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October 12, 2006
As is well known, World War 1 allowed the United States to dominate the film markets of the World outside of Europe with European countries being ousted from regions such as Latin America and Australasia. Previously these areas had provided significant sources of revenue for European cinema.
After the war the biggest competition in the film industry to emerge for the USA came from Germany. This was because Germany had developed its film industry largely in isolation between 1916– 1921. In 1916 Germany banned all foreign imports except from Denmark. Alongside this cinema in Germany attracted large capital investment. Ufa was formed through both big capital and Government intervention which resulted in a developing vertically integrated industry combining production, distribution and exhibition. In 1917 the German film industry made sure that it consolidated its position in neutral countries as much as possible and continued to do this after the end of the war.
The ban on film imports was continued probably more as a response to the severe post-war trade restrictions which were imposed upon Germany at the Treaty of Versailles and the general conditions of peace. Films had been left out of the equation. They were not deemed as significant at that point compared with iron and steel and the chemical industries for example.
The Social Democrat led coalition governments of the immediate post-war period were determined to ensure that unemployment didn’t rise and contribute to the already extremely unstable internal political situation. As a result there was an increasing rise in inflation. This situation was seriously exacerbated when French troops occupied the Ruhr industrial region. The German government funded the passive resistance of the German workers who refused to run industry for the benefits of the French. The corresponding fall in tax revenues combined with massively increased outgoings led to Government borrowing at ever increasing rates of interest which eventually led to the hyperinflation crisis in the summer of 1923.
The high levels of inflation were extremely beneficial to the German film industry as production money borrowed could be paid back in inflated currency and any foreign currency earnings were especially beneficial. At the same time it meant an effective import barrier because other European countries couldn’t compete with the German market. Only America could effectively enter the film market at all because of its far more efficient industrial base.
It wasn’t until 1924 when far more cooperation between nationally based European film industries was attempted. This was largely predicated upon the increasing recognition that no single country stood a chance against the US film industry.
The Power of the Post War US Film Industry
Despite the various barriers against foreign imports in Germany, Hollywood did well in Germany throughout the 1920s. Even in 1923 it had about 25% of the market when the German film industry was in its most advantageous position. In 1924 after the institution of the Dawes plan and the stabilisation of the Mark the US increased its market share to about one third. This share continued to grow very strongly with 42% of the market in 1925 and beginning to slow in its expansion rate to 46% by 1926. By comparison German films had 36% of the box office in 1926. In three years America had nearly doubled its presence and outgrown the German industry.
The power of the US film industry was based upon the fact that size matters. By the end of the war it was the largest film industry in the world. In the early 1920s there were approximately 18,000 cinemas in the US compared with: 4,000 in Britain; 3,700 in Germany; a lowly 2,500 in France. Added to this the American cinemas were more efficient money machines: they were significantly larger, they had more screenings per week and more people went more regularly to the cinema. American workers were more affluent as Europe was still recovering from the war.
This was a case of success breeding success. Hollywood companies could invest more in each film. They had almost guaranteed returns on the domestic market and fairly predictable returns from overseas. By factoring in the rising overseas returns into their calculations even as early as 1917 Hollywood was able to invest in better production values to counter possible post-war competition thus successfully trumping European cinema at an early stage. By comparison in Germany the post Dawes plan financial adjustments hit the German film industry hard. The industrial cities had not yet staged their recovery and there were a plethora of German films with low production values which were no competition for Hollywood. There was a crisis of overproduction in German cinema.
The Growth of the European Idea
Even as early as 1924 there were moves afoot to try and consolidate the European film industry as a response to the growing menace of US total domination. This can be seen as part of general growing trend amongst politicians, intellectuals and leading industrialists. The reconciliation between France and Germany which begun after Stresemann took power in Germany continued with the election of Edouard Herriot in France in May 1924. In October Herriot spoke publicly about the need to develop a ‘United States of Europe’. This was a clear response to the runaway success of American capitalism which prior to the War was already the most productive on the planet. By the mid 1920s its GDP could be measured against the output of several European countries added together, rather than a direct comparison with say Britain.
