
was a general Hollywood inclination to maintain control and to take a “go-
slow” approach to transferring films from the theater to the home. Film dis-
tributors had become cautious. If they had to change technologies of distri-
bution, they should at least favor a technology that would not bestow
recording capabilities.
But as we have seen, playback technology was not adequate for success in
the American market. Both Japanese and American consumers favored re-
cording machines, and this gave recorders a global advantage since these
countries were the most influential. Playback-only machines might have had
greater success if Northern Europe had been the largest market. In Northern
Europe, audience members wanted machines that expanded program choices
beyond the limited fare offered by their public broadcast systems. They were
V E N I , V I D I , V I D E O

70 less interested in time-shifting than in prerecorded tapes. The Dutch Philips

and the German Telefunken responded with videodisc machines. Philips also
came to the market with a magnetic video machine called the V-2000, and
established a market share in Europe. However, even Northern Europe em-
braced the Betamax / VHS juggernaut as the Japanese firms gained global
ascendancy.

Home Video 2: Japanese Recorder System Development

Many companies decided to try various approaches to home video recording

machines after the Ampex demonstration of 1956. In 1958, the Japanese Min-
istry of International Trade and Industry (MITI) initiated coordinated talks
between various national firms on developing video recording.52 Toshiba im-
proved the video recorder by introducing helical scanning in 1959. Ampex
tried to maintain its invention by pursuing both legal suits and cooperative
agreements with its Japanese competitors. Sony signed one such agreement
and was able to introduce a video recorder in 1961. Ampex did not show the
same sustained interest in the mass market as the Japanese firms, although it
did place a “consumer” recorder on sale in the Neiman Marcus department
store for $30,000 in 1963.53 The Sony/Ampex agreement soon dissolved.
Sony plunged ahead, introducing the first 1⁄ 2-inch recording system in
1965. It was called the Portapack and used open reel tapes that cost $60 for
an hour. The unit itself cost $995; the camera cost another $350 and was only
capable of black-and-white recording. The Portapack was designed for per-
sonal and home taping. Because of this intended usage, it ran into direct com-
petition from the Super 8mm film system that had just been introduced by
Kodak. The familiar technology of photography and the lightweight camera
made Super 8 popular. Despite the advantage of easily marrying sound and
image, the Portapack had limited sales. It was more expensive than Super 8.
It was not very portable due to its backbreaking weight. It was hard to edit,
and its black-and-white image was a further deterrent, as color television had
become standard by this time.
Sony switched to cassette packaging and to color for its next video prod-
uct: the 3⁄ 4-inch cassette U-matic system in 1969. The U-matic was the re-
sult of an agreement between Sony, Matsushita, and its independent subsid-
iary, the Japan Victor Company (JVC), to cooperate on the specifications of
the machine. The price tag of $2,500 in 1969 prohibited many consumer
the development of video recording

sales. Sony succeeded in marketing the unit to broadcasters, some educational 71

and industrial customers. This marked the second stage of the video market.
The market grew slowly and Sony dominated the modest pace of sales. Mat-
sushita and JVC grew to resent Sony’s success, since they were not enjoying
comparable sales. These frustrations would come back to haunt Sony when
Matsushita and JVC decided not to cooperate with Sony on the Betamax in
the third stage of VCR development.
Both JVC and Sony kept trying to expand U-matic sales by positioning it
as a source of entertainment. They hoped that production would be specifi-
cally undertaken for the new video medium, but in the short run they real-
ized that a video system would not be adapted unless preexisting program-
ming was made available. Time–Life, which had a film division at this time,
started marketing cassettes in 1972.54 Sony had some half-hearted talks with
Hollywood studios about licensing their films for the U-matic format, but
these talks were not fruitful.55 Commentators questioned whether customers
would ever buy prerecorded U-matic tapes since the blank tapes alone cost
$12–$26. Sony responded with the idea that the customer reuse the same tape
by bringing it back to a dealer who would erase the original program and
record another selection. However, that system was not implemented. One
development, which undoubtedly Sony was not publicly aware of, was the in-
creasing use of U-matics for pornography arcades. Noel Bloom, working in
California, as well as other operators, found U-matics easier than film loops
to run in these arcades. Bloom’s company would emerge into a major inde-
pendent video distributor in subsequent stages of the VCR.
As Sony kicked around these ideas for video programming, it developed
the idea that a video recorder could be used as a complement to the tele-
vision, as a “time shifter.” The video recorder could be programmed to re-
cord a program from the television when the owner was not present. The
owner would then possess the recorded program and could play it back at a
more convenient time. Sony decided to introduce this novel feature in a new
1
⁄ 2-inch version of the U-matic recorder, to be called the Betamax.

sony and betamax

The corporate culture at Sony was conducive to the relentless search for a
video mass market (the third stage of VCR development). The company was
founded in the aftermath of World War II as a newcomer seeking a foothold
V E N I , V I D I , V I D E O

72 in the devastated Japanese electronics industry. Sony gained strength by con-

centrating on the consumer market, particularly by emphasizing miniatur-
ization. Its first product was a small audiotape recorder. It was so cheap that
the tape was made from paper. It went on to achieve global prominence with
the transistor radio. After this breakthrough the company accelerated. By the
time of the video developments of the sixties, it had captured substantial mar-
ket shares in color and portable television set sales.
Sony’s very definite ideas about how to pursue the consumer market were
articulated by its spokesperson and leader, Akio Morita, in his autobiography:

In the fifties and sixties, popular programs in the United States and
later in Japan caused people to change their schedules. People would
hate to miss their favorite shows. I noticed how the TV networks had
total control over people’s lives and I felt that people should have the
option of seeing a program when they chose.56

Engineers at Sony’s rival, Japan Victor Company, also cited dissatisfaction

with the control of monopolistic television programming as inspiration for
their video systems. At JVC, the senior engineer was an early television in-
ventor, Kenjiro Takayanagi. He regretted the path that television had taken
and disliked network broadcasting. Although he had little to do with the day-
to-day development of JVC’s recorder, his insistence that the consumer be
able to record his or her own images drove JVC’s consumer video recording
engineering.57
Sony went ahead to create the Betamax. They basically shrank the U-matic
down to a 1⁄ 2-inch format. Morita was convinced that a key to success was
a cassette the size of a pocketbook. This cassette could hold about one hour’s
worth of recordings. Sony sought the same cooperation from Matsushita and
JVC that the three companies had had on the 3⁄ 4-inch VCR, but they were
not forthcoming. JVC plunged ahead in a deliberately competitive develop-
ment project that it called “VHS,” for “video home system.” Under pressure
from JVC, Sony increased the capacity of the Betamax cassette tape to two
hours to try to win the format battle. Matsushita, the largest Japanese elec-
tronics firm, nonetheless decided to back JVC’s VHS. It was now a for-
mat war.
Sony went to the market first, introducing the Betamax to the world in
1975. It sold 55,000 Betamax units to American dealers in 1976 with a $1,300
the development of video recording

suggested retail price. But VHS was breathing down its neck. Matsushita 73
sought out a powerful U.S. distributor and went into talks with RCA. RCA had
previously rejected a Sony offer because Sony refused to let RCA put its name
on the machines and because Sony wanted too much money.58 Matsushita
was flexible on both points and, in turn, RCA made a small suggestion that
turned out to make a key difference. Since time shifting was the selling point
and a major consumer frustration was the inability to watch sports games in
their entirety at scheduled times, why not adjust the machine accordingly?
RCA told Matsushita that a four-hour tape would nicely cover the length of
a televised football game.59 Matsushita went back to JVC, which obliged with
a four-hour VHS cassette. In 1977, RCA started marketing the VHS in the
U.S. at a price $300 less than the Betamax. Other distributors handled the
global rollout of the VHS in that year.
Although Zenith, the U.S. distributor of Betamax, quickly matched the
price cut, Sony had lost market dominance in both the U.S. and worldwide to
VHS by 1978. In that year 402,000 VCR units were sold to U.S. dealers. There
were 1,470,000 units manufactured in Japan. At this point, the struggle be-
tween VHS and Betamax was waged by distribution strengths and the per-
ceived value of VHS’s four-hour tape length. Betamax still had a viable mar-
ket share. The introduction of Laservision in 1978 led to further decline in
prices for both VCR formats. Laservision tried to compete based on price,
availability of feature films, better freeze frames, and random access, but the
lack of recording was decisive. VCR prices started to creep up again because
of pressure on the Japanese yen, but the 1981 rollout of Selectavision forced
another wave of price slashing for the VCR in the following year.
Sony had successfully introduced the video machine to consumers all over
the world, initiating the third stage of home video. Sony had made the break-
through for video when it became the first manufacturer to make the time-
shifting function the central focus of its promotion campaign. Morita claims
that the term “time shifting” was his own coinage. Was Sony the very first to
realize that time shifting would motivate consumer video sales? Philips had
announced in 1971 that it would install a timer in its recorder to facilitate
such usage. Even earlier, Cartrivision had the capability of recording broad-
casts off the air. However, these companies only mentioned recording broad-
cast shows as one feature among many. When Sony introduced the Betamax
in 1975, Morita made sure that “time shifting” was prominently featured in
a hard-hitting advertising campaign.
V E N I , V I D I , V I D E O

74 However, Sony’s success was not complete. The format war between Beta-
max and VHS became a “winner take all” situation, and its aftermath haunted
the electronics landscape in the following decades. The media industry had
seen format competition before, such as in recorded music between Edison’s
waxed cylinder and Berliner’s disc in the first part of the century and between
45s and LPs more recently. In the first case, the two formats managed to
coexist profitably for a least a decade. In the latter case, the formats were
more complementary than competitive. Video formats, on the other hand,
had great trouble coexisting. The Betamax survived only as a professional
tool, while the laser disc never rose to even 6 percent of the VCR market (in
either machine or content sales) for any year from 1978 through 1993.
The popular media portrayed Sony as a loser in the Betamax / VHS fight,
although the irony is that Betamax helped the company immensely. Sony’s
video profits were considerable. For example, VCR sales contributed 41 per-
cent of Sony’s 1981 earnings.60 The video revenue financed the company’s
dominance in portable cassette players (“Walkman”) and compact audio discs
markets through the 1980s. Despite the profits, Sony decided Betamax was
no longer viable after about eight years. The last growth year for both Beta-
max and VHS was 1984. By the end of that year, 68 million households in
the world had either one or the other format.61 Together, both formats
earned $8.8 billion that year.62 However, Sony’s share was only one-fifth of
the market.63
In 1985 Sony started cutting back and phasing out production of the Be-
tamax. By 1988, mass manufacturing of the Betamax had stopped, although
it continued for professional and semiprofessional uses. The conventional
wisdom was that Sony would not be able to find a stable market and coexist,
but would face sales that would soon dwindle to nothing. This was not be-
cause of inherent qualities of the machine. After the initial period, Betamax
could match the VHS features on length, price, and so forth, and many ex-
perts argued the Betamax was superior in technical qualities, particularly
image reproduction.
VHS took over the entire market when the purchase and rental of prere-
corded tapes became as important if not more important than recording pro-
grams off the television. Sony tried to license unique prerecorded programs
for the Betamax format such as music videos (see Chapter 4), but this effort
was meaningless. New purchasers would naturally select the format that gave
them the widest access to prerecorded tapes in addition to time shifting. Be-
the development of video recording

cause VHS was already the biggest, all new programs were sure to be offered 75
in that format, while only the companies that could afford additional Beta-
max duplication would bother to do so. The customer therefore chose the
VHS system on the basis of external considerations, not intrinsic ones. This
type of competition is called “network externalities.” It defines the fourth
phase of the home video revolution. The fear of “network” competition has
shaped new media products since the 1970s. The VHS–Betamax format war
was the last one fought out in the marketplace. Manufacturers have sought
industry-wide cooperation on every audio and video innovation offered
since. Network competition continues to be a determining factor in computer
software economics.
The history of home video technology was a succession of cultural shifts
that started with the abandonment of network hostility toward recording
technology. Gould, Goldmark, and perhaps Sarnoff had early visions of home
video as an extension of and a corrective for television programming. Another
vision was of home video as an extension of the movie theater, and this mo-
tivated Laservision, Selectavision, and Cartrivision. However, Akio Morita of
Sony and Kenjiro Takayanagi of JVC stayed with the original idea that home
video would sell on the mass market as an extension of television. Nonethe-
less, the competition between Betamax and VHS was decided on the basis of
video as an extension of the movie theater.
This technological history raises legitimate questions about the audience’s
evolution. Why did affluent classes, in America and throughout the world,
pick the VCR over its rivals? It seems that the audience demanded video as
both a TV extender and as a movie player. They were driving the media con-
vergence between film and television. This opened up new institutional op-
portunities. In the next chapter, we will look at the possible sociological ex-
planation for audience preferences and the slow response of the film industry
to the audience desire to rent prerecorded videocassettes.
 C H A P T E R T H R E E

Home Video:
The Early Years

The success of the VHS was a revelation about the evolving U.S. audience.
Unfortunately for several corporations, U.S. executives did not accurately
predict audience response to the VHS. For example, RCA executives swapped
contradictory or inconclusive focus group summaries as they tried to build a
consensus for the playback-only Selectavision. The fact that they dismissed
some summaries as inconclusive shows how hard it is to know the audience
before the fact. As it turned out, the audience embraced the VHS despite con-
trary predictions. Indeed, the development and eventual success of the VHS
provides as good a controlled experiment as is possible in media history. Af-
ter all, VHS and Selectavision both shared the same mighty RCA distribution
system within the U.S. If there was any hometown advantage, it should have
favored the American playback-only machines. Yet, the recording machines
won out.
The media historian is obliged to ask why one technology was favored by
the public despite institutional backing for another technology. The answer
lies with the evolving behavior of the audience. American viewers had been
watching television for two decades. Their global counterparts had been do-
ing so almost as long. After two decades they were willing to spend money in
order to get beyond the mere passive viewing of whatever was on the set when
they turned it on. They wanted to be able to choose when to see the program,
where to see the program, and/or which program to see. The consumer’s will-
ingness to buy a technology of “choices” was undoubtedly driven by changes
emerging as the affluent classes struggled to maintain their increasingly sub-
urban lifestyles. In other words, broad macrosociological factors tipped the
format competition in favor of the VCR. The most important of these factors
home video

was and continues to be “harried” leisure, a function of changing work and 77

family schedules as the labor force grew.

Choice, “Harried” Leisure, and New Technologies

There are two arguments that link harried leisure and choice. The harried
leisure phenomenon emerged in most affluent countries during the last two
decades of the twentieth century. The emphasis on consumer choice coin-
cided with a rise in the perception that even prosperous America was losing
its battle for more free time. Indeed in the late sixties, economists Gary
Becker and Staffan Linder argued that consumer choice contributes to time
loss. Linder coined the term “harried leisure” to denote the time squeeze
caused by rising affluence.1 There were too many interesting activities com-
peting for the few hours of leisure one had each week. People felt that their
leisure was stressed because they had too many toys to play with. At this point,
harried leisure was a problem of abundance, not of shrinking time.
Juliet Schor makes another argument linking choice to lost leisure time by
turning the Becker/ Linder thesis on its head. It is not that we have too many
“toys” to play with. It is that we spend too many hours working in order to af-
ford to buy the toys. We are working more than ever because we feel obliged
to keep up our seemingly “affluent” consumerist lifestyle. Our notion of af-
fluence becomes self-defeating since we have sacrificed our time and health
in order to achieve it. She states that in the U.S. the average number of hours
spent at work have been increasing since 1969.2
This is an oversimplification of her argument. There are several reasons
(in addition to buying leisure technology) for more people working longer
hours since 1969. The American and other leading economies had to read-
just to successive shocks of the early 1970s such as oil price hikes and rising
inflation. The most radical readjustment was the growth in the number of
families with two working parents. For these and associated reasons, leisure
time became a precious commodity.
The percentage of Americans working increased by slightly more than
one-fifth from 1960 to 1985. The most dramatic change in leisure was the ris-
ing percentage of women working in the paid labor force. It had been rising
since 1950 and accelerated after 1960. Table 3.1 shows that between 1960 and
V E N I , V I D I , V I D E O

78 table 3.1 Trends for Women in U.S. Labor Force (in thousands), 1950–1993

Population 1950 1960 1970 1980 1985 1990 1993

Total 152,271 180,671 205,051 227,738 238,740 248,239 259,364

population
Female 76,422 91,352 104,697 116,864 122,579 127,258 132,730
population
Total labor 65,178 73,171 87,222 109,872 117,167 123,869 129,525
force
Female 18,433 23,243 31,845 45,743 51,200 56,030 58,563
labor force
source: International Labour Office, Economically Active Populations: Estimates and Pro-
jections 1950 –2025 (Geneva, 1985, 1990, 1993).

1970, 8.6 million more women started working out of the home. Table 3.2 in-
dicates the percentage of women working by 1970 was 20 percent greater
than ten years before. The feminization of the labor force and other socio-
logical trends increased the nomadization of the U.S. audience. Family rou-
tines were changing. Suburban lifestyles featured decentralized activities that
necessitated more time in the car. Having two working partners within a mar-
riage, if it did not change the division of household labor, at least changed the
timing and ways of doing domestic chores. The audience was mobile.
Schor based her arguments on two measures, the number of people work-
ing and the number of hours worked. While the first measure is uncontro-
versial, some observers have disputed the absolute decline in leisure hours
that Schor has measured. The most vigorous disputants are Robinson and
Godbey, whose studies show leisure hours have been increasing even since
the 1970s. However, even they have to report that, in 1992, the number of
Americans who felt that they had less free time was up 22 percent from 1971.3
A 1995 Lou Harris poll asked how much time people had for themselves in
1995 compared to the 1970s. The respondents reported a decline in the num-
ber of weekly leisure hours, from 26.2 in 1973 to 19.2 in 1995.4
The strict measurement of the dichotomy between work time and free
time does not capture the subjective experience of leisure, however. People
report that time-saving appliances are anything but time saving, such as the
washer/dryer that makes washing more convenient and therefore we wash
home video

table 3.2 Women in the U.S. Labor Force, 1950–1993 79

Population 1950 1960 1970 1980 1985 1990 1993

Labor as percentage of total 42.8 40.5 42.5 48.2 49.1 49.9 49.9
population
Female labor as percentage 24.1 25.4 30.4 39.1 41.8 44.0 44.1
of total female population
Female labor as percentage 28.3 31.8 36.5 41.6 43.7 45.2 45.2
of total labor population
source: International Labour Office, Economically Active Populations: Estimates and Pro-
jections 1950 –2025 (Geneva, 1985, 1990, 1993).

more often, exhausting the saved time. Simple tasks such as going to school,
picking up a quart of milk, or playing a neighborhood baseball game now in-
volve the logistics of driving longer and longer distances. More single people
have to perform individually tasks that only one member of a large house-
hold needs to do. Therefore the decline of the domestic household size—from
3.33 persons per unit in 1960 to 2.63 in 1990—is another reason for the de-
cline in an efficient division of household labor.5 It is to be expected that
people will report the subjective reality of losing control over their free time.
In terms of social impact, Robinson and Godbey, Harris, and Schor all agree—
we are used to a level of efficiency in the use of our work time, and we regret
that our leisure time does not have the same efficiency. It is surprising to de-
sire efficiency in leisure, and yet that is what we are expressing when we com-
plain about time squandered rushing here and there without enjoyment.
Whether Americans are actually experiencing the loss of free time or just
think they are, there are important consequences for media usage. There is
a direct connection between the subjective experience of harried leisure and
the consumer desire to own a VCR.
The VCR promised choice, which has been one of the key selling points
of contemporary retailing. Choice can be between more products (TV shows,
rented movies), but choice can, in the case of the VCR, also be between now
and later—when to watch these media products. Product choice has been a
central tenet of American marketing strategies. As the postwar lifestyle ma-
tured, brand proliferation accelerated. Companies put increased efforts into
coming up with different brands to inspire consumer curiosity and to capture
increased shelf space in retail stores. In the five years from 1968 to 1972, there
V E N I , V I D I , V I D E O

80 was a 34 percent increase in the number of advertised brands.6 A 1993 study

found that a typical supermarket stocked twice as many items in 1989 as it
did in 1979.7 Both the VCR and the playback-only systems promised prere-
corded movies or, in retail terms, more movies on the shelf, paralleling brand
proliferation in other items. Home video could be viewed as part of a seam-
less effort to increase the “channel capacity” of the average home, alongside
cable and satellite systems.
However, the emphasis on product choice misses an important point of
Morita’s time-shifting campaign. The reason Sony’s campaign worked while
Laservision and Selectavision failed was that the Betamax gave two kinds of
choices at once. It gave not only more choices over what movies and televi-
sion shows to watch but also over when to watch the shows. This was a new
and decisive form of consumer control over TV programming. This is why
the VCR did not become a mere transition instrument as the market moved
toward a cheaper and better videodisc system. The combination of product
choice and time flexibility was sufficient to make it ideal for a new lifestyle of
more work and shifting schedules. It was also an instrument of flexibility for
household members to watch their own programs in their own time, separate
from the other members of the household.8 The VCR fit in with the new, frag-
mented patterns of family life.
We should have these distinctions in mind as we examine the interwoven
histories of cable and home video. Concurrent with the rise in home video
entertainment was the opening up of cable television. There were subtle but
crucial differences. Cable promised greater choice of product than conven-
tional TV, although the reality of more programs took a while to catch up with
the promises during the early 1980s. Cable was less suitable than video for
those seeking control over their time. Cable, of course, offered many repeat
broadcasts. However, it could not approach the convenience of popping in
the videotape precisely when one wanted to or stopping the tape in order to
attend to other errands. Many also found the continuing cost of a cable sub-
scription to be a burden, while video involves only a cost per viewing after
the initial hardware purchase. For these reasons cable became an “also ran”
behind video. By two different measures, the rate of consumer adoption and
the amount of money program suppliers (i.e., the film companies) earned
from cable, cable had fallen behind the VCR by 1984 and has since stayed
behind.
home video

81
The Emergence of Cable

The commercial application of cable has been around since 1950. In those
earlier days, a cable operator charged subscribers for the relay of an improved
television signal. It was usually set up in hilly regions suffering from poor re-
ception, such as Eastern Pennsylvania or Southern California. Cable systems
had excess capacity beyond just relaying the local station signals, and soon
there were attempts to send additional programming, even if it just consisted
of a camera trained on a news ticker tape. Community access television, as
cable was known in that period, did not fit easily into the jurisdictional cate-
gories of telecommunications policymakers. Were these companies mere re-
layers of a broadcast signal or the commercial distributors of copyrighted ma-
terial? The Federal Communications Commission displayed its own mixed
feelings by issuing regulations that treated cable alternately as a common car-
rier and as a broadcaster.
The additional programming became a policy challenge and a source of a
twenty-year struggle. In the beginning of the television era, the FCC felt un-
der some pressure to protect the “fledging” broadcast networks. As late as
1966 the FCC was still faithful to this motivation and therefore bowed to pres-
sure from broadcasters and the movie industry to limit the cable distribution
of programming from distant areas. An FCC ruling also effectively stopped
cable programmers from showing current movies. Various groups opposed
FCC policies because they wanted more from television than the “wasteland”
of the three networks. They called for more access to more stations, and for
increased diversity in programming. It was these groups that achieved the
creation of a public broadcast network in 1967 with modest federal govern-
ment support. On the non-broadcast side, access and diversity advocates em-
braced new technologies such as cable. Some of these hopes were embodied
in the 1971 Sloan Commission on Cable Communications report.
In the aftermath of the Sloan report, various government officials felt
compelled to open cable up to be a source of more programming. The FCC
began some deregulating with a new set of cable rules in 1972. In 1977, the
District of Columbia appeals court struck down FCC restrictions against
cablecasting current movies in the Home Box Office v. FCC case. These were
the years when cable matured into a mass medium, in large part due to the
changed policy environment. The industry attracted the enormous invest-
V E N I , V I D I , V I D E O

82 ments needed to build more systems and gain a wider audience. There were
6 million subscribers in 1972; by 1978 the number of subscribers had more
than doubled to 13 million.9 The pace of cable construction also accelerated
from $126 million per year in 1975 to $1.2 billion per year in 1980.10
The film community made little response when Charles Dolan initiated
Home Box Office (HBO) in 1972 for a cable system owned by the publishing
giant Time, Inc. As the pace of cable development accelerated in the next few
years, HBO grew rapidly. In September 1975 HBO became the first program-
mer to distribute its signals by satellite when it showed the Ali–Frazier box-
ing match live from Manila in the Philippines. Ted Turner, the owner of At-
lanta television station WTBS, also decided to distribute his station’s signal
via satellite to cable systems throughout the country at this time, creating
the first “superstation.” Satellite distribution proved to be a tremendous ad-
vantage for both HBO and WTBS, making both national centers for the
distribution of filmed entertainment, sports, and other programs. Nineteen
seventy-five became the year of the VCR, and satellite distribution of cable
movies. Cable and home video were now in direct competition for audience
and for programming.
The VCR entered a media landscape that was already in flux due to the
large-scale commitment to build up cable capacity. Both technologies became
part of an American ethos of consumer choice. The challenge for the Holly-
wood majors was to make sure that consumer choice meant new revenues for
their products. This was a simpler task in cable than in home video, since
Hollywood did not lose control of its films in the cable market. In the cable
market, the studios leased their films for a flat fee, a per-viewer rate, or a
combination of the two.

The Universal Lawsuit

The mantra of the VCR was “giving choice back to the people.” The defini-
tion of “choice” changed according to geography. The United States and Ja-
pan had a relatively greater variety of television programming than the rest
of the world. In Western Europe, the state-controlled systems often had aus-
tere selections of various forms of popular entertainment. In other regions,
government censorship frustrated the desires of local residents to see the
kinds of movies and programs they had become familiar with on their trav-
els. Therefore, the choice these purchasers sought with their VCRs was a
home video

larger selection of programs. Japanese and American locals suffered relatively 83

less from these frustrations; rather, they suffered from time constraints. In
these two countries—the largest markets for the VCR—video publicists
pitched the VCR as a corrective to the rigid schedules of television and a
challenge to the status quo. Certain members of the status quo decided to an-
swer the challenge.
Sony’s advertising agency, Doyle, Dane, and Bernbach (DD&B), fulfilled
Morita’s desire to promote the Betamax as a “subversive” machine that would
take control away from programmers and give it back to the consumers.
DD&B had revolutionized Madison Avenue with the so-called creative revo-
lution of the 1960s. This revolution asserted that advertising was an art form
that could appeal to the consumer by upsetting conventional beliefs and as-
sociations. The agency was famous for selling products such as the Volks-
wagen automobile and Levy rye bread by emphasizing nonconformity. DD&B
had fun with its themes of customer empowerment. DD&B staff constructed
a similar campaign for the Betamax, featuring a big “x” over a TV schedule
in the visual and the copy line “What in the world are we doing to ourselves?
Our lives are being governed to too great an extent by TV schedules.”11
MCA’s number two executive, Sidney Sheinberg, the president of the Uni-
versal division, had read the Betamax ads and was not amused. MCA decided
not to accept the Betamax revolution passively. On November 11, 1976, Uni-
versal City Studios, Inc. (the wholly owned film-distributing subsidiary of
MCA) filed a suit against Sony Corporation of America; Doyle, Dane, and
Bernbach; several Betamax retailers; and one Betamax user. Disney Produc-
tions was the co-plaintiff. DD&B would go to the Supreme Court as a reward
for its wit.
The lawsuit, essentially, was an attack on home taping. The plaintiffs did
not consider the rental of videotape, which was not a prominent activity in
1976. As the court case continued for the next eight years in tandem with
the growth of video rental, Universal and Disney did not and could not cite
rental activity. The 1976 Copyright Act was clear on the legality of renting
copyrighted material; the only redress for such activities was legislative (see
Chapter 4). The plaintiffs’ argument in this case was based primarily on time
shifting.
Why had Universal, of all the MPAA members, taken the lead position
against Sony’s promotion of time shifting?12 MCA /Universal collected far
more revenue from television in 1976 than its rivals. It received $213.4 mil-
V E N I , V I D I , V I D E O

84 lion—27 percent of its total revenues and 46 percent of its filmed entertain-
ment revenues. Columbia came in a distant second with $87.1 million in
that same year.13 Disney’s motivations had an added element. The company
had built itself up by producing a full library of children’s shows, ranging
from cartoon shorts to full-length animations. Films for young children are
uniquely timeless because they can be renewed every seven to ten years for
a new generation of children who have not yet experienced the originals. In
the media of theatrical films and television, Walt Disney Studios had devel-
oped an expertise in timing the theatrical rerelease or repeat broadcast of its
shows in order to ensure maximum profits. A new generation of children
could always discover—after their parents purchased the price of admission—
the timeless appeal of Snow White and the Seven Dwarfs (since its 1937 re-
lease), etc. If people could now tape and own cassettes of these movies or of
the repeat episodes of the Disney television offerings, how would these titles
retain their value in rerelease or repeat broadcasts? Disney executives were
naturally concerned over a technology that eroded their ability to release and
withdraw products from the market in order to wait for the next generation.
The chronology of the Universal lawsuit is as follows. The November 1976
initial filing was in the Federal District Court of the Central District of Cali-
fornia. Judge Warren Ferguson heard the case and ruled against Universal
et al. in October 1979. Universal appealed and won a relatively quick rever-
sal from the U.S. Appeals Court for the Ninth Circuit in October 1981. Sony
went on with the case, and on January 17, 1984 the U.S. Supreme Court re-
versed the appeals court and sustained Judge Ferguson’s original decision,
with five justices voting for Sony, and four dissenting.
Although the final decision now seems to have an air of inevitability, the
judicial history shows that Universal had launched a formidable challenge
that nearly succeeded. It is reported that after the first hearings the majority
of the Supreme Court was inclined toward Universal; but Justice Stevens
raised several objections.14 Justice Brennan switched to Sony’s side and the
undecided also rallied around to give the manufacturer the edge. The Sony
win is one of the rare instances when the government or the court did not
take the opportunity to extend copyright protection in the current era of new
technologies.
The Universal/Disney team chose their plaintiffs in order to direct their
attack on the manufacturer of the VCR rather than the users. While Sony was
an easier political target than the average U.S. television and movie viewer,
home video

this focus weakened their argument just enough to ruin their case. After all, 85
Sony was not systematically engaged in taping Universal or Disney shows, al-
though Universal did manage to find several Sony dealers doing just that in
their showrooms to demonstrate their VCRs. These dealers became defen-
dants in the lawsuit. The final defendant was an individual who had taped
Universal shows off the air and was willing to testify that he had been inspired
to do so by the Sony advertisements promoting time shifting.
Universal streamlined its argument to two principal points. The first point
was that home taping did not pass the “fair use” test for exemptions from in-
fringement. The second point was that Sony was contributing to the infringe-
ment by making reproducing machines. The plaintiffs argued that actual
damage from copyright infringement did not have to be proved in order to
seek redress, only potential damage. The Universal argument went beyond
home video. It was an opening round in reformulating copyright for new me-
dia. If only for that reason, we need to examine the concept of fair use and
contributory infringement.

fair use

Fair use as an exemption test had existed in case law since 1841.15 This means
that it was a concept judges stated and elaborated as they wrestled with the
conflicting claims of copyright, free speech, and privacy over the years. It was
not written into actual law until the 1976 revision of the Copyright Act, which
identified four tests for fair use: (1) the purpose and character of the use,
(2) the nature of the copyrighted work, (3) the amount of the work that was
copied, and (4) the economic impact of copying.16 The criteria for the test still
left a lot of room for interpretation.
Home taping was a particularly vexing problem for fair use since the char-
acter of its use and its economic impact were not publicly visible. Congress
had briefly considered home taping in its debates about the 1976 law. An ex-
change occurred in 1971 where Rep. Robert Kastenmeier (D-Wisconsin), one
of the leading congressional authorities on copyright, specified that home
taping audio for private listening was fair use.17 Universal explained to the
court that his remarks were meant to be specific to audio and did not extend
to movies and that visual material had received special consideration from
Congress.
V E N I , V I D I , V I D E O

86 The plaintiffs then proceeded to make their economic impact argument

about videotaping. Universal could not present figures on actual lost sales to
the district court. The audience does not make actual payments for Univer-
sal shows in commercial broadcasting. It is the value that the audience itself
creates that is bought by advertisers and sold by programmers. Constructions
of this value are based on ratings that are indirect measures of the audience.
The program suppliers, the television distributors (the networks), and the ad-
vertisers agree to accept these indirect measures as the basis on which to ex-
change billions of dollars that approximate the value of the audiences. Uni-
versal made a twofold argument that the VCRs were eroding the value of its
shows: (1) The VCR might cause actual effective audience erosion if tapers
shared their libraries and refused to see subsequent repeat broadcasts of the
show. (2) Time shifting might cause the broadcasting and advertising com-
munities to value the audience for Universal programs less than formerly.
This is because advertisers would presume that VCR owners were using tape
machines to avoid commercial breaks. In other words, the VCR would allow
demographically targeted affluent audiences to “escape” advertisers.
Advertisers expressed concern about the effect of the VCR on the pro-
gramming strategies that the networks had perfected through the 1970s. A
spokesperson for the J. Walter Thompson ad agency noted that “[time shift-
ing] in itself tends to undermine the elaborate network programming sched-
ules (complete with lead-ins, cradling of ‘soft’ programs around popular ones
and skedding [scheduling] of competing ‘blockbusters’) as viewers record
shows (often while watching another) for subsequent viewing.”18
Jack Valenti, the president of the MPAA and an indefatigable lobbyist for
the major studios, trotted out a variant of this argument every chance he
got. He testified that allowing night workers to tape an 8 : 00 P.M. show for a
2 : 00 A.M. viewing “would harm the producers and sponsors of those pro-
grams, who were ‘directly targeting to people who are working at night.’ ”19
He told Congress that Frito-Lay, TWA, Gillette, and Coca-Cola were just some
of the more prominent advertisers concerned about the VCR.20 It seemed a
small point for multi-million-dollar corporations to complain that they were
losing value because someone was viewing the sponsored program at 2 A.M.
instead of at the scheduled 8 P.M. time slot. However, this nit-picking ex-
pressed both the abstractions on which commercial television was built and
the fine gossamer out of which those abstractions were woven. The whole art
of television advertising consisted of reaching the viewers desired by the ad-
home video

vertiser. Surveys suggested that the viewers reached by time shifting were 87
different from those viewers watching the same program at its scheduled
time. It was the dedicated loyal fan who watched a show on playback. The
more casual viewer was lost to the advertiser through time shifting. A hus-
band and wife would watch the scheduled L.A. Law because there was noth-
ing else to do at that moment. But if the wife taped L.A. Law, she would play
it back when the husband was not watching television. The sponsors of L.A.
Law had lost the husband’s “eyeballs.” In addition, if she was watching the
tape, she was no longer available to watch Dallas or some other program dur-
ing its scheduled time. The VCR was allowing the audience to become no-
madic, upsetting the billion-dollar industry devoted to pinning it down.
Another source of audience erosion that Universal presented to the court
came from the ability of the VCR owner to avoid commercial breaks in the
programming. Universal described how the audience could avoid the adver-
tising that had paid for the program by either zapping commercials (stopping
the recording of commercial breaks) or more effectively by zipping commer-
cials (fast forwarding through the advertisements while playing back the re-
corded program). The evidence that Universal presented of this effective ero-
sion did not impress the district court or the majority of the Supreme Court.
Judge Ferguson wrote as if zipping was an acceptable hazard of doing busi-
ness. “Advertisers will have to make the same kinds of judgments they do now
about whether persons viewing televised programs actually watch the adver-
tisements which interrupt them.”21
The questions of responsibilities and damages were elusive on both sides
of the issue. The plaintiffs’ damages argument was not a view shared by all
television executives. In the late 1970s, Television Digest’s editorial director
David Lachenbruch interviewed the programming heads of the ABC, CBS,
and NBC networks. They did not express apprehension about the effect of the
VCR on the business of broadcast television, “considering the Betamax to be
just another consumer appliance, ‘like a toaster.’ ”22 Sony lined up many pro-
gram producers, notably Fred Rogers of Mister Rogers’ Neighborhood, who
welcomed the VCR as a machine that would expand his program’s audience.
When the Supreme Court finally reached a majority, it was because five jus-
tices decided to concur with the district court’s impatience with the hypo-
thetical nature of the damages the plaintiff presented. Judge Ferguson of the
district court had summarized the plaintiffs’ admission of the intangibility of
time-shifting damages:
V E N I , V I D I , V I D E O

88 Plaintiffs’ experts admitted at several points in the trial that the time-
shifting without librarying would result in “not a great deal of harm.”
Plaintiffs’ greatest concern about time-shifting is with “a point of im-
portant philosophy that transcends even commercial judgment.” They
fear that with any Betamax usage, “invisible boundaries” are passed:
“the copyright owner has lost control over his program.”23

The phrase “invisible boundaries” was too vague for the district court and
the Supreme Court.

contributory infringement

As far as the court was concerned, the plaintiffs were overly concerned about
the future. Meanwhile the buyers of the VCR were in the here and now and
growing by the moment. The popularity of the machine made Sony the sen-
timental favorite. The VCR lawsuit was constantly being ridiculed in the press
for the notion that every ordinary VCR owner was a time-shifting criminal.
For this reason, Universal sought redress only from the manufacturer. There
was a foreign precedent for this kind of compensation. In 1965, West German
copyright holders went to court to complain about audio recorders leading to
infringement by individual users. The court agreed to the complaint but did
not accept the proposed relief, that a society representing copyright holders
would collect fees from individual users. The court expressed concern that
this would violate privacy rights. The copyright holders sought and obtained
a legislative solution. A law was passed in that year that was the first in the
world to impose a royalty fee to be collected on the sale of recording equip-
ment. The collected fees would be redistributed to copyright holders to
“compensate” them for the possible infringing (home taping) for which the
equipment would be used.24 In the following decades several other countries
imposed similar fees.
In order for Universal to win a similar solution in an American court, its
lawyers decided to argue that Sony had contributed to copyright infringe-
ment. This was perhaps the weakest part of its case. It forced Universal to ar-
gue only about the use of the VCR that Sony was promoting: time shifting.
The plaintiffs did not introduce issues of video piracy and public playing of
recorded tapes since they could not claim that Sony had promoted such ac-
tivities and thus contributed to infringement.25 Contributory infringement
home video

therefore constricted Universal’s ability to complain about the VCR. But it is 89

hard to imagine that there was any alternative judicial argument that would
have allowed a program supplier to seek redress against a manufacturer.
Contributory infringement was at the heart of one of those earlier copy-
right disputes that helped shape the growth of the film industry.26 In 1911 the
Supreme Court found that the Kalem Company, a film production company,
had infringed the copyright of Ben Hur, a literary property, by making a film
with the same title and plotline. One of Kalem’s defenses was that it had not
actually given a public performance of the property since the only activity it
had engaged in was filming.27 The implication was that if there had been an
infringement, it had been committed by the exhibitor. Judge Oliver Wendell
Holmes, writing the majority opinion, stated that the producers were liable
since by their action of filming they had directly contributed to the infringe-
ment, which was the performance (screening the film).28
However, when the Supreme Court reviewed the history of contributory
infringement, the justices found that it could apply only when the infringer
supplied and controlled the work itself, not just the “means to accomplish an
infringing activity.”29 Any other test would make every print and computer
manufacturer liable for the infringements committed by their machines.
Once this interpretation was reached, Sony had won its case. Both the district
court and the majority of the Supreme Court justices had rejected Universal’s
two main points about economic damage and contributory infringement.
This decision was won by one vote, and legal scholars continue to ques-
tion its consistency.30 Many agree with Justice Blackmun’s dissent, that copy-
right law does not require the proof of actual damages. One former register
of copyrights, David Ladd, argued that proving actual harm is demeaning to
the spirit of copyright and makes it a “means” test.31 The strength of copy-
right is that it protects abstract property rights in principle so that actual
markets will develop in the fairest way. Article 1, section 8 of the U.S. Con-
stitution states the rationale for copyright, which is “to promote the progress
of science and the useful arts.”
As intellectual property becomes a central feature of postindustrial econ-
omy, media corporations have aggressively challenged perceived copyright
infringement. Culture industries operate by creating a surplus of products
in order to increase the probability that one of the products will become a
breakout “hit” that will boost corporate profits. Because of this general prin-
ciple, film distributors try to maximize their profits on every aspect of the sale
V E N I , V I D I , V I D E O

90 or licensing of their breakouts. Even a hypothetical loss of control is serious

if it threatens the ability of a “hit” to earn maximum returns. It is for this rea-
son that Justice Blackmun, in his dissent, was sympathetic to the copyright
holders’ aggressive need for control even when there are no actual damages.
Since the Universal case, the government has helped industry efforts to
strengthen property rights in order to maximize earnings. The Universal case
was the last high-profile decision limiting copyright. Congress has been con-
tinually examining the question of copyright protection since the extensions
embodied in the 1976 Copyright Act. The latest extension became law when
President Clinton signed the “Sonny Bono” amendment in October 1998.
This added another twenty years (from fifty to seventy years after the author’s
death) to the effective length of most copyrights. There have only been a few
voices arguing for a narrow application of copyright law, and for the protec-
tion of the public domain of cultural expression from the encroachment of
expanded intellectual property.
The Universal case brought out excessive rhetoric on both sides of the
issue. Many, not only in the film industry, but also in the music business,
were claiming dire consequences if the case went against Universal.32 In 1985,
Madison Avenue executives panicked when the remote control became a
common feature on the VCR. They had visions of viewers wielding the re-
mote like a Buck Rogers space weapon, zipping past and otherwise zapping
commercial breaks from the videotape.33 Someone at the Ted Bates Agency
even billed for network rebates in order to compensate the agency for all
those time shifters using their VCRs to get rid of commercials.34
Researchers stepped into the breach to measure the exact extent of the
VCR’s damage on the “American” system of broadcasting. Was the public re-
ally using time shifting to escape the ubiquitous commercial breaks? Results
were, of course, confusing.35 Generally, most surveys found that VCR owners
were fast forwarding through the commercial breaks on playback. Figures
on the percentage of VCR owners engaged in this behavior ranged between
50 and 75 percent. This behavior became significant as VCR penetration
of U.S. television households broke the 30 percent level. The advertisers
were powerless except to try to renegotiate their contracts with television
stations and networks. They could not pursue legal or legislative remedies
since they did not have standing as victims of copyright infringement. In any
case, the Universal case was closed. The courts had reiterated the simple
home video

principal that there were no constitutional guarantees that viewers had to 91

watch commercials.
In the longer run, the VCR has proven to be a rich profit center for copy-
right holders and, in the greatest irony of the video age, a great friend of the
co-plaintiff, Disney. This reversal of fortune had little to do with time shift-
ing and everything to do with the sale of prerecorded tapes. Time shifting
continues to be an important function for the home user, although more re-
cent measurements show households devote about one-third the time to time
shifting that they do to watching prerecorded cassettes.36 The sale of pre-
recorded cassettes has had a far more important impact on the film enter-
tainment industry than has time shifting. The Universal case took place in
the transitional period when very few understood the VCR, and it serves as a
coda on the issue of time shifting. The next section fills in the transitional
moments and describes the rise of video rental.

