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Veni, Vidi, Video

Veni, Vidi, Video
The Hollywood Empire and the VCR

The history of the rise of home video as a mass medium.

Series: Texas Film and Media Studies, Thomas Schatz, Editor

January 2002
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270 pages | 6 x 9 | 18 b&w photos, 2 figures, 18 tables |

A funny thing happened on the way to the movies. Instead of heading downtown to a first-run movie palace, or even to a suburban multiplex with the latest high-tech projection capabilities, many people's first stop is now the neighborhood video store. Indeed, video rentals and sales today generate more income than either theatrical releases or television reruns of movies.

This pathfinding book chronicles the rise of home video as a mass medium and the sweeping changes it has caused throughout the film industry since the mid-1970s. Frederick Wasser discusses Hollywood's initial hostility to home video, which studio heads feared would lead to piracy and declining revenues, and shows how, paradoxically, video revitalized the film industry with huge infusions of cash that financed blockbuster movies and massive marketing campaigns to promote them. He also tracks the fallout from the video revolution in everything from changes in film production values to accommodate the small screen to the rise of media conglomerates and the loss of the diversity once provided by smaller studios and independent distributors.


2003 Marshall McLuhan Award for Outstanding Book in the Field of Media Ecology, Media Ecology Association

  • Contents
  • Acknowledgments
  • Introduction: Signs of the Time
    • The American Film Industry before Video
    • The American Film Industry and Video
    • The Political Economy of Distribution
    • Video and the Audience
    • Structure of the Study
  • Chapter 1: Film Distribution and Home Viewing before the VCR
    • A Brief Review of the Early Days of the Movie Industry
    • From Universal Audiences to Feature-Length Films
    • Movies at Home
    • Tiered Releasing
    • Broadcasting: The Other Entertainment Medium
    • Postwar Film Exhibition
    • Distributing Films to Smaller Audiences
    • Television Advertising and Jaws: Marketing the Shark Wide and Deep
  • Chapter 2: The Development of Video Recording
    • Broadcast Networks and Recording Technology
    • Television and Recording
    • Home Video 1: Playback-only Systems
    • Home Video 2: Japanese Recorder System Development
  • Chapter 3: Home Video: The Early Years
    • Choice, "Harried" Leisure, and New Technologies
    • The Emergence of Cable
    • The Universal Lawsuit
    • VCR and Subversion
    • X-rated Cassettes
    • The Majors Start Video Distribution
    • Videotape Pricing
    • Renting
  • Chapter 4: The Years of Independence: 1981-1986
    • Independence on the Cusp of Video
    • New Companies Get into Video Business
    • Hollywood Tries to Control Rentals
    • Video, Theater, and Cable
    • Pre-Selling/Pre-Buying
    • Video and New Genres
    • Vestron's Video Publishing
    • Conclusion
  • Chapter 5: Video Becomes Big Business
    • The Development of Two-Tiered Pricing
    • The New Movie Theater
    • Microeconomics 1: Overview
    • Microeconomics 2: Rental
    • Video and Other Commodities
    • Retailing Consolidation
    • Breadth versus Depth
    • Video Advertising
    • Video and Revenue Streams
    • Production Increase
    • More Money, Same Product
  • Chapter 6: Consolidation and Shakeouts
    • High Concept
    • Disney Comes Back On-line
    • The Majors Hold the Line on Production Expansion
    • Vestron Responds
    • The Fate of Pre-Selling and the Mini-Majors
    • LIVE, Miramax, and New Line
    • Conclusion
  • Chapter 7: The Lessons of the Video Revolution
    • Media Industries after the VCR
    • Home Video and Changes in the Form of Film
    • Images of Audience Time
    • A Philosophic View of Film and Audience
    • Whither the Mass Audience?
  • Notes
  • Bibliography
  • Index

Frederick Wasser is Assistant Professor in the Department of Communication at Central Connecticut State University. As a freelancer in the Hollywood film and television industry, he witnessed the rise of home video throughout its first decade.


