The glamour and allure of Hollywood has also resonated with investors, as much now as back in the 1960s when this piece was first written. Take a look back and learn from the past.
The current attraction of the leading motion picture stocks is, of course, not just due to their high asset values or even the extraordinary potential in some special division like Paramount's Chromatic and International Telemeter Divisions. It is due more to the strong earnings comeback in their basic operations of motion picture production.
The earnings of movie shares have indeed been impressive following a decade, which many believed to mean the end of Hollywood. First in 1950, each major studio signed a consent decree to divest itself of interests in domestic theater chains, which precluded the benefits inherent in the integration of movie making and distribution.
Then, the emergence of television as an overwhelmingly competitive entertainment medium in the early 1950's was believed by many to mean the beginning of Hollywood's
end. "The result," said L. F. Rothschild. "When combined with tremendous fixed studio overhead and rising labor and promotion costs, was a period of difficult times, falling profits, and declining investment status for the motion picture industry."
What, then, are the factors that have contributed to the current resurgence of motion picture stocks?
First of all, the industry has done quite a bit of cost cutting by paring overhead and selling unnecessary facilities. Second, it has increasingly emphasized its foreign market which now accounts for half its gross. Most important of all, the industry has ungraded its product both by reducing the number of second-rate pictures and by concentrating on fewer but much costlier pictures (the so-called blockbuster type) to counteract audience decline.
A blockbuster is a picture based upon a well-known literary or dramatic property with a star-studded cast. It is believed that the public will only pay to see something different from what they can see free on television, something lavishly made with a luxurious cast, preferably spectaculars such as Paramount's "The Ten Commandments," United Artists' "South Pacific," Metro-Goldwyn-Mayer's "Ben Hur," Twentieth Century-Fox's "Can-Can," the United Artists-Paul Douglas production of "Spartacus," etc. The growing trend toward quality production can be further seen from United Artists' "Exodus," and "By Love Possessed," to mention but a couple.
The motion picture industry appears to have been very successful in luring moviegoers back to theaters by what they called "better-than-ever" movies made with ever-increasing innovations such as stereophonic sound, Cinemascope, Cinerama, Todd AO, etc.
Though theater attendance probably will never be as big as it was before TV emerged as a major entertainment medium, the current pick-up in movie audience is real, and is expected to be stimulated further by the upsurge in the movie going population. The fastest growing age bracket is the group under 30, which constitutes more than 70 percent of movie patronage. By 1965, another 16 million potential ticket buyers will be added to this group.
The rapid increase in this segment of the population is also evidenced by the rise of drive-in theaters from 820 in 1958 to 4,200 in 1959, which at least partially offset the reduction of uneconomical theater units in the cities; they declined from 17,575 to 11,400 in the same period.
The earnings comeback of movie shares is indeed impressive. Metro-Goldwyn-Mayer, for instance, was still in the red in the first half of fiscal 1960; but by the end of that fiscal, it was able to report a profit of $3.75 despite an actors' strike that closed the studio for part of the third quarter.
How is this relevant today? Hollywood still holds its allure, for entertainment fans and investors alike.