Marcus Loew

Introduction

As a pioneer of the mass-entertainment industry of the early twentieth century, Marcus Loew (born May 7, 1870 in New York City; died September 5, 1927 in Glen Cove, Long Island) engaged in everything from penny arcades to nickelodeons, vaudeville, and silent film. Although he primarily pioneered the exhibition side of the business, toward the end of his career he became involved in motion picture production and distribution. In 1924 he oversaw the financial deals that created the Hollywood giant Metro-Goldwyn-Mayer. In combination with his famous theater chain, Loew’s Incorporated, this “super studio” made Loew one of the most powerful men in the American film industry before his untimely death.

Family and Ethnic Background

Marcus Loew was born on May 7, 1870 at Avenue B and Fifth Street in New York City, the son of Herman Loew, a Jewish waiter who had immigrated to the United States from Vienna only a few years earlier.[1] Soon after settling in the United States, Herman Loew married a young German widow, Ida Sichel, who was already a mother of two small boys. After Marcus, Herman and Ida Loew had two other children, Fanny and Henry.[2]

The Loews lived in poverty on Manhattan’s Lower East Side, which had a large, thriving German and Jewish immigrant community known as Little Germany (Kleindeutschland or Deutschländle); non-German locals called it Dutchtown. As a boy, Loew’s broader urban community was an extension of his home. In addition to regular schooling, Loew received Orthodox Jewish religious instruction (it is unknown how long he continued his religious studies). In 1876 at age six, Marcus had to augment the family income by selling newspapers in front of a saloon after school. At age nine, Loew quit both school and his newsstand. Instead he went to work at a map-coloring plant for 35 cents (about $8 in 2010 USD) per day and worked ten-hour days, six days a week pulling the maps out from under the presses.[3] The next year, 1880, Loew became unemployed after workers struck the shop for higher wages and the employer imposed a lockout. But it appears Loew had a knack for persuasion even at a young age because he soon became associated with a young man who owned a hand-printing press. Together, the two did well enough printing odd jobs that they soon bought a larger press and put out a weekly paper called the East Side Advertiser. In the division of labor between the two, Loew marketed the advertising to local shopkeepers. The paper’s circulation eventually reached 500, garnering them a weekly profit of nearly $12 (about $264 in 2010 USD).[4] Unfortunately their partnership dissolved after his newly married partner’s wife demanded her husband receive a larger share of the profits. Nevertheless, the episode was so much a part of Loew’s personal history that many years later, when participating in a lecture series on the motion picture industry at Harvard University’s Graduate School of Business Administration, he was introduced by Joseph P. Kennedy, the organizer of the lecture series (and father of the future U.S. president) as “a former newspaper man.”[5]

Loew’s next job was more of a letdown. He worked in an East Side men’s store “waiting on customers, running errands, sorting stock—working sometimes until midnight, six solid days of the week.”[6] For that he earned $4 a week ($88 in 2010 USD). He quit that job to work in a Manhattan fur factory where, at the age of twelve, he earned 50 cents ($11 in 2010 USD) more per week, but was required to work 11½ hour days, mostly turning the crank on a fur-cutting machine. At eighteen years of age, Loew had gained enough knowledge and experience in the fur industry that he struck out on his own as an independent fur broker with savings of $63 (about $1,490 in 2010 USD).

Unfortunately, the fur market soon took a serious downtown. At age 19, Loew went bankrupt. He had overextended himself and failed to take into account the usual cyclical fluctuations or seasonal fashion changes encountered in the fur trade. After filing for bankruptcy, Loew vowed to make good to his creditors, to whom he owed approximately $1800 ($44,000 in 2010 USD). He took a position as a salesman with another fur company and the engaging Loew managed to earn $100 per week ($2,440 in 2010 USD), sometimes more, and was able to pay off his debts in a few years.[7]

