Mr. BALLINGER. Getting rid of the so-called competitive bidding angle will not cure the situation? Mr. LARSEN. I do not think so. I think it should be on a strictly business basis. The theater who can do the most should be entitled to the picture. The film company must make a revenue, too. They cannot put them out in a little house and if it is done on a percentage basis they would not let you put that in a third-run house. If you go in there and bow your neck, you put a bid on of $200 with a little house that don't gross over $300 and you know somebody is crazy then. Mr. BALLINGER. The reason you bid that is because they will not sell you the film otherwise? Mr. LARSEN. That is right. Mr. BALLINGER. Suppose we could divorce the producers from the theaters. This is no conclusion particularly. Will competition flow back through the industry? Mr. LARSEN. Yes. Mr. BALLINGER. Don't you think that would tend to correct more of your complaints and the abuses about which you complain in the long run? Mr. LARSEN. Well, the film companies are not fools. They are going to take the theater that will do the most gross. They must do that on a percentage basis. This chain operator bids $300 and he grosses $325 or $350. Mr. BALLINGER. Let me ask you another question, and this comes from the wholesale packers of the United States who complain they are in competition with giant corporations which own a number of plants. Mr. LARSEN. Yes. Mr. BALLINGER. Like one of the circuits you are in competition with. They complain that they use one of these plants to sell below cost to put them out of business and they make it up in the other plants. If you have a circuit theater there would you like to see something done so that the little theater would be able to stand on its own feet? Mr. LARSEN. Yes. Mr. BALLINGER. So that the circuit theater could not draw on the proceeds of other theaters to wage on its competitors? Mr. LARSEN. Where does the Government get any profit? Every one of these theaters is a different corporation, of course, but does the Government tolerate the fact you can take the profit from a winning theater to put up against a losing theater in a different corporation? Chairman PLOESER. That is all and we thank you. (Witness excused.) STATEMENT OF FRED C. HARPST Mr. BALLINGER. What is your name? Mr. BALLINGER. You may proceed. Mr. HARPST. I am going to try to clarify one situation here in regard to clearance and zoning, just briefly so far as the theaters are concerned. Chairman PLOESER. You are talking about theaters? Mr. HARPST. Yes. In the Kansas City station all the first-run theaters are controlled by distributors, with the exception of one. We have one independent first-run station. That just started about 4 years ago. Chairman PLOESER. That is a new theater, you mean? Mr. HARPST. It is an old theater that has been remodeled. Mr. HARPST. That is right. I guess they let this run because they have first-run stations in St. Joseph, Leavenworth, and Jefferson City. They only secure inferior or B brand products to play this first-run theater. All the rest of the pictures are played in distributor-operater theaters. Chairman PLOESER. All the A products? Mr. HARPST. A, B, C, X, Y, or Z. Then the features go through to a 35-day run. You do not see them in Kansas City for 35 days. Then they open in another Fox theater. There are no independently run theaters in Kansas City except 49 days after the close of the firstrun theater, and there is only one. The reason for that is Fox has one theater in that zone which plays on a 63-day spot because they can control the run of three or four other theaters. This zoning was established as far back as the NRA and with the exception of a few changes it has remained the same. Fox theaters hold one theater in practically every zone in Kansas City the way the zones were set up at that time and every independent theater has to follow the Fox theater in that zone. They have that so arranged that one theater will hold a 49-day spot and the rest of the theaters will have to follow them. The next house will hold on a 56-day run and they will follow those. That is the way they have it set up all over the country right now. In Wichita, Fox has first-run theaters 45 days before the first independent run plays the picture. These pictures are advertised nationally. They play in turn with considerable expense in newspaper advertising. After 45 or 60 days the benefit of the advertising is lost. The picture companies also contribute to that advertising, $45, $60 to $100, but that is all lost. We have gained over years past when the time elapsed between first run and suburban runs was considerably more than it is at the present time. Chairman PLOESER. In the advertising of these pictures, do the exhibitors contribute to the national advertising? Mr. HARPST. In some cases they do; not all. Chairman PLOESER. How would they? Is there a premium or bonus paid for the picture? Mr. HARPST. Occasionally you will notice in the paper where such and such a Loew's picture is coming to Kansas City. We know that is paid for by the distributor. It is advertising their product and the fact is it is their picture. Chairman PLOESER. That is the distributor. I am talking about the exhibitor. Mr. HARPST. The exhibitor only advertises his own theater. Mr. HARPST. His own local theater, that is right. Chairman PLOESER. He would not participate in a national advertising program but accepts the benefit from it? Mr. HARPST. That is right. Mr. BALLINGER. Getting rid of the so-called competitive bidding. angle will not cure the situation? Mr. LARSEN. I do not think so. I think it should be on a strictly business basis. The theater who can do the most should be entitled to the picture. The film company must make a revenue, too. They cannot put them out in a little house and if it is done on a percentage basis they would not let you put that in a third-run house. If you go in there and bow your neck, you put a bid on of $200 with a little house that don't gross over $300 and you know somebody is crazy then. Mr. BALLINGER. The reason you bid that is because they will not sell you the film otherwise? Mr. LARSEN. That is right. Mr. BALLINGER. Suppose we could divorce the producers from the theaters. This is no conclusion particularly. Will competition flow back through the industry? Mr. LARSEN. Yes. Mr. BALLINGER. Don't you think that would tend to correct more of your complaints and the abuses about which you complain in the long run? Mr. LARSEN. Well, the film companies are not fools. They are going to take the theater that will do the most gross. They must do that on a percentage basis. This chain operator bids $300 and he grosses $325 or $350. Mr. BALLINGER. Let me ask you another question, and this comes from the wholesale packers of the United States who complain they are in competition with giant