Hundreds of requests have been received by the editors of Photoplay
Magazine from persons who contemplate investment in moving picture companies
and who seek advice on the subject. In many cases investigation showed
that these people were being solicited to invest money in concerns that,
in the face of existing conditions, did not have one chance in a hundred
to succeed. In his first article (in the August number) Mr. Davis gave
a clear statement of the fundamentals of picture manufacture and sale,
and sounded a warning against the wildcatter. Mr. Davis will be glad to
answer any inquiries from readers.
In my article in the August issue of this magazine I suggested that if you were interested in investing in the "Movies" it would be safer to put your money into an established motion picture concern rather than a new venture, unless you were thoroughly convinced that the new concern had these qualifications- ample financial backing to compete with present successful enterprises- the opportunity to enter the field in a big way- men connected with it who have close affiliations with the industry.
Before you invest in a motion picture concern, however, you should understand that the stocks of practically all movie concerns are business risks.
Putting your money into any motion picture concern is the same as embarking in an rapidly changing business where there is always some chance of loss. Motion picture stocks are not to be compared with bonds, mortgages or stocks of long established industries. This point is often overlooked.
A few months ago a middle-aged lady called at the office of her banker. She had overheard a friend remark in a casual conversation that he had recently purchased stock in a motion picture concern at $90.00 a share and that the stock wielded an income of over 2% a month. The lady in question made up her mind that she would get a few shares of this attractive stock.
Her banker knew that for over ten years she had lived on the income of a small estate left her by her husband, and that her funds had been carefully invested in mortgages and secure bonds, as they should have been, and the principal had never been distributed. The banker explained to her at length that she should not risk her money in any picture stock. Their conversation was interrupted by a telephone call- this from a customer who wanted to buy 100 shares of the stock in question.
The banker sold the customer the stock without hesitation but he refused to sell the stock to his lady client. The situation was this- the customer was a wealthy man who had a vast amount of experience in business in general and was familiar with all types of the motion picture business. If he chose to buy a business risk it was his lookout. The woman, on the other hand, had no business experience, knew nothing about the motion picture business except that she went to the "Movies" occasionally, and was not in a position to recuperate any loss that might arise from a purchase of stock. The banker, in this instance, used good judgment. If you are thinking of buying into the motion picture industry it might be wise for you to consider this point of view.
A man who is familiar with the business in all of its branches and who is a heavy stockholder in many of the motion picture companies, recently said, "I don't believe that anyone should invest in the motion picture industry more than be can afford to lose. This does not mean that I believe the industry, as such, is not here to stay. But it is always changing. The same element of risk enters into an investment in the motion picture business that is present in any business that anticipates continual changes."
It is a fact that the business is changing each day to such an extent that it is difficult for anyone to say what established company will ultimately work out to be a real investment. By investment in the true sense, I mean a place for one's money where there is practically no chance of any depreciation in the principal. It is worth while to consider why the motion picture business, great as it is, and having the enormous future that it undoubtedly has is still not a settled industry.
The principal reason for the existence of the business at this time is to amuse the public. You probably know from your own experience how your taste changes in any line of amusement. If you are fond of games it may be golf this year and tennis next year. If you are fond of the theatre you will notice that you tire of the musical comedy or the problem play and are interested in the farce. Your taste for motion pictures has changed much during the past several years, this due in part to the fact that you tired of what the motion picture manufacturers were handing out, and in part to the fact that certain progressive manufacturers fertile in new ideas, gave you such novel and pleasing pictures that you would not stand for the old timers. As you will remember, the first motion pictures that you saw were simple incidents, a train moving, horses trotting or a parade. Next came the chase picture a man with a ladder bumps a fruit peddler, then everybody runs. Then came the simple story in a single reel. These in time became more complex and the cost of producing much greater. Next in vogue was the feature film- a multiple reel picture much more pretentious than the old style simple reeler. After that the serial and the dramatization of famous plays and books.
