Nova workboard

a blog from young economists at Nova SBE

“The trouble with movies as a business is that it is an art. The trouble with movies as an art is that it is a business.”

The Golden Age of the film industry, from the 1920s to the late 1940s, was marked by the vertically integrated studio system. It consisted of an oligopoly of movie studios which controlled all stages of film production and exhibition. These studios owned their own theatres which gave them a huge financial advantage. As for unaffiliated theatres, they sold them several films in a single package, a practice known as ‘block booking’. This allowed them to attach films of poorer quality and lower commercial viability to big motion pictures that theatres had to purchase in order to be competitive. In other words, studios bundled various films to guarantee considerable revenues – they were ‘manufactured’ as if in a factory, and divided into distinct categories (requiring different budgets, schedules and storylines). Thus, it could be said that the vertical integration of studios did not only hurt independent cinema owners and potential rivals – it also hurt consumers because a more competitive environment would have resulted in the studios focusing more on consumer preferences.

In 1948, the Supreme Court ruled that movie studios should not be able to be present in both the production and the distribution of films, in the antitrust case United States Vs Paramount Inc. (which accused the studios of violating the Sherman Act). This major event contributed to the collapse of the studio system – gradually, ‘the big five’ (including Paramount, 20th Century Fox, Warner Brothers, MGM and RKO) had to sell their theatre chains and were forbidden to practice ‘block booking’. Suddenly, there was pressure for studios to produce high-quality films and meet the audience’s demand, as films had to be sold individually. Furthermore, the emergence of television in homes and the phenomenon of suburbanization added more pressure to studios.

The antitrust ruling shaped the industry both artistically and economically. The New Hollywood era gave more room for independent filmmaking, the 1970s saw the emergence of the so-called blockbuster era, with the release of the hugely successful Jaws in 1975 and Star Wars in 1977. Attracted to huge profits, massive multimedia conglomerates started to merge with or acquire the major studios. Subsequently, such horizontal integration made it possible to generate more revenues from additional markets, as it allowed for the production of soundtracks and franchise elements associated with films.

Major movie studios now generally rely on formulaic blockbusters, ‘event movies’ and franchises for most of their profits. This is especially true since the industry has been greatly affected by the huge increase of online film piracy. As a result, studios have also been investing in the visual effect of films, so as to attract an audience through its unique theatre experience (i.e. 3D effects). Cinephiles have argued that this leaves little room for independent filmmaking because the efforts of smaller productions are overshadowed by the immense power that major studios continue to have. Yet, this type of integration clearly responds to audiences’ demands and exacerbates it by developing related products. Ultimately, it is up to the masses to choose the genres they prefer. Thus, it can be concluded that it is a good thing that the Hollywood system was dismantled as consumers’ demands are now further taken into account.



Brodesser-Akner, C. (2012), “A Proposal for Fixing Hollywood’s Box-Office Problem” in Vulture [online] 15th September, Available at: [Accessed on 04.05.13]

Cooper, L. (2011), “Hollywood Film Production: How Has It Changed?”, Suite101 [online] 15th January, Available at: [Accessed on 04.05.13]

Kennedy, B. (2013), “The Hollywood Antagonist: How the Studio System is Reshaping the Movie Industry in the 21st Century” in Copperfield [online] 31st January, Available at: [Accessed on 04.05.13]




Author: studentnovasbe

Master student in Nova Sbe

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