corporations which own a number of plants. Mr. LARSEN. Yes. Mr. BALLINGER. Like one of the circuits you are in competition with. They complain that they use one of these plants to sell below cost to put them out of business and they make it up in the other plants. If you have a circuit theater there would you like to see something done so that the little theater would be able to stand on its own feet? Mr. LARSEN. Yes. Mr. BALLINGER. So that the circuit theater could not draw on the proceeds of other theaters to wage on its competitors? Mr. LARSEN. Where does the Government get any profit? Every one of these theaters is a different corporation, of course, but does the Government tolerate the fact you can take the profit from a winning theater to put up against a losing theater in a different corporation? Chairman PLOESER. That is all and we thank you. (Witness excused.) STATEMENT OF FRED C. HARPST Mr. BALLINGER. What is your name? Mr. BALLINGER. You may proceed. Mr. HARPST. I am going to try to clarify one situation here in regard to clearance and zoning, just briefly so far as the theaters are concerned. Chairman PLOESER. You are talking about theaters? Mr. HARPST. Yes. In the Kansas City station all the first-run theaters are controlled by distributors, with the exception of one. We have one independent first-run station. That just started about 4 years ago. Chairman PLOESER. That is a new theater, you mean? Mr. HARPST. It is an old theater that has been remodeled. Mr. HARPST. That is right. I guess they let this run because they have first-run stations in St. Joseph, Leavenworth, and Jefferson City. They only secure inferior or B brand products to play this first-run theater. All the rest of the pictures are played in distributor-operater theaters. Chairman PLOESER. All the A products? Mr. HARPST. A, B, C, X, Y, or Z. Then the features go through to a 35-day run. You do not see them in Kansas City for 35 days. Then they open in another Fox theater. There are no independently run theaters in Kansas City except 49 days after the close of the firstrun theater, and there is only one. The reason for that is Fox has one theater in that zone which plays on a 63-day spot because they can control the run of three or four other theaters. This zoning was established as far back as the NRA and with the exception of a few changes it has remained the same. Fox theaters hold one theater in practically every zone in Kansas City the way the zones were set up at that time and every independent theater has to follow the Fox theater in that zone. They have that so arranged that one theater will hold a 49-day spot and the rest of the theaters will have to follow them. The next house will hold on a 56-day run and they will follow those. That is the way they have it set up all over the country right now. In Wichita, Fox has first-run theaters 45 days before the first independent run plays the picture. These pictures are advertised nationally. They play in turn with considerable expense in newspaper advertising. After 45 or 60 days the benefit of the advertising is lost. The picture companies also contribute to that advertising, $45, $60 to $100, but that is all lost. We have gained over years past when the time elapsed between first run and suburban runs was considerably more than it is at the present time. Chairman PLOESER. In the advertising of these pictures, do the exhibitors contribute to the national advertising? Mr. HARPST. In some cases they do; not all. Chairman PLOESER. How would they? Is there a premium or bonus paid for the picture? Mr. HARPST. Occasionally you will notice in the paper where such and such a Loew's picture is coming to Kansas City. We know that is paid for by the distributor. It is advertising their product and the fact is it is their picture. Chairman PLOESER. That is the distributor. I am talking about the exhibitor. Mr. HARPST. The exhibitor only advertises his own theater. Mr. HARPST. His own local theater, that is right. Chairman PLOESER. He would not participate in a national advertising program but accepts the benefit from it? Mr. HARPST. That is right. Chairman PLOESER. But due to the long waiting period for a rerun he does not get any benefit? Mr. HARPST. That is right. These pictures run 6 months or a year later, then the smaller towns are held back for 90 to 300 days, or something of that sort. They do not get their pictures early either. So the clearance and zoning is one thing that something must be done about. Chairman PLOESER. How do they decide where Fox should come first? In what section of the Nation, for instance? Mr. HARPST. The distributor set-up where they are going to have their test runs or their first runs. Usually it is based on a national release date. That date is set up by the company as to when they will release that picture. Then the picture plays in the first-run stations. It may be in 10 or 20 across the country. Chairman PLOESER. Another group of Fox theaters will start in another 10 or 20 towns? Mr. HARPST. Yes. Chairman PLOESER. Then they trade off? Mr. HARPST. They go back and forth that way. Chairman PLOESER. The reason I ask that is because sometimes I get provoked. In St. Louis we see them 2 months after they are shown in Washington. Mr. HARPST. That is true because of the print situations. Chairman PLOESER. We thank you. (Witness excused.) STATEMENT OF THOMAS W. STALEY Chairman PLOESER. What is your name? Mr. STALEY. Thomas W. Staley. Chairman PLOESER. Where are you from? Mr. STALEY. Kansas City. Chairman PLOESER. What is your business? Mr. STALEY. General manager of Staley Milling Co., manufacturers of animal and poultry feed. Chairman PLOESER. You may proceed. Mr. STALEY. I understand the committee is interested in expressions concerning any conditions which tend to foster monopolies. The observations that I should like to present result from the effective laws passed by the Congress. If The first point I should like to discuss at the moment is a bit obsolete, yet there is indication it may be revived in the excess-profits tax. It is not in effect now. I am not interested in discussing it from a tax standpoint, but in its effect on small business. We consider ourselves a small business and we are paying an excess-profits tax. we have another one it may be on the same basis. But an excess-profits tax should have a broad base. When I think of small business, I always think of a young business and a growing business. At least every business should grow. If the excess-profits tax has a narrow base, then it prevents small business from developing. They cannot increase the efficiency of the plant, it handicaps our operations in periods of high prices, it prevents us building up a reserve for a rainy day, and otherwise maintaining a liquid position. I think whenever an excess-profits tax is mentioned consideration should be given to a |