With each of these changes on the screen came a change in the companies that were manufacturing and distributing the films. A company equipped to handle the regular program of single reel films found it somewhat difficult to distribute the feature and the serial. Likewise, the manufacturer had to change his methods of producing, all of which piled up expense. It costs money to stage a picture with Sarah Bernhardt, Dustin Farnham, Arnold Daly or the other stage celebrities in the leading roles. There will doubtless be more changes in the future for you and the rest of the public, as fans are never satisfied. While these changes are going on some distributing companies and some manufacturing companies doubtless will suffer due to their inability to quickly meet the new phases of the business.
Not a great while ago the "white slave" feature films had a big run. Several photoplays of this class made big money. Then almost instantaneously the public "tabooed" such films. One manufacturer had spent a small fortune making a feature of this kind. He was just about to market it when the change came. He made no attempt to show the picture, just charged its cost to profit and loss, thereby showing good judgment. His company was financially able to meet the change in public opinion even though it meant a heavy loss.
A motion picture concern must be able to do this, for its chief asset is "Good Will."
The nature of the industry is such that practically all of the companies are capitalized on the basis of earning capacity. Their resources are of value only while in use.
A manufacturing concern, for instance, has its studio filled with expensive scenery- props, furniture and fixtures of all kinds- to make every scene from a log cabin to a bank lobby. The actual cost of this equipment runs into thousands of dollars. The concern has its laboratory, where the films are developed and printed, filled with expensive devices. But if the manufacturer loses the public "Good Will" for any reason, or fails to sell sufficient prints to pay expenses, the plant and its equipment are worth little. There is scarcely any business that is so dependent for the worth of its assets on its being a going concern than the producing of motion pictures. If a producing concern is forced to retire from active life there is little left for the stockholders.
The assets of an exchange consists of reels of pictures that again have value only as the exchange is able to rent them on a large scale. I know of instances where exchanges that were financially embarrassed have tried to sell their stock of photoplays and were not able to get one tenth of what the films cost.
While a motion picture concern is in right with the "fans" and makes money the stockholders have nothing to fear; but when the company fails that's the end of the investment. This is the risk one must take to get the big dividends that many of the companies pay. Probably the most important factor in the success of a motion picture concern and its ability to keep the "Good Will" of the "fans" is the personnel of the management. If you are considering an investment in the "Movies" ask your theatre proprietor what men sense the public's wants most accurately, then look up the companies they are connected with.
You will doubtless find that certain of the concerns that produce or distribute photoplays that appeal to you are owned by one man or a group of men and that the stocks of such concerns are not available for the investor.
The common stock of the General Film Company is not on the market (although the preferred stock is held by the public). The stock of the Universal Film Manufacturing Company is so closely held that there is little chance of your getting a share of it. The stock of the Mutual Film Corporation, both common and preferred, has an active market and the shares of practically all of the manufacturing companies that sell to the Mutual Film Corporation are held in part by the public. Stock of the World's Film Corporation is quoted on the New York Curb Market. There are other established concerns whose stock is available to the public.
It is impossible to advise specifically which company is the best business venture for you- if you are inclined to break into the business. Conditions change so rapidly that good advice today may be bad advice tomorrow.
Any reliable banker or broker can give you information concerning the length of time the various companies have been established their reported earnings, the dividends they are paying and the market price. You can judge for yourself the quality of the pictures produced or distributed.
In general the motion picture industry has possibilities for those who can afford to take a reasonable business risk. Big capital is required.
If you have only a few hundred dollars however, the best way for you
to invest in the "Movies" is to buy a ticket at the nearest motion picture
theatre and get five reels of relaxation- then put your surplus in the
bank until you get enough to buy a bond or a mortgage.
Paul H. Davis' articles on the financial end of moving pictures- of which the foregoing is the second- are intensely and humanly interesting to all, as showing the tremendous struggle going forward for mastery in this great industry; but there is a special and peculiar interest in them for the person with money to invest. The next article will appear in the October number of Photoplay Magazine.
The Editors.
Paul H. Davis, "Investing in the Movies," Part Two, Photoplay Magazine, September 1915, pages 123-125.
© 1999, David Pierce, on editing and revisions (if any)
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