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Sumner Redstone had a problem in the fall of 1993. He wanted to buy Paramount studio for his own company, Viacom. Redstone had been in the movie theater business since 1954. In 1987, he took over Viacom, a television company 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 pioneered 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 afford, but still had not topped the counterbidding from Barry Diller and his allies. In order to enhance Viacom's resources, he contemplated another preliminary merger. This merger was not to be with an old major media business, 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 February 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 Disney 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 division that Disney's chief, Michael Eisner, did not move quickly enough to 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 persuaded 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 business of media. Media relations must be understood before we can really understand 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 reflection 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 "delivery systems" such as Cartrivision and early prototypes of Laservision. When a competing format, "VHS," came out in 1976 and overtook the "Betamax" 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 electronic manufacturer, Matsushita, now resentful of and aroused by Sony's upstart 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 audience. 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-mainstream movies, to watch current mainstream movies. Of course, the VCR 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 discovered 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 downloading 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 regulated 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 industry has managed to hold onto and expand its global audience while the networks have seen their audience erode. One crucial aspect of the changes has 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 directly 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 marketing, global domination, and buildup of transnational media conglomerates. The numbers are staggering. The major studios had revenues of $2.1 billion in 1975, the year of the Betamax. By 1993, they had $17.4 billion. 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.

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 millions of video renters and purchasers returned more money to film distributors 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 videocassettes (to both rental stores and consumers) have contributed about 40 percent 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 transformations? 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 answers are not obvious; a historical analysis is needed. A snapshot of any particular 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 not been systematic and have not portrayed the phenomenon in context, primarily 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 discovered 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 disruptions 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 Commandments (1956) and Ben-Hur (1959), it ended in a disastrous flop such as Cleopatra (1963). The musical cycle that culminated in the hit The Sound of Music (1965) was killed off in 1967 by the notorious disappointments of Doctor Dolittle, Star!, and others. Stability and growth continually eluded the studios in the postwar period. MGM actually had negative earnings in 1957. Columbia, 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 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 providing 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 during those turbulent years. Their earnings were insignificant even compared to the now humbled majors, but their cultural impact was great. These independents gave creative work to new talent. They attracted new niche audiences. 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 studio 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 industry when he grossed $32 million. Eventually the industry realized that the key to Laughlin's success was his innovative use of saturated television advertising.

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 complete. In the 1950s, the federal government cooperated with the broadcast 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 households on most nights were tuned into network programming. By the 1970s, the strength and profitability of the three networks caused the federal government to switch course and to promote alternatives to network dominance. 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 attracting the audience that the advertisers wanted—young adults. This audience segment was hard to reach, particularly as their schedules were less predictable 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 infrastructure 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 pilgrimage 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 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 Spielberg'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 entire cohort of new filmmakers. These influences included new ways of training for a directing career, a greater autonomy from old craft guilds, and a willingness 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 popularity 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 studio 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 system of the thirties and forties was ambivalent at best. The production discipline 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 disconnection with the increasing commercial power of youth culture. They were willing to quickly promote a new cohort into the top ranks of major motion picture directing. After only one or two "apprentice" features, Francis Ford Coppola, George Lucas, Dennis Hopper, Warren Beatty, Peter Bogdanovich, 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 Graffiti (1973), Shampoo (1975), The Last Picture Show (1971), and Mean Streets (1973), reflected this mixture. As a group they introduced stylistic innovations and yet maintained a high level of conformity to the classic genre conventions.

The new filmmakers liked to tweak every element of the film. This not 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 noticed and reported in the news coverage of the time and continues to be a feature 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 products 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 handling a film once it was made. Distributors and marketers made New Hollywood 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 rentals. 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 expensive 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 that the flop of United Artists' Heaven's Gate in 1981 would end the cycle just as Cleopatra and Doctor 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 revenues 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 industry 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 potential 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. Independents and newcomers led the way in developing and exploiting the rental market.6 As the market expanded in the early 1980s, independent production 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 determined 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 attend 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 Company. 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 sales continued on their own record paces, fueled (like the home video industry) by New Hollywood's increasingly blockbuster-oriented production strategy.

There were fears of piracy. In the early days, unauthorized video duplicates 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 important, studios redoubled their promotion of the primary market—the theatrical 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 remember 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 campaign 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 maximizing 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 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.

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 conglomerates 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, DeLaurentiis, 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 successor to LIVE, is the only independent (not yet affiliated with a major studio) 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 Broadcasting 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 acquisition 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 Columbia Records in 1988 and Columbia Pictures in 1989 by the Japanese manufacturer 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 products could be better secured by controlling the content. The alliance of hardware manufacturing and content distribution had not been seen in the movie 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, executives 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 filmmaking. Sony had little confidence in its own ability to participate in film industry decisions and spent excessively for the expertise of Hollywood insiders. 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 cooperation. It is unlikely that we will see another rivalry such VHS versus Betamax in the emerging consumer technologies. Sony's position in the music 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 several different media in order to pursue the multi-market opportunity. Here the exemplary studio is the Walt Disney Company, which was uniquely positioned to take advantage of video. After initial hesitation, the company decided to plunge ahead and rose to dominance. Disney was the one film studio 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. 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 after his death in 1966. Walt Disney could only have dreamed of the schedules of releasing, rereleasing, and cross-promotions across media that these technologies allowed.

