Adolph Zukor is known as the father of feature films. But he started out as a fur trader. True rags to riches story. 16 year old Zukor immigrated to America and started work in a fur trading shop for $2 a week. He soon started his own fur shop and started doing really well for himself.
Things changed in 1901 when Zukor was 28 years old. He saw his first motion picture – a 2 minute peep show reel in a penny arcade! Zukor was smitten. By the age of 30, Zukor had made a fortune in the fur trade. And he started investing this fortune in chasing his dream. First he invested in penny arcades of his own. But soon he started converting old fur shops and bakeries and clothing stores into small movie theatres. In a few years, he had stopped trading fur and was solely working on his passion.
The timing seemed right. People were loving this new medium of entertainment. But the problem was that most motion pictures made were really simple and short. The Edison Trust had a tight hold on the market. They held all the patents and didn’t allow any independent producer to make movies. They also banned people from showing longer movies on the Edison projectors. Zukor envisioned that the movies could compete with Broadway shows. And he was laughed at.
The challenging beginnings
Mr Kennedy, the head of Edison Trust once made Zukor wait for 3 hours outside his office. And during the meeting, flatly said: the time is not ripe for feature pictures, indeed if it will ever be.
And so Zukor revolted. In 1912, without the Edison Trust’s permission, Zukor invested a ridiculous $35,000 and licensed to show a European movie in America. The 40 minute “Queen Elizabeth” was the first feature length movie to be shown in America! It earned Zukor a cool $200,000!
Zukor thought he could do better. He used his profits and started a studio. He envisioned that he could take a novel or a play and put it up on the screen! And do it a dozen times every year!
The Edison company was not silent however. They filed hundreds of lawsuits not only against Zukor but against all independent filmmakers in America. But they didn’t stop there. They then sent in the thugs. “Though an injunction will not stop a man from making a film, a broken camera will.”
That’s why the whole nascent movie making industry moved all the way from New York to a sleepy suburb of Los Angeles. Hollywood. Zukor was the pioneer of the move across the country.
It is in Hollywood where Zukor built his empire. He was in the right place at the right time for making feature films. But he was also perhaps the greatest strategist the industry has seen.
The Hollywood Grandmaster
The author of Farnam Street blog – Shane Parish talks about “seizing the middle” mental model. A word borrowed from the game of Chess. In Chess, the person who plays a better middlegame wins. The person who commandeers the middle part of the board – controls the flow of the game. You have to assert control over more squares, more resources. How do you do that?
According to Bruce Pandolfini – one of the greatest chess teachers – you do it not by thinking 10-15 moves ahead like most people believe. Thinking too far ahead is a waste of time as the information is uncertain. It’s about controlling the situation at hand. You want clarity not clairvoyance.
Be clear in your thinking. And step by step advance with a position that gives you more control over the squares.
While Zukor was more of a bridge player, when it came to the movie business, his middlegame was nothing short of brilliant. He controlled the board. Step by step, his competitors lost ground. And Zukor built a massively profitable monopoly.
But how do you begin mastering the middlegame?
You do it by first: safeguarding your king. Because the safer your king is, the more flexibility you have elsewhere.
For Zukor, it was about creating films that the audiences would love. That was his king. And he never lost sight of it. He would spend days going to the movie theatre and sitting in the 6th row. His aim was not to watch the movie on screen. But to watch peoples reactions and understand what they would like.
Beyond that, the middlegame strategy is simple:
I. Make the next move in a way that it safeguards your current resources.
Ii. And make the next movie in a way that gives you more options and more flexibility to maneuver your pieces.
You control the board by giving protection to each of your resources, and by placing your resources in positions where they have more options to move.
Zukor cracked 3 big problems in his middlegame.
1. How do you make movies that always turn a profit?
When finances are tight, you have to rely on the profits from your last movie to fund your next movie. But movies are a creative output. They can flop even after your best of intentions. So how do you make sure even your flop movies don’t lose a lot of money? How do you get people to come watch movies even though it may be mediocre?
Zukor cracked this problem by making stars out of his actors. People would come to the theatres to watch their favourite stars even if the movie was just ok.
Zukor hired actors exclusively for 5 year or more contracts. During which time they could make movies only for his studios. And he got these actors to not only act in his movies, but to promote them too.
In an era when even Charlie Chaplin was just getting paid $130 per week, Zukor paid his actors $5,000 and $10,000 a week! He made them larger than life! He helped them create fan bases!
To afford paying that much to his actors, he turned the movie making business into an assembly line. His actors worked on multiple movies per year. And Zukor started making 50 to 70 movies a year!
2. How do you distribute these many movies?
In 1914, Zukor tied up with William Hodkinson to distribute his movies. Hodkinson approached 8 other independent movie makers and studios too to get exclusive rights to distribute their movies to all the theatres across America. And together, these 9 companies and Hodkinson created Paramount Pictures.
Zukor and Hodkinson had come up with a “block booking” strategy. Any theatre that wanted to show a particular star’s film had to buy a whole year’s worth of other Paramount productions. You could not buy reels for anz individual film. You had to buy 13 or 52 or even 104 reels together. And this was before most of these movies were even finished being made!
Paramount in fact started earning more than the movie makers. And in 1915, Paramount bought 51% stake in all the 9 studios providing movies to them. (It was a bit circular: Paramount bought a majority stake in the companies that collectively owned Paramount!)
When Hodkinson did things Zukor didn’t like, Zukor decided to orchestrate a coup. He used up all of the money he earned from that 51% sale, and went on buying off other studios shares in Paramount. When he owned 50% of Paramount, he pushed Hodkinson out.
Within 2 years, he created a position for himself where he controlled 100% of his own studio, and 51% of 8 other studios in Hollywood!
With strong distribution in place, and selling reels even before the movies were made, Zukor had booked his profit and reduced his risk completely. He then initiated a rule that is still present today: instead of paying a flat fee to the distributor, movie theatres started sharing their box office revenue with the distributor.
3. Owning the marketplace
When movie theatres started rebelling against the new revenue sharing distribution model, Zukor played his masterstroke. He started buying out the movie theatres themselves!
The Spanish flu pandemic helped him a bit with timing. Because of the Spanish flu, a lot of theatre owners were at a loss. And so Zukor could buy them out at a great price.
By the mid 1920s, Zukor owned the entire ecosystem. He made the product. He owned the marketplace where people consumed the product. And he owned the distribution. His vertical integration was complete!
While there were missteps and periods of tragic losses, the main one being the Great Depression where the public just didn’t have the money and stopped consuming entertainment of any kind, Zukor created an empire that was difficult to compete against!
He controlled the board completely!
Eventually the government and the courts had to step in. In 1948, anti-monopoly rules were passed which meant movie studios could not own theatres. And block bidding was outlawed.
- You can start your venture through your passion, or through solving a problem, or by simply finding yourself in the right place at the right time. But domination requires mastering the middlegame.
- Mastering the middlegame means having clarity of thought. Knowing who your king is. Making every move that safeguards your current position. And moving ahead so your resources have more flexibility.
- True monopoly comes from controlling your product as well as your marketplace. And owning the conduit – the distribution between product and market.