As far as the European film industry was concerned the first mutual distribution agreement was established in the summer of 1924. No longer protected by hyperinflation, the German film industry had initiated new tactics to protect its position. The agreement was established between Ufa and Etablissements Aubert in France. This agreement differed in that there were mutual distribution rights established rather than the usual one way deal imposed by the more powerful partner.
The way the deal was presented was also extremely important. The deal was headed up by Erich Pommer then head of Ufa. Pommer was crystal clear about the industrial necessity of the situation which was ‘to amortise costs rapidly’. It was also clear that to achieve this, the notion of ‘national’ films needed to be subordinated to that of ‘continental films’ if that goal were to be achieved. Films such as Murnau’s Tartuffe were arguably a result of this deal. This was exactly the sort of film which should have an appeal in France whilst utilising leading German cast, director, crew and production facilities. Perhaps Tartuffe can be viewed as the first Euro-pudding Thompson notes that similar opinions “…were expressed repeatedly in the trade and popular press of Europe for the rest of the silent period” (Thompson in Higson and Maltby 1999, p 60).
The deal brokered by Pommer quickly led to more attempts at consolidation. Only a few weeks later the émigré Russian Wengeroff in conjunction with the industrial conglomeration Stinnes in Germany formed a joint production and distribution company called Westi. By early spring in 1925 they had formed what turned out to be a short-lived partnership with Pathe in France. The Stinnes conglomerate went into receivership only a few months later and Westi was broken up with other German film companies such as Ufa and Deulig picking up some cheap assets.
It was in 1925 that Ufa famously ran into serious financial difficulties. Pommer was determined to crack the US market and Metropolis was to be the leading spectacular which was to achieve this. Despite being the most expensive German film up until that time the film flopped in the US which had much to do with the very defensive American distribution system which continuously stifled foreign competition at birth. The failure of Pommer’s strategy led to the famous Parafumet deal in which Paramount and MGM bailed out Ufa by lending it $4 million over a 10 year period. In return they gained a firm grip on the German market by being allowed to distribute 20 films a year each through the Ufa chain of cinemas which were the most profitable in Germany situated in all the largest cities. This deal lasted into the early 1930s.
Not only does this deal help to explain the massive market share gained by America by 1926 it also helps to explain why there was such an appetite for American modernism in the cities. Rural and small town Germany had rather less exposure to the international influence of Hollywood as well as probably being a more conservative audience anyway. An important economic factor was that by now Germany was a twin speed economy with the rural and small town areas being severely depressed whilst the industrial cities were doing very well. In short there may have been the appetite for expensive American films in rural areas but there was no cash to fund it.
Thomas Saunders (1999) points to the setting up of the Deutches Lichtbild Syndikat (German Film Syndicate or DLS) in 1926. This was a defensive measure against Hollywood imports and was started by an association of exhibitors to unite independent cinema owners around a production and distribution company free of Hollywood. By 1928 Saunders estimates it had about 20% of cinemas supporting it including some of the larger ones in the main cities and provinces which were not part of the major chains. However Saunders only comments that it was 20% or one fifth of all cinemas, this does not equate to 20% of the box office takings. As such it cannot be seen as a great threat to Hollywood and its major partners although Saunders comments “Its early films proved popular, the first of them spectacularly so, indicating that pooling of capital through exhibition could succeed on a national level”. (Higson & Maltby 1999, p168). This seems to be a little out of proportion and no figures are given, nor is any example of relevant films cited.