VCR and Subversion

One industry commentator noted during the hoopla of 1980–1981 that the
“VC” in VCR inspired the same panic as the Viet Cong (VC) had caused dur-
ing the Vietnam War. This was a cute observation heavily tinged with tech-
nological romanticism. There was an aura of the subversive surrounding the
VCR, a Japanese product that had drawn scorn and envy from American and
European manufacturers and media suppliers. The use of the word “sub-
versive” has to be heavily marked in quotes since those who could buy a
thousand-dollar machine in the early days were obviously affluent and ac-
cepted the dominant consumerist ethos. By 1981, six years after the introduc-
tion of the Betamax, VCRs of all types had reached a global penetration, ap-
pearing in 3.2 percent of households owning televisions.37 At this point, VCR
owners were an “income elite.” In many countries, the VCR “rebellion” was
of the upper and upper middle class against their own media systems, an act
of repudiation of local television fare.
However, in some developed countries, video use expanded swiftly from
income elites to the working class, and this reshaped the video market. Great
Britain quickly adopted the VCR and developed robust rental activity for
both the machines and the videocassettes. This rental market was strongly as-
sociated with the blue-collar sector, and working-class taste dominated cas-
V E N I , V I D I , V I D E O

92 sette sales. “A large selection of home video buyers are workers who labor
during so called ‘Unsociable Hours’ (night work, etc.). Originally they time-
shifted but now want something prepackaged.”38 There was a bit of a “moral
panic” when this market favored movies known as “video nasties.” Shows
such as I Spit on Your Grave (1978) depicted rape and vengeful violence and
inspired a strengthening of British censorship. Most industrialized countries
were experiencing the diffusion of videotapes into lower income groups by
1984.39 The adoption patterns in nonindustrial or emerging countries re-
mained more stratified.
The structure of various national media environments is an interesting
variable in the adoption of home video. Joseph Straubhaar has looked at VCR
penetration rates and found that they correlated negatively with “diversity in
television systems.”40 One typical example: “The sudden spread of new home
video technology throughout Scandinavia has come as a rude awakening for
most of the Nordic broadcasters. The obvious public appetite for the very sort
of programming state television has been ‘protecting’ its viewers against is
little short of a shock for those execs who have taken their public service du-
ties seriously.”41 In East Germany, government authorities started program-
ming ten films per week to regain viewer interest.42 VCR owners throughout
Europe purchased or rented American cassettes, and in a competitive move,
there was a rapid rise in the number of American films shown on European
television from the early 1980s. Several state television systems (such as
Denmark, Norway, et al.) were being deregulated and expanded to include
new networks. The background for such liberalization was the competition
for viewers that the new media technologies brought in. Yahia Mahamdi
specifically links home video with the deregulation of television.43 The trade
press reported that in contrast to Europe, in Japan there was an initial soft
market in prerecorded cassettes despite strong VCR sales because VCR own-
ers were satisfied with local network programming.44 Japanese prerecorded
cassette sales did not surge until 1984.45 Japan and U.S. adoption thus fol-
lowed a two-step process, moving from time shifting to playback of prere-
corded material.

X-rated Cassettes

Although consumers bought the VCR for time shifting and adjusting the tele-
vision to their own schedule, there was a natural curiosity to see what else
home video

they could do with this machine, now peacefully coexisting with their TV set. 93
This coincided with a 1970s surge of interest in pornographic films. Short
films depicting nudity and sexual activity as their sole raison d’être had be-
come a constant enterprise soon after the invention of the movie camera. In
the United States, these films were distributed out of the back of car trunks
and through other small operations up through the 1960s. The films were
short in length and had minimal story lines. Their intended audience was ex-
clusively male. In 1967, Denmark announced its intentions to eliminate all
obscenity laws (the law became effective in 1969). This came at a time when
there had been a general loosening of sexual mores and increased depictions
of sexuality in European feature films and subsequently in U.S. films. Swedish
filmmakers released I Am Curious, Yellow in 1967. Its combination of explicit
sex (explicit, at least, for those times) and politics attracted wide attention.
These events, combined with indigenous relaxation of attitudes toward sex,
heightened the ambitions of U.S. pornographic filmmakers and exhibi-
tors. By 1972–1973, they had made and exhibited several sex features, such
as Deep Throat, The Devil in Miss Jones, and Behind the Green Door. As a sign
of the times, these films became cause célèbres and were well known in the
mainstream media. They were also solid theatrical hits, making millions, al-
though exact figures are notoriously uncertain in the adult film industry.46
Unlike most concurrent nudies and sex films, these films were full length, had
plotlines, and were well distributed to a growing number of adult movie the-
aters. Because of their relatively more sophisticated erotic fantasy plotlines,
these films were thought to appeal to both men and women.
Pornographic films were entering the mainstream. In 1976, David Fried-
man, chair of the Adult Film Association, claimed that 2.5 million viewers
watched theatrical adult films a week, approximately 13 percent of the audi-
ence that attended mainstream movies.47 This is a year after the Betamax
made it possible to view anything in the privacy of the home, and early VCR
purchasers were inclined to view new and taboo products. By 1977, one por-
nography producer was already claiming to be the first to place his film on
half-inch cassette.48 Many followed quickly. As noted previously, some early
purchasers bought the VCR rather than the videodisc systems because adult
titles were unavailable on videodisc. Porno became a major propellant in the
development of prerecorded cassettes.
The VCR easily captured the preexisting porno audience and added a
larger public composed of viewers who would never think of stepping into an
V E N I , V I D I , V I D E O

94 adult movie theater. The concurrence of the Betamax and the new, more
plot-driven erotica led to adult titles becoming the first big genre for prere-
corded cassettes. Customers were willing to buy sex videos for $100 or more
in order to view them at home. Many pornographers anticipated that the VCR
made possible a new use of pornography for intimate viewing by married
couples. Merrill Lynch reported that through the end of the 1970s “X-rated”
cassettes accounted for half of all prerecorded sales.49 As late as 1980, Ger-
man and British video distributors reported that pornography accounted for
60 to 80 percent of their sales.50 These same figures are reflected in various
anecdotal reports about the U.S. market.
As the prerecorded market grew, erotic tapes held their own in absolute
numbers but lost market share steadily. The Video Software Dealers Associ-
ation surveyed video stores in 1984 and reported that adult material had
fallen to only 13 percent of sale and rental activities, behind action /adven-
ture (25.2 percent) and science fiction (19.6 percent).51 By 1989, it was re-
ported that adult constituted only 9 percent of video retail. The same report
stated that the absolute value of adult video sitting on wholesalers’ shelves
had fallen from $430 million in 1986 to $380 million three years later.52 How-
ever, it appears the 1990s were kinder to the industry. In 1997, one reporter
estimated that adult video rental had risen to over $2.5 billion.53
Pornography was historically important to the emergence of home video.
The distribution of X-rated tapes (in this context, X-rated is a generic term
that does not necessarily mean the tape has been rated by the MPAA) inspired
people in this genre to move into mainstream video distribution and retail-
ing. Nonetheless, its presence as a motivating factor is hard to measure. Were
the early users of adult videos just taking advantage of the possibilities, or
were they driven to buy a VCR to seek adult viewing opportunities in the pri-
vacy of their own homes?
In turn, the VCR transformed the adult film industry. It is estimated that
there were 1,500 theaters devoted to adult movies in 1980. By 1985 there were
an estimated 700 such theaters, down to 250 in 1989.54 Sexpo (sex exploita-
tion) movie theaters become the first casualty of video. This became a broader
trend when art houses and midnight showings of cult films also disappeared
as video sliced off their audiences. Porno production was also transformed.
Producers abandoned their 16mm film shoots with $60,000 budgets and
moved to videotaping hour-long sex shows in two days for under $10,000.55
home video

95
The Majors Start Video Distribution

By late 1977, the penetration rate of the Betamax and VHS in the U.S. was
still under 2 percent. Most film suppliers were content to sit on their hands,
although some had to be aware of the emerging market in X-rated and other
material on tape. X-rated material had created the infrastructure for video
distribution and, tentatively, from 1977 to 1981, each one of the MPAA film-
distributing members entered the home video distribution of prerecorded
cassette market. They chose several different methods of entering the mar-
ket: on their own, with a partner, or by letting another company distribute
their product. The last two options allowed the film companies to share
the risks and the overhead costs. Twentieth Century Fox, Columbia, United
Artists, MGM, and Orion preferred this entry strategy. Warner, Paramount,
MCA /Universal, and Disney chose to immediately create their own video dis-
tribution arms. As the market matured, the other companies also started dis-
tributing on their own. Table 3.3 shows the various entry dates and stages of
distribution.
Twentieth Century Fox was the first studio to release films to home video.
It was convinced to do so after receiving a letter from Magnetic Video, a video
duplicating company located in Michigan. Andre Blay, the head of Magnetic
Video since 1969, had been thinking about prerecorded video marketing
even before the introduction of Betamax. When Betamax was introduced in
1976, he sent letters to the various film studios offering to license their films
for a video release. Fox responded and the two companies signed a deal to-
ward the end of 1977. Magnetic Video guaranteed half a million dollars a year
in exchange for the nonexclusive rights to fifty films. Fox was to receive a roy-
alty of $7.50 for every tape unit sold.56 The films had to be at least two years
old and had already played on network television before they could be
dubbed onto videotape.

Videotape Pricing

The most fateful problem Blay had to solve immediately was pricing. There
was not much guidance for pricing the videocassettes. There were no other
mainstream films in the market. Adult tape distributors charged upward of
$100 for a tape. Another constraint was that the deal with Twentieth Century
table 3.3 Origins of Major Home Video (HV) Distribution Divisions

Company First Stage Second Stage Third Stage Fourth Stage

Twentieth Century Fox 1977–1978, turns over 1979, buys out Magnetic Video 1982–1991, forms 50/50 1991 on, has had its
HV rights to Magnetic and distributes on its own HV partnership with CBS own HV division for
Video feature films
United Artists (UA) 1981, acquired by 1982, leases foreign HV rights 1982, forms its own HV
MGM, leases domestic to Warner distribution company
HV rights to CBS Fox
for a limited time
Metro-Goldwyn-Mayer 1980, forms HV 1982, dissolves HV partnership
(MGM) partnership with CBS with CBS and sets up MGM /
UA HV distribution
Columbia 1979, starts distributing 1981, forms HV distributing 1991, dissolves partnership
HV on its own partnership with RCA with RCA and forms
Columbia-TriStar Home
Video division
Orion 1982, leases various 1988, forms its own HV 1990s, John Kluge starts
HV rights to Vestron distribution division acquiring Orion; eventually
and RCA /Columbia; it merges with MGM /UA
in 1983, also leases
HV rights to HBO
Warner 1978*, starts its
HV division
Paramount 1979, starts its HV
division
Disney 1980, starts its HV
division
MCA /Universal 1981, starts its HV
division
* No discernible commercial activity until 1980.
sources: Various annual and 10-K reports.
home video

Fox left Magnetic Video assuming all the risk. The company did not have 97
deep pockets (in contrast to companies selling videodiscs, usually at a loss in
order to boost hardware sales). Blay had to seek new loans from the bank in
order to get his duplicating operations up to the scale needed for this new
venture. Therefore, he was under pressure to earn a profit quickly by in-
creasing the margin on each unit.
Blay looked around for an example of what the market would bear and de-
cided to base his pricing on small-gauge films. Film companies had been in
the practice of making 16mm prints of their films for both rental and sales to
the educational, military, and other markets. They had also reduced their
films to 8 mm for screenings on airplanes and to sell shorts and excerpts from
feature films. The 16mm and 8mm market had revenues of $20 million a year.
After considering these markets, Blay made the decision to price Magnetic
Video’s tapes at $50 to $70 per cassette.57 This price range must have been
already discussed when Fox and Magnetic Video agreed on a royalty of $7.50
or about 15 percent of retail. The company entered the video market with two
movies that had first played the theaters in 1970, Patton and M*A*S*H, and
the even older movie The Sound of Music (1965).
The price was set rather high in comparison to the cost of going out to
the movies. An average ticket price in 1977 was $2.23.58 Even a family of four
would pay only $10 to $15 to see a movie if transportation and concession
goods were added. Of course, it was not yet certain whether prerecorded vid-
eos would be bought instead of going to the movies or as a collector’s item,
more akin to the libraries of dedicated film buffs. One scholar, Douglas Gom-
ery, speculated that the price reflected the Hollywood executives’ experience
of film buffs who paid hundreds of dollars to collect film prints. The execu-
tives thought that those who bought prerecorded tapes would view the tapes
again and again and should pay accordingly.59
Blay’s hunch was right. There were quite a few customers, even at Mag-
netic Video’s high prices. The videocassettes were advertised in TV Guide and
mail orders started pouring in. The cassette units were also placed in stores
selling VCRs. Blay soon modeled his business on record distribution, which
was based on two steps.60 The first step was for Magnetic Video to sell tapes
to wholesalers who could handle an $8,000 minimum order. The second step
was for these wholesalers to resell the tapes individually and in small lots
to various local retailers. Magnetic Video also sold directly to individual cus-
tomers willing to join its mail-order club for a $10 fee. The mail-order club
V E N I , V I D I , V I D E O

98 had 60,000 members by 1980.61 Magnetic Video was selling as fast as it could
manufacture the tapes. Not even a year of operations had passed before
Twentieth Century Fox bought the company outright in 1978 for $7.2 million
and kept Andre Blay on to continue his home video operations within the
new Fox division.
The other major film companies noticed the success of Magnetic Video
and arranged for either self-distribution or subcontracted distribution of
their titles on videocassettes over the next two years. The two companies that
were suing Sony, MCA /Universal and Disney, hesitated the longest. Disney
did not release titles to a wide market until September 1980.62 MCA /Univer-
sal was the last to release cassettes, in 1981, and its tardiness stemmed both
from its lawsuit against Sony and from its interest in Laservision. But the cas-
sette market proved to be too much of a profit center for MCA /Universal to
ignore.

Renting

The Twentieth Century Fox contract with Magnetic Video specified that the
tapes were to be sold only for home use and not for rental purposes. The
two-step process using wholesalers and subdistributors distanced Blay from
another type of customer—the rental storeowner. Even before Twentieth
Century Fox bought out Magnetic Video, there were several entrepreneurs
buying cassettes for the purposes of renting them for one or two nights view-
ing. Future historians will undoubtedly debate who was the first to get the
idea. Lardner chronicles the early rental business of George Atkinson in the
Los Angeles area. Douglas Gomery cites Erol Oranan as an early rental pio-
neer in the Washington D.C. /Arlington, Virginia area. Most of the early rental
setups involved the creation of a club with membership fees. Some of these
clubs did not use the word “rent” but rather charged their members for “ex-
changes” or “previews.”63
The motivation for rental activities is not hard to find. The cost of buying
a videotape was out of proportion with its use by a large audience. Only a
small number of people had any need or desire to own a feature film, partic-
ularly in video form. Since the beginning, the popularity of moviegoing has
been based on novelty—something new every week. In this manner, the nar-
rative arts are utterly unlike music and painting since the pleasure in the lat-
ter two is repeated over and over again with the same item. Since most mem-
home video

bers of the audience are used to seeing a movie once, why should they pay 99
twenty times the price of a movie ticket in order to watch the video? The con-
sumer would naturally seek a way to share the initial cost of the tape through
some sort of rental or exchange program. Somehow copyright holders and
video manufacturers ignored this obvious fact. The popularity of renting
videocassettes was unanticipated by all the major media corporations. Only
the short-lived Cartrivision had set up a rental system as part of its rollout.
Sony had abandoned similar efforts after failing to get cooperation from
Hollywood on a rental plan for the U-matic.
The successful development of rental was a grassroots movement starting
with video dealers and record shop owners that soon spread to other small
business owners. They neither sought nor received guidance from Sony or
Hollywood program suppliers. Rental shops started springing up all over the
world, particularly in Great Britain, where the VCR machines were more of-
ten rented than purchased and it was a natural step to also rent the pro-
gramming. Great Britain was one of the first countries to adopt the VCR, in
rates surpassing even the U.S. The rental of prerecorded cassettes was a con-
tinuation of time-shifting habits. British time shifters used the VCR to record
feature films more than any other type of programming.64 They soon found
it just as easy to rent as to record feature films. U.S. consumers followed this
pattern. They were recording feature films from the TV set more than other
types of programming.65 However, they were just as happy to rent feature
films as more titles became available at the rental store. It was not surprising
that as rental of feature films became an option, such rentals became the
dominant use of the VCR. Warner film executives were already claiming that
rental usage had become the VCR’s primary function by 1982.66 At least one
scholar places it two years later in 1984 –1985.67 The later date coincides with
the emergence of America as the biggest market for video products, surpass-
ing Japan and Northern Europe.
The spread of video through Europe was uneven. Northern Europe
reached temporary saturation by 1983. In that same year, the French gov-
ernment instituted two policies that had the effect of derailing the VCR rev-
olution. It only opened one port of entry for video machines, which slowed
the imports to a trickle for several crucial months. The government also pros-
ecuted video distributors who did not wait a full year until after the theatrical
run of a movie before selling the cassettes. Although the one-year window did
not help the dramatic decline in theatrical attendance at the time, it caused
V E N I , V I D I , V I D E O

100 a crisis in confidence in the video business. The VCR revolution was rela-
tively slow in Benelux and Southern Europe in the early 1980s, because the
audience was either investing in subscription television or was satisfied by
the expansion of commercial television (in Italy this satisfaction precluded
widespread desire for time shifting or cassette rental). Therefore, the spurt in
foreign VCR sales of 1978–1981 soon gave way to the explosive rise in Amer-
ican markets in 1981–1984. This timing meant that the American film in-
dustry’s perception of home video would be decisively shaped by domestic
developments.
American distributors had not anticipated the rise in American rentals
despite the European example. American culture favored outright purchase
through layaway plans and other expensive credit schemes. This common
view of American consumer behavior led film distributors to hope the rental
idea would prove to be a small niche market when it first appeared.68 They
were surprised to learn that despite the inconvenience of the pickup and
return, the rental of videotapes grew exponentially everywhere. An ever-
expanding pool of new VCR owners seemed willing to rent titles in quantities
that have not been seen since. The stores found out that it was easy to rent
out even limited-appeal titles with turns (each rental was called a “turn”) that
far exceeded the break-even point. It became popular in rural areas, in the
suburbs, and in urban areas. The only gap in its popularity was and contin-
ues to be in inner-city neighborhoods.
Table 3.4 shows the astronomical growth in rental stores. Column 2 is a
count of places where video is the primary business and does not include the
convenience store and other places that rent the occasional cassette. It does
include stand-alone rental centers located inside supermarkets.
Rental store growth was an explosion that reminded film historians of the
nickelodeon boom at the beginning of the twentieth century. Video stores
were the one growth industry during the general economic slump of the
first years of the Reagan administration. Noel Gimbel, owner of an early
large store called Sound Video, stated that the minimum a prospective store
owner needed for a start-up was $30,000.69 This was one of the few low-
cost opportunities of the time. By 1986, the number of stores specializing
in the sale and rental of videocassettes surpassed the number of movie the-
ater screens.70 Video stores and theatrical screens continued at rough parity
through the mid-1990s.71 Of course, the ownership patterns of the rental
stores has changed radically over the decade. In the early period, most stores
home video

table 3.4 Rental Stores and Rental Prices, 1979–1992 101

Number of
U.S. rental Number of VCR Average rental
Year stores households per store price (dollars)

1979 700 1,600 n /a

1980 2,500 672.8 7.00
1981 5,500 553.2 5.00
1982 7,000 725.4 3.00
1983 10,000 916.9 2.80
1984 16,000 1,049.1 2.60
1985 23,000 1,222.7 2.38
1986 25,000 1,312 2.28
1987 27,000 1,585.19 2.15
1988 29,000 1,775.86 2.20
1989 30,000 1,943.33 2.26
1990 29,000 2,193.1 2.31
1991 28,000 2,446.43 2.30
1992 28,000 2,578.57 2.36
sources: Column 2—Video Store, December 1990, p. 111. Column 3—Video Marketing
Newsletter, 1980. Column 4 —Veronis, Suhler, and Associates, Communications Industry Fore-
cast 1994 –1998 (New York: Veronis, Suhler, and Associates, 1994), p. 142.

were independent of each other and were generally handling under 2,000
titles. Since that time there has been a rise in large chains such as Block-
buster and super stores handling 7,500 titles or more (see Chapter 5 for the
Blockbuster story).
In the early years, shops were offering off-beat items such as shorts and
features that had fallen into the public domain, films owned by companies
other than the Hollywood majors, and, in particular, adult titles, in addition
to the relatively few available Hollywood films. Despite the preponderance of
adult titles, the rental market was demonstrating an enthusiasm for main-
stream feature films. Consumers would rent half a dozen feature film cas-
settes at a time and choose just about every title on the shelf, with the main-
stream films at the top of the pile. Obviously, the major film companies were
self-defeating in their slow response to this unprecedented enthusiasm for a
new market in film. The majors wanted to either sell directly to the customer
or participate in each and every rental transaction—in other words, receive
a cut of the rental fee. Both strategies worked against efficient exploitation of
a red-hot market in rental tapes. The majors resented that the video business
V E N I , V I D I , V I D E O

102 was not developing toward direct consumer sales, and that there was nothing
to stop entrepreneurs from buying cassettes outright and turning these cas-
settes over to rental shops. Contract provisions such as the one with Magnetic
Video were powerless to stop this behavior.
Nonetheless, at first, representatives of Twentieth Century Fox and other
studios asserted a naïve and incorrect notion that copyright holders could
stop the rental of films. Several early renters became unsure of the status of
their activity and used the exchange or club membership structure to avoid
calling the transaction a rental. Such artifice was unnecessary. Renting video-
tapes without the permission of the copyright holder was perfectly legal. It
was permitted by the “first sale” doctrine of the Copyright Act. First sale, like
fair use, was developed in court cases struggling with the implications of in-
tellectual ownership before it was finally written up as Section 109 of the
1976 Copyright Act. The logic of first sale comes from the idea that copyright
gives the owner a “monopoly” over a particular expression of an idea. It does
not allow that ownership to be extended to the physical embodiment of that
expression. Therefore, people are perfectly free to do whatever they want
with a particular copy of a book they have purchased: destroy it, use it to prop
up a bed, resell it, or rent it. The only thing they cannot do is to copy the
book, that is to say, transfer its expression to another physical embodiment.
United States copyright case law had formalized this distinction in the notion
that the first sale “exhausts” the copyright holder’s rights in that particular
item of sale.
Lawyers explained first sale doctrine to film executives as they monitored
the growth of rental stores. A foreboding was growing on major studio lots.
Film distributors could not fathom a future where they would not control the
rental of their films, a future where instead some mom and pop store would
control it. I discussed in Chapter 1 the importance of leasing prints for the de-
velopment of centralized distribution, the ultimate source of power in the
film industry. The film distributors figured that either they would lose a valu-
able source of income, since the rental store owners would take home all the
rental profits, or they would lose control of the film, since ownership and dis-
tribution would become widespread. Illegal duplication of videocassettes was
already becoming a major headache, and unauthorized rentals could only fa-
cilitate such behavior. Several majors decided that they had to reassert con-
trol of their inventory.
Rental is a variant of time shifting. Customers choose to rent for the same
home video

reasons they time shift, in order to pick the time and place for viewing. Rental 103
was driven by the same stressed leisure that made the time shifting ad cam-
paign such a success. In one aspect, the act of rental was vastly different from
time shifting. It transformed the VCR from being an extension of the TV to
being an alternate to the movie theater. This is why a major film distributor
such as Warner Communications saw rental as much more of a threat than
home taping. Warner and other major studios now improvised new strategies
to meet the rental challenge. They stopped selling cassettes, offering leasing
plans instead. They also pursued a legislative solution that would exempt the
industry from the first sale doctrine. The majors failed in both strategies; the
reasons for these failures will be explored in the next chapter.
The video revolution was part of the continuing quest to provide consum-
ers with enhanced choices. However, the nature of “choice” was unclear. Was
choice a quest for more programming or a quest for more control over the
time in which the audience watches the show? During the period from 1975
through 1981, the answer was greatly obscured because events were taking
place without much direction from the usual power centers of the culture in-
dustries. Social and cultural awareness of course lags behind actual history,
and it is not surprising that hardly any media executives saw the connection
between the increasing number of people working and the popularity of the
VCR. Indeed, even if they had had such awareness, it would be hard to sug-
gest how they should have responded. In hindsight, the Universal and Disney
lawsuit was unnecessary. As the case slowly made its way to the Supreme
Court, it was becoming clear that the VCR was about to return even higher
revenues to the film industry than broadcast television ever did, despite in-
dustry hostility.
 C H A P T E R F O U R

The Years of Independence:

1981–1986

The five years of 1981 to 1986 are the golden years of home video production
and distribution. This period was one of new companies exploring new pos-
sibilities in film production and distribution, as well as developing a totally
new approach to exhibition: the rental of videotapes. It is difficult to tell the
story of these years in a linear sequence since it involves so many new and
old players acting, reacting, and even ignoring each other. Our first task is to
complete our survey of video distributors by looking at the new ones spring-
ing up alongside the major film studios (already discussed in the previous
chapter). Although the majors scarcely admitted it, these new distributors
represented new competition. The newcomers were not interested in legisla-
tive and contractual controls on the rental stores. They saw that more was to
be gained by cooperating with than by controlling the stores. In turn, the
rental business grew and matured due to new distributors enthusiastically
selling tapes and spurring the reluctant major studios.
At the same time, cable TV was also growing into a major market for fea-
ture films and, for a while, the cable channels were more important finan-
cially than the video distributors. We need to look at the tandem growth of
both media in order to properly evaluate the greater importance of home
video. We want to look at the experiment distributors were making with non-
feature film products and survey the ways independent producers were tak-
ing advantage of new video revenues to finance and increase their production
schedules through such devices as “pre-selling.” The chapter closes on this
high point of independent production and distribution.
the years of independence

105
Independence on the Cusp of Video

Independence is an important and an elusive category. I have already men-

tioned that independent distribution is the best tangible evidence of alloca-
tive power. Still, within the visible category of independent distribution there
are many shades of gray. There were relatively many independent distribu-
tors in the late 1970s. There were those that had been distributing exploi-
tation films since the 1950s. There were newer ones that had formed in re-
sponse to perceived opportunities such as favorable tax laws and the product
famine of the 1960s and early 1970s. The product famine left many theaters
willing to show films of limited appeal such as midnight cult movies and “art”
films. The situation for independents was turning less favorable as 1981 ap-
proached. In 1976 the tax code was changed, giving less of a write-off to film
investors.1 The development of wide releasing in the aftermath of Jaws (1975)
and Star Wars (1977) meant that many copies of major films were playing in
hundreds if not thousands of theaters at the same time. In these circum-
stances, exhibitors lost interest in small cult and other off-beat movies. In ad-
dition, after Jaws, independents had to worry that the majors would steal
away their audiences with more “bang for the buck” (more car crashes and
beautiful girls per reel), with summer releasing, and with more efficient ad-
vertising. The majors were increasingly giving “A”-level budgets to “B”-level
formula scripts. Analyzing independent film trends up through 1981, Vari-
ety’s Todd McCarthy claimed that only the occasional horror movie could
survive competition with the majors.2
Fewer distributors now had the complete freedom to distribute the prod-
ucts they wanted to make. In this transitional period in the late 1970s, many
independents had to enter unequal power relationships with other media
corporations in order to finance market access. On the other side of the coin,
major studios sought to reduce their exposure to high union costs and other
production risks. These studios were willing to fill out their release schedule
with distribution partnerships and with “negative pickups.” Negative pick-
ups occur when an outside production company brings a completed film to a
studio distributor and the studio agrees to distribute the film, typically pay-
ing the production company a guarantee immediately and a percentage of the
profits from the revenues if the amount exceeds the guarantee. The produc-
tion company has given up full participation in the profits but at least is se-
cure that the film is now being handled by a major studio and will get the full
V E N I , V I D I , V I D E O

106 attention of the exhibitors and the public. The big studio gets a completed
film for less money than the studio itself could have made the film.3 This deal
became popular and it was estimated that by the end of the 1970s, half of the
movies distributed by the majors were from such arrangements rather than
from their own internally financed productions.4
These partnerships and negative pickups were very important for the de-
velopment of video distribution. Although such deals were often slanted in
favor of the major studios, independents such as Dino DeLaurentiis, Alexan-
der Salkind, and many others typically only signed away the North American
theatrical rights. They retained all other ancillary rights, such as pay and
broadcast television and home video. In addition, independent film distribu-
tors such as Avco Embassy, Associated Film Distributors, Filmways /AIP, New
World, and others were producing several films each annually. Independent
and semi-independent producers were still prevalent despite the harsher at-
mosphere of the late 1970s and were making a wide range of products, from
the formulaic cheapies to the biggest budget event movies. There were many
movies around with their video rights available to the highest bidder, as the
rental market heated up. New or fledging distributors could build their in-
ventories by snapping up the ancillary rights to big motion pictures from De-
Laurentiis, Orion (the successor company to Filmways /AIP), Time–Life,
Cannon, Goldcrest, and other producers.

New Companies Get into Video Business

The previous chapter described how the major studios formed their own
video distribution divisions. Other film companies jumped into the new mar-
ket. Other media corporations also formed video distribution divisions, hop-
ing to build upon their own operations in music, publishing, and so on. The
most interesting group from the point of view of the potential uses of video
were those companies that started on their own and dedicated the bulk of
their efforts toward video distribution.
Media Home Entertainment was formed as a video distribution company
in 1978, a few months after the Magnetic Video/ Twentieth Century Fox deal.
Its principals were Joe Wolf, Ron Safnick, Murray Moss, Gunther Schiff, and
Irwin Yablans. Wolf stated the company’s philosophy as “We fill the voids of
the majors.” 5 Irwin Yablans had just produced one of those runaway hits for
which independents always hope. It was the horror film Halloween (1978),
the years of independence

directed by John Carpenter. Media built its video operations on this and other 107
horror films. The company also distributed children’s video when it had a
chance. By 1981, Media was grossing $8 million in home video sales annually.
It was sold to a British conglomerate, Heron Holdings, in 1983 and continued
as a semi-autonomous division for the rest of the decade.
Family Home Entertainment (FHE) was another stand-alone video
distributor. It was created in 1980 by Noel Bloom, the owner of Cabellero
Control, a major adult production /distribution house. He had built the
porno business up from a magazine his father had entitled Swedish Erotica.
Through the sixties and seventies, Noel Bloom had progressed from nudie
film loops to the sale and rental of 3⁄ 4-inch U-matic tapes and ultimately VHS
cassettes. Bloom decided to move into mainstream distribution. He had the
idea of distributing children’s video before anyone else had really started to
do so —“before Disney had even thought about it.” 6 Bloom, for obvious rea-
sons, wanted to separate the “kidvid” from his adult business and created
FHE as a separate company to acquire programming. He later formed an-
other label, USA Home Video, to acquire and distribute independent films
and “made-for-TV” shows. He formed a partnership with Charles Band to re-
lease The Texas Chainsaw Massacre (original theatrical release was in 1974)
on video. The horror/slasher classic was very profitable and in 1984 Bloom
reorganized FHE and USA under the International Video Entertainment
(IVE) banner. All this time, he had kept Cabellero separate, finally giving up
his participation in it in 1986.
The most influential stand-alone video distributor was founded in 1981.
This was Vestron, whose first films were acquired from Time–Life, the pub-
lishing company. Time–Life had been interested in video distribution since
the introduction of the U-matic system. It had also expanded into film pro-
duction /distribution in the late 1970s. However, at the beginning of the video
explosion, it decided to get out of the theatrical film business in order to con-
centrate on its successful cable operations, such as Home Box Office (HBO).
A thirteen-year veteran of Time–Life, Austin Furst was brought over from
a successful stint at the HBO division to handle the breakup of Time–Life
Film. In 1981, he sold both the production and theatrical distribution divi-
sions to Twentieth Century Fox, and the television division to Columbia films.
Although these deals were successful, Furst was frustrated in his efforts to
find a buyer for the home video division.
In his frustration, Furst came up with the idea of buying the home video
V E N I , V I D I , V I D E O

108 rights by himself and forming his own company. Austin Furst had been in
several divisions of Time–Life and could see that cable and other businesses
were not providing many opportunities for entrepreneurs. On the other hand,
home video distribution was a rare opportunity that could reward individual
risk taking. The major studio executives were not developing the market
properly. It was enterprising individuals such as Andre Blay and Noel Bloom
who were showing the way. In 1981, Furst persuaded the other Time–Life
executives to sell him the home video rights to the Time–Life films. He re-
signed to go into business for himself at the age of thirty-eight. His daughter
suggested the Vestron name after the Roman goddess of the hearth, Vesta, and
the Greek word for instrument, Tron.7 Furst recruited another Time–Life ex-
ecutive, Jon Peisinger, to preside over the new company. Peisinger had spent
a decade in various record companies but had only been at Time–Life for
a year when he joined Vestron in the summer of 1981. Vestron Video began
operations in February 1982, offering titles such as Fort Apache, The Bronx
(1981), starring Paul Newman, and the Burt Reynolds hit The Cannonball
Run (1981).
One small preexisting film company, Embassy, plunged into video distri-
bution operations in 1981–1982. The prolific producer Joseph Levine created
Embassy Pictures for the purpose of theatrical distribution in 1967, selling it
to Avco Industries in 1974 (right after Avco’s mishap with Cartrivision). Avco
Embassy was a successful independent film producer/distributor with horror
and action titles such as The Fog (1980), Escape from New York (1981) and
Time Bandits (1981). Avco Industries decided to sell Embassy to Norman Lear
and Jerry Perechino for $26 million at the end of 1981. The partners re-
cruited Andre Blay, who had left the Magnetic Video division of Twentieth
Century Fox in September 1981. Blay quickly built Embassy into a major in-
dependent, taking an average of 4 percent of the cassette market from 1983
to 1986.
These four companies, Media, FHE /IVE, Vestron, and Embassy, were ag-
gressive in acquiring films and grabbing market share. The other video dis-
tributors tried to build cautiously on their existing expertise and product
lines. Several media corporations without preexisting film interests moved
into home video to see if they could extend their media markets. Western
Publishing had published children’s books since 1916. It started to produce
and distribute videos based on its successful line of children books. However,
its share of the prerecorded video market only rose to 1 percent in 1985, and
the years of independence

it was a low-profile operation. Several other print publishers explored video 109
production and distribution, especially after the success of the Jane Fonda’s
Workout video in 1982, which was inspired by her book of the same title.
These publishers did not achieve high market share.
Video distribution attracted other record company executives in addition
to Vestron’s Peisinger. Many noticed the similarities between video and rec-
ord distribution and thought that their record experience was a good back-
ground for the new medium. The same logic motivated record companies to
add video distribution to their extant distribution operations. These com-
panies were not very venturesome. For example, neither RCA Records nor
CBS Records looked to acquire individual films. Instead, they looked for es-
tablished film partners. CBS joined with MGM in 1980. Two years later it
switched to the considerably stronger Twentieth Century Fox. CBS/Fox still
exists and handles non-theatrical and other less popular videos. RCA allied
with Columbia from 1981 to 1991. Foreign music companies with similar ex-
pertise, such as Thorn /EMI and Polygram, experimented with home video
distribution as an extension of their record distributions. Thorn /EMI video
division was created in 1982 and captured 6.2 percent of the American pre-
recorded cassette market in 1985 on the strength of such films as Terminator
and Amadeus. It was now the eighth largest film supplier. Nonetheless, by
1986 Thorn /EMI had had enough of the headache of working in the film
business and turned its home video division over to CBS/Fox.8 Polygram was
also a fickle participant. It nosed around the distribution business in the early
1980s, handling such titles as An American Werewolf in London (1981). It got
out of the film business in 1983 during the great music record slump.
A few television distributors tried their hand at video distributing for a
short period. Lorimar was an independent television supplier that moved ag-
gressively into home video in 1984. It was acquired by Warner Communica-
tions on May 16, 1988. Taft Broadcasting formed Worldvision Home Video in
1981. It became part of Spelling, which is now part of Viacom. Other televi-
sion distributors such as HBO and Turner have created their own video la-
bels, but the former has been folded into Warner Home Video, and Turner is
also now part of the Time Warner empire, although it continues to maintain
a separate label.
Sony was the only electronic manufacturer (besides RCA) to try launching
a video label division. This division grew out of its effort to distinguish its Be-
tamax format from VHS by creating different content. In 1982, it began ex-
V E N I , V I D I , V I D E O

110 perimenting with its own production /distribution arm, creating and selling
various music videos that were known for a while as Video 45s. However,
sales were poor and certainly did nothing to stop the decline of Betamax.9
Much later, both Sony and Matsushita made big splashes in home video
distribution when they bought major film entertainment companies. Sony
bought Columbia Entertainment in September 1989 and continues to own it.
The leading VCR manufacturer, Matsushita, also got into home video distri-
bution when it bought MCA /Universal in November 1990.
The video distributors that would make the biggest impression were the
new autonomous independents, particularly IVE and Vestron. Their impact
can be measured as a function of their market share, their explorations of dif-
ferent genres, their innovations in acquiring and financing film production,
and, more subtly, the response of the major studios.

Hollywood Tries to Control Rentals

The video rental market had emerged as something thrust upon the major
film distributors. The response of the major studios was to learn to coexist,
albeit without enthusiasm, with the rental stores. Independent distributors,
on the other hand, embraced the new market and became pioneers of selling
film on video. The major Hollywood studios often seemed just to want the
rental business to go away. Even as late as 1981, several home entertainment
executives, such as Cy Leslie of MGM /CBS Home Video and Mel Harris of
Paramount, hoped that the sale of cheaper videodiscs would eliminate video
rentals.10
From 1979 to 1985, the major film distributors tried four types of strate-
gies— contractual prohibition, partnerships and exclusive leasing, legislative
exemption from first sale, and surcharges on purchase price of cassettes—to
regain control of the rental market. These strategies overlapped, with some
studios trying one and then the other, and others trying a combination. By
1985, the only strategy that endured was the one of placing a surcharge,
which evolved into the two-tiered pricing system. Let us review the three
failed strategies.
Twentieth Century Fox wrote an anti-rental provision into the initial 1977
contract with Magnetic Video. Other major companies copied this provi-
sion. These provisions were immediate failures for the major studios. Mag-
netic Video found that there were few enforcement possibilities when the
the years of independence

cassette was sold to a third party. The few retailers who tried to abide by such 111
clauses felt undercut as they turned away potential renters, who then went to
other retailers to rent the tapes. By 1981 Cy Leslie of MGM /CBS bluntly
stated that since a no rental clause “is not legally binding, it’s nonsense.” 11 In
that year, most studios started to drop such clauses from their contracts.
At several points, film distributors tried various partnerships and leasing
options for rental cassettes. The most obvious partnership candidates were
national retailers, and the film studios sought them out. As early as 1979,
Paramount entered into an arrangement with Fotomat, the one-day photo
service chain. Fotomat used its 3,500 kiosk locations to distribute catalogs of
the available videos. The customer would call Fotomat and order a cassette.
The cassette would be available the next day at the kiosk. The customer would
rent the cassette for $12 for five days. Paramount received from 20 to 50 per-
cent of the rental fee. Thorn /EMI also signed with Fotomat, and Warner
Communications announced plans to join this plan. It was the rise of neigh-
borhood video stores that undermined Fotomat’s business. Neighborhood
stores had the significant advantage of allowing the customers to browse and
to rent on the spot. By the beginning of 1982, Fotomat had suspended the
video rental operation.12
Walt Disney Home Video was one distributor that actually put some en-
ergy into enforcing the no-rent contract. Disney was very hesitant about re-
leasing its classic animated films on video. It placed the home video division
under the guidance of James Jimirro, a man who had begun in the 16mm di-
vision of Disney when Walt Disney was still alive and who thus could be
trusted with the company “jewels.” Disney executives placed less popular
cartoons and films from their library on tape, without much publicity. They
were determined to keep a tight control over even these lesser titles. By No-
vember 1980, Disney accepted that tape rental was here to stay. However,
Disney executives saw no reason why the distributor should not receive a part
of the rental dollar just as it received part of the box office. In that month, the
company instituted a dual inventory policy of placing certain cassettes for
sales and other cassettes for rental. Both kinds of cassettes were shipped in
boxes engraved with the proper use of those cassettes. Disney did not dis-
tribute through wholesalers but through sales representatives. The sales reps
reported back on the suitability of the stores for Disney products and about
the compliance with the dual inventory policy. Disney successfully settled out
of court with several violating stores. It threatened other stores with the with-
V E N I , V I D I , V I D E O

112 drawal of the right to use Disney’s trademark. However, the overall effec-
tiveness of their enforcement was in doubt. Disney had set the leasing fee
for a rental cassette at $52 for thirteen weeks. This fee assumed that a cas-
sette would rent thirteen times during this period at $8 a turn. The store
would make $104 and split it with Disney. However, cassettes rarely made
all thirteen “turns” in thirteen weeks, and the mushrooming of compet-
ing rental stores drove the rental fees down. Clients, stuck with the Disney
deal, expressed their anger and by April 1981 Disney retreated to a two-for-
one deal.13
From the point of view of the Hollywood divisions, the offer to lease tapes
to rental stores was actually a carrot, not a stick—a partnership, not a take-
over. Morton Fink, the head of Warner’s home video division, commissioned
a study and concluded that direct studio participation in every rental trans-
action was not feasible because it would involve too much monitoring and pa-
perwork. He proposed a system similar to Disney’s but avoiding the thirteen-
week commitment. The video store owner would lease cassettes from Warner
for one-week periods at fees starting at $8.25.14 The weekly periods were
designed to help the stores maximize shelf space for the recent hits and to re-
duce their inventory investment since they no longer had to pay prices of
$60 to $80 for a single cassette. Fink was able to convince various Warner ex-
ecutives that this could become an industry-wide plan and that the other stu-
dios would follow their example, at which point the rental stores would nat-
urally accept. Warner Communications initiated Fink’s leasing plan in the fall
of 1981.
Fink seemed on target in his assessment that other studios would follow
the plan. In November, Fox announced a similar plan with a license fee of
$45 for six months.15 MGM followed with a four-month plan. Warner’s plan
was a hit in Hollywood terms, since other distributors began imitating it. Out
in the field it was not playing so well. The various renters and video retailers
were upset. One immediate source of anger was that Warner withdrew titles
that were already selling on the open market in order to convert to a lease-
only policy. The renters were also aggravated by the increased need for pa-
perwork. In addition, the switch from ownership of the cassettes to leasing
deprived the rental stores of the tangible collateral of actually owning their
inventory. This was an important consideration when the store owners sought
bank loans and depreciation for tax purposes.
Fox and MGM deflected the anger by allowing their titles to be purchased.
the years of independence

Now Warner was stuck out on a limb. The company moved to make accom- 113
modations but not soon enough to forestall boycotts by some retailers. At a
January 1982 industry convention in Las Vegas, Warner’s booth was the site
of a particularly vocal demonstration. Angry video dealers were motivated at
this time to form two home video associations to look out for their interests:
the Video Software Dealers Association (VSDA) and the Video Software Re-
tailers of America (VSRA).16
The dealers’ hostility toward the Warner plan was not strictly a matter
of dollars and cents. Their anger was also triggered by the high-handedness
of the major studios. These studios had ignored the videocassette business in
the early high-risk stage. One dealer, Cheryl Benton, reminded everyone
that “these are the same studios who told us four years ago rental wouldn’t
work.” 17 The video dealers had built the business by themselves. They rarely
made high profits and suffered a 66 percent bankruptcy rate. Even if the War-
ner plan would reduce the renter’s exposure to risk, these dealers resented
the implied loss of control of their own fate.
Disney, Warner, and the others had set fees to recapture 50 percent of the
rental dollar. This figure was high even by the standards of theatrical exhi-
bition and did not reflect the difficulties of an emerging video market. The
dealers felt that they were being forced into unequal partnership. They could
not detect any goodwill built into the various rental plans, but instead were
afraid that the studios would always rewrite the rates just as the video store
owners were starting to earn desirable profits. A Brooklyn dealer, Rocco La-
Capria, voiced his mistrust of the movie industry loudly. He reminded his as-
sociates of the various anti-trust violations of the Hollywood studios. He also
made the damaging point that Warner claimed that it had the dealers’ inter-
ests at heart at the same time it was selling movies to cable in direct compe-
tition with rentals of those titles.18
The Warner leasing plan was phased out. Still, the majors did little more
to placate the rental stores. For several years, the majors’ association, MPAA,
had been talking about legislative relief from the first sale doctrine. In the
98th U.S. Congress (1983 and 1984), bills were introduced to exempt the film
industry from first sale. In these same sessions, bills were also introduced on
behalf of the record companies for the same purpose of exemption from first
sale doctrine. The two industries had the same complaint: that the combina-
tion of rental and the first sale doctrine allowed a damaging degree of home
taping of copyrighted material (see Chapter 3 for a discussion of “first sale”).
V E N I , V I D I , V I D E O

114 In other words, customers who rented an audiotape or videotape would copy
the tape onto another tape and deprive the music or film company of a sale
of that content. However, the two industries fared quite differently in the
halls of Congress. Their presentations were quite divergent, and an under-
standing of the divergence illuminates the unique nature of home video.
The record companies were able to commission studies to put a dollar
figure on the amount of sales they lost due to home taping. The only compa-
rable figures the movie companies could offer were future projections from
the next decade. Video sales were, after all, a new market and the preexisting
market—the theaters—had not lost sales. The music industry had immediate,
tangible wounds to show. The record companies had a slump from 1979 to
1984. There had been a dramatic downturn when sales of recordings dropped
by almost 11 percent, from $4.1 billion in 1978 to $3.7 billion in 1979.19 To-
tal record sales did not again break the $4 billion barrier until after the phe-
nomenal sales of Michael Jackson’s Thriller album, released in 1983.
Therefore, during the 1983 and 1984 congressional hearings, the Record
Industry Association of America (RIAA) and other music lobbyists convinc-
ingly portrayed themselves as being in dire straits. Alan Greenspan, the future
Federal Reserve Board chair, testified as an economist for the RIAA, present-
ing numbers for lost sales due to home taping. These numbers were chal-
lenged. However, the RIAA was able to counter the challenge with another,
more concrete, example of the dangers of record rentals. In June 1980 an en-
terprising student had opened up a record rental shop in a Tokyo suburb in
Japan. The idea was very successful and thirty-four more rental shops were
opened in that year.20 Three years later there were 1,600 shops.21 RIAA told
Congress that as a result of record rentals, record sales in Japan plummeted
by 30 percent.22
In these same hearings, legislators became increasingly skeptical about
potential damage of rentals to the movie industry. They had a hard time en-
visioning videotaping cutting into existing markets since the representatives
thought such taping was strictly for the purposes of time shifting. The box
office was not declining and cassette sales were becoming a significant source
of revenue because of rentals. The film industry realized that their case was
weaker than the music industry’s presentation. Alan Hirschfield, at that time
the top executive at Twentieth Century Fox, tried to reassure the represen-
tatives that the movie industry was being reasonable. The movie companies
did not want to prosecute the public for home taping; they did not even want
the years of independence

to drive renters out of business; they only wished to participate in the rental 115
transaction. The movie business is like all other cultural industries; it must
maximize its earnings on a hit in order to offset the losses on the flops. It was
only right that the movie companies should be able to participate in transac-
tions of their own copyrighted material.
Hollywood’s legislative friends were anxious about openly supporting first
sale exemption, despite Hirschfield’s plea, since that could only mean antag-
onizing the burgeoning ranks of video rental store owners, which were pop-
ping up in every congressional district. This consideration did not apply to
audiotaping since there were only three or four record rental stores in the
country at the time. This may have the decisive reason for Congress allowing
the video bill to die even as it outlawed record rentals (exempting only librar-
ies) by passing the Record Rental Amendment of 1984.
MGM /CBS started a partnership with Sears as a way to set up its own
rental chains and hopefully circumvent the independent rental stores. By
1983, Sears terminated the agreement and declared the effort a failure. Mass
merchandisers balked at the low penetration rate of home video, hovering at
9 percent in 1983, and did not want to invest in the overhead associated with
renting out videocassettes. They also feared that renting would undercut their
ongoing attempts to sell videos. Previously, when the music industry had
faced the same mass merchandisers’ reluctance, “rack jobbers” overcame the
resistance. Rack jobbers were independent companies that took responsibil-
ity for buying and stocking the record sections of major department stores. It
would have been natural for rack jobbers to move into video; however, in the
early years, they were discouraged by the relatively high prices of cassettes.
They could not afford to invest in all video titles and therefore could not build
a profitable high-volume market.23 As video penetration increased by the
mid-eighties and high volume became normal, these music rack jobbers be-
came important players in the video distribution business.
At this time, the film distributors had no alternative to working with the
“mom and pop” video specialty stores. In addition to the lack of alternative
retail sites, studios were afraid that refusal to provide product might leave a
void for illegal duplicators. The Hollywood companies turned to the only re-
maining strategy. Since they could not lease their tapes, or force the rental
stores to give them a percentage, they would simply charge more for the orig-
inal sale. At the end of 1981, Paramount responded to the rental phenome-
non by placing surcharges of up to $10 on titles where the company suspected
V E N I , V I D I , V I D E O

116 that most purchasers were renters.24 This placed an upward pressure on cas-
sette prices. The 1980–1982 list prices for popular feature films stayed up
around $70 to $80 despite the decrease in per-unit manufacturing and han-
dling costs.
Independent distributors saw an opportunity in the prolonged quest of the
major studios to control the rental business. Video stores bought every and
all prerecorded cassettes, not only to see what the new consumers were will-
ing to rent but also to lessen their dependency on the few majors. The heavy-
handedness of the majors gave further impetus to the effort to diversify the
video inventory. The home video explosion gave a substantial second wind to
those independent producers of filmed entertainment who retained the an-
cillary rights to their movies. The new “indies” had plenty of recent movies
to feed to rental stores.