It was around this time that Loew fell in love with Caroline Rosenheim, and they were married on March 4, 1894. Young and confidant, and perhaps a little naïve with regard to the nation’s economy, Loew again started his own fur business. Again his business luck ran out; the fur business in general was a victim of the panic of 1893, which lasted until mid-1894. Just a few months after his marriage, Loew went bankrupt once again, but this time after paying off his debts he was left with $7 (about $183 in 2010 USD). He took another job as a salesman for Herman Baehr, a German immigrant who knew how to buy, cut, and manufacture furs. Loew’s propensity for salesmanship perfectly complemented Baehr’s talents much as his prior partnership in the “newspaper business” had done. Soon the firm became known as Baehr & Loew with its factory located in a loft in Manhattan’s Union Square. Loew traveled throughout the East and Midwest marketing its products; after 1896 the firm was “comparatively prosperous.”[8]

In 1897 Loew, still young at twenty-seven years old, had been in the fur business for fifteen years, but he began to look for other business opportunities. He and Caroline were now parents of twin boys, David and Arthur, and desired more financial security and greater income.

By 1899 Loew and Baehr had made some modest real estate investments and while inspecting one of their buildings on West 111th Street, Loew met and befriended David Warfield, a noted stage actor. Warfield and Loew remained lifelong friends and business associates. But it was a man he met during his business travels, Chicago fur merchant Adolph Zukor, whose subsequent move to New York would change Loew’s life.

If anything, the ambitious Zukor was even more eager than Loew to get out of the fur industry. Along with another Chicago fur dealer, Morris Kohn, and a Buffalo merchant, Mitchell Mark, Zukor established the Automatic Vaudeville Company in 1903. Automatic Vaudeville operated penny arcades—usually storefronts filled with coin-operated amusement machines and viewers for the early “moving pictures.” Automatic Vaudeville opened its first penny arcade on 14th Street in New York very close to the Baehr & Loew factory in Union Square. When this proved successful, they decided to expand to other cities. Zukor offered Loew the opportunity to invest in Automatic Vaudeville. Loew, in turn, discussed it with Warfield, who enthusiastically invested $15,000 (about $400,000 in 2010 USD), while Loew put in an unknown but lesser amount. The following year, after their investment proved successful, Loew started his own penny arcade business. The arcade business was new enough, and New York City big enough, that Loew and Zukor could remain friends and business competitors. Their relationship continued as such even as each moved into the more lucrative aspects of the film industry.

Business Development

Loew tried to convince Baehr and Warfield to invest in his new company. Baehr was unsure of its viability but nevertheless put in a small amount. Warfield, himself an entertainer who had seen the value of these new arcades, eagerly withdrew his investment from Automatic Vaudeville (as did Loew himself) and placed it with Loew’s new company. Loew also raised additional money from his widowed mother-in-law, who owned a furniture store, and from a friend, Morris Drucker, who was a Manhattan merchant. On November 14, 1904 he started the People’s Vaudeville Company. Loew leased a vacant store at 172 East 23rd Street and opened it as a penny arcade in January 1905. He was the principal partner and general manager of the arcade with a salary of $100 a week ($2,560 in 2010 USD). As one of the founders, he received a share of the profits in the form of company stock.[9]

Initially, People’s Vaudeville leased office space from the Baehr & Loew furrier company’s Union Square office, but Loew moved quickly. By mid-1905 he had opened two more arcades and moved the offices of People’s Vaudeville to 2172 Third Avenue, above one of his newly opened arcades. He opened a fourth arcade uptown by the end of the year at 125th Street and Lenox Avenue. Two key advisors came on board during this time. Loew hired a Baehr & Loew lawyer, Elek John Ludvigh, as “lawyer, financial advisor, and official secretary of the firm.”[10] Ludvigh became one of the three or four men upon whom Loew relied for financial and legal advice during his early years in the entertainment industry. He remained as Loew’s counsel, seeing the company through its various incarnations, “until 1920 when he became general counsel, secretary, and a director of the Famous Players-Lasky Corporation,” run by Adolph Zukor.[11] Loew also hired David Bernstein as a $14-a-week ($358 in 2010 USD) bookkeeper. Although Bernstein had only an eighth-grade education and no knowledge of bookkeeping, he remained with People’s Vaudeville and its successor incarnations for 40 years, becoming vice-president, treasurer, and a director of the Loew’s Corporation.