The ambivalent situation in which even a company like Ufa was in, was shown at the 1928 European film congress held in Berlin. Ludwig Klitsch, was Hugenberg’s right-hand man and head of Ufa. The extreme Nationalist Hugenberg had recently taken over Ufa. Klitsch, was also head of SPIO (Spitzenorganisation der Deutschen Filmwirtshaft) the umbrella organisation of the German film industry. From this position he made a very ambivalent speech. Klitsch welcomed the moves towards European consolidation but was harsh on those expressing anti-American sentiments and he went out of his way to praise Will Hays who was his American counterpart. (Thomas Saunders p 159). This was a speech of ‘realpolitik’. Hugenberg’s nationalistic sentiments needed to be subordinated to the realities of the wider political economy, at least for the time being.
Ever since the establishing of the Dawes plan in 1923 German industry had made a strong recovery with its major industries such as electrical goods and chemicals become major players on the global market. They were primarily export led and the main importer of these products was the USA. Furthermore these companies had consolidated and redeveloped on the back of American money much of which was held in short-term loans. In brief the German economy was very exposed to American whim as the extraction of short-term cash at the onset of the 1929 depression was prove. Klitsch had little option but to move cautiously especially because Ufa itself was very exposed to US influence through the Parafumet deal. It was of course a deal which made Ufa very wealthy. The Hollywood films were continuous successes at the box office. The complaints of the minor players were sour grapes. They were being squeezed.
The position of Deulig, Hugenberg’s original film vehicle and a part of his media empire had had a very different publicly stated position in 1926. The Reichsfilmblatt magazine which was the public outlet for the National Association of German Exhibitors argued that Hollywood movies were alienating filmgoers and ruining cinemas. They hid behind a European idea and quoted Melamerson who in 1926 as head of Deulig had argued for a distinct European filmic identity which cinema needed to foster. In fact, as quoted by Thomas Saunders (1999), Melamerson talked about the conditions of oversupply in the industry from 1924. This of course coincides with the German film industry having to be rather more careful in what it produced. With hyperinflation even feeble films could make their money back quickly. Melamerson’s appeals for European unity constituted the talk of consolidation and changing business conditions current in European films circles at the time.
It is clear that a significant response of the German film industry in the mid 1920s was a dramatic change of tactics in response to massive changes in prevailing business conditions which had previously been extremely beneficial. In a doubly protected domestic market European competition was thin and even Hollywood had only made limited inroads compared with other European countries.
Initially the most farsighted, such as Eric Pommer, had pursued a twin strategy of trying to break into the American market by producing films with much higher production values. Whilst encouraging the possibilities of a consolidated European marketplace able to achieve this. In reality neither Germany nor Europe had the ability to produce films on a continuous basis at this level and with most industry agreements being partial and with an eye on local competition as well Europe for the US was still a continent of fragments. The ability to guarantee supply of continuous box office hits was where Hollywood had a huge advantage. The exhibition and distribution network across most European countries was doing very nicely out of Hollywood thank you! Furthermore the American distribution and exhibition system in the USA itself was hard to crack. Vertical integration whereby there was control of the means of production, distribution and exhibition meant that the Hollywood production chain was well protected; only crumbs were left for the Europeans. It came to the point that Pommer had to rent out a New York cinema himself in order to give Metropolis a press release!
The financial evidence presented above provides more indicators explaining the huge cultural divide within Germany in the 1920s which increasingly translated into a political divide. In 1926 the Nazis were nowhere but even before 1929 and the onset of the Depression they had made huge gains in rural areas which had never made an economic recovery. This was because global agricultural prices had fallen since 1923 while at the same time many farmers had borrowed to invest in new equipment. Repayment of the loans in a stabilised currency meant the inflation didn’t erode the value of the loans and the farming and provincial towns were hard hit as a result. There was little money left for entertainments and consequently the local rural cinemas would only have been able to afford cheaply made local produced films.
There is seemingly much research to be done on audiences and the conditions of exhibition in rural Germany at this time to better establish the roots of the tension between the obvious liking for American modernism represented in the big industrial cities and small town nationalistic culture which was seemingly represented in the provinces.