Video, Theater, and Cable

The film distributors were not operating in a void. As video rental grew into
a $1 billion industry in the United States by 1983,25 its operations were bound
to draw reactions from other segments of the film industry. Theater owners
had been worrying that cable and video would cut into their ticket buyers
since the mid-1970s.26 They could do little to stop the new markets, but they
could improve their own situation. Theater counterstrategy involved safe-
guarding the period of an exclusive theatrical run and improving choice and
convenience at the theater. They experienced only minor fluctuations in ad-
mittance between 1979 and 1986, with four years of growth and four years of
decline and an overall average of a 1 percent decline per year. In the very
same period, box office revenue went up 33 percent due to ticket price in-
creases.27 Video was not substantially hurting their business. Their counter-
parts in Europe suffered a more substantial decline in this period, undoubt-
edly partially due to video.28 The steady American box office is even more
remarkable when we consider that both video and cable were expanding tre-
mendously in these years.
For the film industry, the coincident rise of cable and home video looked
like a series of leapfrog jumps. From 1978 to 1984, the cable industry was the
most important new source for film production funds. By 1984, home video
overtook cable as a larger source of film financing. Early home video distri-
the years of independence

bution successes often worked in partnership with cable financing. This sym- 117
biotic relationship is ironic since the two modes of distribution became com-
petitive as the number of households owning VCRs reached parity with the
number of basic cable subscribers by 1986 –1987.29 Competition is evident in
the way home video rentals severely undercut the pay-per-view market for
feature films and dampened subscription rates for premium cable services.30
There was cooperation between the two industries for production financ-
ing, and there was competition for advantageous release windows and for au-
diences. Cable financing for filmmaking emerged in 1981, just slightly ahead
of video financing, when domestic theater revenues were stagnating and for-
eign theatrical revenues were declining.31 HBO and other cable distributors’
license fees therefore provided the difference between life and death for
the perennially hungry independent producers. Films like On Golden Pond
(1981), Tootsie (1982), and Sophie’s Choice (1982) were made with the active
pre-production support of HBO. Typically HBO provided 25 percent of the
negative costs of making the movie, for the exclusive right of showing a movie
on cable one year after its theatrical release. It is estimated that from 1977 to
1983, HBO participated in more than 100 movies on this basis.32
While indies found HBO to be a savior, major film distributors resented
HBO’s refusal to tie its licensing fees to the number of viewers for individual
films or to give in on other film studio demands. They set up cable compe-
titors. Viacom, a television distributor, started Showtime in 1976. Warner
Communications collaborated with American Express to form The Movie
Channel in 1979. In 1980 Twentieth Century Fox, Universal, Paramount, and
Columbia, along with Getty Oil, created Premiere, a pay cable TV service that
would show the participants’ films in an exclusive nine-month window. The
Justice Department sued the Premiere participants for anti-trust activity and
the New York Federal District Court ruled against the defendants. An appeal
looked hopeless and Premiere was dissolved. The movie studios started to
formulate other strategies.
The major suppliers had played with the exclusive window for each mar-
ket release. Twentieth Century Fox initially did not allow a video release of
any movie less than two years old. In 1981, the company announced plans to
release Nine to Five just ten weeks after its theatrical release. Steve Roberts,
president of the telecommunications division, argued that the demographics
for the video audience were so different from those for the theatrical audi-
V E N I , V I D I , V I D E O

118 ence that this release would not hurt ticket sales and would take maximum
advantage of the theatrical advertising. It was rumored that this early release
was a strategy to upset HBO by favoring the video over the cable market.
Roberts had to back down when the theater owners complained that the
video release would cannibalize ticket sales (since potential ticket buyers
would wait for the video release). Afterward a six-month waiting period be-
came the standard as a balance between adequate theatrical exclusivity and
the time when the film marketing campaign would still be fresh in the con-
sumer’s mind as the video appeared.
In 1982, American film companies received over $300 million from all pay
television programmers—HBO, The Movie Channel, Showtime, and others.33
This led to some new initiatives. For instance, former United Artists execu-
tives took over Filmways in February 1982 in order to acquire a film distrib-
utor. They could do this because they had the promise of HBO money that
would enable financing of the $26 million purchase. They renamed their
integrated production /distribution company Orion Pictures. In 1983, Amer-
ican film companies received over $500 million from pay television. A bench-
mark of sorts was reached in that year. The British producing company Gold-
crest sold the American television rights for Gandhi for $20 million, to a
subdistributor. The success of its cable sale led the company to launch other
big-budget movies. This sum was roughly equivalent to its North American
box office returns. The gamble paid off when HBO paid $23 million for the
biopic in the subsequent bidding. This probably was an overpayment made
in the heat of fierce competition between HBO and Showtime.
It is surprising that despite 1983’s frenetic pace of cable financing, within
a year home video soon surpassed it as the best new source of financing. But
the transition is understandable if we consider the difference between the
two industry cultures. Independent video distributors were entrepreneurs
without the corporate resources of the cable channels. They had to be ag-
gressive and spend money freely in order to fill their pipelines. The VCR pop-
ulation was expanding, tempting these companies to bid for films, not on the
basis of what films had already earned in the video market, but in anticipa-
tion of breaking new sales records. Their aggression was due not only to an
expanding universe of rental stores but also to wide-open competition, with-
out recent precedent in the filmed entertainment world. Andre Blay observed
that in 1983 pay TV effectively had only two buyers, and that the six majors
dominated theatrical distribution, but that for home video the six majors
the years of independence

were joined by three equally strong independents (Thorn /EMI, Vestron, and 119
Embassy) and others for a total of twenty or so buyers.34
Goldman Sachs, the Wall Street research firm, stated that home video
contributions matched pay TV contributions as early as 1982. By 1984, the
research firm estimated that home video was giving film suppliers a total of
$1.4 billion, while pay TV’s contribution stagnated at $600 million.35 Pro-
portionately more of the video money was going to independent companies.
However, even majors were surprised to find that video was returning more
than cable for their films. Four companies boasted of this phenomenon to
stockholders by breaking out the actual figures in their 1984 annual reports.
Of the four, only MGM /UA reported slightly higher earnings from pay TV.
Disney, Orion, and the even the litigious MCA /Universal were drawing more
from home video than from pay TV.36 The trend only deepened the next year.
Merrill Lynch, another Wall Street investment firm, stated that video con-
tributed 23 percent of the film industry’s total revenues in 1985, significantly
ahead of pay TV, with its 17.9 percent contribution.37
Cable and Pay Per View (PPV) kept losing ground to home video in terms
of exclusivity and release dates. As the VCR population surged, cable sub-
scribers fell behind. In 1986, there were 32.5 million VCR households, with
an equal number of cable subscriptions. In 1988, there were only 48.6 mil-
lion basic cable households, of which 37.2 million had premium subscrip-
tions, compared to 56.2 million VCR households.38 Since that time there has
consistently been 10 million or more VCR households than basic cable house-
holds. In addition, the prerecorded video market returns an even greater
amount of money per consumer to the film supplier than either cable or PPV.
From 1980 through 1983, major studios expressed fondness for PPV as
the potentially best new distribution technology. The split of PPV revenue
was just like the theatrical split since the studio received 50 percent of the
money each viewer paid to watch the movie. But the mass audience did not
materialize. In September 1982, Star Wars became the most popular PPV film
of the early 1980s, with 300,000 subscribers. If we estimate that Twentieth
Century Fox got $4 per viewer, the resulting $1.2 million still pales against
the $8.3 million the studio received from the 1983 home video release.39 The
situation for PPV has never really improved, although related schemes such
as Video On Demand (VOD) and others have occasionally been promoted as
having the potential to undermine the prerecorded video market. It is of en-
during importance that by 1983, the studios had learned that video was their
V E N I , V I D I , V I D E O

120 best new market. At this point, it was standard practice to release a title on
video at least three months before cable was allowed to show the film and a
year before a network broadcast.
In more than one case, cable money served as the seed money for projects
that eventually attracted even more money and attention from video distrib-
utors. For example, Orion, the company created by HBO financing, became
an important source of independent films for the video market. This occurred
when it signed a deal for Vestron to handle its domestic video distribution.
Vestron’s president, Jon Peisinger, had made a point of opposing the vari-
ous Hollywood leasing plans and the effort of studios to rescind first sale doc-
trine. Vestron wanted to cooperate with video rental stores on marketing and
other resources.40 Furst and Peisinger had decided that the key to success was
to treat video as a unique market. Vestron moved forward quickly to become
the biggest independent distributor. By the end of its first year, it had released
fifty-one videocassette titles. Within another year, it had reached parity with
the majors in the number of releases and revenue share. The company was
taking its revenue and putting it right back into buying more films.
Vestron’s Furst relished the resulting fierce competition. He had left HBO
in order to get involved in a risky and rewarding market. He told Variety that
“home video is the most ‘democratic’ video business around right now, . . .
All a company has to do to enter is to get a product that will sell to the whole-
salers, and through them to the retailers.” 41 David Whitten, a sales veteran of
those days, reports that Vestron would send five buyers to film markets such
as the American Film Market. They would enter on the first day and put in
preemptive bids on every film that still had open video rights. Other distrib-
utors were forced to increase their own bids or stay out of the game. Vestron’s
biggest coups were getting the rights to the Benji series, two films from ABC,
and the international rights to Merchant Ivory productions. Vestron also
managed to lock up the entire 1983 and 1984 output of Orion Pictures, the
producers of Woody Allen’s films, and other high-profile titles. The aggressive
acquisition of product gave Vestron and its wholesalers the ability to quickly
stock the shelves of the new and/or expanding video stores. More film pro-
ducers wanted to jump on the Vestron bandwagon and take advantage of Ves-
tron’s newly won power with retailers.
All the major film libraries had been licensed to home video distributors
by the end of 1983. Now the bidding for video rights to unattached films went
up another notch. Embassy raised eyebrows when it broke the million-dollar
the years of independence

barrier by paying $1.6 million for the North American home video rights 121
to Silkwood as it began its theatrical run.42 Nonetheless, it was reported that
Embassy turned a profit on the deal.43 Several companies were now over-
reaching. Noel Bloom acquired the North American video rights to Supergirl
from Alexander Salkind for a rumored $3.25 million.44 He completed the deal
in May 1984, before the movie flopped in its theatrical release and subse-
quently suffered a loss in the video release. An all-time record for buying a
completed film may have been set when CBS/Fox paid somewhere between
$10 and $15 million for the rights to The Empire Strikes Back in 1984. Out-
siders speculated that the video release did not return a profit for at least sev-
eral years.45

Pre-Selling/Pre-Buying

One way to reduce the very high prices film producers were demanding was
for video distributors to pre-buy the film before it had been completed. It is
at this stage of negotiations that a video distributor has an advantage. The
producers need to raise cash and the competing distributors are much less
willing to take a risk on an unknown product. Dino DeLaurentiis had pio-
neered pre-selling in 1972 with the help of the Dutch banker Frans Afman.
DeLaurentiis solicited commitments from distributors around the world to
buy a film that had yet to be made, for their territories. Afman used the com-
mitments as collateral and advanced the money to DeLaurentiis to make the
film. It was an excellent way to maintain autonomy. DeLaurentiis treated
Paramount (his U.S. distributor) as a co-equal in power sharing as he pro-
duced a string of hits—including Serpico (1973) and Death Wish (1974)— from
this novel form of financing.46 The same techniques and even the same people
were now engaged in pre-selling to video distributors. Frans Afman was now
working with the French bank Crédit Lyonnais. Because of his success and
influence, Crédit Lyonnais became a major lender to the independent pro-
ducers and distributors, underwriting the pre-selling.
Video pre-buying was first initiated for low-budget films (under $5 million
in negative costs). It is impossible to chart the amount of home video money
financing low-budget films. A few reports indicate the trend. One low-budget
outfit, Manson Productions, reported getting one-third of its money from
home video as early as 1981.47 By 1984, video distributors had enough money
and confidence to pre-buy high-budget films ($10 million or more). Media
V E N I , V I D I , V I D E O

122 Home Entertainment, armed with the backing of a billion-dollar-plus con-

glomerate (the Heron Group), was the first when it paid $2.6 million for North
American video rights to Santa Claus— The Movie, another Alexander
Salkind production, in March 1984.
The hot action in buying was highly visible at the new and expanding film
markets of the 1980s. Film markets had come to be important soon after
World War II. The most famous was the Cannes Film Festival, which first
opened in September 1946. In addition to its famous competition and the de-
but of films to the public, Cannes had also become the site where distributors
from all parts of the film world could pick up unsold rights from film pro-
ducers. Several new filmed entertainment markets were formed in response
to the expansion of ancillary markets and of global television syndication.
MiFed was started in Milan in 1980, and the American Film Marketing Asso-
ciation (AFMA) was formed in 1981 with its own annual market in Los Ange-
les. International buyers and sellers of independent films traveled to all three
markets, and video buyers made quite a splash at these places. Foreign tele-
vision was still dominated by single-channel state monopolies, and European
video dealers sought average or below-average American films in order to fill
the pent-up demand for an alternative to TV.
By 1984, AFMA was reporting that home video accounted for one-third of
the foreign sales or $120 million out of a total of $375 million.48 The follow-
ing year AFMA reported that 60 percent of the total market activity (domes-
tic and foreign) came from home video.49 MiFed reported similar results.
Orion and a production consortium, Producer Service Organization (PSO),
both reported getting 50 percent of their sales for home video rights. Cannon
got 40 percent from home video.50 The presence of companies such as Can-
non and PSO showed that pre-buying was not just helping established pro-
ducers but also creating opportunity for new ones. Pre-buying was the
primary activity that reinforced diversity in video distribution and film pro-
duction.
Cannon Films represented a new breed of production companies, one
whose business plan was a direct response to the new home video money. It
had first drawn attention as the producer/distributor of the cult film Joe,
which earned $9.5 million after its 1970 release. It settled into a routine pack-
age of soft porn and horror films for the rest of the decade. In 1979, Men-
achem Golan and Yoram Globus, two Israeli cousins, borrowed money from
Slavenburg Bank of The Netherlands and bought Cannon Films. Both they
the years of independence

and their loan officer, Frans Afman, had decided that quantity was the key to 123
success as home video and other markets expanded for film products. Golan,
in his usual colorful manner, said to the press in 1986, “Theatrical is not the
only mouth to feed. If Hollywood produced five times as many films as it does
now, it would still not meet the demand. There is space for the mediocre!” 51
Afman reiterated that view when he said in an interview: “We’re told that
only eight titles a year will succeed. When I heard that figure, I told my clients
to get a lot of B movies ready because in a situation like that there will be an
enormous product shortage.” 52 Afman anticipated that the few big films from
the major studios would not be enough to feed the ancillary markets. His
lending activities became a big part of independent production expansion
from 1984 to 1987.
Cannon needed little encouragement from its banker to be off and run-
ning. They had a preexisting library of sixty Cannon titles, to which they
added their own Israeli films. Golan and Globus expanded their production
schedule every year without slowing down to add up their returns from the
previous year’s releases. They adopted the strategy of seeking every possible
line of credit, with a particular emphasis on foreign and home video pre-
sales, to build up their library. In 1983 they got $12 million from video dis-
tributors.53 In 1985 they sold the video rights for thirty-two films for $50 mil-
lion to Media Home Entertainment. The next year they got a pre-buy of
$50 million for twenty-three future pictures.54 The company experimented
with a variety of budgets. They generally averaged $5 million in negative
costs per title in 1985, about one-third of the costs on an MPAA film at that
time.55 Golan and Globus produced an eclectic mixture of action (e.g., Miss-
ing in Action [1984]), dance fads (e.g., Breakin’ [1984]), and even films by
such art cinema “auteurs” as Jean-Luc Godard and John Cassavetes. Among
the many movies they were making they hoped that one would become a hit.
Nonetheless, Golan /Globus insisted that their primary goal was to make
many movies to fill the perceived void, not to create a breakaway hit.
By 1986, Cannon had many more films in production than any other film
company. It announced that it had started forty-one new film productions.
The second most prolific production company was New World, which an-
nounced eighteen. The independent Hemdale announced fifteen. In con-
trast, each of the major film companies had, at most, nine or ten new films in
production.
Afman had expanded Crédit Lyonnais’ portfolio beyond DeLaurentiis and
V E N I , V I D I , V I D E O

124 Cannon to include independent producers at all budget levels. Video was a
key component of the collateral for Afman. Eventually Crédit Lyonnais lent
a total of $2.5 billion.56 Crédit Lyonnais’ client list included production com-
panies such as Cannon, DeLaurentiis, Carolco, Cinergi, Largo, Sovereign,
Castle Rock, Morgan Creek, Nelson Entertainment, Hemdale, New World,
and Empire. Some of the more interesting films that Afman lent money for
include Superman (1978), Superman II (1980), and a string of films released
in 1986, including Crimes of the Heart, Blue Velvet, Salvador, Platoon, Hoos-
iers, and A Room with a View.
Carolco was another company that built itself up by pre-selling to home
video and foreign markets. This company was also owned by men who had
started their careers outside the U.S.—Mario Kassar and Andrew Vajna. They
had been selling films to foreign distributors since 1975. As the foreign the-
atrical market eroded, they decided to upgrade their product by going into
production themselves. They cleverly picked a project that combined enough
action to attract a global audience with a plotline “that is . . . meaningful
enough for the American market.” 57 They produced First Blood, starring
Sylvester Stallone, in 1982. Its international market was not bothered by the
noticeable lack of dialogue. It did well in its theatrical release and became a
very big video hit after it was released by Thorn /EMI. Kassar and Vajna had
discovered the hybrid blockbuster formula and moved on to the higher
budget sequel. Rambo: First Blood Part II was released in 1985 and earned
$78 million in rentals for its distributor. In the aftermath of the success of
Rambo, the partners created Carolco Pictures in Los Angeles to produce and
exploit “event” films that would hopefully do as well as Rambo. Carolco con-
centrated its money on only two to four releases every year. This strategy was
opposed to that employed by Cannon Films because it emphasized “quality”
over quantity. Kassar and Vajna had no interest in the mediocre. An “event”
film costs in excess of $20 million and represents the top end of budgets. Car-
olco offset the risk of such high-budget movies by pre-selling, and it also
avoided the hazards of domestic theatrical distribution by entering into an
ongoing agreement with Tri-Star to handle that market for it.
Carolco also displayed interest in video distribution. In 1986, Noel Bloom’s
International Video Enterprises (IVE) had run into trouble. It had an oper-
ating profit of $6.5 million in the fiscal year ending August 31, 1985, and then
lost $14 million in 1986. Bloom held on by selling stock in his company to Ca-
the years of independence

rolco in stages through the second half of 1986. By December 31, Carolco 125
held 100 percent of IVE. The purchase price was $4,775,000.58
Video money had permeated independent financing and was responsible
for a new international presence in Hollywood. The international players—
DeLaurentiis, Carolco, Cannon, Hemdale, et al., together with comparable
American film companies such as Orion, Samuel Goldwyn, et al.—were
known as mini-majors. They had enough money from pre-sales and other
sources to release a full schedule of films (a dozen or so per year). However,
compared to the majors, they were underfinanced and did not possess fixed
assets such as physical studios or large libraries. Even those producers who
had been quite successful before video needed the added cash flow at this
point. The definitive statement about how much U.S. home video was con-
tributing to the financing of films comes in a 1986 DeLaurentiis prospectus.
It indicates that domestic home video contributed about 10 percent more
than foreign pre-sales—50 to 60 percent of negative costs versus 40 to 50 per-
cent from foreign distribution rights.59 If we remember that part of the for-
eign pre-sale money comes from foreign home video, we can safely say that
in total, home video accounted for 65 to 72 percent of the money DeLauren-
tiis needed to make films.

Video and New Genres

Independent distributors experimented with several new cassette genres

besides theatrical feature films. The first and biggest excitement over a non-
feature videotape was due to the breakout sales of Jane Fonda’s Workout. This
“how-to” tape was produced and distributed by the entrepreneur Stuart Karl
and released in the spring of 1982. Three years later, it had earned $34.2 mil-
lion for the supplier on sales of 950,000 units.60 The tape had several unique
aspects. It was sold at the relatively high price of $59.95, and yet most of its
sales were to individual customers rather than rental stores. It had a relatively
long shelf life, developing strong steady sales for a sustained period. Many
other companies engaged in the sincerest form of flattery by putting out their
own “how-to” cassettes featuring celebrities. Lorimar bought Karl Video in
October 1984 for a rumored $3 million.61 Yet, the “how-to” category did not
live up to its initial promise. In 1983, this category was estimated to be 10 per-
cent of the business. No one could match the success of Jane Fonda’s first
V E N I , V I D I , V I D E O

126 tape. Her own sequel, released by Lorimar-Karl at the end of 1984, had
barely one-fifth the sales volume of the original. In that year, “how-to” tapes
dropped to 5 percent of the cassette sale business and remained at that per-
centage for the rest of the decade.62
A further experiment with forms of the videocassette involved music.
MTV had been a popular innovation in pay TV since its inception in 1981.
Video companies naturally searched for a way to translate the MTV phe-
nomenon into videocassette sales. MTV music clips were too short to be sold,
and various companies tried ways of lengthening them with interviews, other
concert footage, and so on. In this pursuit, Vestron scored the breakout hit.
Peisinger actively courted Michael Jackson and finally signed a deal with the
singer/dancer in conjunction with the cable outlet Showtime to pay $1.1 mil-
lion for a show that not only showed Michael Jackson’s music video Thriller
but also included other behind-the-scenes material to fill out the show to an
hour’s length. It was directed by John Landis, still under indictment for his
conduct during the filming of The Twilight Zone— The Movie in 1982. The
video was entitled The Making of Michael Jackson’s Thriller and was released
at the end of 1983 for the low price of $29.95. The low price was designed to
attract purchases from individual viewers as well as rental stores. It sold
550,000 units in North America and 750,000 worldwide. Vestron had the first
major musical hit, receiving revenues in excess of $10 million.63
In hindsight, Peisinger has concluded that the runaway success of Thriller
had more to do with Michael Jackson’s celebrity power than with a repeat-
able popular music format. Part of his reasoning was that other attempts to
build music into a major part of the pre-recorded cassette business fell short.
By 1984, RCA /Columbia was expressing disappointment in its music titles.64
Sony Video had debuted Video 45s in 1983 but had trouble finding buyers.
The 45s suffered from being too short at ten to fifteen minutes in length. Pro-
ducers of music videos moved from illustrating the song in the video to using
a creative separation between song lyrics and visual imagery to encourage re-
peat video viewings. However, the customers seemed satisfied with repeat
viewings on cable and neither bought nor rented the cassettes in large enough
numbers. Videocassette proved to be a less than ideal format for music video.
There was also a structural reason for the music customer’s reluctance.
The video store owners were relying heavily on rental as the source of their
income. Music videos were much more viable as a sell-through rather than as
a rental. Therefore these store owners hesitated in giving shelf space to mu-
the years of independence

sic videos. They also did not understand the music business and were not 127
likely to satisfy customer inquiries about the availability of particular music
bands. The store owners’ lack of interest was further amplified by the whole-
salers.65 The wholesalers would not stock items that could not be quickly re-
sold to the store owners. These wholesalers had fewer connections with
record stores that would stock the music videos. Of course, if there had been
customer demand, alternative supply routes would have been developed, but
structurally music videos suffered by being between two different divisions in
the suppliers’ organizations and by not being satisfactorily distributed by ei-
ther the home video or the record distribution system.
Music videos were a higher share of the European and Japanese markets.
Even Americans supported music on video if presented as a feature film.
Purple Rain, written by and starring the Minneapolis pop star Prince, was the
fifth historic best-selling videocassette in 1985. In genre classification it could
just as easily be regarded as an extended music video as it could a feature-
length narrative film. Flashdance, another music-driven feature, was ninth,
and Footloose was twenty-second.66 Vestron’s Thriller was the only best-seller
that set the music in a format different from the theatrical film.

Vestron’s Video Publishing

Vestron forcefully developed and marketed Thriller because its philosophy

was that home video was a new business. Film people only knew the film busi-
ness; Vestron was going to provide a different mix of product and marketing
for the video business. Jon Peisinger, the president of Vestron, used lessons
and language drawn from his record industry background. The video had to
be sold while it was new and “hot.” He had that in mind as Vestron was pio-
neering the concept of “instant” publishing. This involved buying ABC
footage of the Pope’s visit to the Statue of Liberty and hitting the street with
videocassette while the news was still fresh. The moviegoer made a decision
on which movie to see before embarking for the theater. The video pur-
chaser/renter was much more impulsive and did not make a choice of video
until he or she was already in the video store. The “hot” stuff would grab the
customer’s attention.
Vestron publicized its difference from the major film distributors over the
issue of first sale doctrine and its refusal to institute rental policies in order
to emphasize its concern for video rental stores. It was the first big distribu-
V E N I , V I D I , V I D E O

128 tor to offer the video store owner cooperative advertising and to empha-
size point of purchase displays.67 One film company, Artists Releasing, as-
signed video rights to Vestron because it appreciated Vestron’s supplying
chopsticks as a promotional device for the comic karate film They Call Me
Bruce? (1982).68
Vestron wanted strength from diversity. Furst stated that his model for
the company was a book publisher.69 The company even tried magazine-
formatted videos with Penthouse and National Geographic along with a
mixed slate of adult sex titles and children’s video, low-budget horror and
big-budget drama. The point was to distinguish Vestron from Hollywood
“hit”-driven philosophy. Vestron even claimed a virtue in placing its corpo-
rate headquarters in Stamford, Connecticut, near Furst’s residence, far from
the hype and “interference” of the Los Angeles film industry and psycholog-
ically distant even from the nearby media center of New York. Vestron was
perpetuating the regional separation from New York and Los Angeles that
had become popular in the 1970s when film activities increased in San Fran-
cisco, Salt Lake City, Oregon, and the southeastern states. Unlike these ear-
lier activities, Vestron did not seek any aesthetic difference from Los Ange-
les. Furst and Peisinger did not denounce Hollywood decadence. Their point
was merely to escape the community pressures of the film industry, where
everyone was looking over everyone’s shoulder and developed blockbuster
strategies almost in common. In this way, they distinguished themselves not
only from the majors but also from the other independent video distributors.
Vestron was gathering momentum, with earnings of $12 million in 1982
and $45 million in 1983 and a net income of $2 million and $6.6 million, re-
spectively, in those two years. It was clearly outpacing its independent rivals
and closing in on the major film suppliers. Annual market share ratings from
Video Week show that Vestron was number seven out of ten in 1983 with
6 percent of the total prerecorded videocassette sales. Vestron’s acquisitions
from independents and mini-majors were proving advantageous.
The company was accused of starting bidding wars for films, but never
went to the lengths Embassy and Noel Bloom did, because it was assured of
mainstream films from its ongoing contract with Orion. However, contracts
with Orion and others had expiration dates, and Vestron started exploring in-
house production and theatrical distribution divisions in order to position it-
self for the future when Orion and other product would not be available. Al-
ready Vestron realized that a supply of theatrical films was critical even for a
the years of independence

video “publisher.” Still it was surprised by how decisively the market turned 129
toward mainstream theatricals in 1986.

Conclusion

In the period up through 1986, the market for prerecorded cassettes passed
several milestones. I have deliberately separated the narrative of the major
studios from that of the independents because in this time these two groups
can be usefully contrasted. The studios had formed home video divisions and
were making a great deal of money from the expanding market, but they
seemed oddly hostile to its emergence. It may be too convenient to conclude
that they left a void for the independents to fill, but it is true that the smaller
companies were innovating and pushing new approaches. The majors did not
move aggressively in the late 1970s to secure video rights for the various co-
productions and other movies for which they had theatrical distribution
rights. This left a pool of films, including many popular ones, available for in-
dependent distributors. The big Hollywood studios continued to be distracted
by efforts to control rental through contracts or through legislation. These ef-
forts proved futile and worse since relationships with video retailers were
damaged.
On the other hand, the independents and the newcomers were quick to
develop and exploit the new market. They made use of existing techniques
such as pre-selling in order to drive production and to expand their catalogs
quickly. They cultivated the video retailer and they helped promote the new
video market through advertising and other publicity mechanisms. They ex-
plored the new possibilities of the medium by investing in “how-to” tapes,
“instant” publishing, and music videos. Through pre-selling and global sales
of video rights, these distributors reinvigorated marginal film genres such as
horror (e.g., Halloween) and military action (e.g., Rambo, Missing in Action).
Oliver Stone told the Academy of Motion Pictures that his Oscar-winning film
Platoon (1986) was possible only because Vestron pre-bought it.70 Indepen-
dents had gone where majors did not dare.
Some of the new video distributors had worked with pornographic films
and understood that viewers might be more willing to take salacious or sleazy
titles home to watch than they would be to go to see these movies in the the-
ater. Noel Bloom and others used a successful reverse logic and decided that
if adults were taking home movies that they would not share with their fam-
V E N I , V I D I , V I D E O

130 ily, they would also want cassettes that were appropriate for children. This
turned out to be a permanent innovation of home video: that it directly con-
tributed to the renaissance of children’s programming. We will deal with this
in detail in the next chapter, where I discuss the transformations at Disney
when the new executives decided to embrace home video. The irony is that
Noel Bloom, not a Disney executive, can plausibly claim to have started chil-
dren’s home video.
This period was a time when the structures of the American film industry
were loosening. It was a preliminary stage. The video machine offered the
audience two types of choices: access to more product and control over the
time and place of viewing movies. In the growth stage the structures of dis-
tribution experimented with facilitating both types of choices. As the market
matured, the open question was whether economies of scale would harden
the distribution channels and restrict the range of movies being produced
with the new video money. As 1986 drew to an end, it was clear that the video
distribution market would mature by shaking out some of the experimental
business practices. If we understand the precise nature of this shakeout, we
will be able to understand the way in which the video market turned against
independence and diversity and toward the big blockbuster strategy that is
the hallmark of New Hollywood.
The cumbersome mechanics of video recording in the mid-1950s. This machine probably
holds only ten minutes or less of programming. Ampex was able to demonstrate a more
workable model in 1956. Nonetheless, it would be another decade before the recognizable
cassette was introduced. source: new york public library.
A display ad created by Doyle, Dane, and Bernbach for the original Sony release of the
Betamax. Its emphasis on time-shifting irked Universal City Studios and Disney Produc-
tions into initiating a major lawsuit that went all the way to the Supreme Court in 1984.
The case was one of the last instances in which the U.S. government refused to extend
copyright protection. source: new york public library.
 Adult films were key to developing
the mechanics of video marketing
and rental. An ad for the famous
Behind the Green Door from the
First Variety Home Video Annual
in 1980. source: collection of the
author.

As Laserdisc failed to gain market

share against the vastly more pop-
ular video cassette recorders, it
concentrated on niche markets
such as opera buffs in the United
States and Europe and karaoke
singers in Asia. source: new york
public library.
Twentieth Century Fox must have felt as bold as General Patton when it authorized mag-
netic video release of Patton in 1978, eight years after the film had been released in
theaters. It was one of the first “recent” Hollywood films to go to video and was a great
success in this fast-developing new market. source: photofest.

Halloween (1978) was a major video release for Media Home Entertainment, one of the
first important independent video distributors. source: photofest.
 Noel Bloom moved quickly into in-
dependent video distribution. In
1980 he pioneered the video-for-
children market (“kidvid”) with the
creation of Family Home Entertain-
ment. These and other Bloom com-
panies eventually formed the basis
for LIVE Entertainment. Although
Bloom has long since departed, LIVE
is the only independent that contin-
ues to be a significant player under
its new name, Artisan Releasing. The
irony is that Mr. Bloom started in
adult film distribution. source: noel
bloom.

Jon Peisinger was president of Vestron

Video as the independent company
moved into theatrical film production.
source: jon peisinger.
Jane Fonda and Stuart Karl accepted the Billboard award for their breakthrough video
Jane Fonda’s Workout in 1982. Their achievement has not been surpassed in the field of
“how-to” videos. source: photofest.

Pre-selling and the video market sparked a boom in independent production. Cannon, an
independent production and distribution company, practically bragged about the vast
quantity of its productions in this display ad from the 1983 Variety annual. source: per-
sonal collection.
The Michael Jackson phenomenon crossed media lines when Vestron Video released Mak-
ing Michael Jackson’s “Thriller” in late 1983. The video sold well enough to earn the Golden
Videocassette Award in 1984. Left to right: Vestron president Jon Peisinger, Michael Jack-
son, Vestron CEO Austin Furst. source: jon peisinger.

Dirty Dancing, Vestron’s first feature production, was a hit both in the theater and on video.
Its 1987 release gave Vestron another three years of life, then Vestron sold its assets to LIVE
in 1990. source: photofest.
Star Trek I, a high-concept film, was released on video at the end of 1980, priced at $79.95,
and became a major seller for Paramount Home Video. source: photofest.
 Paramount had one of video’s big sell-
ers in the 1980s with Top Gun. The
1986 release also featured a cross-
promotional tie-in with Pepsi-Cola. A
Pepsi ad was placed at the beginning
of the original video release, and Pepsi
mentioned Top Gun in its own ad-
vertising. Although video advertising
has not become widespread, the pro-
motional tie-ins between Hollywood
and consumer marketing have become
closer because of the video market.
source: personal collection.

Star Trek II was the first “sell-through”

video, released at the end of 1982 by Para-
mount at a price of $39.95. Its sales sur-
passed those of the first Star Trek by a
third and equaled its earnings. source:
personal collection.
Disney executives were worried about their own images as they debated whether to release
the 1940 classic Pinocchio on video in 1985. They finally took the risk and successfully ex-
ploited the video earnings from their animated films to finance their increased operations.
Video is a key to Disney’s current position as the third-largest global media corporation.
source: photofest.
Disney perfected its manipulation of theatrical and video releasing when it launched Alad-
din into the theaters in 1992. It went on to sell Aladdin as a sell-through title on video and
then to release the sequels to Aladdin such as Aladdin’s Arabian Adventures directly to
video without theatrical play. source: photofest.
THIS PAGE INTENTIONALLY LEFT BLANK
 C H A P T E R F I V E

Video Becomes Big Business

By 1986, the sale of prerecorded cassettes had matured. There were shake-
outs and consolidations in the American and international film industries in
the following years. The shakeouts were predictable, although their scope
and shape were not natural occurrences. Indeed, many important results
were counterintuitive. Despite video’s popularity, theatrical attendance re-
mained steady and the theatrical release continued to draw the overwhelm-
ing share of attention and promotional budgets. The vastly expanded market
of home video did not result in a permanent escalation of production. Pro-
duction actually dropped below levels of the 1970s. This was despite the ever-
escalating home video revenue flow, which exceeded box office returns by
1987–1988.
Chapters 5 and 6 will describe the circumstances of the maturing of the
video market. These descriptions will support the argument that the shake-
outs were determined by the distribution practices of New Hollywood re-
sponding to changing audience desires as video stabilized. The two chapters
divide along industrial lines. In this chapter, we consider the mechanics of
getting the film to the consumer during this development. In the next chap-
ter, we return to the struggle of the distributors and producers.
The studios’ continuing hostility to renting led to two-tiered pricing.
“Two-tiered” refers to the situation that continues to this day—pricing cer-
tain titles under $25 in order to stimulate high-volume sales to consumers
and pricing other titles three times as much for maximum profit despite lower
sale volume. The two-tiered pricing system, once in place, effectively doubled
the home video revenue streams for the few mainstream studios that owned
easily marketed films. Two-tiered pricing becomes an important albeit indi-
rect component in the overall decline of independents and weaker film dis-
V E N I , V I D I , V I D E O

132 tributors. Because of the studios’ ability to pool video earnings, it is better to
look at the aggregate effects of new video money rather than its impact on in-
dividual film productions or specific marketing strategies. On the other side
of the equation, both video retailing and the wholesale distribution of cas-
settes were consolidating and introducing higher entry barriers. This can be
fully understood when we look at the pricing system of video in its context.
These industrial changes became the enabling conditions of the cultural op-
portunities and limitations for New Hollywood.