The other big film studios joined or formed huge media corporations such as Time Warner, Viacom/CBS, and the News Corporation. Home video becomes 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 technological developments. Home video confirms a point made by media theorist W. Russell Neuman. Technologies that can lead to new audience formations 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 harmonize with these unarticulated needs before success could be achieved. Although the result was enhanced corporate power, the narrative is one of surprises 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 distribution practices adjusted during the first decades of video will be suggestive 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 whom? These questions go to the heart of the elusive relationship between film distribution and film production. That is because these questions are answered on a regular basis by distributors. They are the ones who ultimately 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 important than their meetings with the marketing executives. It is those meetings 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 formulate the story, develop the look and feel of a film, cast the stars and supporting 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 determines 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 decisions. This is because the earnings that the distributor can put together determine the overall allocation of production resources. It is only as secondary 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 audience is strictly limited to dollars and cents. The meaning and intelligibility of any particular revenue stream is severely limited. The distributors themselves 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.

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 realism. 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 contract to distribute the film ("negative pickup"). Therefore, independence in this arrangement becomes a rather technical term. The various filmmakers (Soderberg, 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.

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 independent distributor who, in the constant search for a market, explores unknown genres and new ways of putting together a profitable audience. Today we have very few independent distributors. Along with Artisan (the sole surviving 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 independent, 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. Independent 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.

Video and the Audience

Another theme of this book is to use home video to look at the evolving sociology of the audience. My arguments build upon the book-length field research conducted by Ann Gray and the various ethnographic articles collected in Mark Levy's and Julie Dobrow's anthologies, and in various journals. These publications report direct research into various viewers' behavior. 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 behavior 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 distributors 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 convenience for the sake of a heightened experience, such as going to a movie theater 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 publicized movie as soon as possible in order to participate in the current conversations 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 assessment 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 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, supply side and defense and they turn up their Walkaman [sic] to drown out the noise.

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 collective 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 opportunity 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, using 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 between staying in and going out. The first chapter briefly reviews this prehistory. It summarizes misguided attempts to screen films in the home just the way record players had become home entertainment at the turn of the century. 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 whatever. 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 techniques. Magnetic recording, for either audio or video, was not available until after the adoption of television. After video recording was finally invented 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 population. 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 strategies 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" inventory strategies, wholesaling and retailing consolidation, and the refurbishing of movie theaters. Some of these business practices worked against independent 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 majors were not expanding production. They were using their new ancillary revenues to increase their advertising budgets. Video retailers and wholesalers were demanding that cassettes have heavy theatrical exposure. The independents could neither keep up with the expense of a theatrical release nor avoid it. Vestron, Carolco, et al., faltered and disappeared. In fact, costs became so high that even the majors started to worry about their own declining profit margins.

The concluding chapter reviews the changed media environment and the purchases of the major film studios by highly capitalized, transnational media empires. It is at this point that we can finally access 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 accounted 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 audiences 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 studios within the larger mass media industries. These media conglomerates have special needs for the maximum sale of their product. Every film is under 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..." 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 release of Titanic, which was so huge that Twentieth Century Fox and Columbia Pictures shared the expense in a coproduction deal. Soon after, the renewed popularity of low-budget films encouraged some movement back toward smaller films. Nonetheless these are relative terms; small films are big by yesterday's standards and most films are still expected to be instantly popular. This is the lasting effect of the ancillary markets. International films continue to be a very hard sell in the United States, the largest film market. Theater time is just too valuable to give over to the limited appeal of a typical 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 supplant the videocassette. There is continuing speculation that downloading films from central computers through a fiber optic line to the home will create 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 international affluent classes, who use the computer and the internet in pursuit of efficiencies in work, shopping, and leisure. Media corporations now understand 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 broadcast when he discussed the announced purchase of Time Warner by America Online (AOL). He asserted that the media industries needed to formulate strategies right now to deliver their products to an increasingly active audience. He was able to pinpoint his view of audience power by referring explicitly 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 promised 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 acquisition to date, we know its legacy will endure beyond its actual technology. It is the time to examine in detail video's history and its impact on the film industry.

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 arguments 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 introduction. It is also because the fate of independent distribution was fully understood 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 going for a generation. The next generation was being recruited on an incremental basis. A hundred years of cinema had come to terms with twenty years of video.



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