The Development of Two-Tiered Pricing

The development of the rental market had maintained the upward pressure
on the list price of videocassettes. The $80 price was introduced in 1982 be-
cause Mel Harris and Robert Klingensmith, the two leading executives at
Paramount Home Video, got tired of the leasing struggles. They decided sim-
ply to charge more for the first sale. The rest of the industry followed suit.
Some distributors attempted price competition, hoping to sell more units
if they charged less. Generally, many believed that the value of price compe-
tition would be limited as long as the market was limited to 25,000 video
rental stores. Price competition made sense only if the intended market was
millions of individual customers. By 1982, five million households owned
VCRs (see Table 2.1). Before this time, videocassette distributors had been
distributing non-feature film titles for a wide range of prices. The question
was whether five million was enough of a critical mass to support a low price
for a high-profile feature movie. Paramount decided to experiment by re-
leasing Star Trek II: The Wrath of Khan at the end of the year, at $39.95. This
was still a relatively high price, but consumers responded and the show be-
came the biggest seller of the year, eventually shipping 290,000 units. In
contrast, the first Star Trek movie, released at $79.95 in November 1980,
had been selling at half that rate. After subsequent price reductions, the first
movie eventually shipped 187,000 units.1 Of course, the Paramount price re-
duction increased its risk exposure since the fixed costs of duplicating and
packaging were still the same per unit. In this case, Paramount probably
earned $2.2 to $2.8 million after deducting such costs. This roughly matched
the earnings on the first Star Trek.2
The other studios took an interest in this experiment and dissected the
video becomes big business

numbers. One nameless rival publicly estimated the breakdown on the $39.95 133
price as follows: The dealer paid Paramount $25. Paramount paid $9–$10 for
manufacturing and marketing, and $5 for royalties. The studio therefore
cleared $9–$10 on each unit sold.3 These were rough ballpark figures that
varied depending on the royalty deal. In the Star Trek case, Paramount also
retained a large share of the royalties, boosting its earnings by perhaps an-
other $3 per unit. Paramount continued to issue films at the $39.95 list price,
breaking unit /sales records with titles such as Flashdance and Raiders of the
Lost Ark (both in 1983). Raiders ultimately surpassed Jane Fonda’s Workout
in units sold and was the first videocassette to break the 1 million unit mark
by 1985 (when VCR households had reached 23 million).
Other video distributors debated whether Paramount had increased its ac-
tual profits by reducing prices and hesitated to follow its lead. Some did. Em-
bassy had success with a $39.95 release of Blade Runner in February of 1983.
A year later it suffered a disappointment with The Day After at that same
price and retreated back to $79.95 for The Golden Seal and Eddie and the
Cruisers. Warner tried a price slash to $39.95 in March 1983 and reverted to
a higher price three months later.4 In November, David Geffen, a partner
in Risky Business, urged Warner Home Video to release the film at $39.95.
Warner agreed.
CBS/Fox, in particular, was lobbying heavily for the repeal of the first sale
doctrine. Alan Hirschfield of Twentieth Century Fox had told Congress in
1984 that once the repeal went through, the studios would be able to reduce
video prices. CBS/Fox Video, of which Twentieth Century Fox owned half,
could not very well undercut Hirschfield’s argument by participating in the
lower price experiment. On the other hand, Paramount had made the deci-
sion not to pursue repeal but to move the market away from rental stores to
direct consumer purchases. Klingensmith was pleased to report that 75 per-
cent of Raiders units were being sold to consumers compared to only 10 per-
cent of the higher priced Tootsie cassettes.5 Although earnings were roughly
equivalent for both high and low prices, Klingensmith felt that lower prices
built a customer base. The number of these customers would expand as the
video population expanded. Paramount continued the low price experiment
in order to shift the video business to direct purchases.
It was Walt Disney Productions that finally validated the experiment. Dis-
ney’s aborted leasing program and its decision not to transfer the more pop-
ular animated classics to video gave the company the lowest market share of
V E N I , V I D I , V I D E O

134 the major video distributors in 1980–1981. This was the void for children’s
titles that provided opportunity for Noel Bloom, Western Publishing, and oth-
ers. In 1984, the lackluster performance of Walt Disney Productions in all its
divisions (film, theme parks, merchandising, and real estate) attracted the at-
tention of Wall Street raiders. Even Jim Jimirro of the Disney old guard urged
the CEO Ron Miller to become more aggressive about releasing the great clas-
sics in order to generate income quickly to revalue the stock. The theatrical
division continued to argue successfully that this would ruin future theatri-
cal re-releases of the classics.6 That summer, a frustrated Jimirro ordered Dis-
ney’s home video division to try an even lower price than Paramount for its
new releases. This home video promotion was called “Limited Gold Edition,”
and it featured seven non-feature animation titles for the list price of $29.95
for a limited time. The promotion drew attention when it resulted in $9 mil-
lion for Disney from sales of 500,000 units.
Paramount executives pondered Disney’s success. They realized that a new
price level had been made possible by a reduction in manufacturing costs.
Paramount Home Video expanded its own low-price campaign. The company
dropped prices to $24.95 for 25 “A” titles (recent big-budget films) for the
1984 Christmas season.7 The Paramount campaign was a success, with ship-
ments of 675,000 units (which returned almost $10 million in revenue to the
film supplier). This coincided with huge sales (450,000 units) for Warner’s
Purple Rain, also priced at $24.95. The “$25 and under” tapes were here
to stay.
This success led to the “two-tiered” pricing system. Videocassettes are ei-
ther list priced at the high $90-plus or at low prices ranging from the break-
even price of $8 through the $30 range, most typically between $15 and $25.
The rental stores are free to buy low-priced tapes and consumers are free to
buy high-priced ones. However, it is generally the case that only rental stores
will invest so much money in the high-priced tapes and will have less inter-
est in the low-priced tapes, since part of the audience for such tapes will have
already purchased them and will not be renting those titles. The high-priced
tapes are therefore known as rental tapes and the low priced ones are “sell-
throughs” since they have been sold directly to the ultimate user of the tape.
Sell-through tapes are routed to mass merchandisers and rack jobbers. Rental
tapes are advertised in wholesaling trade journals for the video retailer pur-
chases. Many analysts think that the sell-through price is justified if it gener-
ates sales four or five times the anticipated sales volume of the rental-priced
video becomes big business

tape.8 In addition to the arithmetic of higher volume sales, sell-through tapes 135
need a more expensive marketing campaign since they are sold to the gen-
eral public rather than video specialty stores.
The double-digit growth of the rental market ended by 1988. Since that
point, there have been predictions that sell-through will dominate the pre-
recorded cassette business. The market continues to be two tiered. Through
1993–1994 (the end point for this study), rental-priced tapes still supplied
55 percent of the total video revenues that studios received. Consumer spend-
ing on rentals was twice the amount spent on purchasing prerecorded cas-
settes for most of the 1990s.9 Sell-through pricing dominates the children’s
video market and most of the non-feature film market. Meanwhile, “B” titles
are invariably priced as rentals.
A contentious question for video executives is which big hit movie should
have a sell-through release. It is not the popularity of the film, but the nature
of that popularity. Is it the kind of show that people want to own or give as
gifts to their friends?
The development of low-priced tapes in 1984 was an early manifestation
of the budding relationship between the home video market and the accel-
eration of concentration in the film industry. Although the film industry had
failed to get government help to control the emerging video rental market, in
several instances the video phenomenon helped deregulation and thereby fa-
cilitated media conglomerates. I have already mentioned the mutually rein-
forcing coincidence of home video and the deregulation of broadcasting in
Northern Europe. An analogous event in the U.S. was the effective reentry of
Hollywood studios into theater ownership.

The New Movie Theater

The new media of home video and cable contributed to an atmospheric

change at the Justice Department. The Reagan appointees were looking to
scale back the anti-trust activities of previous administrations. In the world
of filmed entertainment the Attorney General’s office undermined the spirit
of the 1948 Paramount et al. consent decree in a press release dated Febru-
ary 4, 1985. “The Department announced that they would no longer enforce
the Paramount decree because of changed circumstances in the industry.” 10
Assistant Attorney General William Baxter and his advisers had accepted the
V E N I , V I D I , V I D E O

136 argument that home video and cable made film distribution diverse enough
to re-allow vertical integration of theatrical exhibition and distribution. The
film industry responded. Major U.S. distributors negotiated theater purchases
worth over $1.5 billion in 1986 and acquired significant ownership positions
in one-fifth of the North American movie screens.
By the mid-1980s, the movie theaters needed further construction and re-
vamping to attract an audience that now had a choice in where and when to
consume movies. The most dynamic part of this reinvestment has been the
expansion of “multiplexing.” To some degree, multiplexing is the real estate
version of time shifting, since the additional screens within a theater give the
viewer additional choices over which movie to see and/or when to see a par-
ticular movie. The history of multiplexing began slowly, thirty years before
the video revolution.
In 1948, Nathan Taylor put together several movie theaters in one location
in Toronto, offering customers flexibility in choosing a movie to see once they
arrived at the location. Thirty-one years later Garth Drabinsky convinced
Taylor to build a movie theater complex under one roof. The patron enters
the building and has a choice of theater and movie to attend. The two men
dubbed this a “cineplex.” Cineplexing becomes the exhibitor’s way of match-
ing the new range of choices that videocassette stores are offering. The choice
was relatively modest at first, with only at most a half-dozen movies to choose
from, but the concept was popular. In 1982, Taylor and Drabinsky moved into
the U.S. by building a cineplex in the Beverly Center in West Los Angeles, the
heart of the movie colony. Three years later they bought another theater
chain called the Odeon, and renamed their company Cineplex Odeon.11
The development of the home video and other ancillary revenue streams
gave the major studios money to buy and to improve the movie theaters. They
wanted to develop multiplexing (a more generic term for Taylor and Drabin-
sky’s cineplex concept) as part of the new emphasis on audience convenience.
After the Reagan administration had signaled that it would no longer prevent
distributors from buying movie theaters, MCA /Universal took a 49 percent
equity position in Cineplex Odeon in 1986. Columbia/ Tri-Star and Para-
mount also bought domestic theaters. Warner and other movie companies
were already involved in upgrading foreign theater chains.
The conversion to multiplexes proceeded first by breaking the power of
the projectionist union, whose work rules mandated one projectionist per
video becomes big business

showing. Projection rooms were built with movies mounted on horizontal 137
platters, which eliminated the need for reel changeovers, and one projection-
ist could show several movies at a time. The customer drove to the theater
and could postpone choosing among various current movies until arrival.
The customer now found that no matter how late or early she or he was in
arriving, there was often a movie about to start. The cineplex offered both
a choice of content and a choice of starting times. The most popular movie
played on several screens at staggered showing times, which yielded benefits
to both the theater owner and the customer. The theater owner was now able
to move different shows in and out of various screening rooms from week to
week as the lead movie declined or gained in popularity and other movies be-
come available.12 The customer enjoyed a wider selection of starting times.
Multiplexes became the contemporary approach to movie exhibition, getting
bigger and bigger through the nineties.
Under the competitive pressure of Cineplex Odeon and other multiplexes,
theaters in North America have been reconditioned for maximum profits. Im-
provements have included enhanced viewer comforts such as better chairs
with individual cup holders, and multichannel sound. Older cineastes quib-
bled that these improvements were scant compensation for smaller average
screen size and overtaxed projectionists working on three or four shows si-
multaneously. The wave of rebuilding and refurbishing has spread to Euro-
pean theaters and has helped stem the decline in movie attendance. The U.S.
film distributors—Paramount, MCA, MGM, and Warner— own many of these
theaters, particularly in Great Britain, and are financing the improvements.13
Two-tiered video pricing and studio participation in global multiplexing
were outwardly separate events. However, they were unified by an emerging
market logic that propels New Hollywood’s relentless pursuit of the audience
across media. The movie industry has always sought the mass audience, and
now it had quantitatively more opportunities to do so. This intensification of
the quantitative effort started to result in a qualitative shift in the mid-1980s.
Video sales were routinely exceeding 100,000 copies for each new feature
film by 1985. When executives and outside investors did the arithmetic on the
videocassette sales, they realized that the additional earning of $3 to $4 mil-
lion per title was an opportunity to restructure the film industry. An exami-
nation of the microeconomics of cassette sales at this point allows us to
reimagine the macro-opportunities various distributors and retailers saw.
V E N I , V I D I , V I D E O

138
Microeconomics 1: Overview

The video business has four distinct levels:

1. Film producer/copyright holder

2. Video distributor/film supplier/manufacturer
3. Wholesaler
4. Retailer/video specialty store

A quick observation is in order before discussing each level in detail. Level

3, the wholesaler, is somewhat autonomous in function. In contrast, the other
levels are characterized by fluid boundaries and a complicated mix of coop-
eration and competition.

copyright holder

Someone always owns a film. This simple statement hides a baffling array of
various rights holders who can do various things with the film. In the begin-
ning, the film producer is the copyright holder. The producer is generally the
company that made the film and that has purchased or otherwise controls all
the various copyrights that are part of the film, such as the story and the mu-
sic. Therefore, the right to lease or sell the film in any media and any terri-
tory belongs to this company. A company rarely loses control of the copyright
of a film willingly. There is a statute of limitation on the length of time a com-
pany may own a copyright. The period of copyright control was lengthened
again in 1998, and hardly any sound film is in danger of falling into the pub-
lic domain (losing copyright protection). We have already distinguished be-
tween physical ownership and copyright ownership in the section on “first
sale” doctrine. A company that sells a videocassette loses control of that phys-
ical embodiment of the film it has sold.

video distributor

The video distributor or film supplier is the company that has the right to dis-
tribute the film to the home video market in a specific territory (the United
States and Canada together are generally known as the “domestic” territory).
I use the terms “distributors” and “suppliers” interchangeably. As the video
video becomes big business

market became more lucrative in the mid-1980s, theatrical distributors de- 139
manded and received the rights to video distribution as part of the theatrical
distribution deal. Currently most films are distributed in the video market by
the same outfit that distributes the film in the theatrical market for that
territory. There are still small, specialized video distributors handling non-
feature videos. Very few video distributors who handle recent feature-length
movies are without theatrical releasing capability. Artisan, MPI, and Trimark
are surviving video specialists catering to video rental stores. Their theatrical
distribution capabilities are weak in comparison to the majors.
It is standard that the video distributor takes financial responsibility for
the manufacturing of the prerecorded cassettes of the film. The actual work
of producing the cassettes goes on at a factory run by a “duplicator” company.
At first, many video distributors had in-house duplicators. Columbia and
Paramount formed a large duplicating company with Bell and Howell. FHE
and several other companies had their own smaller in-house operations.
Tapes were at first copied in real time (a one-hour master tape took one hour
to make one copy). Sony introduced high-speed duplicating (which takes a
mere fraction of one hour to copy a one-hour master) as part of its failing
effort to keep the Beta format profitable by reducing manufacturing costs.
High-speed duplicating machines were very expensive, but their adoption in
the late 1980s drastically lowered the per/unit costs. At that time, most dis-
tributors sold their in-house duplicating units, since only the highest pro-
duction volumes justified the expense. The two largest duplicating divisions
are now owned by The Rank Organisation and Carlton Communications
(both are British conglomerates).

wholesaler

The film suppliers sell the tapes to independent wholesalers, who in turn re-
sell the tapes to retailers and rental stores. Some trade journals refer to the
wholesaler as the “distributor,” but this is confusing. I have only used the
term “wholesaler” for this level of activity. The suggested list price is set by
the film supplier. The wholesale price is discounted from the list. The sup-
plier can also directly distribute to retailers, bypassing the wholesaler. This
has occurred occasionally in the video rental business, and is the trend for
the future, especially with large retailers such as Blockbuster. Direct distribu-
tion has not yet become common.
V E N I , V I D I , V I D E O

140 Wholesalers are under pressure to maximize profits. They do not have ex-
clusive relations with either the outlets or the suppliers. The major distribu-
tors (suppliers) often demand packaged purchases (forcing the wholesaler to
buy several shows in order to obtain a desired show). They also pressure
wholesalers to meet sales goals and force them to administer promotional
campaigns. Wholesalers and distributors /suppliers often dispute the issue of
returns. Wholesalers have generally not been able to return unsold cassettes
to distributors for full value. Powerful distributors allow only a percentage
value of the return tapes as credit for future tapes. Wholesalers would pre-
fer full credit for future tapes and often force weaker (i.e., low-volume) dis-
tributors to give them full credit. In general, returns are more restrictive in
the video business than in the music record business. This obviously works
against unknown movie titles that have yet to demonstrate their popularity.
The pressures of wholesaling reduced the markups to 1 percent profit mar-
gins by 1988.14 This low margin continues to this day. In 1984 there were 30
big wholesalers, servicing an average of 5,000 outlets. In 1995, there were
only 13 in North America.15 Wholesalers are most typically owned by bigger
groups that can supply the large amounts of cash needed to maintain an in-
ventory. Ingram Entertainment has been the largest since its 1992 acquisition
of Commtron. Just like its rival, Baker and Taylor, Ingram got into video dis-
tributing from its book and print distributing operations. Other wholesalers
began as warehouses for video store chains.

retailer

Retailing ranges from stores that specialize in renting videocassettes to stores

dedicated to selling videotapes. There are also large retailers such as mass
merchandisers (K-Mart, et al.), supermarkets, and others that sell and/or rent
tapes directly or rent space and split the profits with independent “rack job-
bers” who sell/rent cassettes inside the large store. Video specialty stores still
account for most rentals; however, they have less than half of the video sales
business. Mass merchandisers, rack jobbers, and even fast food stores and
other promotional partners sell videocassettes on a mass scale. Video spe-
cialty stores are now dominated by large chains such as Blockbuster, although
single ownership or two-store chains still survive.
Video rental stores are prevalent throughout the U.S. with the exception
of low-income, inner-city neighborhoods. However, low-income rural areas
video becomes big business

can generally support a rental store or two. There are many pitfalls to run- 141
ning these stores. Rental stores have to invest a great deal of money in the in-
ventory (often 25 percent of their revenues) and therefore face challenges in
building their libraries. Should the rental store buy several copies of the cur-
rent big movie, or invest the money in several different titles? This is known
as the breadth (of different titles) versus depth (many copies of a popular
title) issue. Most customers ask for the latest movies, but if the store buys
too many of a single title, the owner might not recoup the investment before
the audience moves on to the next batch of recent releases. Older and less
popular titles often prove profitable but over a longer period, a duration that
poorly capitalized stores cannot endure. There are two prominent trade jour-
nals targeted at video store owners—Video Business and Video Store. Store
owners also receive a great deal of information about upcoming releases from
wholesalers.

Microeconomics 2: Rental

The following is a breakdown of the various payments between supplier,

wholesaler, and retailer. There are many variations, but the percentages have
remained consistent since the mid-1980s.
Video distributors obtain rights by paying royalties to the actual copyright
owners of the film. The industry’s rule of thumb is that royalty payments
equal 20 percent of the video distributors’ adjusted receipts.16 In other words,
the royalty percentage of the gross video receipts is calculated after a 25–
35 percent distribution fee is subtracted. A major studio that owns both
the copyrights on the film and the video distribution division will still trans-
fer the producer royalty in its books. This separates the money the studio
made as a producer from the money it made as a distributor. The studio
calculates co-partnership deals, net profit sharing plans, and residual pay-
ments, not from the gross video revenue, but according to the producer roy-
alty payments.
Talent guilds are constantly monitoring royalty payments. Since the ad-
vent of television, the Screen Actors Guild (SAG) has taken the lead in ar-
ranging for producers to pay residual fees to their members whenever prod-
ucts entered new markets created by new technologies. When home video
and pay TV took off, the old 1971 contract seemed inadequate. This led to
new demands and to strikes by SAG and the Writers Guild of America (WGA)
V E N I , V I D I , V I D E O

142 in the early 1980s. The 1983 SAG settlement stipulated that the actors would
collect an increased share— 4.5 to 6 percent— of the distributors’ gross in re-
sidual payments from all ancillary markets (home video and pay TV). The
definition of “distributor’s gross” continues to be a sore point since it need
not include the distributor’s fee. The definition of “profit participation” has
also been an object of contention in negotiations. Only the biggest stars and
directors, such as Steven Spielberg, George Lucas, and Arnold Schwarzeneg-
ger, are able to participate in the distributing fees studios earn from video.
The others are limited to profit participation based on the royalty fees.17
The distribution fee is a standard procedure in theatrical distribution and
is now standard in video distribution. It is considered just compensation for
the distributor’s overhead. However, it is not standard in other cultural in-
dustries such as book publishing and has often been criticized. A fundamen-
tal purpose of a distribution fee is to help the distributor “cross-collateralize”
revenue across a whole schedule of winning and losing movies. It vastly im-
proves the earnings of the most powerful companies. For instance, independ-
ent distributors often contract with larger distributors. In such contracts, the
larger company always takes the distribution fee off the top. Despite the di-
lution of potential profits, small independent distributors have been forced
into such arrangements because they needed the power of a major supplier
in order to get wholesalers to stock their products.
Once the distributor has obtained a film by paying an advance against fu-
ture royalty payments, the next step is manufacturing. Although the cost of
magnetic tape fell rapidly through the 1970s, the real-time method of dupli-
cation (see above) kept the cost of manufacturing a feature-length cassette in
the $7.50 to $10 range through the mid-eighties. Once the cost of the box and
cover art and shipping was added in, the accepted figure increased to $10
to $15. There was a substantial saving in manufacturing costs per unit after
1984, enabling the delivery of large volumes for the “sell-through” market.
Currently the cost of duplicating a tape can fall below a dollar a unit, albeit
on the lowest quality tape. Acceptable quality can be obtained for approxi-
mately $4 a unit.18 We should remember that manufacturing costs vary ac-
cording of the length of the show.
The suppliers have such a high markup on tapes destined for the rental
market that royalties and manufacturing costs have exerted only minimal
pressures on the price. Suppliers are free to set a list price according to what
they think the market will bear. Since the market is not directly for consumers
video becomes big business

table 5.1 Price Breakdown of Prerecorded Cassette (PRC) 143

List price $79.95
Wholesaler buys PRC at list times 0.65 $52.00
Supplier receives $52.00
Retailer buys PRC at list times 0.75 $60.00
Wholesaler receives $8.00
Rental break-even point is 20 turns (20 times @ $3.00 per rental equals $60.00)
Retailer is in profits on 21st rental turn

but for wholesalers and video specialty stores, tapes rarely compete on an in-
dividual price basis. There are many occasions when suppliers try to interest
wholesalers by offering separate discounts. Therefore, packages of titles can
be subject to separate negotiations. However, judging from the available
numbers, the supplier usually charges the wholesaler 65 percent of the list
price.
The wholesaler, in turn, minimizes risk by soliciting pre-orders from re-
tailers before actually buying the tape from the supplier. These pre-orders
usually account for 95 to 100 percent of the total sales of a rental video. The
various sales charts that are published in the trades are compiled from these
pre-orders and often underestimate sales that occur after the first month. The
wholesaler marks up the price on the cassette another few percentage points
and therefore is paid about 70 to 75 percent of the list price.
The video retailer may either sell or rent. The optimum situation is to
do both with the same unit. In the early years, many retailers made money
selling a “previously viewed” tape to specialists who resold the tapes to a new
store just starting up. In a mature market, most inventories have been built
up, so the public is the primary purchaser of used tapes. Reselling continues
to be “hit or miss” at best. Generally, retailers would prefer to make their
profit solely on rental activity. At the list price of $80, the tape needs to be
rented 20 times at $3/rental in order to break even. Tape wear and tear is a
negligible factor at this level of usage. The price breakdown for prerecorded
videocassettes is shown in Table 5.1, and a breakdown of the supplier’s fee is
shown in Table 5.2.
The figures in the tables are taken from the maturing period of 1983 to
1987. After 1987, many distributors increased their list prices by $10. In 1991,
there was another $3 increase for a total of $92.95. Some titles have gone as
V E N I , V I D I , V I D E O

144 table 5.2 Breakdown of Supplier’s Fee

Supplier receives $52.00

Supplier deducts 25% distribution fee (-$13.00) 39.00
Copyright holder receives 20% royalty (-$7.80) 31.20
Manufacturing and packaging costs (-$15.00)
Supplier’s income 16.20
*Add distribution fee (+$13.00)
Total supplier’s earning $29.20

high as $99.95. Since neither the wholesaler nor the retailer pays list price,
such increases are not fully reflective of added costs. Retailers may even get
a price break for buying in volume as low as three cassettes of the same title.
List prices have changed but the percentages and even the cost figures in
Table 5.1 are still roughly accurate for the rental industry to this day.
In sum, video microeconomics involves the confluence of several previous
business models. The two-step distribution system was borrowed from record
and book distribution. The division of the supplier’s dollar between the copy-
right holder and the distributor/supplier appropriated the concept of distri-
bution fees from the movie business. The high markup that has been sus-
tained even after manufacturing costs have gone down closely parallels the
development in the sale of compact discs and may become a feature of future
technologies of mass entertainment.
Nicholas Garnham observed that new leisure technologies tend to result
in higher costs to the consumer per unit of time since leisure time cannot be
expanded. Therefore, distributors of leisure products cannot spread their
costs over increasing amounts of aggregate leisure time in the general popu-
lation. Instead, they will increase the price for the more affluent members
of the audience.19 This observation is perfectly suited to home video. The
home video consumer buys the hardware (similar to the radio and television
owner), pays for the content (similar to the moviegoer), and even watches ad-
vertising placed on the videotape (similar to the radio and television viewer).
This triple expenditure was modified by the development of the rental mar-
ket, since consumers generally shunned the full purchase price of the cas-
sette. A further modification came when product ads decreased on videotapes
in the 1990s.
After 1986, lower priced tapes (see above section on two-tiered pricing)
finally brought the mass merchandisers into the video business. The national
video becomes big business

merchandisers had hesitated, first over the format wars and the initially small 145
number of VCR owners. Then they refused to get involved with the paper-
work and risk of renting videotapes. Now, low-priced sell-through tapes en-
couraged Sears, K-Mart, Wal-Mart, et al. to start videocassette sections. Those
merchandisers who still wanted to avoid risk contracted with the big rack
jobbers, Lieberman and Handleman. These companies rent space in the store
in order to set up a videotape rack. They take on the responsibility of stock-
ing the rack with popular and discounted titles and pay the stores a percent-
age of the tape sales.

Video and Other Commodities

The next step was a closer marriage between video and other movable com-
modities through promotional tie-ins. Again, Paramount took the pioneering
lead when it placed a Pepsi commercial on its 1986 video release of Top Gun.
In return, Pepsi mentioned the Top Gun video in its own network and local
television commercials. The tape was sold at $26.95, a new low price for a re-
cent hit. It sold 3 million units, a record that lasted for a year.20 Other com-
panies emulated the cross-advertising. In 1987, Vestron placed a 30-second
spot for Nestlé’s white chocolate on its Dirty Dancing tape. Video retailers
were urged to stock Nestlé candy bars and Nestlé promoted Dirty Dancing in
its own advertising as part of the campaign.
The theme park and merchandising divisions of Disney had often cooper-
ated with other corporations in tie-ins and partnerships. Bill Mechanic, Dis-
ney’s home video executive, applied the same idea to video when he engi-
neered a four-year relationship for the home video division with McDonald’s,
from 1987 to 1991. The deal allowed the food company to offer Disney cas-
settes for a reduced price as an incentive to buy McDonald’s meals. The fast
food chain compensated Disney by promoting the films as part of its own ad-
vertising. In the second half of the 1990s, Disney played off McDonald’s by
working with Burger King on such films as The Lion King (1994) and Poca-
hontas (1995). Other studios also sought opportunities to work with McDon-
ald’s, and as of this writing, Disney has switched again to McDonald’s. These
mutual promotional campaigns start with the theatrical release of the movie,
but the video release is always an important element since the cassette is a
physical item that can be sold as part of the meal plan. There is some con-
troversy about incentive pricing. Video specialty stores resent that the public
V E N I , V I D I , V I D E O

146 can obtain cassettes from food chains for as little as $5.99, when the video
stores can sell tapes at prices only slightly discounted from the $24.95 or
$19.95 list price.
M&M / Mars’ Snickers, Chrysler, and Hershey have all made straightfor-
ward (without cross-promotion) ad buys on video releases, paying between
$1 to $2 per cassette in order to place their ads. The results have been mixed.
A survey of the literature by Lee and Katz shows that the advertising com-
munity is still debating the value of such a buy.21 There is a consensus that
the prices are too high considering how many viewers fast forward through
the commercial messages. In general, advertising for products on videotape,
except for advertising other videos, has not become a significant part of its
commodification.

Retailing Consolidation

There was an inevitable consolidation of video retailing after 1986. This

consolidation led to stabilization and even a slight pullback in the number of
video stores by 1989 (see Table 3.4), and a decrease in the number of com-
panies engaged in video retailing. The most dramatic consolidation was the
expansion of Blockbuster Entertainment from 1986 to a point in 1993 (the
year before its merger with Viacom) when it controlled over 3,593 domestic
video specialty stores and 775 more in Great Britain. It has become, by far,
the biggest chain in the world. Its expansion occurred by building and pur-
chasing previously existing video stores and chains. At times in its buildup,
Blockbuster sold franchises, although more recently it has been buying
them back.
David Cook started Blockbuster in Dallas, Texas in 1985. His background
was in computer software, and he approached rental inventory with some
of the tricks he had already learned. He decided the answer to successful
rentals was the “super” store, with ample floor space for a wider selection of
titles, more copies of recent films, and longer hours than the competition. He
started with 6,500 titles among 8,000 units.22 By 1990, the typical Block-
buster outlet had 8,000 titles among 10,000 units.23 In contrast, the number
of units at the average video specialty store was about 3,600.24 The super store
concept spread beyond Blockbuster, with the number of super stores rising
to 27 percent of all video specialty outlets by 1992.25 Cook did not get to en-
video becomes big business

joy the full fruits of his innovation. He sought outside investors, and in 1987 147
one of these investors, Wayne Huizenga, took over and forced him out.
Huizenga started out in the garbage business and cashed out after build-
ing Waste Management Incorporated into a national chain. His ambition in
video rentals was focused strictly on the cash and stock value. He had very
limited interest in the entertainment business or in films per se. In fact, Hui-
zenga confided that he could not remember watching an entire film.26 His
executives did not have a background, or much interest, in entertainment.
Blockbuster’s upper management had two basic objectives in regard to the
content of the movies in their stores: to eliminate controversy and to empha-
size wide selection. Blockbuster did little else to influence either the content
or the nature of the video business. (Huizenga continues to display the “it’s
only the money” attitude from time to time in his current activity as a base-
ball team owner.)
Blockbuster emphasized that it provided a desirable space for the entire
family, in a manner reminiscent of the early movie exhibitors courting a “re-
spectable” audience at the beginning of the twentieth century. If home video
still had an unsavory reputation because of its early emphasis on porno,
Blockbuster would lean over backward to ensure its own clean image. Hui-
zenga brought in a marketer from McDonald’s food chain, Tom Gruber, who
instituted a chainwide ban on X-rated films and other controversial titles.
This policy drew some negative attention when Blockbuster refused to stock
The Last Temptation of Christ (1988), Martin Scorsese’s controversial adap-
tation of the Kazantzakis novel about Christ’s human dimension. The possi-
bilities of sophisticated cinematic expression and creativity would not get in
the way of Blockbuster’s squeaky clean campaign to dominate video retailing
and drive up stock prices. Most large rental chains have adopted Blockbust-
er’s strategy of avoiding sexually explicit tapes. Smaller chains and “mom and
pop” operations have discovered the counterstrategy of filling the void. Adult
rentals now often provide the margin for survival for small stores.
Blockbuster marched across the country, setting up stores and/or buying
out the competition, reminiscent of Adolph Zukor’s 1916 theater-buying
spree. It was a case of the big fish swallowing anything even slightly smaller.
In January 1989 it acquired Major Video Corporation; in August it obtained
Video Superstore; and two years later it bought Erol’s, the biggest survivor
from the pioneer days of video, which had been operating since 1981. In 1991
V E N I , V I D I , V I D E O

148 Huizenga recruited Joseph Baczko from Toys R Us to become president and
chief operating officer. Baczko had more interest in the shape of the business
and actively tried to promote selling directly to the customer in addition to
renting. He also used volume buying to get better deals with film suppliers.
Both Orion and Disney Home Video executives started complaining to the
boss. Huizenga feared that if there was a perception of conflict between the
video chain and the suppliers, Wall Street would get nervous and share prices
would plunge.27 Baczko was out of the company by January 1993, and Block-
buster made no further attempt to innovate better deals with suppliers.
In 1993, Blockbuster finally decided to move into programming. It ac-
quired the program distributor Republic Pictures and an allied production
house, Spelling Entertainment, headed by the legendary TV producer Aaron
Spelling. Spelling convinced Blockbuster to produce a TV movie called Texas
that was released to home video in 1994 and then to network television with-
out the benefit of a theatrical run. The show received revenues of $5.2 mil-
lion from video sales, a modest but respectable sum.
Huizenga’s activities in building an integrated video company were short-
lived. He became involved with Sumner Redstone, the owner of National
Amusements and Viacom. Redstone acknowledges a fascination with the
movie business that goes back to running his father’s movie theater chain in
New England. As part of his fascination, Redstone was making a bid for Para-
mount and was in a desperate bidding war against Barry Diller and his asso-
ciates. Redstone needed cash and Huizenga saw an opportunity for a profit-
able stock swap. He merged Blockbuster with Viacom as part of a complex
deal to finance Viacom’s purchase of Paramount Communications. Huizenga
then left the video rental business, after dominating it for just over six years.
As Blockbuster demonstrates, video retailers have historically not sought
control over distribution, although there was one attempt. Several retailers
formed First Video Feature (FVF ) in August 1988 to pool retailers to obtain
exclusive territories for films on video. Each retailer would deposit $800 and
agree to buy seven copies of each FVF release. FVF anticipated that obtain-
ing the rights to films would cost $3 million plus $2 million for advertising.28
Eventually FVF wanted to move into financing productions. This idea recalls
the history of First National pooling exhibitors’ money to move into film pro-
duction in 1917. However, too many video retailers were skeptical of the fea-
sibility of such a pooled effort and the proposal was withdrawn. When video
retailers were asked in a 1990 informal survey what they would do if they ran
video becomes big business

a movie studio, they did not mention the type or amount of movies that were 149
being released. They talked only of marketing matters such as point of pur-
chase advertising and so on.29
Large chains like Blockbuster now dominate video retailing among stores
specializing in video. West Coast Video and Hollywood Entertainment are
other major rental chains. The top 100 retailers generate 39 percent of spe-
cialty revenues while they own only 15 percent of the outlets.30 However, the
chains neither seek nor have influence over suppliers and distributors re-
garding film production. Blockbuster was typical in refusing to link its ability
to buy in bulk with any demands or favors. Daniel Moret, in his evocatively
titled study of video retailing, The New Nickelodeons, discusses the political
and economic effects of the consolidation of video retailing.31 He notes the
threat of censorship and higher consumer costs, but does not detect a strong
relationship between the consolidation of retailing and the increasing domi-
nation of hit titles in the video business.

Breadth versus Depth

Nonetheless, retailing has had an influence on film production. It is indirect

and has more to do with consolidation at the wholesale level than at the re-
tail. The influence can be summed up in the debate that emerged during
the maturing stage of video retail: “breadth versus depth.” This was a three-
way debate between retailers, wholesalers, and distributors, perhaps begin-
ning with the latter. As the video market matured and the number of stores
peaked, major distributors increased their sales to stores seeking to own more
copies of individual titles. This was referred to as “depth of copy.”
It was intuitive that the most popular rental titles closely corresponded to
the most popular theatrical titles. There was some deviation between the-
atrical and rental popularity if only because the video store presents a wide
selection in thousands of “backshelf” titles, while the most fragmented multi-
plex theater can still only offer a dozen choices. Newly released titles received
the greatest consumer interest. On the other hand, a few titles continued to
command interest after the first six weeks. Several market surveys have in-
dicated that customers often leave the video rental store without their first
choice under their arm.32 While customers reported that they were disap-
pointed, retailers still rang up rental fees when they persuaded these renters
to take an older show home. As retailers made their purchasing decisions,
V E N I , V I D I , V I D E O

150 they began to perform a balancing act between the breadth of having many
titles on the store shelves and the depth they had in the number of copies of
a few titles.
Copies per title per store climbed throughout 1985. At the end of that year,
Ghostbusters broke the 400,000 units-sold barrier for rental-priced cassettes
(fourteen copies per North American video store), and several other titles
quickly followed in the early months of 1986.33 “Depth of copy” continued to
hover around this figure for the top titles. Two years later, Paramount tried
to push the depth-of-copy strategy further. Klingensmith, now the president
of the home video division, decided to spend $10 million to market high-
priced rental films in 1988. Disney’s Three Men and a Baby pushed through
the 450,000 barrier in 1988 with 460,000 units, returning $26.4 million to
the supplier. The upper ceiling on high-priced tapes was 500,000 units until
Paramount’s Ghost sold almost 600,000 in the beginning of 1991.
Retailers have been ambivalent about buying multiple copies of “A” titles.
Video Store has featured many owners who like to buy “B” titles instead and
steer their customers toward alternatives to the hits. One video retailer
identified as Salzer claimed that “. . . pretty much the ‘B’ titles are what bring
the traffic in. You can’t have all the ‘A’ titles you need. It’s the ‘B’ titles that
differentiate us from the competition.” 34 Sam Goldstein, president of a ten-
store chain, told Video Store, “People always want what’s new, so the idea is
to keep them interested in older titles.” 35 Retailers such as Kims in New York
City and Vidiots in Santa Monica, California have made a virtue of hav-
ing very off-beat titles in stock for their sophisticated video fans. The debate
goes on.
It is the wholesaler who unambiguously favors depth, since that provides
economy of scale. Every new title and every additional supplier adds to the
overhead costs for the wholesaler, who wishes for as few titles and few sup-
pliers as possible. Of course, suppliers who provide high-volume, popular
titles have the most power in their dealings with wholesalers. Suppliers are
not shy about punishing wholesalers that do not move their product. By early
1989 HBO, IVE, MCA /Universal, RCA /Columbia, and Vestron had all short-
ened the list of wholesalers with whom they would do business.36 Due to such
pressures, wholesalers consolidated and lost interest in product that does not
move quickly. They reserve their warehouse space for product that does.
Wholesalers will not handle marginal products unless the distributors are
video becomes big business

willing to provide some discount or support. They pressure weaker film sup- 151
pliers to take out advertisements in the wholesalers’ monthly mailers.37 They
demand better return policies than they get from major distributors /suppli-
ers. Independents also have to try to encourage wholesalers to give them sup-
port and shelf space by discounting their prices 5 to 10 percent below the ma-
jors. Wholesalers often pocket the discount, selling the low-budget films at
the same price as the popular blockbusters.
One way retailers can have greater depth of current hits without spending
the entire budget is to lease tapes. Initially store owners resented and rejected
the high-handedness of the early studio leasing schemes. However, they have
been more amenable to non-studio leasing. In 1982, store owner Ron Berger
formulated a more favorable leasing system. He convinced the participating
rental stores that leasing would allow them to have more copies without rais-
ing inventory costs. He also convinced studios to participate, giving up the
tight control these studios had demanded in 1981, such as exclusive relations
and strict paperwork.
Berger built the leasing scheme out of his own chain of video rental stores
until he had enough critical mass to form a separate company called Rentrak
in 1986. Rentrak has been quietly adding customers since then. Stores par-
ticipate on a title-per-title basis. Super Comm is a rival leasing outfit (pur-
chased by The Walt Disney Company in 1995), and as of 1998, together the
two leasing outfits had contracts with 75 of the top 100 high-revenue video
rental stores.38 Leasing is also attractive as a future hedge as inventories
switch to DVD and other formats. Stores that participate in leasing also con-
tinue to purchase tapes. It is becoming common for video stores to both pur-
chase and lease in order to fill their shelves.

Video Advertising

Direct video advertising was an afterthought. As noted, Twentieth Century

Fox threw the entire risk of developing a market for videotapes on the shoul-
ders of Andre Blay’s Magnetic Video. The studios used the format wars
between Betamax and VHS to justify their aversion to video advertising.
The format wars were confusing the public and were forcing the studios to
double their inventory costs in order to have product available in either for-
V E N I , V I D I , V I D E O

152 mat. Why not hold off on advertising until the dust was clear and a clear win-
ner emerged? When a clear winner did emerge, the Hollywood majors still
refused to advertise video since they did not want to encourage renting and
thought such advertising would only help the retailer. Only the new inde-
pendents committed money to video promotions.
It was only as the two-tiered price structure developed that major studios
started to promote the video releases to the public. The Disney Company
placed the first major television commercial for home videocassettes on the
television show Little House on the Prairie during the fall season of 1983.39
It promoted Disney prerecorded cassettes as a gift-giving item during the
Christmas season. The relationship between sell-through and mass advertis-
ing was obvious. However, advertising in order to support films that were
bought primarily by video rental stores was thought to be less effective, since
the only financial interest the studio had was in the first sale, not in the sub-
sequent rentals. Following this logic, studios committed some of their money
to advertising video releases through wholesaler catalogs. Wholesalers also
committed some money to advertising to retailers. In order to arouse store
owners’ interest, video campaigns started a month or more before the street
date of the video release (the date when stores can place the tapes on the
shelves).
Independents have historically had more interest in advertising rental
titles. The budgets are set as a percentage of anticipated gross sales of cas-
settes. At Orion, the formula as of 1993 was that 15–20 percent of the antic-
ipated gross should be spent on marketing.40 This is still relatively cheap
since in this period the theatrical advertising for a movie reached 31–35 per-
cent of the average North American gross box office. In terms of absolute
numbers, film suppliers committed $50 million to video advertising in 1988,
up from $16.9 million in 1987.41 The $50 million (mostly devoted to sell-
throughs) spent on video was of course a pale fraction of the $1.4 billion the
movie industry spent on domestic advertising in that year. There have been
sporadic calls for Hollywood to promote the activity of renting videos. The
responses of the studios have always been extremely tepid.

Video and Revenue Streams

It is important to understand that the market for videocassettes matured

without weakening other revenue sources for the film industries. In the pre-
video becomes big business

vious chapter, we looked at the strained relationship between the Hollywood 153
studios and pay television, particularly with HBO. However, cable continued
to improve as a revenue source for the film industry, although it could not
keep up with cassette sales. Its own rate decelerated through the late 1980s,
but one should not conclude that home video was undermining cable rev-
enues. Sales of feature films to network television did weaken in response to
home video. One triggering event was the disappointing share of only 25 per-
cent of TV viewers that Star Wars received when CBS broadcast it on Feb-
ruary 26, 1984. Its 1982 pay TV airing and 1983 video release had eroded
its audience. In 1986, Lawrence Tisch took control of CBS, and he started to
complain about the average $3 million the networks were paying for fea-
ture film rights.42 However, the resulting decline in network fees was modest
and short-lived. In other venues, the domestic box office remained stable
throughout the period, reporting a dip only in 1985. The situation was murk-
ier overseas, where European box offices weakened in the 1980s and video,
television deregulation, and subscription TV were all blamed. However,
Western European theaters started to upgrade along American lines after
1985 and a full-scale recovery was evident by 1987.
Table 5.3 shows how Wall Street analysts documented the lack of canni-
balization between video and other revenue sources.

table 5.3 Goldman Sachs Estimates of Worldwide Sources of U.S. Theatrical

Film Revenues (in billions of dollars), 1980–1992

Year Box Office Home Video Pay TV Television Total

1980 1.9 0.03 0.1 0.4 2.5

1981 2.0 0.15 0.2 0.5 2.9
1982 2.3 0.35 0.4 0.5 3.6
1983 2.6 0.75 0.6 0.5 4.6
1984 2.7 1.4 0.6 0.5 5.3
1985 2.4 2.0 0.6 0.6 5.7
1986 2.5 2.5 0.6 0.7 6.4
1987 2.8 3.1 0.6 0.7 7.2
1988 3.0 3.9 0.7 1.0 8.8
1989 3.4 4.5 0.9 1.1 10.0
1990 3.7 5.2 1.0 1.3 11.5
1991 3.8 5.9 1.1 1.4 12.5
1992 4.0 6.6 1.1 1.5 13.6
V E N I , V I D I , V I D E O

154
Production Increase

Home video had become an important part of the dazzling array of Ameri-
can consumer products. Consumer products tend to proliferate; did home
video? What were its gross effects on filmmaking, as measured by as simple
an index as production levels? For a brief moment, the number of feature
films in production increased because of video. It seemed appropriate that as
more money came in, more product went out. Table 5.4 demonstrates that
this was the response of the independent distributors during the years 1984
through 1988.
The actual count in Table 5.4 reflects the judgment of the writers for the
trade journal Variety and statisticians at the Motion Picture Association of
America. I have combined their figures for the table.
The major studios did not respond to new revenues in the same manner as
the non-MPAA distributors. Independent and MPAA distribution had a neg-
ative correlation (see Figure 5.1). The number of independent releases went
up as MPAA releases declined in the 1971 to 1974 and the 1984 to 1987 peri-
ods. When independent releases permanently declined in 1989, the MPAA
companies made a very limited effort to fill the slack. Periods of declining in-
dependent releases have been periods of overall decline in the number of
films available to the American audience. The major studios have felt that ten
to fifteen major films are needed a year to justify their distribution and ad-
ministrative overhead, and they resist further expansion. Since there are
seven full-fledged majors (Warner, Paramount, Twentieth Century Fox, Co-
lumbia, Universal MGM /UA, and Disney [particularly after Eisner and
Katzenberg decided to increase production in 1984]), this provides a base of
70 to 100 films per year. During this period there have been two other MPAA
members besides the seven: Tri-Star (until it was absorbed into Sony, along
with Columbia) and Orion (until it started to falter in the late 1980s). These
account for the additional MPAA releases.

More Money, Same Product

The influx of new money was overwhelmingly due to the sale of videocas-
settes (see Table 5.3). At least 70 percent of the overall increase in theatrical
film revenues from 1983 to 1988 was due to cassette sales. The reticence to
increase production despite the expansion of the market and the influx of
video becomes big business

table 5.4 Number of Independent Films Distributed in U.S., 1970–1992 155

Total film revenues
Independent MPAA Total (billions of
Year releases releases releases dollars)

1970 133 185 318

1971 246 183 429
1972 239 193 432
1973 294 163 457
1974 357 155 512
1975 292 138 430
1976 312 133 445
1977 299 110 409
1978 225 114 339
1979 189 138 327 Goldman Sachs
1980 205 161 366 12.5
1981 171 173 344 12.9
1982 192 173 365 13.6
1983 154 190 344 14.6
1984 144 167 311 15.3
1985 156 153 309 15.7
1986 176 139 315 16.4
1987 200 129 329 17.2
1988 179 160 339 18.8
1989 142 169 311 10.0
1990 142 169 311 11.5
1991 143 164 307 12.5
1992 126 150 276 13.6
sources: Todd McCarthy, “Indie Share of Mkt. Hits 6-Year High,” Variety, June 18, 1986,
p. 5; Lawrence Cohn, “WB Biggest Pic Supplier—Again,” Variety, December 21, 1992; MPAA,
“U.S. Economic Review,” various years.

new video money demands an explanation. It is a vital clue to the struggle

of the new video distributors and their allies, the independent film produc-
ers. If home video was not eating into other markets and if the revenue
increase was significant, why were production increases so ephemeral? Was
there something about the video money that was discouraging increased
production?
This chapter has outlined the various business practices surrounding the
home video market. Video retailing consolidation was largely a neutral fac-
tor in film industry production, but other aspects of the video business had a
greater impact. Two-tiered pricing obviously favored the few, big, high-profile
V E N I , V I D I , V I D E O

156 600

500

400
RELEASES

300

200

100

0
70
71

72
73

74
75

76
77
78
79

80
81

82
83

84
85

86
87

88
89

90
91

92
19
19

19
19

19
19

19
19
19
19

19
19

19
19

19
19

19
19

19
19

19
19

19
Y E A R

MPAA releases Independent releases TOTAL

figure 5.1 Number of independent and MPAA film releases, 1970–1992

films over the many medium-sized films financed by independent video pre-
selling. It also gave a large amount of money to established studios with which
to enhance their other marketing operations and increase their competitive
edge. The profit pressure on wholesalers also worked against titles with only
moderate popularity and distributors with limited power. The distribution
fee system and methods of calculating royalties favored the major studios and
gave them higher returns proportionately on hit movies than independent
producers and distributors could command. The mature video industry was
no longer friendly territory for those who had pioneered the business.
New Hollywood, which consisted of new distribution practices as well as
new ways of making films, was putting the money into bigger movies and ex-
pensive theatrical campaigns. It is on this basis that there would be a shake-
out. Exhibitors responded to the home video challenge by refurbishing their
theaters. It is more significant that the major studios were helping them, with
video becomes big business

their new video revenue, to enhance the movie theatrical experience. Those 157
who could not make big theatrical movies or finance expensive advertise-
ments would be left by the side of the road. Wholesalers did not want to stock
their tapes, and retailers hesitated between breadth and depth. In the next
chapter, the inferences that have been drawn from this detailed look at busi-
ness practices will be confirmed by the actual history of distribution after
1986. It is now time to look at the actual players—independent and major—
and learn their fates.
 C H A P T E R S I X

Consolidation and Shakeouts

On the first page of Vestron’s 1986 annual report, Austin Furst explained
“dramatically lower earnings” by stating that “home video rental demand for
movies reflected a narrowing focus on titles, which had achieved strong con-
sumer awareness through significant theatrical exposure and promotional
support. . . . Many of the movies that Vestron released into the home video
market had very limited theatrical exposure and did not sell as well as we
might have expected based on the performance of similar films released by
the company in the past.” 1
These few words pinpointed the challenge for the new independent video
distributors —“significant theatrical exposure.” Since the new distributors
generally could not meet the challenge, these words mark the crest of the in-
dependent wave. The phrase also helps to explain the relatively stable level
of production. Significant exposure had to be paid for, through larger pro-
duction budgets and bigger advertising campaigns. The preceding chapter
covered the enhancement of multiplexed movie theaters and the develop-
ment of sell-through pricing. These schemes gave greater market share to the
majors. The multiplexed theater had a higher overhead per seat and there-
fore a lower tolerance for non-performing movies. A good opening weekend
became all important in guaranteeing that a movie could have a profitable
run while exhibitors responded to disappointing openings by quickly seeking
rival products. The rewards of a good opening went beyond the actual box
office, since hit films led directly to high video sales either as sell-throughs or
as rentals. Then the new video money was invested into the next round of ex-
pensive wide releases and marketing.
The independents were rarely able to take advantage of the sell-through
consolidation and shakeouts

market. In this chapter, we will see that independents lost video market share 159
as the cost of theatrical releasing grew higher. Eroding profit margins are
even a more powerful explanation of the independent bankruptcy than lost
market share. The independents did make hit movies, sometimes in the same
ratio as the majors. They just did not make enough of them to accumulate
power and long-term relationships with wholesalers and exhibitors. While
almost every non-major video and theatrical distributor declared bankruptcy
or sought a protective merger, the majors gained unprecedented power within
New Hollywood and the world. The two most successful independents to be
still standing at the end of the era were New Line and Miramax, and they
were bought by old-line Hollywood conglomerates in 1993.
This thesis is not just an abstract economic model, but is the actual his-
torical truth of the relative fortunes of Paramount, Disney, Vestron, and Ca-
rolco et al. during the 1980s. It is in following the individual narratives of
these companies that we finally synthesize cultural analysis with the eco-
nomic /technological/industrial structures that have been described and an-
alyzed in the foregoing chapters. The wholesaling pressures on retailers to
stock hits in depth coincides with and reinforces Paramount’s “high concept”
approach to filmmaking and marketing. The sell-through market reanimates
the Walt Disney Company. Multi-market opportunities led to global media
mergers and a strengthening of global audiences for Hollywood blockbusters.
I wish to make clear that the strengthening of the global audience does not
mean that these events are the result of the autonomous will of the audience.
The actual intentions of consumers in 1986 were hard to measure. The first
video owners were willing to rent anything and everything. Their omnivorous
appetites naturally diminished as the novelty of rentals wore off. Nonetheless,
we must acknowledge that moderately popular films continued to rent. Per-
haps consumer intentions had not changed that drastically. It was from the
distributor’s point of view that medium-sized films were unprofitable. This is
because the costs of acquiring these films from producers became excessive.
The bidding wars had forced video distributors to exhaust their assets and
their credit lines as they tried to sign deals with producers asking for larger
and larger advances. In this tightening situation, market share became more
important than actual dollar figures because it meant that the successful dis-
tributor had power both with the producers eager to reach the video market
and with the video wholesalers. The 1986 Vestron report was as much about
V E N I , V I D I , V I D E O

160 market share falling away from films with “limited theatrical exposure” as it
was about an actual shift in consumer preference. Theatrical exposure was
becoming the only way to convince wholesalers and retailers to put the pre-
recorded shows on the shelf. It was now evident that the structure of multiple
markets increasingly favored a “winner take all” situation for Hollywood
films.
By 1984, independent distributors realized that the supplies of current
films were drying up. Some companies, such as Orion, that were once willing
to sell the video rights to these independents now wanted to exploit those
rights themselves. In addition, theatrical distributors were demanding that
all the rights, including video, be sold together. Independent producers had
been used to splitting theatrical distribution from video distribution and
seeking the best bid for each. These new demands meant that producers
could no longer cut separate deals with video distributors. Independent video
distributors now had to produce their own theatrical films, just to keep their
video inventory up. Some tried the direct-to-video route. Only a very few
built a substantial distribution business on such a basis. David Whitten, an
independent distributor who helps and consults other independents, told his
clients that even the lowest budget films needed to have a theatrical run. This
became accepted wisdom in the industry and was true even if the distributor
anticipated that such a release would only lose more money. The reason for
such a release was to gain some attention and therefore get a reasonable
(hopefully a profitable) video sale.
Both the positive (the increase in overall filmed entertainment earnings)
and the negative (the demise of smaller companies) outcomes in 1986 are a
result of the connections between the changing nature of the theatrical re-
lease and concentration in video distribution. I will tease out the larger issues
involved by following the differing fates of Vestron, Carolco, and Disney. Dis-
ney and Vestron form a complementary pair in this narrative, one rising like
a helium balloon as the other deflates. Vestron and Carolco also form an in-
structive contrast. Vestron moved from the “publishing” model of video dis-
tributing back into the traditional integrated production /distribution studio
model. Carolco was a production company that sought a close alliance with a
video distributor. It ultimately collapsed, while its video distributor partner
still survives. The three models illuminate all the issues of integrated video
distribution from 1986 to 1994. Both for the choices they did not make as
well as for the choices they did make, they are emblematic of an era.
consolidation and shakeouts

161
High Concept

The story of video and Disney begins at ABC, where Michael Eisner began his
career, and at Paramount, where he subsequently moved and met Jeffrey
Katzenberg, William Mechanic, and other future key members of the Disney
“team.” ABC and Paramount were the nurturing incubators of a more refined
approach to marketing big-budget movies called “high concept.” A short
definition of high-concept films is that they are designed for maximum mar-
ket success. This definition is, of course, broad enough to include any film. As
the term became more popular in 1980s Hollywood, Steven Spielberg gave it
a more operative definition. “If a person can tell me the idea in twenty-five
words or less, it’s going to make a pretty good [high-concept] movie. I like
ideas, especially movie ideas, that you can hold in your hand.” 2 Justin Wyatt
is a film scholar who has tackled the problem of differentiating high-concept
moviemaking from other periods and other styles. Wyatt summarizes his own
view of high concept as “the look, the hook, and the book,” by which he
means that the look of the images, the marketing hooks, and the reduced nar-
ratives are distinguishable aspects of a high-concept film.3 Each one of these
elements was geared toward quick recognition in order to facilitate not only
movie attendance but also sales of all commodities associated with the film,
from record albums to toys to home videos. The elements can be comic book
heroes, as in Batman (1989), dinosaurs, as in Jurassic Park (1993), or univer-
sally known shipwrecks, as in Titanic (1997). A high-concept film tends to
fulfill the “instant recognition” requirement more efficiently than a “low-
concept” film, even though both exist within the continuum of selling enter-
tainment products.
My argument rests on the chronological development of high concept that
finally flourishes in the marketing bonanza of Disney’s home video division
starting in late 1985. High concept’s pre-formative development began at
ABC in 1973–1974, when Barry Diller was chief programming executive. It
was articulated after Diller and Eisner moved to Paramount in 1974. High
concept became the enabling “ideology” for Paramount’s sell-through strat-
egy, which was perfected by the Walt Disney Company once Eisner and Me-
chanic moved there from Paramount in 1984. In a way, high concept origi-
nated in television, moved to theatricals, and reached fulfillment in three
media when low-priced video caught on.
When Barry Diller was at ABC, he demanded film projects that could be
V E N I , V I D I , V I D E O

162 easily summarized in both the abbreviated 30-second TV commercial and in

the sentence synopsis of TV Guide and other published TV schedules. In
1974, Diller and his team moved into theatrical film by taking key positions
at Paramount studios. They started applying their hard-nosed marketing
ideology to theatrical movies. Diller’s inner circle at Paramount included
Michael Eisner and Jeffrey Katzenberg. Their demand for an easy-to-
recognize film concept was different enough from the prevailing approaches
to film marketing such as “star power” that Paramount’s approach earned the
appreciation of its rivals. Other film executives started using the Paramount
formula to assess how closely the design of the film fit its marketing strategy.
As video matured, Paramount’s Klingensmith realized that films made ac-
cording to the high-concept formula could attract high-volume video sales.
Star Trek II: The Wrath of Khan (1982) (the first low-priced tape) was one
such film, relying on instantly recognizable elements of the popular TV show.
Rapid recognition becomes important in a society that is readjusting lei-
sure patterns to fit new time demands. High concept directs film producers
and distributors to focus on the commodity nature of the film and to stress
recognizable, sellable elements. This commodity can be sold quickly to a pub-
lic who easily recognizes it because of the considerations of high concept—
“the look, the hook, and the book.” It fits an audience that increasingly
watches the film on the television set with the attention span associated with
a distracted glance rather than an intent gaze.4 The biggest part of the sell-
through market is the young audience, the very audience members who de-
mand repetition and immediately rewarding images. The parallels between
sell-through and high concept suggest that both are responses to an audience
dealing with new stresses on leisure by seeking known media products.

Disney Comes Back On-line

Disney was the most publicized “Cinderella” company of the 1980s. The
changeover was thorough enough that the company changed the name from
Walt Disney Productions to The Walt Disney Company in 1986. Since the
opening of Disneyland in 1954, Disney has been a successful company, but it
lost its aggressive edge after the death of Walt Disney in 1966. By 1980, it was
a decidedly lackluster feature film distributor, placing seventh, with its share
of box office, in a field of eight. The crisis deepened over the next four years.
In late September 1984, the company dumped its top executives and hired
consolidation and shakeouts

Michael Eisner to become the CEO. The success of Paramount was the de- 163
ciding factor in his selection.
Eisner promised Disney’s board that he would hit the ground running. His
team was under pressure to make money quickly. One of the first items on the
agenda was to review the home video question again. Disney had succeeded
in the sell-through market in the summer of 1984. However, the outgoing
team still refused to place any classic animated feature on tape. As Eisner took
over, the 1940 feature animation Pinocchio was playing in the theaters. The
new team debated the opportunity. Richard Frank and other executives ar-
gued for Pinocchio’s subsequent release to video. Surprisingly Jeffrey Katzen-
berg, the new studio head, took up the old argument that a home video re-
lease would erode the future value of the film by undermining its theatrical
re-release. Eisner finally decided to go ahead with the video release. He did
listen to Katzenberg’s plea that the tape should be priced high to maximize
profits and to limit the number of copies in circulation at the time of the next
theatrical release.5
Eisner and Katzenberg had brought over many other recruits from Para-
mount to help re-energize Disney. One of the executives was William Me-
chanic. Mechanic had earned a Ph.D. in film at USC and started his career in
cable by working as a programmer for SelecTV. In 1985 Disney reorganized
the home video division and placed Mechanic in charge. The initial sale fig-
ures for Pinocchio had stalled at a disappointing $5 million. Mechanic re-
membered the lesson of sell-through. He knew he had a highly recognizable
film that could practically market itself. He cut the price to $29.95. This in-
curred the anger of retailers and purchasers who had already bought the
tape. But he was vindicated when the title sold its entire inventory of 300,000
units, earning in excess of $8 million for Disney. A new triumphant attitude
was now in place at Walt Disney Home Video (soon to be renamed Buena
Vista Home Video as the umbrella distributor for the three Disney produc-
tion units: Disney, Touchstone, and Hollywood).
The next spring Mechanic announced twenty-one more titles available
at $29.95. Most of these were non-feature films, but the package included a
re-release of the feature animation Alice in Wonderland. He also committed
$1.5 million to the advertising for this package. By October, Mechanic had
put together a package of six films headed by the 1959 Sleeping Beauty. He
spent $6 million on advertising and the package sold 5 million units. Sleep-
ing Beauty broke the million-unit barrier to become the fifth largest video re-
V E N I , V I D I , V I D E O

164 lease up to that time, behind Beverly Hills Cop (1985), Indiana Jones and the
Temple of Doom (1985), Raiders of the Lost Ark (1983), and Jane Fonda’s
Workout (1982). Three of the top five were Paramount releases.
Disney had successfully moved forward. In 1984 Disney was only the
eighth largest U.S. home video distributor with revenues of $78.1 million.
By 1987, it had become one of the largest distributors, with sales of $175
million.6 The next year it was the undisputed number one home video
distributor.
The pre-Eisner Disney was producing only three films per year. When
Eisner took over Walt Disney, he had already decided to match the other ma-
jor studios by offering a full production schedule of between twelve and fif-
teen films. The new markets of cable and video were just begging for new
releases and there was not a moment to spare. Despite the best efforts of Eis-
ner’s executive team, and in particular the new studio chief, Jeffrey Katzen-
berg, it was taking time to increase production. The team needed stars and
other production talent and, most of all, money. They were not playing in a
vacuum. While the other majors were barely increasing their production
schedule, the independents were ramping up going from 144 releases in 1984
to 200 in 1987, a 40 percent increase (see Table 5.4).
Disney had an advantage over the independents. Despite the filmmaking
frenzy, Disney executives could locate and develop more marketable scripts
than the indies. It had power because it had a top line studio, an experienced
animation staff, strong distribution channels, and a formidable library of
children’s films and cartoons. It quickly accumulated a large war chest. The
relatively short time it took to increase Disney production was due largely to
innovations in finding capital. Video sales from the library provided Disney
with $109.5 million in 1985. In addition, the company pioneered a collabo-
ration with Silver Screen II, an investment partnership specializing in movie
deals. The partnership invested $170 million in Disney films from its 1985 of-
fering. In turn, the partnership received 50 percent of the box office and 25
percent of the video sales and other revenues earned by the shows in which
it was invested. By 1986, the company had doubled its film production budget
to $230.1 million, from $102.5 million in 1984.7 By 1988, the Walt Disney
Company was issuing twelve films annually.
Katzenberg and Eisner launched a two-pronged attack to return to full
production. They were very interested in competing head to head with other
major studios by releasing films of general appeal and not limiting themselves
consolidation and shakeouts

to only “children” or “family” titles. The previous regime at Disney had tried 165
to expand its repertoire but had done poorly with its 1982 attempt, Tron. The
older team lacked enthusiasm for the vulgarities that seemed to be de rigueur
for contemporary general interest films. Eisner’s and Katzenberg’s experience
at ABC and Paramount allowed them to move easily between the crudities of
the New Hollywood and the saccharine atmosphere of a typical Disney film.
At the studio screening, Eisner may have squirmed as he sat together with
Roy Disney (Walt Disney’s brother) through the explicit language of Down
and Out in Beverly Hills (1986), but the studio had to send a signal to the rest
of Hollywood.8 Disney released Down and Out and Ruthless People (1986)
and were soon capturing the same grown-up audiences as Paramount.
The second prong was to expand the original Disney franchise by giving
the go-ahead to produce the first full-length animations that the company
had done in a decade. Although the classic movies were designed and pro-
duced long before video, the sell-through versions of these old animations
had become critical in pushing Disney to the top rank of the video market.
The executives decided to maximize the shelf life of the classics by offering
the videotapes for sale for limited periods, maximizing sales without flooding
the market with tapes that would circulate indefinitely. The challenge was to
avoid exhausting the old library of classic animation and to build further.
Katzenberg decided to make new Disney classics to replenish the old ones.
Oliver & Company was the first new one in 1988. A more successful attempt
to recapture the timeless magic of Disney animation was achieved the next
year with the release of The Little Mermaid.

The Majors Hold the Line on Production Expansion

Disney was using the new money to “rebound.” How were the other ma-
jors using their video money? A look at releases by members of the MPAA in
Table 6.1 shows production fluctuations during the 1980s, without a dis-
cernible trend until 1987. In 1988, Disney’s increases in production leveled
out at twelve to fifteen annually. After 1987, the major studios averaged 163
releases per year through 1994. Unlike the independents, the major studios
did not use the ancillary revenues to increase the number of films. Instead,
these companies decided to use the new revenue to increase dramatically the
budget and advertising (for the domestic theatrical release) on each one of
their mainstream films.
V E N I , V I D I , V I D E O

table 6.1 MPAA Expenditures on Advertising and Negative Costs, 1980–1994

Advertising Percent- Percentage Av. neg. Percent- Advertising Percentage

per film age change cost age plus neg. change Number
(millions annual compared (millions annual (millions compared MPAA
Year of dollars) change to 1994 of dollars) change of dollars) to 1994 releases

1980 3.54 291.8 9.40 12.94 272.2 161

1981 3.54 �0.1 291.8 11.30 20.8 14.84 224.5 173
1982 4.06 14.7 241.6 11.80 4.5 15.86 203.7 173
1983 4.18 3.0 231.8 11.90 0.3 16.08 199.5 190
1984 5.63 28.2 146.4 14.40 21.3 20.03 140.4 167
1985 5.24 �2.3 164.7 16.80 16.4 22.04 118.5 153
1986 5.44 3.7 155.0 17.50 4.0 22.94 109.9 139
1987 6.87 26.3 101.9 20.00 14.9 26.87 79.2 129
1988 7.12 3.7 94.8 18.10 �9.9 25.22 91.0 160
1989 7.81 9.7 77.6 23.50 29.9 31.31 53.8 169
1990 10.24 31.1 35.4 26.80 14.2 37.04 30.0 169
1991 10.41 1.7 33.2 26.10 �2.4 36.51 31.9 164
1992 11.49 10.3 20.7 28.90 10.4 40.39 19.2 150
1993 12.13 5.6 14.3 29.90 3.6 42.03 14.6 161
1994 13.87 14.3 34.29 14.7 48.16 167
source: MPAA, “U.S. Economic Review,” various years.

The exact linkage between video earnings and increased production and
advertising expenses is not a matter of direct proof. Money is fungible and al-
locative decisions are rarely fully articulated. That is to say, studio heads did
not announce increases in production and advertising budgets as part of a
long-range rational plan to reinvest video dollars.9 However, they knew they
had the new money as they increased spending to beat the competition and
to grab market share. Successful theatrical releases leading to successful
video releases were the only justification they needed for the increasing the
promotion budgets for the theatrical release.
At this time, U.S. spending on all advertising was also increasing signifi-
cantly. However, Table 6.2 demonstrates that movie advertising was increas-
ing at nearly twice the general advertising rate. The new media markets for
films motivated the increased spending.
Figures for movie advertising come strictly from the theatrical release
campaign and do not include the added cost of promoting films for sell-
through or other ancillary markets. The big increases of the late 1980s were
the culmination of a decade-long trend of buying more and more television
consolidation and shakeouts

table 6.2 Movie Advertising versus General Advertising, 1980–1994 167

Advertising Percentage Total U.S. Percentage
per film Percentage change advertising Percentage change
(millions annual compared (millions annual compared
Year of dollars) change to 1994 of dollars) change to 1994

1980 3.54 291.8 54,590 174.8

1981 3.54 �0.10 291.8 60,430 10.70 148.2
1982 4.06 14.70 241.6 66,580 10.18 125.3
1983 4.18 3.00 231.8 75,850 13.92 97.8
1984 5.63 28.20 146.4 87,820 15.78 70.8
1985 5.24 �2.30 164.7 94,750 7.89 58.3
1986 5.44 3.70 155.0 102,140 7.80 46.9
1987 6.87 26.30 101.9 109,650 7.35 36.8
1988 7.12 3.70 94.8 118,050 7.66 27.1
1989 7.81 9.70 77.6 123,930 4.98 21.0
1990 10.24 31.10 35.4 128,640 3.80 16.6
1991 10.41 1.70 33.2 126,400 �1.74 18.7
1992 11.49 10.30 20.7 132,130 4.53 13.5
1993 12.13 5.60 14.3 138,100 8.6 8.6
1994 13.87 14.3 150,000
sources: Figures for movie advertising from MPAA, U.S. Economic Review, 1993. Figures for
advertising from various issues of U.S. Bureau of the Census, Statistical Abstract of the United
States (Washington, D.C.: U.S. Government Printing Office).

time in order to attract the audience for the first weekend. Peter Hoffman, a
prominent movie attorney and former president of Carolco, told industry
mavens at the 1992 Cannes Film Festival that marketing strategies for major
films now try to buy spots on television shows whose combined gross rating
points are in the 600– 800 range.10 He reported that this was more than
double the previous industry consensus on television buying. National net-
work advertising became an efficient strategy in an era when films were open-
ing wide on a thousand or more screens across the country. The switch to TV
was also more effective than the newspaper display ad in reaching the poten-
tial home video renter.
The promotion and support that the theatrical release received goes be-
yond the actual paid advertising. The film industry has always been blessed
by an ability to attract a lot of attention from the media. However, its ability
to promote “event” films has been unparalleled in recent years. The term
“event film” is like “high concept” in that it is not a precise category but a
V E N I , V I D I , V I D E O

168 relative definition. It signifies films that are able to attract so much attention
that the audience for the film expands beyond the devotees of a particular
genre— or even beyond movie fans in general. Birth of a Nation (1915), Gone
With the Wind (1939), and a few others in the historic past were the “event”
films of their day. By the late 1980s /early 1990s, there seems to have been an
event film every year. There was Three Men and a Baby in 1987, Who Framed
Roger Rabbit in 1988, the phenomenon of Batman in 1989, Home Alone and
Ghost in 1990, Terminator 2: Judgment Day in 1991, Aladdin in 1992, and the
unprecedented global success of Jurassic Park in 1993. The phenomenon
of event films has continued since with titles such as The Lion King (1994)
and Titanic (1997). One is isolated from the popular culture discourse if one
knows nothing about these films.
The attention that these films attract goes beyond what is just in the movie.
A large part of this added attention is focused on the production budget and
the subsequent box office earning of event films. Newspapers, magazines, and
pundits in other media have paid increasing attention to the details of pro-
duction, and in particular to the size of the budget. That is, the budget not
only buys things that command attention, such as famous stars—it has be-
come an object of attention itself.
When the movie opens, attention turns to the size of the theatrical open-
ing. Before the age of video and high concept, only specialty trade papers re-
ported opening weekend earnings. The new wider public attention was
helped by changes in the computerization of news gathering. In 1976, Marcy
Polier started a small company called Entertainment Data, Inc. (EDI). The
company contracted with the studios to provide overnight box office results
from the participating theaters. By the early 1980s, EDI’s information was
coming from as much as an estimated 80 percent of the nation’s theaters. Its
computers generated overnight figures that became industry standards. The
quick, accurate reporting fed the growing trend in mainstream newspapers
to report box office figures as a news item.
As EDI gained attention, mainstream newspapers such as The New York
Times et al. have dutifully reported the weekend grosses of blockbuster
movies as a weekly feature. In 1990, Time Warner started the magazine En-
tertainment Weekly. It broke new ground for a general audience magazine by
concentrating on the business of culture, such as reporting on movie budgets.
This was done alongside more traditional reviews and short features. General
interest in the business aspects of mass culture was increasing. This interest
consolidation and shakeouts

resulted in a “horse race” model of reporting about films. Who is winning, 169
who is losing? Reporters keep score by comparing production budgets to box
office grosses. In this kind of coverage, even big money makers, such as Hook
(1991), directed by Steven Spielberg, or Last Action Hero (1993), starring
Arnold Schwarzenegger, were labeled disappointments. Both these films re-
turned a profit after all the markets—theatrical, home video, foreign, and
domestic—were tallied. However, these movies were very expensive to make
and did not return the same proportion on investment as other big-budget
movies.
Can we conclude that home video revenue was supporting the increase in
these budgets? I would argue that this revenue has not received its due as the
driving force behind event movies. The argument against the importance of
home video revenue comes from skeptics who hold to a “Las Vegas” model
of film box office. They argue that the theatrical rewards on one movie are so
great that they justify a producer risking a higher budget, and thus that box
office alone is sufficient to explain the production budget rise. This is a weak
model that overly romanticizes what is going on, since it concentrates on in-
dividual budget choices. It ignores that studios use their distribution fees and
income to finance an entire schedule of movies.
Studio money should be looked at in aggregate sums and compared to ag-
gregate production budgets. Total budget financing is not a crapshoot but is
carefully pegged to market performance. Historically the American box office
provided at least enough money for studios to recover their negative costs,
with television and foreign markets providing the profit. This formula re-
mained in place even as cable money added more revenue. By 1986, however,
box office receipts were declining dramatically as a percentage of market per-
formance. Studios no longer pegged their anticipated negative costs to either
the U.S. or global box office. Home video’s increasing importance gave stu-
dios the courage to increase production budgets beyond the capacity of the
U.S. theatrical rentals. Lawrence Cohn noted this transition in 1987 when he
published industry-wide figures on film rentals as a percentage of negative
costs (see Table 6.3).
Variety compiled similar statistics to Cohn’s 1987 analysis for 1994. With
some additional arithmetic we can confirm that the trend continues, with the
domestic box office rentals now accounting for only 67 percent of negative
costs.11 The trend proves that allocative decisions by distributors carefully
correlated the amount of production money available with market returns.
V E N I , V I D I , V I D E O

170 table 6.3 North American Film Rentals as

Percentage of Negative Costs, 1981–1986

North American Film

Rentals as Percentage
Year of Negative Costs

1981 94
1982 99
1983 90
1984 95
1985 79
1986 76
source: Lawrence Cohn, “Pics Pay-Back Keeps on Perking,”
Variety, March 4, 1987, p. 1.

This trend would fluctuate violently from year to year if there was a “crap-
shoot” mentality at work, since in some years there would be runaway suc-
cesses and in other years the audience would stay away from the theaters.
However, Cohn’s analysis shows a linear predictable decline in box office as
percentage of aggregate negative costs. Cohn used conservative numbers
because he thought that the MPAA reports on average negative costs were
skewed toward higher budget films. A more dramatic result can be obtained
by combining MPAA numbers with Goldman Sachs’ estimates of earnings
(see Table 6.4).
The home video figures lump together sell-through and rental tapes.
These figures support the statement that negative costs were as much tied to
home video as to theatrical earnings. The analysts who estimate the figures
do not have access to actual studio numbers. However, the numbers are based
on careful compilations from various public sources such as Variety and
Video Week and are certainly accurate enough for determining trends.
The value of the theatrical market had remained constant in absolute
terms and had declined in relative terms. It, therefore, was counterintuitive
that executives were spending so much on marketing the theatrical release.
The theatrical release was taking on a new function as home video became
an essential revenue source. Without much forethought, the major distribu-
tors muscled each other for better and better theatrical exposure throughout
the rise of the video market. Their bidding wars proved serendipitous, since
consolidation and shakeouts

table 6.4 Film /Home Video (HV) Rentals as a Percentage of Negative Costs, 171
1980–1993

Box office Studios’

MPAA total rentals returns Box office
negative (North from North rental as HV returns
costs America) American HV percentage as percentage
(millions (millions (millions of negative of negative
Year of dollars) of dollars) of dollars) costs costs

1980 1,260 1,235 10 98.05 0.79

1981 1,639 1,335 50 81.48 3.05
1982 1,770 1,555 150 87.85 8.47
1983 1,975 1,700 400 86.06 20.25
1984 2,189 1,800 950 82.24 43.40
1985 2,318 1,635 1,335 70.52 57.58
1986 2,328 1,650 1,630 70.89 70.03
1987 2,440 1,830 1,915 75.00 78.48
1988 2,769 1,920 2,460 69.33 88.83
1989 3,690 2,165 2,760 58.68 74.81
1990 4,234 2,260 3,220 53.37 76.04
1991 3,915 2,160 3,760 55.17 96.04
1992 4,075 2,100 4,150 51.54 101.84
1993 4,664 2,163 4,360 46.37 93.47
sources: MPAA, U.S. Economic Review, 1994; Goldman Sachs, Movie Industry Update, 1994.

the theatrical promotion was the legs for the video market. The theatrical re-
lease provided the advertising that pushed the product through its many sub-
sequent markets. It also established, in the long run, effective entry barriers
against the video newcomers.

Vestron Responds

By the mid-eighties, the concentration of resources on a few high-profile

titles was putting added pressure on middle-range titles, which were primar-
ily handled by the newcomers. Did the new distributors have a chance as the
market matured? The answer is revealed in the fate of Vestron. It had distin-
guished itself in the new media market. The Vestron team treated video as
a publishing business. They had distanced video distributions from the us-
ual glamorous albeit fatal distractions of handling film. This approach had
worked through 1985. They hoped, once more, to find a niche that the ma-
V E N I , V I D I , V I D E O

172 jors had ignored even as they faced the challenges in their 1986 annual re-
port. Vestron was the one new independent video distributor with the best
chance at survival.
However, the company had a problem to solve with its program supply. In
1985, Furst wanted to take the company public. He had begun talks with Wall
Street financiers who were impressed by the substantial growth in company
revenues and profits but were concerned about the long-term inventory. Ves-
tron’s most important contract was with Orion, and it was running out. Other
sources of mainstream popular movies were disappearing. The advisers urged
Furst to produce his own movies to guarantee a future supply and maximum
profits. Vestron announced such an operation in the beginning of 1986.12 In
March 1986, it sold $115 million in 9 percent convertible debentures to cap-
italize these operations. For the rest of the year, Vestron struggled with the
changing marketplace. It was challenged by wholesalers, retailers, and audi-
ence demands for the same hit-driven structure that was prevalent in the-
atrical distribution.
As the production division started looking at scripts and putting together
actors and directors, Vestron Video was on the market snapping up video
rights for the remaining “quality” feature films. In January 1986, it paid an
advance of $4.5 million for Prizzi’s Honor. In May, it struck deals with Taft-
Barish, the DeLaurentiis Entertainment Group, and the Samuel Goldwyn
Company to get the home video rights for existing and future movies. De-
spite the recapitalization and the multiple film purchases, Vestron was los-
ing ground to tough competition. It had captured 10 percent of the cassette
sales market in 1984 and 1985 but had slipped to 8 percent in 1986.13 Rev-
enues had increased by 7 percent but gross profit had declined by 14 percent.
Table 6.5, which shows the number of Vestron releases by year, gives an idea
of the problem Vestron was facing.
The 1986 release program was overburdened with too many low-quality
titles. By 1987, Vestron had painfully repositioned itself by restricting the
number of releases to higher quality titles and by finally placing on the mar-
ket its own productions, films that would earn money in every medium for
the company. The first leg of the repositioning worked to a limited extent.
Several titles sold well in home video. Vestron Video received sixteen RIAA
gold certificates and five platinum ones. However, its market share slipped to
6.4 percent, and the cost of acquiring and producing led to an operating loss
of $57 million for the year. It needed a winning slate.
consolidation and shakeouts

table 6.5 Vestron Release Pattern, 1982–1988 173

Number of
video releases
( features and
Year non-features) Percentage Change

1982 51
1983 104 104
1984 131 26
1985 234 79
1986 324 38
1987 149 �54
1988 90 �40
sources: Various Vestron annual reports.

As Vestron was forced into production, it tried to maintain a low-key ap-

proach and to not “go Hollywood.” Vestron’s Stamford, Connecticut location
helped keep a distance from the usual Hollywood cliques. The company
would be releasing its films during a frenzy of new filmmaking that it was
partly responsible for because of its liberal pre-buying strategies of the previ-
ous years. At least Vestron had not weakened itself with pre-selling. When the
company started releasing its own movies in 1987, it stood to earn the full
amount the movie received. Vestron also distanced itself from other inde-
pendents by the type of movies it was releasing. Cannon, DeLaurentiis, Hem-
dale, and other independents favored action films that played well on the
global market. That genre became fiercely competitive. Vestron chose more
offbeat, harder-to-define scripts.
Dirty Dancing (1987) was Vestron’s first project. It had a very American
setting and sensibility and the producers specifically targeted a female audi-
ence. Linda Gottlieb had developed the script at MGM when Frank Yablans
was in charge. When Alan Ladd Jr. took over MGM /UA, he passed on the
project and Gottlieb took it to Ruth Vitale at Vestron.14 She put the film into
production and it became Vestron’s impressive debut hit. Dirty Dancing was
shot for $6 million. This was a decidedly small-budget effort starring the rel-
ative newcomers Patrick Swayze and Jennifer Grey (previously paired in Red
Dawn [1984]) in a low-key script about a girl’s romance with a dancer in a
1960s-era Catskill resort. Despite its modest pretenses, it returned $25 mil-
lion to the company from its domestic theatrical and $40 million in 1988
V E N I , V I D I , V I D E O

174 from its U.S. video release.15 The theatrical release was well handled, despite
a month-long delay as Vestron waited for the kind of theaters it wanted. Furst
and Peisinger were now some $59 million ahead of the game. Vestron also
had a succès d’estime: The Dead (1987) was directed by John Huston from a
James Joyce short story. Its box office gross was less than $4 million, and it
returned $3 million to the company through video sales.16 The company re-
turned to profitability in the first quarter of 1988 on the combined power of
its various video and theatrical releases.
In 1988, the number of independent film releases declined dramatically
throughout the American film industry. Vestron might now survive in this
less frenzied atmosphere. However, the company still did not have the re-
sources to properly launch a full schedule of theatrical releases. It could not
get hold of the high-concept projects because the recognizable elements—
a popular music score or elaborate action— cost too much money. A more
hopeful strategy was to produce modest-budget movies that would get ade-
quate theatrical exposure to ensure a profitable video run.
There are those home video releases that do relatively better in the home
video market than in the initial theatrical release. This discrepancy undoubt-
edly has to do with the flexibility of video. Customers are tempted to rent an
intriguing title with the knowledge that they are not obliged to sit through
the showing, as they would be at the theater. Some of the titles that have be-
come famous because of good video sales despite a disappointing theatrical
release are Missing in Action 2— The Beginning (1985 Cannon theatrical re-
lease, 1985 MGM /UA video release) and The Cotton Club (1984 Orion the-
atrical release, 1985 Embassy video release). This was an ongoing occurrence.
Another movie that attracted attention because it was disproportionately suc-
cessful in video was Everybody’s All-American (1988 Warner theatrical re-
lease, 1989 Warner video release). Most video “sleepers” have had theatrical
exposure.
Not enough work has been done to pinpoint the reasons for this discrep-
ancy. One suggestion is that this phenomenon is tied to a certain kind of
celebrity star such as Chuck Norris, Richard Gere, or Dennis Quaid. In any
case, such successful video releases gave hope to Vestron. The company
sought out medium- or small-budget movies that had stars such as Jack Nich-
olson, Meryl Streep, and James Woods. In the words of Jon Peisinger, these
films were “well-programmed.” 17 With this philosophy, Vestron proceeded to
produce or coproduce shows such as Ironweed (1987; Nicholson, Streep), Best
consolidation and shakeouts

Seller (1987; Woods), and so on. With the well-programmed strategy, Vestron 175
hoped to avoid the punishing costs of full theatrical releases while earning
profits in the video store. The stars were interested in working on such films
for less than their usual fees because the films were different and offbeat. Of
course, the reason the films were different was that they were not tailored to
the formula of high concept.
Offbeat films probably needed even more publicity than the easily recog-
nizable high-concept films. However, Vestron just could not compete with
the major studios, which were increasing their advertising budgets to $7 to
$8 million. Peisinger stated that he had to pick his shots on which films he
could give an adequate release. Vestron handled theatrical distribution on
forty films between 1986 and 1989. He remembers that only three got a wide
release. Dirty Dancing was the only hit of the three. Profits were elusive. The
other two—Earth Girls Are Easy, with Jeff Goldblum and Geena Davis, and
Dream a Little Dream (both 1989)—were disappointments.18
Vestron was being squeezed as it tried to operate in the middle range in
terms of its advertising, budgets, and audience appeal. Well-programmed
films may make money in the video release, but they rarely make enough to
justify the expenses of a theatrical release. Furst realized that Vestron’s earn-
ings were fragile because of the “catch-22” of theatrical releasing. He needed
better films even if they did cost more. Since Vestron was still healthy, it was
a relatively easy task for Furst to seek out and obtain a promise of a $100 mil-
lion loan from Security Pacific to finance future acquisitions. After making
the agreement, Security Pacific reneged in the middle of 1989 and refused to
lend the money. Furst started selling off divisions of Vestron and closed down
production.19 In that year, Vestron suffered a 26 percent decline in revenue
and lost $113.6 million after having made $25.7 million the previous year. In
1990 the company declared bankruptcy and sold its name and its core oper-
ation, video distribution, to LIVE. Furst places the blame for the failure of
Vestron on the reneged loan.20
There were post mortems on the demise of Vestron. It was, after all, the
one new company that had taken full advantage of the video revolution and
was well on its way to becoming a part of the filmed entertainment industry.
Its travails were more significant than the usual rise and fall of undercapital-
ized independent producers /distributors. Its fate proved that modest-budget
films have their own problems in the new era that video itself had helped cre-
ate. “Well-programmed” was not going to make it against “high concept.”
V E N I , V I D I , V I D E O

176 Sam Kitt, the acquisitions executive at Universal, made a revealing observa-
tion about Vestron movies:

Except in budget terms, they lacked a vision of the kinds of movie they
wanted to make. Their films were off-center and review dependent. A
promising movie like Parents didn’t get the reviews.21

In the shorthand of the industry, Kitt’s comments suggested that since Ves-
tron did not have the expensive marketing machine to push through “off-
center” movies, it needed reviews to give the films some free publicity. It did
not get the reviews. Although small-budget films sometimes get good reviews
and enough media attention to benefit earnings, this did not occur often
enough to save Vestron.

The Fate of Pre-Selling and the Mini-Majors

The other independent strategy, in addition to releasing medium-budget,

well-programmed films, was to produce a global version of high-concept
films. These were big action films starring international stars such as Syl-
vester Stallone, Arnold Schwarzenegger, Chuck Norris, and Charles Bronson.
DeLaurentiis, Cannon, and Carolco had pursued this strategy avidly. They
had built up their production through pre-selling in order to enhance their
own weak distribution divisions. However, pre-selling had a fatal weakness
in a maturing market. It split the revenue among too many subdistributors.
The primary distributor/producer did not receive enough money from even
the biggest hits to cover losses on the inevitable flops and disappointments.
The entire client list of Crédit Lyonnais, which included the three mentioned
above and many others, such as Empire and Hemdale, suffered from this
problem. We should remember that pre-selling was premised on the belief
that video and the new markets would demand more films. It was also an ad-
vanced wedge in the internationalization of the film industry.
There were other pernicious aspects of pre-selling. Sometimes these com-
panies pre-sold several films at the same time. In these multi-picture deals,
the outside distributor often demanded the right to cross-collateralize. In
other words, the outsider wrote off earnings from a hit against losses from a
flop. The producer ended up not getting any money from the hit movie. In
addition, it was often written into the contract that the independent had to
consolidation and shakeouts

finance the print manufacturing and advertising (P&A) for the North Amer- 177
ican theatrical release. Many pre-sale contracts specified how much money
the independent was obligated to spend on promoting the film theatrically.
This proved to be the straw that broke several international companies.
Cannon, the most prolific of the mini-major production companies, was
the first to falter. Cannon and the others (New World, Atlantic Releasing, and
Empire) used extensive pre-selling to cover 90 percent and more of their neg-
ative costs, with little risk to themselves since the film was already paid for.
At first Cannon had MGM /UA handle its domestic distribution in order to
avoid the expense of a North American theatrical release. The deal soured af-
ter a few releases because of MGM /UA’s disappointment in the quality of
Cannon’s film offerings.
Golan /Globus went into domestic distribution themselves. They arguably
upgraded their product. Runaway Train (1985; from a story idea by Akira
Kurosawa) and 52 Pick-Up (1986) received critical acclaim but did not earn
commensurate box office returns. Self-distribution only increased the com-
pany’s risk exposure and did not improve its profitability. Andrew Yule’s fig-
ures show that Cannon’s P&A was on average only 36 percent of the negative
costs and nonetheless was 27 percent greater than its domestic theatrical
rentals for 1986.22 Substantial P&A expenditures weakened the mini-majors
increasingly as they continued to release additional films into an unforgiving
market. Cannon’s accounting procedures and stock market offerings got it
into further trouble.23 The company started selling off assets in various at-
tempts to avoid bankruptcy. By 1988 it was acquired by Giancarlo Parretti,
and it dwindled in market presence as Parretti pyramided his way to a short-
lived (and fraudulent) purchase of MGM /UA. In summation, Cannon used
home video money to build a large library, but the long-term value of the li-
brary was not adequate to offset operating expenses.
The structure of pre-selling had also weakened other mini-majors and in-
dependents. New World turned toward television production, and away from
filmmaking, in the wake of such disappointments. Empire Pictures faced a
similar decline on a much smaller scale and defaulted on a loan from Crédit
Lyonnais in 1988. An important erosion occurred with DeLaurentiis. He had
not pursued the Cannon strategy of producing as many films as possible with
the new home video revenue, but had continued to make a few big-budget
movies underwritten by pre-sales. He wanted a bigger library and his own do-
mestic distribution division. In 1985, he purchased Embassy’s film library
V E N I , V I D I , V I D E O

178 with various rights to 244 films for $18.4 million. Soon afterward, he issued
stocks and bonds in order to raise cash to create his own domestic distribu-
tion company. The cash was not enough to buy his way out of the same pre-
selling troubles that Cannon had. From 1986 through 1988, DeLaurentiis
films did not do well in the domestic box office, and although pre-sales cov-
ered production costs, advertising costs were a loss.24 The DeLaurentiis En-
tertainment Group went into Chapter XI in 1988 and never emerged.
The company that took the global market most to heart, while staking a
major position in domestic video distribution, was Carolco. I described their
early years briefly in Chapter 4. Vajna and Kassar had cleverly parlayed their
earnings from the Rambo franchise into an integrated company making very
big-budget movies for the global action adventure audience. They lowered
their exposure to the risks of the American theatrical release by distributing
their films through Tri-Star, a subsidiary of Columbia Pictures Entertain-
ment. They pre-sold their films to Tri-Star and other foreign distributors for
large sums of money. They maximized their video profits with a series of stock
swaps starting in 1986 with Lieberman, a rack jobbing company, and with
IVE, the umbrella group for Noel Bloom’s various video operations, includ-
ing Family Home Entertainment.
Lieberman Enterprises started as a music distributor in 1937. Since the
1960s it had become a primary rack jobber, contracting with mass merchan-
disers such as Wal-Mart to stock racks with prerecorded music (LPs, cassettes,
CDs) and/or videocassettes, discs. The company either paid a flat rental for
the store space or a percentage of the sales from the rack. In either case, the
rack jobber provided the expertise and volume discounting that the mer-
chandiser did not have access to. Lieberman began handling video in June
1984, when the video population had reached over 16 million households.
Lieberman generated $1.5 million in video sales in 1985, $10.1 million the
next year, and $32.6 million in 1987.25 Video was the future of the com-
pany, and this would be accomplished through full integration with a video
distributor.
Lieberman and IVE were finally integrated in 1988. The resulting video
distribution company was renamed LIVE. Jose Menendez, a former music
executive for RCA and an associate of Kassar and Vajna, became the CEO. He
did not have much time to put the company on a solid footing. Menendez and
his wife were murdered in 1989, by their two sons, in a case that grabbed na-
tional attention. LIVE struggled on, failing to earn profits from 1991 through
consolidation and shakeouts

1994, but was always able to raise capital because of its access to Carolco’s big- 179
budget action films.
Carolco had a partnership deal with IVE that allowed it to collect 50 per-
cent of the receipts on the video sale of Carolco movies. This was much higher
than the usual payment of royalties to a copyright holder. Carolco’s close re-
lationship persisted as LIVE emerged from the union of Lieberman and IVE.
In 1988 Carolco and LIVE shared $18 million from the U.S. video sales of
Rambo III. The following year they handled Carolco’s Red Heat and shared
almost $16 million. The next two years the relationship hit some jackpots. In
1990, Carolco’s Total Recall returned $46 million to the distributor from
video sales, and a year later Carolco’s Terminator 2: Judgment Day earned an-
other $42 million for LIVE.26
Carolco and LIVE were benefiting from Carolco’s ability to produce a suc-
cessful big-budget movie every year. Its “A” budget level of production dis-
tinguished Carolco from Cannon, which had adopted the strategy of produc-
ing many “B” budget films. Both companies favored the global action market
and relied heavily on international stars and directors. Carolco can also be
distinguished from the medium-budget efforts of Vestron and other such
independents as the Samuel Goldwyn Company, or the increasingly eclectic
output of Orion Pictures. Nonetheless, Carolco ultimately faltered for the
same reason as DeLaurentiis. Carolco was financing its films through pre-
sales. This deprived it of full participation in overseas earnings and in the do-
mestic box office rentals collected by Tri-Star. In fact, home video was the
one market in which Carolco could collect its full earnings. In the high-stakes
game that Carolco was playing, there would always be flops, such as Moun-
tains of the Moon (1990), Johnny Handsome (1989), and so on. The inability
to realize full earnings from the hits such as Terminator 2: Judgment Day in-
creased the downside of the disappointments.
Vajna and Kassar seemed to live in full knowledge that Carolco’s long-term
prospects were limited because they refused to economize. Hollywood exec-
utives accused Carolco of spending too much money on stars and other tal-
ent and thus forcing up the price levels for actors. Of course, this is a hoary
accusation, first leveled against the salary Adolph Zukor started paying Mary
Pickford in 1915. In many ways Vajna and Kassar were throwbacks to a more
flamboyant era, and they stuck out from the corporate ethos of the contem-
porary film industry. When people did business with Vajna or Kassar, they got
the regal touch. Carolco would provide corporate jets, expensive hotels, and
V E N I , V I D I , V I D E O

180 the other accoutrements of global filmmaking. Carolco had no use for the
prudent caution of the Disney team. Their claim to fame was extravagance
and aggressiveness. Unfortunately, the party could not go on forever.
The irony was that the aggressive techniques of Carolco were putting just
as much money in the pocket of its rival Tri-Star as in its own pocket. Tri-
Star, safely nestled in the Columbia (subsequently Sony) Entertainment
group conglomerate since 1985, survived and prospered, while Carolco sank.
Vajna and Kassar had an admirable track record at picking popular films, per-
haps even better than DeLaurentiis or other pre-sellers. Nonetheless, Carolco
was on thin ice despite their successes of 1990–1991.
When Vestron went out of business in 1990, the independent scene was
fading rapidly. Media Home Entertainment had maintained a steady low pro-
file, handling horror and other formulaic low-budget films through the 1980s
with dwindling revenues. The parent company, Heron, finally had enough
and sold off the two video distribution arms of Media to Handleman and
CBS/Fox in 1990 and 1991, respectively.27 Orion obtained bankruptcy pro-
tection in 1991. It continued to distribute videos, the only profitable segment
of the company as it tried to reorganize. Embassy passed through several
hands during its slide toward bankruptcy. In 1986 Columbia bought Embassy
and spun off its home video division to Nelson Entertainment. Nelson was a
subdivision of the Canadian holding company Nelson Holdings. It was not
able to make a profit out of film and home video distribution and sold its as-
sets to New Line in 1991. To sum up: By the end of 1991 Vestron, Embassy/
Nelson, and Media, the largest of the independent video distributors, were
gone. Among the mini-majors, Cannon, DeLaurentiis, Hemdale, and Empire
were either gone or on the way out. Carolco, Orion, and Samuel Goldwyn
were in long-term trouble that would turn out to be fatal.

LIVE, Miramax, and New Line

In 1991, three large independent companies were still healthy. One was the
video distributor LIVE. The other two were mini-majors without video dis-
tribution divisions: Miramax, New Line, and LIVE. LIVE was surviving be-
cause as the competition folded, it was becoming the default video distribu-
tor for independent productions. For example, a big boost came in 1990 when
LIVE earned $102 million for the video distribution of Teenage Mutant Ninja
consolidation and shakeouts

Turtles (TMNT ), which was produced by New Line. It had managed to chal- 181
lenge Disney’s domination in the sell-through market by selling TMNT cas-
settes directly to consumers at prices below $25.
Miramax and New Line both trace their company origins to the 1970s,
although neither became prominent until the late 1980s. Their late blooming
occurred in part because of the opportunities created by the collapse of other
independent distributors. New Line was founded by Robert Shaye in 1971,
while he was distributing Jean-Luc Godard’s film portrait of the Rolling
Stones, Sympathy for the Devil (1970). Shaye carefully harbored his resources
from one cult movie to another. A new plateau was reached in 1984 when
New Line produced and released Wes Craven’s Nightmare on Elm Street. The
film cost $1.8 million and grossed $25.5 million. The company went on to
make seven sequels and New Line became a prominent independent produc-
tion /distribution studio.
Miramax was founded by two brothers, Harvey and Robert Weinstein, in
1979. The company had not really participated in the independent buildup
in the mid-eighties. It did not handle video distribution. It remained a small
boutique operation until the troubles of Vestron, Orion, Goldwyn, and other
independents lowered the asking price for small films. The brothers sought
bargain films with some potential to get good reviews and to reach a wide au-
dience. Miramax started to gain attention when it released Errol Morris’ doc-
umentary The Thin Blue Line in 1988. Then, it gained not only attention but
also sizable profits with Steven Soderbergh’s sex, lies, and videotape (1989).
The big breakthrough came in 1993 when Miramax released Neil Jordan’s
The Crying Game. The sophisticated tale of political and sexual ambiguity
caught the critics’ and “art house” audience’s fancy and the film received
$26.6 million in North American rentals. The Hollywood majors took notice.
The events of 1990 might have just indicated that a cycle of independent
distribution had reached its low point, although the number of bankruptcies
had been proportionately higher than the previous downturn of independ-
ents in the late 1970s. However, LIVE, Miramax, and New Line were still
standing. One academic study concluded that video independent distribution
was still alive and healthy in 1990.28 This conclusion, though, was largely
premised on LIVE’s viability, which quickly became an illusion. Its sales fell
by 22 percent the next year and continued to fall at that rate for the next four
years.29 The health of Miramax and New Line was more enduring, but their
independence was not. The bankruptcy of Vestron in 1990 was a prelude to
V E N I , V I D I , V I D E O

182 the mergers of New Line and Miramax into the Hollywood establishment
in 1993.
As the 1990s took shape, the Walt Disney Company feature film division
was losing steam. The bulk of Katzenberg’s studio earnings came from chil-
dren’s shows, and the bulk of their earnings came from sell-through home
video. Touchstone and Hollywood, the two distribution arms that the Disney
people had set up to produce and release general interest films, had stumbled
with such disappointments as The Rocketeer, The Marrying Man, V. I. War-
shawski, and Billy Bathgate (all in 1991). These were not cheap disappoint-
ments. The successful Disney studio chief was chagrined to find that the cost
of producing both animation and live action had eroded profit margins.
Katzenberg started to research other companies for clues to their success. He
noticed the string of breakout hits the independent distributor Miramax was
having at this time. He decided not to imitate Miramax. Instead, he wanted
to buy it.
By the spring of 1993, the Weinstein brothers and Disney agreed to bring
Miramax within the Disney camp. The number of successful independent dis-
tributors dwindled even further when New Line announced in August 1993
that it was being acquired by Turner Broadcasting. In the early 1990s, Ted
Turner was desperate for production units to feed his own growing satel-
lite and cable distribution systems. New Line was a stopgap opportunity as
Turner continued to seek a major alliance. His ambition culminated in 1996
when he merged with Time Warner for 10 percent of Time Warner stock and
the promise that he would continue to assert his power within the Time War-
ner hierarchy. Time Warner was interested in Turner’s cable empire and
global news operations. New Line was only an incremental although attrac-
tive inducement. New Line was now officially joined with an original major
Hollywood studio.
In both the Miramax and New Line cases, the owners and their executive
team stayed on to continue doing what they had been doing with autonomy
and minimal interference. What did Shaye and the Weinsteins gain? Distri-
bution power. Miramax did not have the power to release a film to a thou-
sand movie theaters at a time, and Disney did. Miramax did not have a video
distribution division. It often released the videos through LIVE. LIVE’s power
over wholesalers and retailers was diluted by its lack of volume. In fact, to
gain clout in its dealings with wholesalers, LIVE had agreed to a partnership
with Warner Home Video to distribute its product. Therefore, Miramax was
consolidation and shakeouts

receiving its royalties only after two other companies had skimmed off their 183
distribution fees. An alliance with Disney’s Buena Vista, the top home video
distributor, was much better. Miramax could not find a stronger company for
international, domestic, and video distribution. Robert Shaye faced the same
challenges at New Line, and the Turner alliance gave New Line guaranteed
television distribution and a stronger credit line for production and distribu-
tion expenses. The subsequent Time Warner merger gave New Line the best
possible access to the video market for its products. Shaye and his team have
responded by producing higher budget movies and spending more on the
theatrical marketing.
This trend continued after 1993 with other independents. The record
company Polygram decided to re-enter the film business by forming Gram-
ercy Studios and acquiring other film production divisions. It joined the top
ten U.S. film suppliers of video product in 1993 and 1994. Gramercy was an
interesting alternative to Miramax, but its independence ended when it was
sold to Seagram /Universal in 1998. At the same time, Seagram /Universal ac-
quired the very small October Films (which did not have a video distribution
arm). The only independent video distributor with significant market share
(above 2 percent as late as 1997) that has survived through 2000 is Artisan,
the successor company to LIVE.30 In 1998, the LIVE owners received financ-
ing from the legendary entertainment investors Allen and Company and
changed the name from LIVE to Artisan Entertainment.31 They turned the
company back into a private corporation. Although figures are no longer
available, it looks as if they have achieved profitability with the runaway suc-
cess of The Blair Witch Project (1999). Artisan hopes to be well positioned as
the market switches to the new technology of DVD.

Conclusion

This chapter bears out in historical detail that the videocassette business was
defeating the long-term prospects of independence. In Chapter 1, we saw that
independents pioneered new ways of attracting the audience, particularly in
the postwar decades. The video independents continued this pioneering ef-
fort only to discover that the numbers no longer added up. Even Vestron, with
its Dirty Dancing and other hits, had little chance in this new atmosphere.
As markets proliferated, the theatrical release sucked up all the available
oxygen.
V E N I , V I D I , V I D E O

184 New Hollywood responded to a new medium, and at least from a corpo-
rate point of view, it resembled the old Hollywood—in fact a much older
Hollywood. The relative openness of the film market in the 1960s and 1970s
had shut down again. The industry was different now from before video, with
few new players permanently admitted to the system and the new video dis-
tributors gone or absorbed. Film on video changed the balance of the media
environment. Next, we will look at the connections between the corporate
landscape, the audience, and the movies.
 C H A P T E R S E V E N

The Lessons of
the Video Revolution

The narrative of the video revolution culminates around 1993–1994. The

years since have not changed the lessons of the revolution, although we can
speculate on modifications and further transitions. For example: media cor-
porations merged and grew large in the years following the introduction of
the VCR. Now these companies are growing even larger as cultural products
are being distributed over the internet. Are the two responses related? Before
we speculate on this and what else the video narrative tells us, we must an-
swer the following two-part question: First, what did the media industries
learn from the growth of home video into a mass medium? Second, what did
home video reveal about the audience?

Media Industries after the VCR

There has been both a general shift in the media landscape in the video age
and specific video-driven changes in the individual industries of television,
cable, and film. The general shift is the wave of mergers and acquisitions in
the video/new media age, which can be explained by the “outflanking” strat-
egy. The absorptions of Miramax, New Line, Gramercy, October, Orion, and
Samuel Goldwyn into larger film studios were, in this light, specific instances
of a larger trend.
The current wave began with the premature purchase of MGM by Turner
Broadcasting in 1985. A more enduring merger in that same year was the
takeover of Twentieth Century Fox by Rupert Murdoch’s News Corporation.
Coca-Cola bought Columbia Pictures the next year and sold it again to Sony
in 1989. Warner Communications took over Lorimar in 1988 and merged
with Time–Life in 1989 to form Time Warner. Matsushita bought MCA /Uni-
V E N I , V I D I , V I D E O

186 versal in 1991 and sold it again to Seagram in 1995. The 1993 takeover of
Paramount by Viacom was significantly financed by Blockbuster. The trend
continues to this day with the 1995 purchase of ABC by the Walt Disney Com-
pany, the 1999 stock swap between CBS and its former subsidiary, Viacom,
and the 2000 purchase of Time Warner by America Online (AOL). Bertels-
man is rumored to be looking for a film studio to add to its publishing, Euro-
pean television, and music operations.
Video taught film companies to anticipate that they will have to distribute
their content in new ways. The home video market developed outside the
flanks of established distribution systems. Video rental ambushed the indus-
try. The Hollywood establishment had left too many ancillary rights to films
in the hands of individual producers. They could not impose their rules on
the video rental market. While rentals did not hurt the established film stu-
dios, it nonetheless caused executives anxiety because it was uncontrolled.
Big film distributors allowed newcomers to take the risk and to reap the ini-
tial profits of the new technology.
Video also greatly enhanced the value of film distribution. Therefore,
companies such as Time–Life, Sony, the News Corporation, et al. wanted al-
liances with major film distributors. Video demonstrated that new technolo-
gies and even new software would change media markets quickly in the fu-
ture. In response, media executives now know that they should have all media
within their corporate tent. It has become a sign of weakness not to own an
outlet in every medium. A media corporation has to exploit aggressively all
rights to their shows. This defines the outflanking strategy.
The top three companies illustrate the point. Disney, Time Warner, and
Viacom all have strong video distributors and venerable production studios.
They all have important cable channels. There is the Disney Channel. Time
Warner’s string includes HBO, CNN, and other Turner properties; and Via-
com owns MTV and Showtime. All three have broadcast networks, such as
ABC, CBS, and Time Warner’s WB network. They and the other media con-
glomerates have many, many other properties in print and other communi-
cation modes. These corporations may suffer temporary technological chal-
lenges such as unauthorized digital transfers of music. Nonetheless, they have
such complete control of cultural content that they cannot be threatened.
They will no longer allow individual artists or producers to own “ancillary”
rights. Digital Distribution is currently giving added impetus to the outflank-
ing strategy and to multi-media marketing.
the lessons of the video revolution

187
the impact on tv and cable

There is another level to this analysis, which is the local impact that video-
tape has had on television, cable, and film. Television was initially threatened
by time shifting. However, the immediate threat (which was always over-
stated) receded as television and cable expanded. The expansion has facili-
tated the re-broadcasting of programs so viewers do not have to feel boxed in
to a set schedule. On the broadcast side, there was a 62 percent growth of the
number of U.S. television stations from the introduction of the VCR in 1975
through 1994.1 Of course, cable has added even more program hours to the
mix. Shows are syndicated even during their first network run and are pro-
grammed into strips (appearing every day of the week instead of the once-a-
week format of the first run). The audience has innumerable chances to catch
a prime time television show during its first run, its re-broadcast, its syndica-
tion, and its appearance on cable channels devoted to old TV shows. The de-
sire to time shift will continue for sports programs, continuous soap operas,
and other shows. However, programming is saturated, and recording off the
air will not be the decisive factor for future technologies that it was with the
VCR in the late 1970s.
Other television industry complaints about home video actually created a
more favorable policy environment. I have already discussed how the Reagan
administration used the emergence of home video as grounds for rescinding
enforcement of the 1948 Paramount et al. consent decree. Television policy
deregulators also used the video market as evidence of vigorous competition
in the filmed entertainment world and as an argument against a “scarcity doc-
trine.” The scarcity doctrine stated that there was a scarcity of broadcast
facilities and was used to justify mandating stations to give response time
to viewpoints opposed to the ones aired on the station (fairness doctrine).2
The fairness doctrine was removed by the Reagan administration. Video and
cable’s presumed undermining of broadcast scarcity was also the background
as the financial and syndication rules of 1972 and 1973 were gradually elim-
inated during the Clinton administration. The elimination of these rules al-
lowed TV networks to engage in production partnerships and to syndicate
their own programs for additional sales after a network run. This deregula-
tion may not change television significantly, but it has already smoothed the
way for television networks and film production companies to merge and to
pursue multi-medium marketing of their shows.
V E N I , V I D I , V I D E O

188 A concluding question about the relationship between home video and
television is, why did VCR not become an extension of the TV set? In the
1960s Jack Gould, Peter Goldmark, Frank Stanton, et al. thought that it
would. Instead, the VCR became the extension of the movie theater. The an-
swer raises issues of the different ways filmed entertainment can become a
commodity. Filmed entertainment earns revenues in three ways: direct pay-
ment, subscription payment, and as content for advertising. Direct payment
is for a ticket at the box office, rental of a videotape, pay per view on tele-
vision, and purchase of a videotape. Subscription payment is for both basic
cable channels such as American Movie Channel (AMC) and premium (addi-
tional fees) such as HBO. Film as content for advertising shows up on both
advertiser supported cable and broadcast channels and also includes the phe-
nomenon of product placement and product tie-ins.
These three ways represent different balances of risk and reward. The di-
rect payment mode has the highest risk and reward per individual movie.
Subscription and advertising modes diffuse the risk since payments are made
before the actual size of the audience is known. Subscribers pay their fees be-
fore they know how much they will be using the service. Since they pay for
a time period, the cable channels are less concerned with the immediate
popularity of individual shows and more concerned with the total popularity
of their schedule. This fact explains why HBO and other companies in the
subscription market often choose to compete on a unique product basis. They
want to have programs that the viewer cannot get except through subscrib-
ing to their service. Several critics have noticed that recently HBO has been
a source of innovative original programs and has taken the time to build
the audience for these programs. The Larry Shandling Show, The Sopranos,
and various made-for-cable movies are meant to attract potential loyal
subscribers.
On the other hand, cable is not well suited to the direct payment market.
There have been repeated attempts to sell films on cable through a pay per
view (PPV) format. The PPV format for films peaked in 1982 with Star Wars,
though there have been continuing efforts to sell films in this way. The 1993
Goldman Sachs Movie Industry Update waxed enthusiastic about Video on
Demand (VOD), a computerized PPV system, and was excited about the Time
Warner promotion of the system in Queens, New York.3 However, VOD has
since fizzled out. Tapes, box office, and discs continue to be the only major
direct payment markets in the United States.
the lessons of the video revolution

The playing field in direct payment is quite different from that in sub- 189
scription or advertiser-supported markets. The risk is quite high since there
is a chance that not a single person will pay to see the show (TV and cable al-
ways have a minimal audience even for their test patterns). Because the risk
is so high, exhibitors are quick to eliminate a weak movie by either denying
it space on the video wholesalers’ shelves or canceling its bookings at the
movie theaters. Distributors now feel that in direct payment arenas they have
little time or space to build an audience. This ruthlessness explains why home
video became primarily a market for high-profile event films. They avoid the
risk of marketing unknown titles. For example, straight-to-video titles (not
receiving any theatrical release) typically account for less than 4 percent of
the cassettes shipped by distributors.4 TV and cable shows are also a small
part of the cassette market.
In the high-stakes market of direct payment, movie distributors like to add
other modes of competition in addition to product uniqueness. These other
competitive modes are convenience and overwhelming publicity. Conve-
nience competition has resulted in wide releases, staggered starting times for
film showings, depth of copy in video rental stores, and sell-through shelves
in mass market stores and even fast food chains. Convenience and publicity
competition works against building an audience over time. There are occa-
sional slow rollouts of a film, and several films developed reputations that
helped them have successful video releases after modest theatrical perform-
ances. Nonetheless, video fits the prevailing logic of New Hollywood market-
ing better than TV/cable shows’ reliance on audience loyalty.

the impact on films’ profit margins

Convenience and publicity competition has a price. Films earn high rev-
enues, but film profit margins have slipped substantially. Actual statistics are
not published in public records. The clearest study of this slippage comes
from Harold Vogel, who is a high-profile Wall Street analyst of film and other
entertainment industries. Hollywood dealmakers constantly consult him on
various important decisions. Therefore, we can have some faith that the data
he has published reflects an industry consensus (see Table 7.1 and Figure 7.1).
Peter Hoffman, another leading industry figure and the former president
of Carolco Pictures, has warned his colleagues that profit slippage will lead to
long-term weakness in the film industry.5 Despite such high-level worriers,
V E N I , V I D I , V I D E O

190 table 7.1 Revenue Trends for American Film Distributors, 1980–1993

Total
Revenue
(billions Percentage Profit Percentage MPAA Percentage
Year of dollars) Change Margin Change Releases Change

1980 4.0 n /a 12.20 n /a 161 n /a

1981 3.7 �7.50 8.00 �34.43 173 7.45
1982 4.5 21.62 12.40 55.00 173 no change
1983 5.3 17.78 11.10 �10.48 190 9.83
1984 5.8 9.43 8.80 �20.72 167 �12.11
1985 6.4 10.34 7.30 �17.05 153 �8.38
1986 6.8 6.25 11.70 60.27 139 �9.15
1987 8.3 22.06 11.20 �4.27 129 �7.19
1988 9.1 9.64 12.60 12.50 160 24.03
1989 11.6 27.47 9.80 �22.22 169 5.62
1990 12.7 9.48 8.70 �11.22 169 no change
1991 14.2 11.81 6.70 �22.99 164 �2.96
1992 15.9 11.97 8.10 20.90 150 �8.54
1993 17.4 9.43 5.80 �28.40 161 7.33
* Includes revenues earned from all markets and all territories. Average annual growth rate
for revenue 12.29%. Average annual growth rate for profit margin –1.78%.
sources: Harold L. Vogel, Entertainment Industry Economics: A Guide for Financial Anal-
ysis, 3d ed. (New York: Cambridge University Press, 1994), p. 45; MPAA, U.S. Economic
Review, 1993.

the deep corporate pockets of multi-marketed multi-media companies re-

duces the short-term risk of slim profit margins. Hoffman spoke from the per-
spective of running a single-product company making money only from fea-
ture-length movies. Such a company has to live from month to month.
Therefore, he warned his audience about the drawback of receiving money
from ancillary markets such as video, where a film does not really start earn-
ing money until nine to twelve months after its completion. Because of the
delay, video money is not as valuable as box office money (which is recovered
in half the time). There is a cost associated with delay—inflation of produc-
tion costs and interest payments on outstanding loans. Hoffman estimated
that in 1992 these two factors absorbed at least 12 percent of the video money.6
His own former company, Carolco, could little afford the cost of waiting for
video revenues. Hoffman was already gone by the time Carolco folded in
1996, after the final debacle of its last movie, Cutthroat Island.
 the lessons of the video revolution
20
191
18

16

14

12

10

0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993

YEAR

Total revenues in $billion Profit margin as a percentage Number of film releases X 10

figure 7.1 Revenues, Profit, and Number of Films Released, 1980–1993.

The Disney executives were particularly upset by declining profit margins.

In 1989, the profit margin of the studio stopped growing for the first time
in three years. Industry reporter Ron Grover charted Disney’s problem, not-
ing that in 1989, the margin was 16 percent, and in 1990, it was down to
14 percent.7 In January 1991, Disney studio head Jeffrey Katzenberg wrote
an internal memo about the downward trend that was leaked and attracted
wide attention within the Hollywood community. In the memo, he protested
the escalating costs and the disappearance of medium-budget films and
speculated on the culture of filmmaking. He even grumbled about Disney’s
high-budget production Dick Tracy (1990) despite its substantial earnings—
$61 million in North American rentals. Katzenberg reminded everyone that
the big blockbusters of the 1950s and 1960s had destabilized Hollywood ma-
jors and led to a rise in independent film production at that time.8 It is per-
V E N I , V I D I , V I D E O

192 haps this historical lesson that has since motivated studios to either acquire
or create distribution divisions devoted to lower budget films. The typical ex-
ample of this was Disney’s purchase of Miramax. The irony is that over time,
these low-budget divisions start to pursue bigger budget productions. This
has been true of both New Line and Miramax.
Katzenberg did not link the big-budget “event” movie with the growth
of the ancillary markets. He did worry that home video had cheapened the
movie-watching experience—literally. He proposed doubling the price of pre-
recorded videos in order to force rental stores to charge $5 for a rental. He
thought that this would still be “an excellent entertainment bargain” and
would somehow increase the audience demand for better stories.9 Katzen-
berg’s comment about raising rental prices and culture clashes, along with
some expressed doubts about Sony and Matsushita,10 were out of touch. It
took others to point out that the new earnings of the ancillary markets were
adequately supporting thinner profit margins for the larger companies. Profit
slippage becomes part of the post-video media environment. It raises the
stakes on every aspect of distribution and makes it difficult for any new com-
pany to enter the theatrical market, the enabling condition for entry to the
ancillary markets. In the years since, neither Katzenberg nor other studio
heads have noticeably reduced publicity or production expenses. Eric Ples-
kow, former head of Orion Pictures, echoed a sentiment expressed earlier by
Austin Furst when he told Peter Bart that “it’s almost like theatrical distri-
bution is your loss leader.” 11
Low profit margins are a necessary function of New Hollywood, where in-
stantly recognizable films are crafted for multi-media markets. The splinter-
ing of the markets has of course led to an increase in costs, even in the orig-
inal film production. Executives realize that films cannot be passively sold
in just one market. Movies must be heavily advertised and promoted. Vogel
observed that video revenues often equaled the same percentage of nega-
tive costs as the print and advertising (P&A) budget of major studio films.12
This suggests that the new Hollywood marketing divisions pegged their in-
creasing P&A costs to video revenues. We should remember that this is an ag-
gregate argument and cannot be applied to individual films, where revenues
may fall short or run ahead of P&A. Nonetheless, a large media company has
the flexibility to limit its financing of an increasing cost with a specific rev-
enue source.
the lessons of the video revolution

193
international impact

The symbiotic relation of video and theatrical releases also worked interna-
tionally and accounts for the dramatic takeover of the global box office by the
U.S. American films earned 92 percent of the German box office in 1992 and
94 percent of the British box office sales in 1993.13 Variety colorfully used the
headline “Earth to H’wood: You Win” for an article estimating that U.S. films
earned 90 percent of the 1994 global box office.14 Variety’s statistic is prob-
ably a bit of a hyperbole. Nevertheless, it is very true that in that year Holly-
wood took home more money from overseas theaters than it did from its
domestic releases. Goldman Sachs estimated that Hollywood earned $2.2 bil-
lion from overseas box offices and $3.1 billion from overseas cassette sales
in 1994.15
How did video lead to global supremacy? There are some direct con-
nections. VCR technology gave television owners an alternative to state-
controlled broadcasting. Advertisers and other free market forces used the
popularity of this alternative as an additional argument for the breakup of
state monopolies, and governments gave way and licensed alternative broad-
casters, throughout the eighties. These new broadcasters filled their airtime
with the same Hollywood products that were so popular in the video markets.
In general, videocassettes heightened the awareness of American films, since
international video distributors favored blockbuster films. This could only
help the richest film industry in the world, the U.S. On the global scene, just
as in the domestic market, the increased revenues from video markets fi-
nanced high-profile theatrical releases. In a 1995 article, Martine Danan 16
isolated the following improvements in U.S. theatrical distribution in France:
(1) The window between the U.S. theatrical release and foreign release
dwindled from six months to a few weeks. (2) U.S. companies could flood a
country with more than twice as many prints as the local filmmakers could.
(3) There was more attention paid to tailoring advertising to various national
audiences. (4) U.S. film advertising budgets increased throughout the world.
These improvements resonate with the observations made above about con-
venience competition.
European producers operate in an increasingly hostile investment envi-
ronment.17 Many countries, such as the former communist nations, have cut
out film subsidies altogether. The most recent European Community initia-
V E N I , V I D I , V I D E O

194 tives support a more commercial approach. Coproductions are encouraged.

Only film scripts with perceived popular appeal will receive government sub-
sidies. Foreign film distributors, trying to compete with Hollywood distribu-
tion, are pressured to produce films that can be pushed through the ancillary
markets—that are capable of “selling through.” 18

the big get bigger

Media scholar Brian Winston theorizes that there are four general stages of
development and adoption of a new technology. The fourth stage is the sup-
pression of the radical potential of a new technology.19 He explains that no
industry will allow a new technology to destroy its very way of doing business.
While the overt actions Hollywood took against the VCR were of no avail, the
development of sell-through and the emphasis on global blockbuster releases
in both theaters and video wholesaling had the desired suppressive effect.
The dominant companies before video dominate further now.
Larger media conglomerates saw that film properties had acquired en-
hanced sales value. Their elements could be exploited in many global mar-
kets. The new multi-market landscape ensured that mass media was the
foremost industry in a general “globalizing” of the world economy. The mar-
keting of films is now a variant on the classical Hollywood tiered-release
strategy, when film prints worked their way from exclusive first runs to cheap
storefront theaters. Now the tiered release begins with the launch of a film
from a massive theatrical blitz through to international to video to pay tele-
vision to “free” television.20

Home Video and Changes in the Form of Film

The strong links between home video and media conglomeratization, global-
ization, and raised entry barriers to distribution means that video is one of
the most important catalysts for contemporary Hollywood. In show biz ter-
minology, video may be the biggest thing that has happened to the movies
since sound. However, home video has not overtly changed the form and look
of feature film, at least not as much as sound. This may account for the rela-
tively slow recognition of its importance. Formal changes may be slower and
less apparent than structural changes to the film industry. By 1994, some
of the formal changes that are driven by video had already emerged. Other
the lessons of the video revolution

changes are more speculative, and yet other changes have yet to reach the 195
level of a steady trend. The future will bring these to the surface.
I have already argued for the strong mutual reinforcing relationship be-
tween high-concept, blockbuster “event” films and video. However, it is diffi-
cult to draw lines between specific genres and video. This task is more diffi-
cult because the New Hollywood’s blockbuster is premised on mixing genres.
The linkage of genre trends with home video is obscure, although it seems
that video did help both the horror and erotic thriller films. The video mar-
ket also dramatically caused expansion in two genres with radically different
audiences: pornographic tapes and children’s shows.
In complete contrast to the mainstream, hard-core movies (featuring ex-
plicit shots of actual sex acts) have largely abandoned theatrical releases and
are produced and distributed exclusively on videotape. Adult Video News es-
timated that U.S. consumers spent $2.1 billion on this category in 1993.21 This
is 16 percent of the $13 billion that U.S. consumers spent on all videotapes.22
However, the switch to video has severed the ties that this industry had pre-
viously with narrative filmmaking. Earlier sex films were continuous with in-
dependent and alternative production and distribution. Noel Bloom and oth-
ers who used to deal in both no longer do so. It is interesting that just as
hard-core tapes allowed distributors to create the infrastructure of video
rentals in the late 1970s, so hard-core internet sites were the first profit cen-
ters on the World Wide Web.
The children genre includes both feature films and shorter length shows,
made for television or video. The entire category is affectionately know as
“kidvid,” and has now served as an ersatz babysitter to an entire generation.
Table 7.2, which shows data for 1992, indicates that kidvid is the only cate-
gory that came close to general interest feature films in terms of market share.
Table 7.2 (which excludes hard-core) shows that non-feature film videos
represented only a small fraction of the market.23 This has been a general
trend since 1986. Children’s programming was the only non-feature category
that hit double-digit percentages. The perfect fit between children’s viewing
habits and home video led to the revival of full-length animation at Disney
and many other studios. The feature-length animated film for children was
once the special province of Walt Disney. After his death in 1966, this type of
filmmaking went into decline. The successes of Roy Disney and Jeffrey Kat-
zenberg in reviving this genre led to several studios actively pursuing such
productions. The major reason behind Eisner’s decision to commit Disney’s
V E N I , V I D I , V I D E O

196 table 7.2 Genre Shares of North American Market (Rental and Sell-Through
Combined for 1992)

Sale Percentage
Percentage Revenues of Total
Units Sold of Total (millions Sale
Category (millions) Units Sold of dollars) Revenues

Movies, excluding kid 140.2 47.1 2,665 56

Kid movies 28.9 9.0 398 8
All movies, general 169.1 56.1 3,063 64
and kid
Other kidvid 106.2 31.1 1,106 23.3
Fitness 15.0 4.6 195 4.1
Music 8.8 2.8 181 3.8
Sports 9.3 3.0 132 2.8
Miscellaneous “how-to” 5.5 1.8 74 1.6
note: The figures are for all tapes sold. If the figures were only for rental-priced tapes, films
would have been 82% of all sales.
source: Video Week, January 11, 1993, p. 2.

resources to such a costly genre was the new revenues of the video market
in 1988.

film style

The formal impact of home video has not been only on the genre mix; it
has also been on the elements of film style. This is not a strictly causal rela-
tionship that has been articulated by the film producers, but it can be in-
ferred from looking at how certain patterns fit together. In the world of multi-
media marketing, elements that play well on both the small and large screens
are more appropriate than ones that give pleasure in only one format. There
is a caveat. No one is going to acknowledge that there has been a compromise
with big screen effects because the theatrical release is the gateway to all
markets.
When Steven Spielberg lamented the disappearance of the epic splendor
of Lawrence of Arabia (1962) in contemporary movies, he did not dwell on
the fact that its visual quality cannot be conveyed in the video medium. Of
course, there are many visual wonders that can play on the television, and it
is not surprising that today’s big-budget movies emphasize these. They can be
the lessons of the video revolution

summarized as those things that give a movie the visceral pleasure of a roller 197
coaster ride, such as powerful camera moves, morphing and other digital en-
hancements, and quick editing. The eye is never allowed to rest in New Holly-
wood. The ear has also assumed new importance. Full stereo with surround
sound gives a greater dimensional feeling to the film for both the theater au-
dience and to those home viewers who have attached multiple speakers to
their VCRs. A handful of movies had surround sound in the mid-1970s; a de-
cade later 90 percent of all films had four channels of sound.24
There are attempts to theorize the new style. Jerry Mander argues that
“technical events”—“a cut, a zoom, a superimposition, a voice-over, the ap-
pearance of words on the [TV] screen . . . each alteration of what would be
natural imagery”—have proliferated to compensate for the paucity of the
video image.25 James Bernardoni asserts that this style derives from the “tele-
vision fallacy.” 26 As the shots are simplified so that they play on the small
screen, the filmmaker starts adding technical events to compensate for the
simplification. This argument was first formulated as television and film
started influencing each other in the 1970s. It does not quite capture the fre-
netic quality of film style in the 1980s and 1990s. Charles Eidsvik hypothe-
sizes a more compelling premise for the frenzy in terms of spectator theory.
In the video age, he argues, there has been a transition from gaze esthetics to
glance esthetics.27 An image is not held on the screen for very long because
the viewer will not study it but only glance at it. However, the theoretical
work on the changes in film style and the rise of the VCR still has a hasty,
speculative feeling. It is a relatively neglected area.
Another area for further thought is the role of IMAX films in the video age.
IMAX is a super image format that has been used since the mid-1970s for
films about natural phenomena, exotic locations, and technical achievements.
It finally came of age as a mass medium when the IMAX film Everest reached
$50 million in theatrical rentals by December 1998. IMAX is shown in spe-
cial theaters and restores some of the visual splendor that was commonplace
in the 1950s widescreen epic. However, IMAX films are still experimenting
with dramatic narrative forms. It is often marketed as part of a day at the mu-
seum and/or theme park. Is it a reaction to the video “downsizing” of film?
Or an extension of the blockbuster event, blurring the distinction between
film and other entertainment forms? We should continue to monitor its role
in the future.
Filmmakers live in the same media ecology that they help create. There-
V E N I , V I D I , V I D E O

198 fore, film style changes are also attributable to the fact that filmmakers in-
creasingly learn their craft by watching films on video. The work of Quentin
Tarantino is illustrative. He did not go to film school but used his time work-
ing as a clerk in a video rental shop to educate himself about the medium. He
received financing for his first film, Reservoir Dogs (1992), from LIVE Enter-
tainment.28 The combination of video rental store background and video
distribution financing resonated with his unique style. The linearity of the
Reservoir Dogs narrative was jumbled up, approximating the distractions
of watching a bunch of rented videos in a single evening. The extreme ap-
proaches to violence marked the film as a video “nasty” (an English term for
the gory films showing up in the video market). Tarantino is not the only new
director with a video pedigree. Kevin Smith (Clerks [1997], Dogma [2000])
has also claimed a video education. Variety has suggested that video stores are
the film schools for a new generation of filmmakers.29

the loss of medium specificity

The audience’s experience of film as both a theatrical and video experience

and the producer’s attempt to make a film that serves both experiences leads
to a further conclusion about video’s impact. Film has lost medium specific-
ity. The function of film has been expanded in several directions at once—
changes that were triggered by television, accelerated, and were confirmed
with the triumph of the VCR. Both the electronic and photographic versions
of the film are equally authentic. In today’s economy of proliferating media,
producers are encouraging the audience to consciously eliminate that part of
the message that is medium specific and to retain only that part of the movie
that can be translated from medium to medium. Few members of the viewing
public will remember or value that part of a film that does not survive its
translations. This explains the new prominence of sound and roller-coaster
effects. These elements survive medium transfer.
This is different from earlier medium transfer. Popular entertainment has
always borrowed from content in one medium to create new forms in another
medium. Shakespeare borrowed the plotlines of his dramas from written his-
tories and sung ballads. Movies have always borrowed freely from dramas,
novels, and newspaper headlines. However, in each case the borrowing in-
volved a translation process where the material was recast to fit the formal
needs of the new medium, whether it was stage or film. The decline of me-
the lessons of the video revolution

dium specificity results from the translation process sliding into the more me- 199
chanical procedure of reformatting.
Obviously, the purest example of this is the film transfer to video with min-
imal creative intervention. Currently, studios build into the original design of
the film (i.e., pre-production scripting and scene design) elements that will
lend themselves to reformatting the film as it moves across the various mar-
kets. The original design needs little subsequent translation.
Scholars of culture have noticed reformatting as a hallmark of film and
other new media. They have labeled it in various ways, with slightly different
emphasis. Schatz has spoken of studios creating “not simply films but ‘fran-
chises’ ” to depict the multi-media sale of a film idea.30 Wasko noticed the
coincidence of product placement (pre-production), merchandising (refor-
matting), and media conglomeratization (multi-media distribution). She uni-
fies these various phenomena with the concept of “cultural synergy.” 31 Celia
Lury refers to the widespread use of “branding.” 32 She emphasizes that this
is a general method of selling things with instantly recognizable qualities, in
our terms, a universalization of “high concept.” These various terms refer to
an element—a story, an image, a character—that is placed in the original de-
sign of the movie and then can be marketed in a variety of media and places.
The media do not just market filmed entertainment, with its binary of film
and video venues, but also theme parks, toys and other merchandise, novel-
izations, and stage shows. Batman is sold as both an action model figure and
as a videocassette. Pepsi is used in Top Gun as both a prop and a positive im-
age association between the soda pop and America’s ace pilots.
Home video technology shares a responsibility for ushering in an era when
market values have totally subsumed cultural values. Steve Knoll, a reporter
for Variety who covered the video beat in the early years, made a comment
suggesting something similar when summarizing a conference. “For a re-
porter accustomed to covering broadcasting confabs—where pursuit of bucks
is tempered by lip service to ‘the public interest’— the unabashed devotion of
the home video industry to the bottom line stood out in contrast.” 33
It was not home video per se that accounts for this change; it was the re-
configuration of film across several media and markets. When films were still
specific to one medium, producers respected films enough to encourage the
craft of filmmaking in the hope that the resulting films would ultimately be
commercial. Reformatting, franchising, branding, putting film in a cassette
box—all of these developments shifted the balance away from craft. A large
V E N I , V I D I , V I D E O

200 company, operating in many different media, will spend little energy on max-
imizing the potential of any one medium. This is a reason to regret the dis-
appearance of small, independent distributors. These companies operated
within one medium, such as the theatrical film, and the distributors paid at-
tention to the cultural power of that medium. Vestron and others sometimes
demonstrated similar regard for the unique possibilities of the home video
medium. Unfortunately, the home video market forced Vestron and others to
diversify into other operations and other media and to lose focus.

Images of Audience Time

I opened this chapter with a two-part question. The second part asks, what
did home video reveal about the audience? A review of the changes that the
industry made after home video allows this question to be rephrased. Do
branding, cultural synergy, franchising, multi-marketing, selling-through,
and reformatting reflect anything new about the audience? Such strategies
are a result of the constant profit motive of corporations. However, the scale
of these strategies suggests a new opportunity—a change in the audience’s
lifestyle. This is the harried leisure referred to in Chapter 3. There, I de-
scribed Robinson and Godbey, Harris, and Schor reporting the subjective
feeling of lost leisure time and its importance for Sony’s time-shifting cam-
paign. However, harried leisure not only accounts for the resolution of the
format wars, it shapes the entire relationship between home video and the
multi-marketed movie. It is time to briefly revisit the harried leisure model
and to link it to multi-marketing.
Women working added to a leisure time squeeze for men and children as
well. The division of family labor was renegotiated. Families now often ap-
proached non-work time with tools that they had learned at work.34 Tasks
and even play activities became compartmentalized into time slots and often
bureaucratized. For example, parents began putting children into organized
sports leagues instead of relying on neighborhood pick-up games. This both
ensured that the child would be supervised by a responsible adult on a rou-
tine basis and fit into the parents’ work schedules.
This suggests a theory about the social desire for leisure time efficiency.
This theory states that families gradually moved into a polychronic world in
the 1970s. Polychronicity is combining several activities in the same “clock
block.” The post-1970s time crunch brought on a new wave of time-saving
the lessons of the video revolution

devices as people sought out technologies that either freed up time or allowed 201
several tasks to be accomplished at once. Consumerist advertising now pro-
moted appliances that facilitated efficient time use. Flexibility over time
spread from just-in-time manufacturing to “just-in-time home keeping.”
Pushing a film across different media markets becomes an integral part of
“just-in-time home keeping.” Single elements of the film can be used in dif-
ferent times, in different contexts. Going out to the film is romantic time, or
social time. On the other hand, watching film on video is an alternative to TV
time. Buying the film is gift time. Allowing the children to watch the film at
home several times is mechanical baby-sitting. The audience can maximize
leisure efficiency by seeking the same content in other media. Consuming
music or books associated with the film is a sure way to derive additional plea-
sure from a known cultural artifact. Purchasing items that feature elements
of the film such as mugs, books, or T-shirts is a quick way to derive meaning
from commonplace objects. Can one film lend itself to all these uses? Think
of Star Wars, E.T., Jurassic Park, Titanic, and so on. Do all members of the
audience behave this way? No, probably not even a majority. Just enough do
so that companies tip their resources toward this kind of cultural distribution.
The corporate formations of the 1980s began a new multi-marketing pe-
riod in film /audience relationships. There are tantalizing hints that the audi-
ence itself responded in new ways. For instance, there was an unprecedented
spurt of consumer spending on mass media. Newspaper executive Charles
Scripps observed that Americans always spend the same percentage of their
income on mass media. Media scholar Maxwell McCombs tested Scripps’
principle of relative constancy of media spending and found it to be true from
1929 through 1970.35 Other updates confirmed the principle until William
Wood and Sharon O’Hare extended McCombs’ data through 1988. They con-
cluded that cable and home video spending was a significant exception to Mc-
Combs’ principle.36 Americans were spending more in order to “stay in” and
watch their movies at home.
Multi-marketing helped stabilize the theatrical attendance of grown-ups.
“Stay-ins” who maintained their interest in film through video and cable are
now increasingly tempted to try “going out.” Vestron’s Peisinger tells the an-
ecdote of his parents, who had lost the moviegoing habit until they saw Lethal
Weapon (1987) on video and decided to see the sequel in the theater.37 The
return to the theater is partially supported by MPAA statistics. After 1948,
as people assumed the responsibilities of age, that generation stopped going
V E N I , V I D I , V I D E O

202 to the movies. Therefore, the audiences of the 1960s and 1970s were heavily
skewed toward teenagers and youth. By 1995, adults reversed the 1970s trend
by continuing to go to the multiplexes even as they entered their thirties. The
increase has not been dramatic, but it has been significant.38 Starting in the
early eighties, U.S. theater attendance remained steady with an average of
1.1 billion admissions from 1982 to 1992 and fluctuations averaging 4.5 per-
cent up or down in any given year. In that period, ticket price increases ac-
count fully for box office revenue increases.39

A Philosophic View of Film and Audience

The film industry was organized around the concept of a mass audience, par-
ticularly around the time of the nickelodeon boom a century ago. A large
number of people, only vaguely aware of each other, watched an identical
filmed performance in many different locations around the world. Early dis-
tribution systems achieved an economy of scale through national and inter-
national networks. Mass audience revenue supported lavish productions that
could not be duplicated in less efficient media such as theater, which is tied
to one location at a time. The mass audience expanded when broadcasting
was able to reach millions simultaneously. The nature of the mass audience
was debated and theorized if only because the broadcast audience was prac-
tically invisible. Were they passive recipients of centralized entertainment, or
were they active interpreters of popular culture, deriving positive and diverse
benefits from television, film, and radio, et al.?
It should be stated that the positions are not mutually exclusive. Indeed,
I do not see that much is gained by trying to resolve the positions. Models
of “empowered audiences” or “passive audiences” both set up formulas for
seeing other people—the audience—as a separate object of study, as a mass.
There is a plausible critique that these formulas trap the social analyst into
overly romantic or overly pessimistic views of this “separated” mass. We
should reflect on the full implications of Raymond Williams’ work on mass
audience. In the conclusion of his book Culture and Society, he writes about
the natural tendency never to include oneself in a mass but to see the masses
as other people. He points out that objectively speaking, “There are in fact
no masses; there are only ways of seeing people as masses.” 40 In this study,
we are looking directly at those in power (cultural producers) treating audi-
ences as masses. We are not looking directly at the audience. Therefore we
the lessons of the video revolution

can sharpen the chapter opening question by asking, do cultural producers 203
treat the mass audience as active interpreters or passive recipients? How so?
The actual history of video distribution to date gives a complex answer (as
all histories do). The defeat of playback-only systems forced the American
entertainment industries to recognize the active role of the consumers. En-
trepreneurs acted upon this recognition by developing the infrastructure of
video rental and creating new independent distribution companies. Other
entrepreneurs continued to treat the audience as passive by producing high-
concept films, financing expensive theatrical releases, and pressuring stores
to buy many copies of the same video title (depth). Other activities that, I feel,
presumed a less active audience were mass volume “selling-through” of se-
lected titles and designing blockbuster movies to be reformatted for many dif-
ferent media markets.
However, the passive audience marketing does not explain the major stu-
dios’ acquisitions of smaller producers and distributors, such as Disney’s pur-
chase of Miramax. These acquisitions may be a visible sign that smaller dis-
tributors could reach more engaged parts of the audience who are willing to
explore films that resist the easy summations of the high-concept formula,
reformatting, and cultural synergy. The major studios wanted to spread their
bets. Nonetheless, the big-budget, multi-media marketing mentality pene-
trated even the specialty divisions of the majors. The Weinstein brothers’ will-
ingness to join Disney indicated that they wanted vast distribution resources
that could sell their films to the largest possible audience. Both the Weinsteins
of Miramax and Shaye of New Line became less willing to support quirky,
modestly profitable projects after their respective mergers. This was not a
sign of bad faith; it was the structural result of operating within media
conglomerates.
In the course of this study, I have often gone into the details of corporate
fighting and number crunching to make visible the complex way distributors
put together large film audiences. The future will revisit many of the historic-
corporate issues of video as music, literature, and film come to be distributed
over the internet. Home video was the opening wedge in the digital era that
I call “flexible home entertainment.” This label is a deliberate nod to the
style of manufacturing that is called “flexible specialization” and that em-
phasizes just-in-time inventories. Hochschild suggests this connection in her
portrayal of families applying the principles used in their organization of
work time to their cultural activities at home. Corporations are already re-
V E N I , V I D I , V I D E O

204 combining in anticipation of these new technologies of cultural distribution.

This time the media corporations are ahead of the audience in contrast to
their catch-up during the emergence of video.

Whither the Mass Audience?

As video rental becomes the formative experience of filmmakers, it also re-

shapes the audience’s experience of film culture. It is as significant as the de-
velopment of neighborhood movie theaters during the first decade of the
twentieth century. From one perspective, it performed the same function as
the nickelodeon, bringing the film to the audience whether they are at home
or in the theater. This is obvious despite the headlines proclaiming that there
has been a fragmentation of the audience since the advent of new media. Me-
dia theorists ask if this is the breakup of the mass audience. There is a cer-
tain tone of expectancy, since the breakup of the mass audience promises
diversity and democratic access. Particularly exciting is the technical possi-
bility of desktop moviemaking with digital cameras, with editing and distri-
bution over the internet via personal computers.
There will be desktop movies and undoubtedly a few will grab the atten-
tion of the mass audience, leading to overblown proclamations that the era of
grass-roots filmmaking is upon us. If history serves as any guide, these films
will simply be “calling cards” that will enable the desktop film director to
move on to a career of making big-budget movies. No one will sustain a suc-
cessful career at his or her personal computer. Digital filmmaking will be in-
corporated into centralized production. It is highly unlikely that we will find
a silicon-era Roger Corman sustaining a forty-year-long career, working at
the I-Mac cranking out a new digital “slasher” every two weeks. This is be-
cause the economies of scale have changed since the 1950s. Now that the me-
dia conglomerates have learned the lesson of home video, it is clear that they
will be able to bring those economies to new media.
Declarations of the breakup of the mass audience and the advent of grass-
roots filmmaking are premature. The audience has changed in several ways,
while centralized production and distribution continue to thrive. The stress
on leisure time that ordinary people experience gives an edge to large multi-
faceted companies that can market films across media. Channels and venues
may multiply, but audience time cannot expand. Realization of the utopian
hope for diverse markets and product proliferation rests more on the reduc-
the lessons of the video revolution

tion of stressed leisure than on new technologies of distribution. If people 205

feel that they are prosperous enough to work less, they will take the time to
search for obscure films off the beaten track.
The technology of home video resonated with the blockbuster strategy of
New Hollywood. This was neither foreseen nor foreordained. However, there
were more determinative results of the VCR. The VCR is directly responsible
for the enhanced revenues that New Hollywood enjoyed. It led the revival of
the global market for Hollywood products. It taught the media companies the
lessons of pushing a cultural product across various media markets. It directly
caused the loss of medium specificity, far more than the previously assigned
culprit, network television, did.
The VCR is now a part of history, although its moment of departure has
not yet arrived. The lessons of Hollywood’s response to the VCR may be long
term or not, depending on the future. The film form itself has proven to be
tough. It conquered the home video market despite the foot-dragging of its
master, the Hollywood establishment. The longest running lesson of film his-
tory is that feature narrative film is as flexible as the celluloid on which it is
shot. It can be distributed in any medium in any and all parts of the globe.
It has traveled through sound and from black and white to color. It has
been helically scanned onto magnetic tape, beamed onto the small screen,
and through the digital pipeline. It has been transmitted by satellites to dig-
ital theaters. Perhaps one day, when the audience and corporate landscape
are different from today, film will once again be handled by small boutique
distributors just as it once was in the opening stage of the video revolution.
THIS PAGE INTENTIONALLY LEFT BLANK
 Notes

Introduction: Signs of the Time

1. Harold L. Vogel, Entertainment Industry Economics, 3d ed. (New York: Cam-

bridge University Press, 1994), p. 45.
2. The consumer price index stood at .54 in 1975 and at 1.458 in 1993, with 1983
equal to 1.0.
3. See Frederick Wasser, “Four Walling Exhibition: Regional Resistance to Holly-
wood,” Cinema Journal 34, no. 2 (February 1995): 56 –57.
4. Biskind’s entire book is devoted to this theme, as is the final chapter of Bord-
well, Staiger, and Thompson. Peter Biskind, Easy Riders, Raging Bulls: How the Sex-
Drugs-and-Rock ’n’ Roll Generation Saved Hollywood (New York: Simon and Schus-
ter, 1998), and David Bordwell, Janet Staiger, and Kirstin Thompson, The Classical
Hollywood Cinema: Film Style and Mode of Production to 1960 (New York: Columbia
University Press, 1985).
5. Wide release is the practice of having many theaters play the same film on the
first weekend of the release. This is contrasted with “tiered” or “limited” release. This
occurs when the film plays only a few theaters on the first weekend and goes on in
subsequent weeks to other theaters.
6. “Independent” is a slippery term. Here it is used to denote those companies
that are outside the Hollywood establishment. The establishment may be defined as
members of the Motion Picture Association of America. A more accurate definition is
the top six film companies: Disney, Warner, Paramount, Twentieth Century Fox, Co-
lumbia, and Universal.
7. See Janet Wasko, Hollywood in the Information Age: Beyond the Silver Screen
(Austin: University of Texas Press, 1994).
8. Hoover’s Guide to Media Companies (Austin, Tex.: Hoover’s Business Press,
1996), p. 24.
9. W. Russell Neuman, The Future of the Mass Audience (Cambridge: Cambridge
University Press, 1991).
N O T E S T O P A G E S 1 6 – 2 9

208 10. R. S. Goald, “Observations on the American Independent Feature Film Move-
ment: 1983–93” (paper presented at the University Film and Video Association Con-
ference, Bozeman, Mont., August 1994).
11. Ann Gray, Video Playtime: The Gendering of a Leisure Technology (London:
Routledge, 1992).
12. Mark R. Levy, ed., The VCR Age: Home Video and Mass Communication (New-
bury Park, Calif.: Sage, 1989), and Julia R. Dobrow, ed., Social and Cultural Aspects
of VCR Use (Hillsdale, N.J.: Erlbaum, 1990).
13. Morry Roth, “Home Video Hypes CES Show,” Variety, May 27, 1981, p. 61.
14. Timothy Corrigan, A Cinema without Walls: Movies and Culture after Vietnam
(New Brunswick, N.J.: Rutgers University Press 1991), p. 12.
15. Broadcast date January 12, 2000.

Chapter 1. Film Distribution and Home Viewing before the VCR

1. “United States of America versus The Motion Pictures Patent Company:

Brief for the United States. October 1914.” Reprinted in Film History 1, no. 3 (1987):
196, 296.
2. Russell Merritt, “Nickelodeon Theaters, 1905–1914: Building an Audience
for the Movies,” in The American Film Industry, rev. ed., ed. Tino Balio, pp. 83–102
(Madison: University of Wisconsin Press, 1985), p. 86.
3. European companies developed larger production and distribution facilities
although they lagged from the start in exhibition outlets. In 1911, various U.S. consuls
reported that European theaters (France, Germany, Great Britain, etc.) per capita
were significantly behind the United States (New York Clipper, January 20, 1912, p. 12;
January 27, 1912, p. 5).
4. Georges Sadoul, Histoire du cinéma mondial: des origines a nos jours, 8th ed.
(Paris: Flammarion, 1949), p. 54.
5. The most important decision against the MPPC was announced in Oc-
tober 1915 by the District Court of the United States for the Eastern District of
Pennsylvania.
6. See Janet Staiger, “Combination and Litigation: Structures of US Film Distri-
bution, 1896 –1917,” in Early Cinema: Space-Frame-Narrative, ed. Thomas Elsaesser
and Adam Barker (London: British Film Institute, 1990).
7. Both W. K. L. Dickson (the inventor of the Edison movie camera) and Edwin
Porter (one of the earliest filmmakers to use continuity editing) left the company to
seek broader horizons.
8. The standard 35mm gauge was generally not used on home projectors since
35mm was expensive and also highly flammable, requiring the attention of an expe-
rienced projectionist.
9. Ben Singer, “Early Home Cinema and the Edison Home Projecting Kineto-
scope,” Film History 2 (1988): 57.
10. Ibid., pp. 41– 42.
notes to pages 29– 46

11. Richard Abel, The Ciné Goes to Town: French Cinema 1896 –1914 (Berkeley: 209
University of California Press, 1994), p. 47.
12. Gleason Archer, History of Radio to 1926 (New York: American Historical So-
ciety, 1938), p. 289.
13. Allen David Larson, “Integration and Attempted Integration between the Mo-
tion Picture and Television Industries through 1956” (Ph.D. diss., Ohio University,
1979), p. 117.
14. The Dumont network went off the air in 1955, ending an increasingly difficult
relation between Paramount and Alan DuMont.
15. See Chapters 2 and 4 in Christopher Anderson, Hollywood TV: The Studio
System in the Fifties (Austin: University of Texas Press, 1994).
16. Ibid., p. 134.
17. Orrin E. Dunlap Jr.’s monograph, The Future of Television, rev. ed. (New York:
Harper and Brothers, 1947), is a good example of this rhetoric.
18. As quoted in Amy Schnapper, “The Distribution of Theatrical Feature Films
to Television” (Ph.D. diss., University of Wisconsin–Madison, 1975), p. 123.
19. Ibid., p. 118.
20. Ibid., p. 49.
21. Ibid., pp. 67– 68.
22. Garth Jowett, Film: The Democratic Art (Boston: Little, Brown, 1976), p. 359.
23. Motion Picture Association of America, U.S. Theatrical Statistics 1946 –1995
(Encino, Calif.: MPAA).
24. Jowett, Film, pp. 483– 484.
25. John Belton, Widescreen Cinema (Cambridge, Mass.: Harvard University
Press, 1992), p. 66.
26. Jowett, Film, pp. 483– 484.
27. See Peter Lev, The Euro-American Cinema (Austin: University of Texas Press,
1993).
28. Nicholas Garnham, Capitalism and Communication: Global Culture and the
Economics of Information (London: Sage, 1990), pp. 184 –185.
29. Phone conversation with Dick Beesemyer, former general manager of ABC,
January 1997.
30. Thomas Schatz, “The New Hollywood,” in Film Theory Goes to the Movies, ed.
Jim Collins et al., pp. 8–36 (New York: Routledge, 1993), p. 16.
31. Newspaper advertising was 88 percent of the total in 1971. By 1988 it had
dropped to 69 percent. MPAA, various handouts.
32. Biskind, Easy Riders, p. 277.
33. Harold L. Vogel, Entertainment Industry Economics: A Guide for Financial
Analysis, 2d ed. (New York: Cambridge University Press, 1990), p. 86.
34. Biskind, Easy Riders, pp. 264 –268.
35. David Newman, a screenwriter on Superman (1978), mentioned that great
care was taken with the flying effects that were used in an advertising campaign tar-
geted at adults. The ads assured this potential crossover audience that these and other
N O T E S T O P A G E S 4 6 – 5 4

210 well-crafted special visual effects would “make [them] believe.” Personal conversa-
tion, December 28, 1992.
36. Schatz, “The New Hollywood,” p. 16.
37. Bruce A. Austin, “Home Video: The Second-Run Theater of the 1990s,” in
Hollywood in the Age of Television, ed. Tino Balio, pp. 319–349 (Boston: Unwin Hy-
man, 1990).

Chapter 2. The Development of Video Recording

1. These forty-five years included a mythic episode when young Sarnoff was one
of the first wireless operators to receive the news of the Titanic disaster in 1912.
2. Margaret Graham, RCA and the Videodisc: The Business of Research (New
York: Cambridge University Press, 1986), p. 67.
3. This follows Michael Cusumano’s research team’s description of the video
format wars, published as Strategic Maneuvering and Mass Market Dynamics: The
Triumph of VHS over Beta (Harvard Business School Working Paper 91-048, 1991),
pp. 24 –25.
4. Bruce Carl Klopfenstein, “Forecasting the Market for Home Video Players: A
Retrospective Analysis” (Ph.D. diss., Ohio State University, 1985), p. 157.
5. Gleason Archer, History of Radio to 1926 (New York: American Historical So-
ciety, 1938), p. 112.
6. For an example of the range of proposals, see “Radio’s Big Issue —Who Is to
Pay the Artist?” New York Times, May 18, 1924, sec. 8, p. 3.
7. Julius Weinberger, “Economic Aspects of Recreation,” Harvard Business Re-
view 15 (Summer 1937): 452.
8. Francis Hampton, “New Leisure: How Is It Spent?” (master’s thesis, University
of North Carolina, 1935), pp. 61– 62.
9. Roland Gelatt, The Fabulous Phonograph: From Tin Foil to High Fidelity
(Philadelphia: J. P. Lippincott, 1955), p. 247.
10. “Aylesworth Assails Recordings in Chicago Speech,” Broadcast Advertising 3,
no. 9 (December 1930): 7.
11. Erik Barnouw, The Golden Web: A History of Broadcasting in the United
States. Volume 2: 1933 –1953 (New York: Oxford University Press, 1968), p. 218, n. 7.
12. Federal Communications Commission, Public Service Responsibility of Broad-
cast Licensees (Washington D.C.: Federal Communications Commission, March 7,
1946), p. 36.
13. Mark Clark, “Suppressing Innovation: Bell Laboratories and Magnetic Re-
cording,” Technology and Culture 34, no. 3 (July 1993): 517.
14. Ibid., pp. 534 –535.
15. Federal Communications Commission, Report on Chain Broadcasting (Com-
mission Order no. 37, Docket no. 5060, May 1941), p. 17.
16. Barnouw, The Golden Web, p. 171.
17. See John T. Mullin, “Creating the Craft of Tape Recording,” High Fidelity
notes to pages 55– 65

Magazine 26, no. 4 (April 1976): 62– 67. The U.S. Armed Forces Radio Service had 211
used wire magnetic recorders built in Chicago, but their use was limited in quality and
length. Therefore, it is not surprising that German recordings had the army stumped.
18. A new network that was formed in 1943 when the government forced RCA to
sell its NBC Blue network.
19. Mullin, “Creating the Craft,” p. 64.
20. Brian Winston, Media, Technology, and Society (New York: Routledge, 1998),
p. 267.
21. Dunlap, The Future of Television, p. 79.
22. William Boddy, Fifties Television: The Industry and Its Critics (Urbana: Uni-
versity of Illinois Press, 1990), p. 24.
23. Albert William Bluem, “The Influence of Medium upon Dramaturgical
Method in Selected Television Plays” (Ph.D. diss., Ohio State University, 1959), p. 36.
24. Variety, May 25, 1983, p. 33.
25. “General Sarnoff: The Twentieth Century Practical Prophet,” Sponsor (Octo-
ber 1, 1956): 111.
26. Graham, RCA and the Videodisc, p. 20.
27. Mark Schubin, “An Overview and History of Video Disc Technologies,” in
Video Discs: The Technology, the Applications and the Future, ed. Efrem Sigel et al.,
pp. 7–52 (White Plains, N.Y.: Knowledge Industry Publications, 1980), p. 13.
28. Sally Bedell Smith, In All His Glory: The Life of William S. Paley (New York:
Simon and Schuster, 1990), p. 469.
29. James Lardner points out the misuse of the word “recording” for this play-
back-only unit in his book, Fast Forward: Hollywood, the Japanese and the Onslaught
of the VCR (New York: W. W. Norton and Company, 1987), p. 75.
30. Ibid., p. 76.
31. Jack Gould, “Soon You’ll Collect TV Reels, Like LP’s,” New York Times, Sep-
tember 3, 1967, p. D13.
32. Jack Gould, “Renting a Movie or a Professor to Take Home,” New York Times,
April 5, 1970, sec. 2, p. 15.
33. Jack Gould, “The Great Day Isn’t Exactly at Hand,” New York Times, Novem-
ber 15, 1970, sec. 2, p. 21.
34. Lardner, Fast Forward, p. 84.
35. Avco Industries, 10-K Report (1973), p. 3.
36. MCA, Annual Report (1972), p. 11.
37. Lardner, Fast Forward, p. 28.
38. Steve Knoll reported this in “See Vidisk Hour of Truth Approaching,” Variety,
February 17, 1982, p. 43. My own research shows that MCA lumped R&D money into
a category entitled “Corporate General Expenses.”
39. Efrem Sigel, “The Consumer Market for Video Discs,” in Video Discs: The
Technology, the Applications and the Future, ed. Efrem Sigel et al., pp. 53– 68 (White
Plains, N.Y.: Knowledge Industry Publications, 1980), p. 54.
40. Variety, July 14, 1982, p. 84.
N O T E S T O P A G E S 6 5 – 7 4

212 41. Since the end of the 1980s, the laser system has gained somewhat in popular-
ity, and other manufacturers (Sony, Philips) have gotten back in. They are packaging
the laser system with CD and CD-ROM players; see Michael Rogers, “A New Spin on
Videodiscs,” Newsweek, June 5, 1989, pp. 68– 69. In the United States, laser disc
households (HH) had grown to 1.2 million by 1993 (1.6 percent of U.S. VCR HH). In
the same year, Japan had more than four times as many laser disc owners, or 16 per-
cent of Japanese VCR HH (Screen Digest, August 1994, p. 182). Digital video discs
(DVDs) are now supplanting Laservision.
42. Graham, RCA and the Videodisc, p. 100.
43. Ibid., p. 53.
44. Ibid., p. 112.
45. David Lachenbruch, “The Videoplayer Era,” Journal of the Producers Guild of
America 13, no. 1 (March 1971): 7–12.
46. Variety, January 7, 1981, p. 32.
47. Variety, May 20, 1981, p. 80.
48. Variety, February 25, 1981, p. 82.
49. Graham, RCA and the Videodisc, p. 213.
50. Peter Guber, “Is There a Cassette in Your Future—Is There a Future in Cas-
settes?” Journal of the Producers Guild of America 12, no. 3 (September 1970): 6.
51. Steve Chapple and Reebee Garofalo, Rock ’n’ Roll Is Here to Pay: The History
and Politics of the Music Industry (Chicago: Nelson-Hall, 1977), p. 97.
52. Eugene Marlow and Eugene Secunda, Shifting Time and Space: The Story of
Videotape (New York: Praeger, 1991), p. 110.
53. Lardner, Fast Forward, p. 65.
54. Craig T. Norback and Peter G. Norback, TV Guide Almanac (New York: Bal-
lantine, 1980), p. 397.
55. Lardner, Fast Forward, p. 82.
56. Akio Morita et al., Made in Japan: Akio Morita and Sony (New York: E. P. Dut-
ton, 1986), pp. 208–209.
57. P. Rangunath Nayak and John M. Ketteringham, Breakthroughs (New York:
Rawson Associates, 1986), pp. 23–24.
58. Lardner, Fast Forward, p. 160; Nayak and Ketteringham, Breakthroughs, p. 45.
59. RCA’s eight-track cartridge gained initial market momentum over its rival
four-track audiocassette because it had a longer playing time in 1965. Philips’ audio-
cassette eventually eliminated the eight-track advantage. It would be a nice historic
coincidence if the RCA executives had this in mind when they talked to the Mat-
sushita representatives.
60. Variety, April 7, 1982, p. 37.
61. Screen Digest, June 1991, p. 129.
62. Electronic Industries Association of Japan, Facts and Figures on the Japanese
Electronics Industry (Tokyo: Electronic Industries Association of Japan, 1993), p. 27.
63. Cusumano et al., Strategic Maneuvering, p. 9.
notes to pages 77– 86

213
Chapter 3. Home Video: The Early Years

1. Gary Becker, “A Theory of the Allocation of Time,” Economic Journal 75

(1965): 493–517, and Staffan Burenstam Linder, The Harried Leisure Class (New
York: Columbia University Press, 1970).
2. Juliet B. Schor, The Overworked American: The Unexpected Decline of Leisure
(New York: Basic Books, 1991), p. 29.
3. John P. Robinson and Geoffrey Godbey, “Are Average Americans Really Over-
worked?” The American Enterprise 6 (September/October 1995): 43.
4. Lou Harris Poll no. 68, November 6, 1995, p. 4.
5. U.S. Bureau of the Census, Statistical Abstract of the United States (Washing-
ton, D.C.: U.S. Government Printing Office, 1995).
6. Joseph A. Morein, “Shift from Brand to Product Line Marketing,” Harvard
Business Review (September 1975): 161.
7. See William M. Weilbacher, Brand Marketing: Building Winning Brand Strate-
gies That Deliver Value and Consumer Satisfaction (Lincolnwood, Ill.: NTC Business
Books, 1993), pp. 51– 62.
8. Ann Gray’s entire Video Playtime is devoted to the separate uses of the VCR,
particularly by gender, in Great Britain. This use also reminds one of Joshua Mey-
rowitz’s observation that the family room is now the place to go to watch TV in order
to escape the rest of the family.
9. Vogel, Entertainment, 2d ed., p. 377.
10. Ibid., p. 186.
11. Eugene Marlow and Eugene Secunda, Shifting Time and Space: The Story of
Videotape (New York: Praeger, 1991), p. 124.
12. This was not a class action suit (464 U.S. 434). Sheinberg solicited and re-
ceived some financial support from Warner Brothers Studios, and the goodwill of the
other major studios as expressed by an amicus curiae (friend of the court) brief filed
by the MPAA. But Universal was definitely taking the lead while the others had a wait-
and-see attitude.
13. See respective annual reports and Thomas Guback, “Theatrical Film,” in Who
Owns the Media? 2d ed., ed. Benjamin M. Compaine, pp. 199–298 (White Plains, N.Y.:
Knowledge Industry Publications, 1982), p. 293.
14. Paul Goldstein, Copyright’s Highway: From Gutenberg to the Celestial Jukebox
(New York: Hill and Wang, 1994), p. 149.
15. Ibid., p. 84.
16. U.S.C.A. § 107.
17. F. Supp. 446.
18. “Trying on the New Media,” Variety, September 24, 1980, pp. 48, 79.
19. Lardner, Fast Forward, p. 115.
20. U.S. Congress, Video and Audio Home Taping. Hearing before the Subcom-
mittee on Patents, Copyrights, and Trademarks of the Committee on the Judiciary
N O T E S T O P A G E S 8 7 – 9 2

214 United States Senate (Washington, D.C.: U.S. Government Printing Office, 1984),
p. 294.
21. F. Supp. 468.
22. Marlow and Secunda, Shifting Time and Space, p. 40.
23. F. Supp. 467.
24. Gillian Davies and Michèle E. Hung, Music and Video Private Copying: An In-
ternational Survey of the Problem and the Law (London: Sweet and Maxwell, 1993),
p. 130.
25. U.S. 425.
26. Goldstein, Copyright’s Highway, p. 64.
27. U.S. 57.
28. U.S. pp. 62– 63.
29. U.S. 436.
30. Personal conversation with Professor Jane Ginsburg, Columbia University Law
School, October 1996.
31. Lardner, Fast Forward, pp. 131–132.
32. Russell Sanjek, American Popular Music and Its Business: The First Four Hun-
dred Years, vol. 3 (New York: Oxford University Press, 1988), p. 630.
33. In 1984, the FCC decided to no longer require station logging of commercials.
It was thought that this easement would relieve advertisers’ concerns about zapping.
Stephen F. Stander, “The Impact of the VCR on Broadcast Television,” in Video Cas-
settes: Production, Distribution and Programming for the VCR Marketplace, ed. E. Ga-
briel Perle et al., pp. 481– 494 (New York: Practising Law Institute, 1985), p. 490.
34. J. Mandese, “Bates Bullies Nets over VCR Erosion,” Adweek 27 (1986): 1, 4.
35. Barry S. Sapolsky and Edward Forrest, “Measuring VCR Ad-Voidance,” in The
VCR Age: Home Video and Mass Communication, ed. Mark R. Levy, pp. 148–167
(Newbury Park, Calif.: Sage, 1989), p. 149.
36. Jonathan Sims, “VCR Viewing Patterns: An Electronic and Passive Investiga-
tion,” Journal of Advertising Research 29, no. 2. (April 1989): 13.
37. Screen Digest, June 1991, p. 130.
38. Variety, March 11, 1981, p. 209.
39. See Variety, March 7, 1984, p. 355, for an interesting report of the dominance
of blue-collar tastes in the West German video rentals.
40. Joseph D. Straubhaar, “Context, Social Class and VCRs: A World Comparison,”
in Social and Cultural Aspects of VCR Use, ed. Julia R. Dobrow, pp. 125–146 (Hills-
dale, N.J.: Erlbaum, 1990), p. 129.
41. Roger Watkins, “Scandinavian TV under Gun from Hotshot Video and Satel-
lites,” Variety, October 7, 1981, p. 80.
42. Gladys D. Ganley and Oswald H. Ganley, Global Political Fallout: The First De-
cade of the VCR: 1976 –1985 (Norwood, N.J.: Ablex, 1987), p. 7.
43. Yahia Mahamdi, “Television, Globalization, and Cultural Hegemony: The
Evolution and Structure of International Television” (Ph.D. diss., University of Texas,
1992), p. 126.
notes to pages 92–99

44. Harold Myers, “Hardware Hot, Software Soft in Japan,” Variety, October 7, 215
1981, p. 107.
45. Variety, March 28, 1984, p. 39.
46. The Meese commission reported testimony that Deep Throat had grossed
$50 million by 1982. U.S. Department of Justice (USDJ), Attorney General’s Commis-
sion on Pornography: Final report (Washington, D.C.: USDJ, July 1986), p. 1051.
47. Variety, January 19, 1976, p. 1.
48. Wall Street Journal, May 8, 1985, p. 24.
49. Merrill Lynch, “The Home Video Market: Times of Turbulence and Transi-
tion,” in Following the Dollars from Retail to Net Profits—An Examination of the Busi-
nesses of Creating and Using Revenues from Motion Pictures and Television Programs,
ed. Keith G. Fleer et al., pp. 111–113 (Eleventh Annual UCLA Entertainment Sympo-
sium. Los Angeles: The Regents of the University of California, 1986), p. 113.
50. See various sections in Variety’s First Homevideo Annual, September 24, 1980.
51. USDJ, Attorney General’s Commission, p. 1388.
52. Jennifer Steinhauer, “Prosecute Porn? It’s on the Decline,” Wall Street Jour-
nal, December 28, 1989, p. A8.
53. Eric Schlosser, “Business and Technology Column,” U.S. News and World Re-
port, February 10, 1997, pp. 43–50.
54. Steinhauer, “Prosecute Porn?”
55. Personal conversation with James Bryan, 1990.
56. Lardner, Fast Forward, p. 172.
57. “Conversation with Andre Blay,” Videography, June 1979, p. 53.
58. Vogel, Entertainment, 2d ed., p. 360.
59. Douglas Gomery, Shared Pleasures: A History of Movie Presentation in the
United States (Madison: University of Wisconsin Press, 1992), p. 280.
60. “Conversation with Andre Blay,” p. 56.
61. Videography, June 1980, p. 44.
62. Marge Costello and Vicki Stearn, “Conversation with Jim Jimirro,” Videogra-
phy, June 1981, p. 60.
63. The practice of previewing a tape while still on the premises of the store was
subsequently found to be a public exhibition by the court and therefore a potential
infringement of copyright (Variety, August 10, 1983, p. 39). The words “exchanges”
and “previews” fell into disuse as the legal status of renting became clarified.
64. Variety, March 24, 1982, p. 229.
65. A survey firm, Media Statistics, sampled the U.S. audience in 1982 and found
that 24 percent recorded feature films while 21 percent recorded soap operas. Weekly
series followed with 20 percent. Sports recording was a surprisingly low 7 percent. Va-
riety, January 26, 1983, p. 39.
66. Variety, April 7, 1982, p. 77.
67. Paul B. Lindstrom, “Home Video: The Consumer Impact,” in The VCR Age:
Home Video and Mass Communication, ed. Mark R. Levy, pp. 40– 49 (Newbury Park,
Calif.: Sage, 1989), pp. 46 – 47.
N O T E S T O P A G E S 1 0 0 – 1 1 3

216 68. The widespread industry belief in the American reluctance to rent was pointed
out to me by the prominent entertainment lawyer Frank Gruber, who began his prac-
tice in the late 1970s. Personal conversation, October 21, 1995.
69. Variety, April 7, 1982, p. 77.
70. There were 22,765 screens in the United States in 1986 according to MPAA,
U.S. Theatrical Statistics 1946 –1995.
71. By the mid-1990s, the number of video stores had stabilized at 27,000 (Video
Software Dealers Association, White Paper, October 21, 1996, p. 2), while the number
of theater screens had grown to 27,805 (MPAA, U.S. Theatrical Statistics 1946 –1995).

Chapter 4. The Years of Independence: 1981–1986

1. Vogel, Entertainment, 2d ed., p. 66.

2. Todd McCarthy, “ ‘Independent’ Producers Bruised as Majors Borrow Their
Slants.” Variety, June 16, 1982, p. 22.
3. An important saving in such partnerships was lower labor costs. This was be-
cause independent companies had greater flexibility in avoiding union contracts than
their major partners.
4. Suzanne Mary Donahue, American Film Distribution: The Changing Market-
place (Ann Arbor: UMI Research Press, 1987), p. 191.
5. Morrie Gelman, “Media Home Claims $2mil for Halloween,” Variety, Octo-
ber 7, 1981, p. 108.
6. Conversation with Noel Bloom, February 7, 1996.
7. Variety, July 1, 1981, p. 42.
8. Screen Digest, January 1986, p. 2.
9. Tony Seideman, “Slow Start for Sony ‘Vid’ Singles,” Variety, August 17,
1983, p. 72.
10. Variety, August 19, 1981, p. 52.
11. Frank Segers, “CBS to Distrib ABC Programs for Homevid,” Variety, June 3,
1981, p. 90.
12. Television Digest, January 25 1982, p. 14.
13. Marge Costello and Vicki Stearn, “Conversation with Jim Jimirro,” Videogra-
phy, June 1981, pp. 63– 65.
14. Lardner, Fast Forward, p. 193.
15. Steve Knoll, “Mag Video Launches Cassette Rent Plan,” Variety, November 18,
1981, p. 34.
16. The more militant VSRA folded into the VSDA in June 1982 as the struggle
against studio rental plans was winding down in triumph for the dealers.
17. Morrie Gelman, “Vegas Fracas Hits Major Rent Plans,” Variety, January 20,
1982, p. 50.
18. Ibid.
notes to pages 114 –119

19. Vogel, Entertainment, 2d ed., p. 139. 217

20. Gillian Davies and Michèle E. Hung, Music and Video Private Copying: An
International Survey of the Problem and the Law (London: Sweet and Maxwell,
1993), p. 53.
21. U.S. Congress, Audio and Video First Sale Doctrine. Hearings before the Sub-
committee on Courts, Civil Liberties and the Administration of Justice of the Com-
mittee on the Judiciary House of Representatives (Washington, D.C.: U.S. Govern-
ment Printing Office, 1985), p. 33.
22. Ibid., p. 64.
23. Tony Seideman, “Low-Priced Vidtapes as Lure for Big Retail Chains,” Vari-
ety, March 9, 1983, p. 34.
24. Variety, October 29, 1980, p. 53.
25. Veronis, Suhler, and Associates, Communications Industry Forecast 1994 –1998
(New York: Veronis, Suhler, and Associates, 1994), pp. 156 –157.
26. In 1976, Professor Thomas Guback warned the National Association of The-
ater Owners that video had the potential to make their business obsolete. Variety, Oc-
tober 13, 1976, p. 6.
27. In 1986 the U.S. box office gross was $3.7 billion and admittance was 1.02 bil-
lion. See handout from MPAA, U.S. Theatrical Statistics 1946 –1995.
28. Screen Digest, April 1989, p. 81.
29. There were 42.8 million households with VCRs and 41.2 million basic cable
subscribers in 1987. Veronis, Suhler and Associates, Forecast, pp. 182–183.
30. By “premium cable services” I mean subscriptions that include HBO and other
desirable movie channels, as opposed to basic cable subscription, which is usually a
package of regular broadcast channels and less valuable cable channels.
31. Vogel, Entertainment, 2d ed., p. 47.
32. Robert Lindsay, “Home Box Office Moves in on Hollywood.” New York Times
Magazine, June 12, 1983, p. 36.
33. Goldman Sachs, Movie Industry Update–1991.
34. Andre Blay, “Home Video—An Emerging Market.” In Who’s Got the Money:
The New Financing of Motion Picture and Television Production, ed. Michael S. Sher-
man and David R. Ginsburg, pp. 241–242 (Eighth Annual UCLA Entertainment Sym-
posium. Los Angeles: The Regents of the University of California, 1983).
35. Goldman Sachs, Update–1991, p. 4.
36. Four MPAA companies—Disney, MCA /Universal, MGM /UA, and Orion—
broke out figures for 1984 that give direct comparisons between pay TV revenues and
home video revenues (see Table N4.1).
The Disney figures are anomalous because they had stopped outside pay TV sales
in order to build an inventory for their own cable channel. The great value of these
figures is that they are actual as opposed to the usual guesswork of industry estimates.
Even the one studio reporting greater pay TV revenues, MGM /UA, was impressed
with the greater one-year growth rate of home video (39 percent) over pay TV (11 per-
N O T E S T O P A G E S 1 1 9 – 1 2 1

218 TABLE n4.1 Segment Revenues Reported in 1984

Pay TV Home Video Pay TV as

(thousands (thousands Percentage of
Company of dollars) of dollars) Home Video
Disney 9,100 69,000 13
MCA /Universal 70,296 90,000 78
MGM /UA 102,828 94,420 108
Orion 3,617 7,254 50
source: Relevant annual reports.

cent) as reported on page 2 of their 1984 annual report. Unfortunately the next year’s
report did not state if home video had overtaken pay TV in absolute numbers, al-
though industry estimates would support that conclusion.
37. Merrill Lynch, “The Home Video Market: Times of Turbulence and Transi-
tion.” Reprinted in Following the Dollars from Retail to Net Profits—An Examina-
tion of the Businesses of Creating and Using Revenues from Motion Pictures and Tele-
vision Programs, ed. Angeles Keith G. Fleer et al., p. 116 (Eleventh Annual UCLA
Entertainment Symposium. Los Angeles: The Regents of the University of Califor-
nia, 1986).
38. Motion Picture Association of America, U.S. Economic Review (Encino, Calif.:
Motion Picture Association of America, 1993).
39. Seth Goldstein, “Pay Per View in Retrospect: An Apparent Underachiever,”
View Magazine, April 1983, p. 30.
40. “Conversation with Jon Peisinger,” Videography, September 1984, p. 61.
41. “Vestron Claims Major Status,” Variety, January 4, 1984, p. 57.
42. Hollywood Reporter, December 30, 1983, p. 1.
43. Embassy shipped 100,000 units (86 percent were videocassettes, the remain-
der were discs) of Silkwood and therefore received $4.3 million. If duplication cost
$10/unit, Embassy still had $3.3 million with which to pay the advance of $1.6 million
(“ ‘Scarface,’ ‘Silkwood’ Video Hit Tape,” Variety, May 23, 1984, p. 50). The gamble on
Silkwood had worked. There were 17 million VCRs in the United States at the time
and 16,000 video retail stores. Silkwood represented 5.4 units sold per store or one
unit for every 200 VCR owners. This qualified it as a major hit, earning a platinum
certification from RIAA along with about another sixty titles that year.
44. Mark Silverman, “US Homevid Rights Break $3-Mil Barrier,” Variety, May 16,
1984, p. 3.
45. Of course Fox had already distributed the movie and had other relation-
ships with the producer George Lucas; therefore not all aspects of the deal may be
apparent.
46. For the full story see Frederick Wasser, “Is Hollywood America? The Trans-
notes to pages 121–129

nationalization of the American Film Industry,” Critical Studies in Mass Communica- 219
tion 12, no. 4 (Winter 1995), pp. 423– 437.
47. Peter Besas, “Homevid Proves Mifed’s Busiest Beehive,” Variety, October 28,
1981, p. 7.
48. Variety, November 26, 1986, p. 28.
49. James Melanson, “Homevideo Bucks Fuel AFM as Labels Add Theatrical
Rights,” Variety, March 20, 1985, p. 38.
50. Roger Watkins, “Homevid Balm and Bucks and Mifed,” Variety, November 7,
1984, p. 47.
51. Andrew Yule, Hollywood A Go-Go: An Account of the Cannon Phenomenon
(London: Sphere Books, 1987), p. 85.
52. Variety, October 4, 1989.
53. Yule, Hollywood A Go-Go, p. 33.
54. See Yule, Hollywood A Go-Go, and “Indie HV Labels Hang Tough,” p. 42.
55. Yule, Hollywood A Go-Go, p. 204.
56. Claudia Eller and Marc Berman, “Industryites Nod and Wink,” Variety, Feb-
ruary 4, 1991, pp. 5, 110.
57. Kevin Lally, “Rambo Spurs Carolco Move from Int’l Sales to Production,” Film
Journal 88, no. 5 (May 1985): 7.
58. Carolco Pictures Inc., Prospectus (Los Angeles, April 18, 1988), pp. f-48, f-50.
59. DeLaurentiis Entertainment Group, Prospectus (Beverly Hills, Calif., 1986),
p. 20.
60. Merrill Lynch, “The Home Video Market,” p. 129.
61. Variety, September 5, 1984, p. 43.
62. Variety, May 30, 1984, p. 51, and Video Week, December 26, 1988, p. 3.
63. Merrill Lynch, “The Home Video Market,” p. 129.
64. James Melanson, “First Sale, Pay-Per-View Dominate VSDA Sessions,” Vari-
ety, September 5, 1984, p. 43.
65. Ken Terry, “Music Vid Mkt. Share Goes Flat,” Variety, April 1, 1987, p. 92.
66. Flashdance earned $36.2 million for the distributor in the North American
market. Footloose earned $34 million, and Purple Rain earned $31.7 million. Purple
Rain sold 450,000 cassette units (estimated distributor revenue is $8.2 million), Flash-
dance sold 355,000 units ($7.1 million), and Footloose sold 250,000 units ($5.2 mil-
lion). This was an early example of shows performing differently in the video market
and the theatrical market. It is difficult to defend any generalization about the dif-
ferences, particularly in this case, where there is the complicating factor that the
Purple Rain cassette had a lower list price (Merrill Lynch, “The Home Video Mar-
ket,” p. 129).
67. “Conversation with Jon Peisinger,” p. 62.
68. Variety, May 18, 1983, p. 34.
69. Conversation with Austin Furst, November 2, 1995.
70. Douglas Gomery, Shared Pleasures: A History of Movie Presentation in the
United States (Madison: University of Wisconsin Press, 1992), p. 289.
N O T E S T O P A G E S 1 3 2 – 1 4 6

220
Chapter 5. Video Becomes Big Business

1. Merrill Lynch, “The Home Video Market,” p. 124.

2. The first Star Trek returned $56 million to Paramount from its 1979 domes-
tic theatrical release while returns for Star Trek II: The Wrath of Khan reached only
$40 million in 1982. Paramount could therefore assume its price experiment com-
pensated for the weaker popularity of the sequel. However, such an argument was not
made since the increased video sales of the second title are more adequately explained
by the threefold increase in the U.S. video population that occurred between the two
video release dates.
3. Screen Digest, May 1986, p. 85.
4. Variety, June 1, 1983, p. 25.
5. Variety, February 22, 1984, p. 43.
6. Joe Flower, Prince of the Magic Kingdom: Michael Eisner and the Remaking of
Disney (New York: Wiley, 1991), p. 116.
7. Tom Bierbaum, “Paramount Pricing Switcheroo Drops 25 Titles to $24.95
List.” Variety, September 26, 1984, p. 37.
8. Goldman Sachs, Update–1991, p. 17.
9. Veronis, Suhler, and Associates, Forecast, pp. 142–143.
10. Kraig G. Fox, “Paramount Revisited: The Resurgence of Vertical Integration
in the Motion Picture Industry.” Hofstra Law Review 21 (Winter 1992), p. 527.
11. Moya Verzhbinsky, “Cineplex Odeon,” in International Directory of Company
Histories, vol. 6, ed. Paula Kepos, pp. 161–163 (Detroit: St. James Press, 1993).
12. Gomery, Shared Pleasures, p. 107.
13. Screen Digest, February 1994, pp. 37– 40.
14. Video Week, June 20, 1988, p. 6.
15. Conversation with Bill Burton, president of the National Association of Video
Distributors, December 13, 1995.
16. Variety, June 15, 1983, p. 31.
17. Adam Sandler, “Count Grossed Out by Exec Oral Agreements,” Variety,
March 24, 1997, p. 50. Also see Pierce O’Donnell and Dennis McDougal, Fatal Sub-
traction: The Inside Story of Buchwald v. Paramount (New York: Doubleday, 1992),
p. 382.
18. Vogel, Entertainment, 3d ed., p. 79.
19. Garnham, Capitalism and Communication, p. 123.
20. Vogel, Entertainment, 2d. ed., p. 299.
21. Wei-Na Lee and Helen Katz, “New Media, New Messages: An Initial Inquiry
into Audience Reactions to Advertising on Videocassettes,” Journal of Advertising Re-
search (January 1993), pp. 74 – 85.
22. Gail DeGeorge, The Making of a Blockbuster: How Wayne Huizenga Built a
Sports and Entertainment Empire for Trash, Grit and Videotape (New York: Wiley,
1996), p. 96.
23. Blockbuster, Annual Report (1991), p. 12.
notes to pages 146 –165

24. Video Store, April 1990, p. 46. 221

25. Video Week, January 13, 1992, p. 12.
26. DeGeorge, Blockbuster, p. 146.
27. Ibid., p. 191.
28. Video Week, August 15, 1988, p. 5.
29. Van Wallach, “What If Retailers Ran the Studios?” Video Store, August
1990, p. 77.
30. Bart Story, “The Big Picture,” Video Store, December 1990, pp. 8–17.
31. Daniel Loren Moret, “The New Nickelodeons: A Political Economy of the
Home Video Industry with Particular Emphasis on Video Software Dealers” (Master’s
thesis, University of Oregon, 1991).
32. A good example of such a study is Anthony J. Buono’s “1992 New England
Video Software Dealers Association Customer Satisfaction Study Summary Report”
(manuscript, 1992).
33. Tom Bierbaum, “Backlash on Blockbuster Mania . . .,” Variety, March 12, 1986,
pp. 35–36.
34. Diane Garrett, “Video Quest,” Video Store, May 7, 1995, p. 25.
35. Doug Desjardins, “Many Happy Returns,” Video Store, June 5, 1994, p. 28.
36. Video Week, February 20, 1989, p. 1.
37. Conversation with Kelly Neilson, vice president, Creative Affairs, Prism Home
Video, January 1996.
38. Screen Digest, February 1998, p. 47.
39. Variety, November 2, 1983, p. 40.
40. Conversation with Suzanne Bouchard, vice president, Marketing, Orion Home
Video, December 13, 1995.
41. Video Week, January 30, 1989, p. 3.
42. Ken Auletta, Three Blind Mice: How the TV Networks Lost Their Way (New
York: Random House, 1991), p. 349.

Chapter 6. Consolidation and Shakeouts

1. Vestron, Annual Report (1986).

2. Justin Wyatt, High Concept: Movies and Marketing in Hollywood (Austin: Uni-
versity of Texas Press, 1994), p. 13.
3. Ibid., p. 22.
4. Charles Eidsvik, “Machines of the Invisible: Changes in Film Technology in
the Age of Video.” Film Quarterly 42, no. 2 (Winter 1988): 21.
5. Ron Grover, The Disney Touch: Disney, ABC and the Quest for the World’s
Greatest Media Empire (Chicago: Irwin, 1997), pp. 130–132.
6. Stephen Koepp, “Do You Believe in Magic,” Time, April 25, 1988, p. 72.
7. The Walt Disney Company, Annual Report (1986).
8. Michael Eisner, Work in Progress: Risking Failure, Surviving Success (New
York: Hyperion, 1998), p. 157.
N O T E S T O P A G E S 1 6 6 – 1 8 1

222 9. There was one such statement in 1981, at the beginning of the video revolu-
tion. Francis (Fay) Vincent, the CEO of Columbia Pictures, justified burgeoning pro-
duction and release costs by telling stockholders that “we believe expanded opportu-
nities for exploitation of our product will more than offset those costs.” See Stephen
Klain, “Columbia’s All-Media Future Will Update Outside Film Financing,” Variety,
November 11, 1981, p. 34.
10. Peter Hoffman, L’Affaire de cinema aujourd’hui. Speech delivered at the
Cannes Film Festival, May 1992.
11. Variety, January 9, 1995, p. 20.
12. Michael E. Ross, “Videocassette Concern to Make Feature Films,” New York
Times, January 8, 1986, p. C22.
13. Video Week, various issues in February of each year.
14. Peter Bart, Final Fade: The Calamitous Last Days of MGM (New York: Anchor
Books, 1990), p. 232.
15. Video Week, January 9, 1989, p. 4.
16. TapeTrack Compendium 1988–February 1995 (Santa Ana, Calif.: Advan-
star, 1995).
17. Tom Bierbaum, “Killer ‘Bs’ Help Vestron Rebound,” Daily Variety, July 15,
1988, p. 2.
18. Conversation with Jon Peisinger, January 7, 1998.
19. Part of the fire sale of Vestron properties included a script about the transfor-
mation of a prostitute. Touchstone, a division of Walt Disney, bought the script for
$200,000 and turned it into the 1989 smash hit Pretty Woman.
20. He sued Security Pacific. LIVE refused to take over the lawsuit and Furst kept
it going on his own until he won a $100 million settlement in 1993, from Bank of
America (the company that bought Security Pacific). Wall Street Journal, May 24,
1993, p. B4. Furst got out of the video business and now runs “Inovision.”
21. Anne Thompson, “Another Indy Bites the Dust,” Los Angeles Weekly, Au-
gust 4, 1989.
22. Cannon’s P&A was $24.5 million. Net Cannon rentals was $19.3 million. See
Yule, Hollywood A Go-Go, p. 189.
23. See Yule, Hollywood A Go-Go, for a detailed account of this ongoing struggle.
24. William K. Knoedelseder Jr., “DeLaurentiis Producer’s Picture Darkens,” Los
Angeles Times, August 30, 1987, part 4, pp. 1–2.
25. LIVE, annual reports (various years).
26. TapeTrack Compendium.
27. Jim McCallaugh, “CBS/Fox Video Gets Media Home Titles,” Billboard, Janu-
ary 5, 1991, p. 6.
28. Heikki Hellman and Martti Soramäki, “Competition and Content in the U.S.
Video Market,” Journal of Media Economics 7, no. 1 (1994): 29– 49. This article shows
the drawbacks of using benchmark years, especially when dealing with film estimates.
Because the revenue figures are not reliably reported for every title, the best use of
revenue figures is to determine trends. Unfortunately Hellman and Soramäki do not
notes to pages 181–193

use year-by-year trends but instead use benchmarks four years apart; 1990 is anom- 223
alous because of the breakaway results of LIVE’s sell-through of TMNT.
29. LIVE, 10-K Report (1995).
30. Trimark Pictures consistently claimed 1 percent of the video market during
the 1990s (various issues Video Week) and is arguably a significant independent dis-
tributor. It was formed in 1988 as Vidmark and changed its name to Trimark in 1992.
It used to distribute only horror and other low-budget formula films. It has lately
handled artistic films such as Eve’s Bayou (1998).
31. Andrew Hindes and Benedict Carver, “Hollywood Makeover,” Variety,
April 20, 1998, p. 7.

Chapter 7. The Lessons of the Video Revolution

1. There were 706 commercial stations (UHF and VHF ) in 1975 and a record
1,145 in 1994. See U.S. Bureau of the Census, Statistical Abstract of the United States
(Washington, D.C.: U.S. Government Printing Office, 1995).
2. See Stander, “The Impact of the VCR on Broadcast Television,” pp. 481– 494,
for an influential rehearsal of these arguments.
3. Goldman Sachs, Movie Industry Update–1993, p. 5.
4. TapeTrack Compendium shows that feature film cassettes without a theatrical
release accounted for only 2.87 percent of feature film cassette revenues in 1992. How-
ever, the survey is skewed. Mail-order distributors were not reported and neither were
cassettes shipping below 50,000 units.
5. Hoffman, L’Affaire.
6. Ibid.
7. Grover, The Disney Touch, p. 226.
8. “The Teachings of Chairman Jeff,” Variety, February 4, 1991, p. 24.
9. Eller and Berman, “Industryites,” p. 110.
10. “The Teachings of Chairman Jeff,” p. 26.
11. Peter Bart, “Times Have Changed, but the Rhetoric Lingers On,” Variety, Feb-
ruary 4, 1991, p. 24.
12. Vogel, Entertainment, 3d ed., p. 306, n. 44.
13. For purposes of contrast, the United States had a 62 percent share of the Brit-
ish box office and a 66 percent share of the West German market in 1979. The source
for the earlier figures is Garnham, Capitalism and Communication, p. 175. Only Italy
and France held Hollywood to less than 60 percent of the domestic box office in 1992.
The source for the 1990 figures is André Lange, ed., Statistical Yearbook: Cinema,
Television, Video and New Media in Europe (Strasbourg: European Audiovisual Ob-
servatory, 1994).
14. Variety, February 13, 1995, p. 1.
15. Goldman Sachs, Movie Industry Update–1997, p. 3.
16. Martine Danan, “Marketing the Hollywood Blockbuster in France,” Journal of
Popular Film and Television 23, no. 3 (Fall 1995): 131–140.
N O T E S T O P A G E S 1 9 3 – 2 0 1

224 17. Terry Ilott, Budgets and Markets: A Study of the Budgeting of European Film
(London: Routledge, 1996).
18. See various high-level comments in Office for the Official Publications of the
European Communities, Report by the Think-Tank on the Audiovisual Policy in the
European Union (Luxembourg: Office for the Official Publications of the European
Communities, 1994).
19. Brian Winston, Media, Technology and Society: A History (New York: Rout-
ledge, 1998), pp. 11–13.
20. Bruce Austin elaborates this analogy in “Home Video.”
21. John R. Wilke, “A Publicly Held Firm Turns X-rated Videos into a Hot Busi-
ness,” Wall Street Journal, July 11, 1994, pp. 1–2.
22. Veronis, Suhler, and Associates, Forecast, p. 169.
23. Video Week based its results on store surveys and decided to exclude adult
material.
24. Gomery, Shared Pleasures, p. 229.
25. Jerry Mander, Four Arguments for the Elimination of Television (New York:
William Morrow, 1978), p. 268.
26. James Bernardoni, The New Hollywood: What the Movies Did with the New
Freedoms of the Seventies (Jefferson, N.C.: McFarland, 1991), p. 15.
27. Charles Eidsvik, “Machines of the Invisible,” p. 21.
28. Jeff Dawson, Quentin Tarantino: The Cinema of Cool (New York: Applause
Books, 1995), p. 59.
29. John Brodie, “ ‘Vidstore’ Helmers: Rebels with a Pause,” Variety, June 13, 1994,
pp. 1, 71.
30. Thomas Schatz, “The Return of the Hollywood Studio System,” in Conglom-
erates and the Media, ed. Erik Barnouw et al. (New York: New Press, 1997), p. 73.
31. Wasko, Hollywood in the Information Age, p. 217.
32. Celia Lury, Cultural Rights: Technology, Legality, and Personality (New York:
Routledge, 1993), p. 87.
33. Steve Knoll, “Homevid Growth Rides on RCA’s Player Pitch: Software Genius
Needed.” Variety, March 25, 1981, p. 124.
34. Ariel Russell Hochschild, The Time Bind: When Work Becomes Home and
Home Becomes Work (New York: Holt, 1997), pp. 49–52.
35. Maxwell E. McCombs, “Mass Media in the Marketplace,” Journalism Mono-
graphs 24 (August 1972).
36. William C. Wood and Sharon L. O’Hare, “Paying for the Video Revolution:
Consumer Spending on the Mass Media.” Journal of Communication 41, no. 1 (Win-
ter 1991): 24 –30. Wood and O’Hare do not break out cable versus home video spend-
ing, but figures from Veronis, Suhler, and Associates (Forecast) and the Electronic
Industries Association (The U.S. Consumer Electronics Industry in Review) would in-
dicate that home video (both on cassettes and VCRs) contributed an average of 45 per-
cent of the total consumer spending on new video in the relatively mature period of
notes to pages 201–202

1987–1993. We should remember that the film industry captures much more of the 225
home video spending than cable.
37. Conversation with Jon Peisinger, January 7, 1998.
38. MPAA, Incidence of Motion Picture Attendance, various years.
39. Wasko, Hollywood in the Information Age, p. 176.
40. Raymond Williams, Culture and Society 1780 –1950 (London: Chatto and Win-
dus, 1960), p. 300.
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 Index

ABC, 6; and Bing Crosby, 55; and Dis- Associated Film Distributors, 106
ney, 13, 34, 161, 165, 186; and Ves- AT&T, 51, 53, 54, 57
tron, 120, 127 Atkinson, George, 98
Adult Film Association, 93 Atlantic Releasing, 177
Adult Video News, 195 Austin, Bruce, 47
advertising industry: concerned about Avco, 49, 62, 69, 106, 108. See also
video, 3, 86 – 87, 90; and TV net- Embassy
works, 7, 35, 41, 52–53 Aylesworth, Merlin H., 53
Afman, Frans, 121, 123–124
Aladdin, 168 Baczko, Joseph, 148
Alice in Wonderland, 163 Baird, John Logie, 57
Allen, Woody, 120 Baker and Taylor, 140
Allied Artists, 39 Barnouw, Eric, 53–54
Amadeus, 109 Bart, Peter, 192
American Express, 41, 117 Batman, 161, 168, 199
American Federation of Musicians. Beatty, Warren, 8
See unions Becker, Gary, 77
American Film Marketing Association Behind the Green Door, 93
(AFMA), 120, 122 Bell Laboratories, 53, 54
American Graffiti, 8, 44 Ben-Hur (1911): and copyright, 89
American International Pictures (AIP), Ben-Hur (1959), 5
6, 39, 43. See also Filmways Benji, 120
American Movie Channel (AMC), 188 Berger, Ron, 151
American Werewolf in London, An, 109 Bernadoni, James, 197
Ampex, 48, 49, 50, 55, 59, 70 Bertelsman, 186
ancillary market, 11, 20–21, 122–123, Best Seller, 174 –175
136, 142, 165, 166, 190, 192, 194; Best Years of Our Lives, 37
rights, 106, 116, 179, 186 Betamax, 47, 71– 75, 80, 109–110; and
Anderson, Christopher, 33 copyright, 83– 85; struggle with
AOL, 12, 21, 186 VHS, 2, 50, 72–75, 151. See also
Artisan, 12, 16, 139, 183. See also LIVE Sony
Artists Releasing, 128 Beverly Hills Cop, 164
V E N I , V I D I , V I D E O

238 Billy Jack, 6, 44 – 45 CBS, 6, 12, 32, 34, 39, 49, 58–59, 133,
Birth of a Nation, 26, 29, 168 153, 186; EVR, 60– 61, 65; as radio
Blackmun, Judge Harry, 89–90 network, 51–54; and records, 54 –55;
Blade Runner, 133 and video distribution, 109, 121, 133,
Blair Witch Project, The, 183 180
Blay, Andre, 95, 97–99, 108, 118, 151 Cineplex Odeon, 136 –137
Blockbuster Entertainment, 19, 101, 139, Cinergi, 124
146 –149, 186 Cleopatra, 5, 38
blockbusters and event movies, 8–11, CNN, 186
24, 106, 128, 130, 167, 168–169; and Coca-Cola, 41, 185
Carolco, 124; early history, 20, 27, Cohn, Lawrence, 169–170
30; Jaws, 45– 46; Star Wars, 46; and Columbia, 5, 20, 30, 43, 178, 180,
video market, 189, 192–195, 197, 222n.9; buys theaters, 136; pioneers
207 TV advertising, 45; and sales to TV,
Bloom, Noel, 71, 108, 121, 195; and 41, 84; and Sony, 110, 154, 185;
Carolco, 124 –125, 128, 178; pioneers and video distribution, 95–96, 109,
kidvid, 107, 129–130 139. See also Coca-Cola; Tri-Star
Blue Velvet, 124 Columbia Records and Pictures, 12, 54,
Bonnie and Clyde, 43 55, 62
branding (synergy), 11, 12, 199–200, 203 Commtron, 140
Breakin’, 123 Cook, David, 146
Bridge on the River Kwai, The, 41 Coppola, Francis Ford, 8, 44
British Broadcasting Corporation, 51 Copyright Act of 1976, 83, 102
Bronson, Charles, 176 Corman, Roger, 16, 43, 44, 204
Buena Vista Home Video, 163, 183 corporate mergers, 12–14, 185–186;
Burger King, 145 and outflanking strategy, 186
Burstyn, Joseph, 6, 40 Corrigan, Timothy, 20
Cotton Club, The, 174
Caballero Control, 107 Credit Lyonnais, 121, 123–124, 176,
cable industry: adoption by viewers, 177
80– 82, 116, 119, 201, 217n.29, 224 – Crimes of the Heart, 124
225n.36; financing films, 117, 120, Crooked Circle, The, 35
126, 153, 169; Pay Per View (PPV), Crosby, Bing, 32, 48– 49, 55
119, 188; subscription basis, 188 Cutthroat Island, 190
Cannes Film Festival, 122, 167
Cannon, 12, 106, 122–125, 173, 176 –178, Danan, Martine, 193
180 Dead, The, 174
Cannonball Run, The, 108 Death Wish, 121
Cantor, Eddie, 32 Decca, 63
Carlton Communications, 139 Deep Throat, 93
Carolco, 12, 20, 159, 160, 176; bank- DeForest, Lee, 53
ruptcy, 190; formation of, 124; and DeLaurentiis, 12, 106, 172, 173; bank-
LIVE, 124 –125, 178–180 ruptcy 176 –180; pioneers pre-selling,
Carpenter, John, 107 121, 123, 124 –125
Cartrivision, 62– 63, 68, 73, 99 DePalma, Brian, 44
Cassavetes, John, 123 Desilu, 57
Castle Rock, 124 Devil in Miss Jones, The, 93
index

Dick Tracy, 191 Ferguson, Judge Warren, 84, 87 239

digital technology, 14, 179, 186, 203; film advertising, 20, 46, 157, 188, 192,
music, 13, 173; video and DVD, 3, 13, 193
21, 158, 183, 197, 204, 205 film distribution: fee, 141–142, 156; his-
Diller, Barry, 148, 161–162 toric, 25–27, 29–31; and negative
Dirty Dancing, 145, 173, 175, 183 pickup, 16, 105, 106; wide release,
Discovision, 63 – 65 46, 105, 167, 185
Disney. See Walt Disney Company film independent distribution, 3, 4,
Disney, Roy, 165, 195 62; cultural impact of, 6, 16, 200;
Disney, Walt, 13 –14, 34, 162 demise of, 12, 16, 21–22, 159, 175,
Disney Channel, 186 180 –181; relationship with major
Doctor Dolittle, 5, 40 – 41 distribution 9, 12, 142, 154; survival
Dolan, Charles, 82 of, 183
Down and Out in Beverly Hills, 165 film industry revenue and earnings:
Doyle, Dane, and Bernbach (DD&B), 83 eroding profit margins, 11, 20, 159,
Dr. Zhivago, 40 182, 189–192; general, 3 – 6, 10 –11,
Drabinsky, Garth, 136. See also Cineplex 38, 116 –117, 119, 170 –171, 190 –192,
Odeon 193; from television market (broad-
Dream a Little Dream, 175 cast and cable), 35, 82, 84, 118 –119,
DuMont, 32, 209n.14 217–218n.36; from video market,
119, 128, 132–133, 137, 170 –171, 217–
E.T., 201 218n.36
Earth Girls Are Easy, 175 film pre-selling /pre-buying, 104, 105,
Easy Rider, 8, 44 121–125, 129, 156; with cable, 117;
Eddie and the Cruisers, 133 weakness of, 176 –180
Edison Company: Home Projecting film production level, 10, 120, 125, 164 –
Kinetoscope, 28 –29 165, 172; independent production
Edison, Thomas, 25, 28 –29, 51, 74 decreases, 174; independent produc-
Eidsvik, Charles, 197 tion increases, 122–123, 154 –155.
Eisner, Michael, 1, 154, 161–165, 195 See also Motion Picture Associa-
Embassy Pictures, 63, 108, 119, 120, 121, tion of America (MPAA), number of
128, 133, 177, 180, 218n.43. See also releases
Avco film style, 3, 4, 8 – 9, 16, 20, 161,
Empire, 124, 176, 177, 180 196 –198
Empire Strikes Back, The, 121 films on broadcast television, 39, 41– 43,
Entertainment Data, Inc. (EDI), 168 56 –57, 153
Entertainment Weekly, 168 Filmways, 106, 118. See also AIP
Erol’s, 147 Fink, Morton, 112
Escape from New York, 108 First Blood, 124. See also Rambo: First
Everybody’s All-American, 174 Blood Part II
First National, 148
Fame Is the Name of the Game, 41 first sale doctrine, 19, 102, 110, 113, 115,
Family Home Entertainment (FHE), 120, 127, 132, 133, 138, 152
107, 108, 139, 178. See also LIVE First Video Feature (FVF ), 148
Farnsworth, Philo T., 57 Flashdance, 127, 133
Federal Communications Commission Fog, The, 108
(FCC), 6, 33, 53, 81, 214n.33 Footloose, 127
V E N I , V I D I , V I D E O

240 Fort Apache, 108 Harris, Lou, 78 – 79, 200

Fotomat, 111 Harris, Mel, 110, 132
Fox, 112 Heaven’s Gate, 10
Fox, William, 26, 30. See also Twentieth Hello, Dolly!, 41
Century Fox Hemdale, 12, 123, 124, 125, 173, 176, 180
Frank, Richard, 163 Heron Holdings, 107, 122, 180
Friedman, David, 93 high concept, 159, 161–162, 174, 199,
Furst, Austin, 107–108, 120, 158, 174, 203; and event films, 167, 195; and
175, 192. See also Vestron sell-through, 162; and stressed
leisure, 162; versus well-programmed,
Gandhi, 118 175–176; and video wholesaling,
Garnham, Nicholas, 144 159
Geffen, David, 133 Hirschfield, Alan, 114, 115, 133
General Electric, 68 Hochschild, Ariel Russell, 203
General Film Company, 26 Hoffman, Peter, 167, 189–190
General Teleradio, 36; Million Dollar Hollywood Entertainment, 149, 163, 182
Movies series, 36 Holmes, Oliver Wendell, 89
Gentleman’s Agreement, 37 Home Alone, 168
Getty Oil, 117 Home Box Office (HBO), 47, 107, 109,
Ghost, 150, 168 153, 188; and film financing, 117, 118;
Ghostbusters, 150 formation of, 82
global film market, 3, 4, 124, 176, 193 – Home Box Office v. FCC, 81
194, 223n.13 Hook, 169
Globus, Yoram, 122–123, 177 Hoosiers, 124
Godfather, The, 8, 9, 44 Hopper, Dennis, 8, 43
Golan, Menachem, 122–123, 177 Huizenga, Wayne, 147–148
Goldblum, Jeff, 175 Huston, John, 174
Goldcrest, 106, 118
Golden Seal, The, 133 I Am Curious, Yellow, 93
Goldman Sachs, 119, 188, 193 I Spit on Your Grave, 92
Goldmark, Peter, 55, 60, 188 IBM, 41, 49, 64
Goldwyn. See Samuel Goldwyn Com- IMAX, 197
pany, 12, 125 Indiana Jones and the Temple of Doom,
Gomery, Douglas, 97, 98 164
Gone With the Wind, 33, 37, 168 Ingram Entertainment, 140
Gould, Jack, 61, 188 International Video Entertainment
Graduate, The, 43 (IVE), 107, 110, 124 –125, 150, 178 –
Graham, Margaret, 58 –59 179. See also LIVE
Gramercy Studios, 183, 185 Ironweed, 174
Gray, Ann, 17
Greenspan, Alan, 114 Jackson, Michael, 126
Grey, Jennifer, 173 James Bond movies, 67
Guber, Peter, 69 Jane Fonda’s Workout, 109, 125–126,
Gulf + Western, 41. See also Paramount 133, 164
Jaws, 9, 44, 45– 46, 47, 105
Halloween, 106 –107, 129 Jimirro, James, 111, 134
Handleman, 145, 180 Joe, 122
index

Johnny Handsome, 179 Lucas, George, 8, 44, 46 – 47, 142 241

Jurassic Park, 161, 168, 201 Lury, Celia, 199
JVC, 59, 68, 70–71, 72
M&M, 146
Karl, Stuart, 125 M*A*S*H, 97
Kassar, Mario, 124, 178–180 Magnetic Video, 95, 97–98, 102, 108,
Katzenberg, Jeffrey, 154, 161–165, 182, 110–111, 151
195; his memo, 191–192 Magtape, 66
Kim’s Video, 150 Major Video Corporation, 147
Kitt, Sam, 176 Making of Michael Jackson’s Thriller,
Klingensmith, Robert, 132–133, 150, The, 126
162 Mander, Jerry, 197
Knoll, Steve, 199 Matsushita, 2, 12, 13, 49, 68, 70–71,
Kubrick, Stanley, 43, 46 72–73, 110, 185, 192
MCA /Universal, 14, 49, 69; buys the-
Lachenbruch, David, 87 aters, 136, 137; and Discovision, 63–
Ladd, Alan, Jr., 173 64, 67; purchase by Matsushita, 110,
Ladd, David, 89 185; purchase by Seagram, 12–13;
Laemmle, Carl, 26, 30 and video distribution, 95–96, 98,
Lardner, James, 98 119, 150. See also Universal; Shein-
Larry Shandling Show, The, 188 berg, Sydney; Sony v. Universal
Laserdisc. See Laservision McCombs, Maxwell, 201
Laservision, 64 – 65, 67, 68, 73, 80, 98, Mechanic, William, 1, 2, 145, 161, 163
212n.41 Media Home Entertainment (MHE), 12,
Last Action Hero, 169 106 –107, 108, 121–123, 180
Last Temptation of Christ, The, 147 Menendez, Jose, 178
Laughlin, Tom, 6, 44 – 45 Merrill Lynch, 94, 119
Lear, Norman, 108 MGM, 5, 12, 30, 56, 119, 185; buys the-
leasing plans. See video pricing; leasing aters, 137, Parretti buys, 177; and
plans video distribution, 95–96, 109, 110–
Leslie, Cy, 110–111 111, 112, 115. See also United Artists
Levin, Gerald, 21 MiFed, 122, 173
Levine, Joseph, 108 Miller, Ron, 134
Levy, Mark, 17 Miramax, 12, 13, 16, 22, 159, 192, 203;
Lieberman, 145, 178–179 purchase by Disney, 180–183, 185
Linder, Staffan, 77 Missing in Action, 123, 129
Lion King, The, 145, 168 Missing in Action 2— The Beginning, 174
Little House on the Prairie, 152 Mister Rogers’ Neighborhood, 87
Little Mermaid, The, 165 Monogram, 36, 39
Little Shop of Horrors, The, 6 Moon Is Blue, The, 40
LIVE, 12, 178–180, 182, 183, 198. See Morgan Creek, 124
also Artisan; Bloom, Noel; Carolco; Morita, Akio, 59, 72, 73
Family Home Entertainment; Kassar, Motion Picture Association of Amer-
Mario; Lieberman; Menendez, Jose; ica (MPAA), 11, 40, 45, 86, 113,
Vajna, Andrew 201, 207n.6; increase in ads, 170–
Loew, Marcus, 30 171; number of releases, 154 –156,
Lorimar, 109, 125–126, 185 165–167
V E N I , V I D I , V I D E O

242 Motion Picture Patent Company Pathé Frères, 25, 29

(MPPC), 30, 36; origins of, 25–26, Patton, 97
27, 208n.5 Peisinger, Jon, 108, 120, 126, 127, 174 –
Movie Channel, The, 117, 118 175, 201
MPI, 139 Pepsi, 41, 199
MTV, 1, 126, 186 Pfleumer, Fritz, 54
Philips, 49, 63– 64, 70, 73
National Amusements, 148 Pinocchio, 163
National Association of Broadcasters, 59 Pioneer, 63, 65
National Geographic, 128 Platoon, 124, 129
NBC, 6, 32, 34, 39, 41, 58, 60; and Bing Playtape, Inc., 62
Crosby, 48– 49, 55; hostility to rec- Pleskow, Eric, 192
ords, 52–53; radio network, 51–52 Polier, Marcy, 168. See also Entertain-
Nelson Entertainment, 124, 180 ment Data, Inc.
Neuman, W. Russell, 14 Polygram, 109, 183
New Hollywood: distribution, 9–11, pornographic films, 93; and laser discs,
45– 47, 131–132, 137, 156, 189, 192; 64, 67; and rental infrastructure,
filmmaking, 7–11, 45– 47, 197 19, 101, 147; and video cassettes 71,
New Line, 12, 22, 159, 192, 203; 92–95, 107, 129, 195
absorbed into Time Warner, 180– Poulsen, Vladimir, 53
183, 185. See also Shaye, Robert Premiere, 117
New World, 106, 123, 124, 177 Pretty Woman, 222n.19
News Corporation, 12, 185, 186 Prince, 127
Nine to Five, 117 Prizzi’s Honor, 172
Norris, Chuck, 174, 176 Producer Service Organization, 122
Not of This Earth, 6 Production Code Administration,
the, 40
October, 16, 183, 185 Purple Rain, 127, 134
Oranan, Erol, 98
Orion, 12, 106, 119, 125, 192; decline of Queen Elizabeth, 26
179, 180; emerges out of Filmways,
118; and video distribution, 95–96, rack-jobbing. See video retailing;
120, 122, 128, 148, 152, 160 rack-jobbers
Raiders of the Lost Ark, 133, 164
Paley, William, 32, 56, 59– 61 Rambo III, 179
Paramount, 5; agreement with Foto- Rambo: First Blood Part II, 124, 129, 178
mat, 111, 115–116; buys theaters, 136, Rank Organisation, The, 139
137; and DeLaurentiis, 121; develops RCA, 14, 34, 64 – 69, 73, 76, 125; devel-
two tier pricing, 132–134; and Dis- opment of video-recording, 48– 60;
ney, 161–165; Gulf + Western take- entry into video distribution, 109,
over, 41; historic, 30, 32, 33, 35, 36, 150, 178, 212n.59
209n.14; promotional tie-ins, 145, Reagan, Ronald, 135–136, 187
154, 159; and Viacom, 1, 148, 186; Record Industry Association of America
and video distribution, 95–96, 110, (RIAA), 114, 172
139, 150 Redstone, Sumner, 1, 148
Parretti, Giancarlo, 177 relative constancy principle, 201
index

Rentrak, 151 13, 185, 186; the story of, 70–75; 243
Republic Pictures, 36, 39, 148 U-matic, 70–71, 99, 107; Video 45s,
Reservoir Dogs, 198 126; video label division, 109–110.
Risky Business, 133 See also Betamax; Morita, Akio
RKO, 30, 36 Sony v. Universal, 83– 85, 87– 89, 98
Roberts, Steve, 117–118 Sopranos, The, 188
Robinson, John P., and Geoffrey God- Sound of Music, The, 5, 40, 97
bey, 78–79, 200 Spelling Entertainment, 109, 148
Room with a View, A, 124 Spielberg, Steven, 8, 44, 45– 46, 142,
Runaway Train, 177 161, 169, 196
Ruthless People, 165 Stallone, Sylvester, 124, 176
Stanton, Frank, 60, 188
Salkind, Alexander, 106, 121, 122 Star!, 5, 41
Salvador, 124 Star Trek, 132–133
Samuel Goldwyn Company, the, 172, Star Trek II: The Wrath of Khan, 132,
179, 180, 185 162, 220n.2
Santa Claus — The Movie, 122 Star Wars, 8, 9, 44, 46 – 47, 105, 119,
Sarnoff, David, 48– 49, 51, 55, 56, 58– 153, 188, 201
59, 65, 67 Super Comm, 151
Saturday Night at the Movies, 39 Supergirl, 121
Schatz, Thomas, 44, 199 Superman, 46, 124, 209n.35
Schor, Juliet, 77–79, 200 Swayze, Patrick, 173
Schwarzenegger, Arnold, 142, 169, 176 synergy. See branding
Scorsese, Martin, 8, 44, 147
Screen Actors Guild, 36, 141–142 Taft Broadcasting, 109, 172
Scripps, Charles, 201 Takayanagi, Kenjiro, 59, 72
Seagram, 13, 183, 186. See also Universal Tarantino, Quentin, 198
Sears, 115, 145 Taylor, Nathan, 136
Security Pacific, 175. See also Vestron TeD, 63
Selectavision, 65– 68, 73, 76, 80 Ted Bates Agency, 90
Selznick, David, 33, 37 Teenage Mutant Ninja Turtles, 180–181
sell-through. See video pricing; sell- Telefunken, 63, 70
through Ten Commandments, The, 5, 38
Shampoo, 8 Terminator, 109
Shaye, Robert, 182–183, 203. See also Terminator 2: Judgment Day, 168, 179
New Line Texas, 148
Sheinberg, Sydney, 83 Texas Chainsaw Massacre, The, 107
Showtime, 117, 118, 186 They Call Me Bruce?, 128
Silkwood, 121, 218n.43 Thorn /EMI, 109, 111, 119, 124
Silver Screen II, 164 Three Men and a Baby, 150, 168
Sloan Commission on Cable Communi- Thriller, 126, 127
cations report, 81 Time, Inc., 82
Snow White and the Seven Dwarfs, 84 Time-Warner, 12, 21; acquisitions,
Sony, 2, 14, 19, 49, 50, 59, 80, 192; 182–183, 185–186; starts Enter-
high-speed duplicating, 139; Porta- tainment Weekly, 168; Time-Life,
pack, 70; purchase of Columbia, 12– 71, 106, 107–109. See also AOL;
V E N I , V I D I , V I D E O

244 HBO; Levin, Gerard; Ross, Steven; V-2000, 70

Time, Inc.; Warner Bros.; Warner Vajna, Andrew, 124, 178 –180. See also
Communications Carolco
time shift ing, 2, 7, 21, 50, 70 – 74, 83, Valenti, Jack, 86. See also MPAA
85– 92, 99–100, 102–103, 114, 136, Variety, 41, 64, 169–170, 193, 198, 199
187 Vestron, 12, 20, 119, 120, 126 –129, 145,
time use; general issues, 17, 37, 47, 150, 158, 160, 200, 201, 222n.19;
58, 83, 144, 162, 200–204; stressed decline of, 171–176, 180, 183;
(harried) leisure, 20, 77– 80, 162, founded, 107–108, 110. See also
200 –201 Austin Furst; Jon Peisinger; Security
Titanic, 20, 161, 168, 201 Pacific
Todd-AO, 38 VHS, development of, 70, 72– 75, 76
Tootsie, 117, 133 Viacom, 12, 109, 117, 148; acquisition of
Top Gun, 145, 199 Paramount, 1, 148, 186
Toshiba, 70 video advertising, 134, 151, 152
Touchstone, 163, 182, 222n.19. See also Video Business, 141
Walt Disney Company video independent distribution, 19, 110,
Trimark, 16, 139, 223n.30 116, 118; and independent film pro-
Tri-Star, 124, 154, 178, 179, 180 duction, 118 –122, 155; and new
Troma, 16 genre, 125–128; pressured into the-
Tron, 165 atrical market, 158, 160, 176 –177
Turner, Ted, 82 Video On Demand (VOD), 119, 188
Turner Broadcasting Systems, 12, 109, video pricing, 95– 97, 132, 134, 139,
182–183, 185 142–145; laser disk, 64; leasing
TV Guide, 97, 162 plans, 19, 103, 111–113, 151; sell-
Twentieth Century Fox, 1, 2, 5, 12, 19, through, 15, 126, 134 –135, 159, 161,
20, 30, 61, 102, 107–110, 114, 117, 182, 194; two-tiered, 19, 131–135,
119, 133, 151, 154, 185; first to release 137, 152
videocassettes, 95– 98. See also Fox; video retailing, 140 –145; “Breadth ver-
Fox, William sus Depth,” 19, 141, 149–151, 157;
2001: A Space Odyssey, 43, 46 consolidation, 146 –149; formation
two-tiered. See video pricing, two-tiered of, 98 –102, 111–113; rack-jobbers,
115, 140, 145, 178
U.S. Congress, Record Rental Amend- Video Software Dealers Association, 94,
ment of 1984, 115 113
U.S. Government, Department of Jus- Video Software Retailers of America,
tice, 32–33, 117, 135 113
U.S. Supreme Court, 19, 84, 87– 90 Video Store, 141, 150
unions (SAG, WGA, AFM), 8, 35–36, Video Superstore, 147
105, 136, 141–142 Video Week, 170
United Ar tists, 30, 40, 41, 95– 96. See video wholesaling, 12, 20, 94, 127, 139–
also MGM 140; formation of, 97– 98; pressures
Universal, 5, 9, 12, 19, 30, 46, 117, 154, distributors, 150 –153, 156, 159–160,
176; lawsuit against Sony, 83 – 91, 182, 194
103. See also Seagram Vidiots, 150
Universal Studios, 63, 64, 69 Vitale, Ruth, 173
USA Home Video, 107 Vogel, Harold, 189, 192
index

Walmart, 145, 178 Wasko, Janet, 199 245

Walt Disney Company, 1, 13–14, 19, 34, Weaver, Sylvester “Pat”, 56
182, 186, 192, 203; declining profit Weinstein Brothers, 182, 203. See also
margins in 1990s, 191–192; Disney- Miramax
land, 34; history of involvement West Coast Video, 149
with video, 161–165; and kidvid, 195; Western Electric, 53
lawsuit against Sony, 83– 85, 103; Western Publishing, 108–109, 134
promotional tie, 145; two-tiered Whitten, David, 160
video pricing and sell-through, 133– Williams, Raymond, 202
134, 159; and video distribution, 95, Winston, Brian, 194
96, 98, 148, 150, 151, 152; video Wood, William, and Sharon O’Hare, 201
earnings, 119; Walt Disney Home Woods, James, 174
Video, 111–113. See also Buena Vista; Worldvision Home Video, 109
Disney, Roy; Disney, Walt; Eisner, WPIX, 36
Michael; Hollywood; Touchstone Wyatt, Justin, 161
Warner Bros. (Warner Communica-
tions), 5, 6, 30, 41, 43, 44, 64; acqui- Yablans, Irwin, 106
sitions, 185; buys theaters, 137; leas- Yule, Andrew, 177
ing plan, 111–113; and the Movie
Channel, 117; and video distribution, Zenith, 73
95–96, 99, 109, 133 Zukor, Adolph, 26, 29–30, 32, 147, 179
Warner-Reprise Records, 69
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