New York City would always remain the core base of operations for Loew, but he soon expanded his growing arcade business to Cincinnati, Ohio.[12] He took over an already existing downtown penny arcade in Fountain Square and renamed it the Penny Hippodrome. While visiting the Penny Hippodrome and on the suggestion of the arcade’s manager, Loew traveled across the Ohio River to Covington, Kentucky to view a new, hybrid form of entertainment. There, the owner of a penny arcade had rented a film projector and a few films and was showing the films in a room above his arcade at an admission price of five cents (a little over $1 in 2010 USD). Loew was impressed with the nickelodeon and decided to try the same at his Cincinnati arcade the following Sunday.

He rented a number of short films, including a French comedy, Hot Chestnuts (original title: Chaud les Marrons), and set up a projector and 110 chairs in a room above his arcade. The first day the nickelodeon attracted nearly 5,000 customers. The following week, Loew and his manager added 200 more chairs and drew more than 10,000 customers. Loew immediately returned to New York City and converted the arcade at 23rd Street to a nickelodeon (or “store show” as it was then also called). Loew’s nickelodeon was not the first in New York City, as Adolph Zukor, no longer involved with Automatic Vaudeville, had established one on 14th Street next door to Automatic’s arcade. Besides his store shows Loew briefly operated what were known as “scenic tours.” Scenic tours provided customers with the illusion they were traveling in a railroad car. It involved a room decorated to look like a railroad car interior, while films of natural wonders were shown on a screen. To add to the train ride illusion, the seats swayed and a phonograph played train noises.

In 1906 Loew met Joseph and Nicholas Schenck, Russian immigrants who owned a beer hall and a few concession stands at Fort George Amusement Park in upper Manhattan. Loew took a liking to the brothers and lent them money to expand their concessions, adding rides and turning an area of the park into a separate enclave called Paradise Park.[13] Loew eventually persuaded the Schencks in 1909 to join his expanding entertainment empire. Joseph Schenck left Loew’s organization in 1919 to become an independent producer but his younger brother, Nicholas, became Loew’s top adviser. After Loew’s death in 1927 Nicholas Schenck became president of Loew’s Incorporated.[14]

By the time the Schencks came on board, Loew had already begun to expand his horizons beyond the store shows. In 1907 he purchased a rundown vaudeville theater in downtown Brooklyn known as Watson’s Cozy Corner. He refurbished the building, and renamed it the “Royal.” By January 1908, Loew had the Royal running a regular schedule of films and vaudeville. This allowed him to charge less than he would for strictly vaudeville entertainment and more than the customary five-cent admission for a nickelodeon. In its first year of operation, the Royal Theater made a profit estimated at $60,000 ($1.47 million in 2010 USD).

In 1909 Loew signed a contract with Lee and Jacob (J.J.) Shubert, brothers and theatrical producers, to operate two of their New York City theaters with his own programming. By the end of that year he was presenting five acts of vaudeville and various films in each of the theaters. He also increased his price range to ten to twenty-five cents (about $2 to $6 in 2010 USD). At that time, the Polish-immigrant Shuberts were busy creating their own empire of legitimate theaters and would eventually own the largest theater circuit in the United States in the twentieth century. Loew’s connection with them proved an even bigger move away from the realm of store shows, but he never ventured into the Shuberts’ territory of legitimate theater. Throughout his business career, Loew stayed primarily with his successful mixture of vaudeville and films, though some of his theaters presented only films. In time Loew’s business relationship with the Shuberts proved crucial for expanding his own empire.

By 1910 he owned or operated theaters in all five New York City boroughs. Loew also had a number of associated entertainment companies—for instance, with the Schenck brothers—as well as People’s Vaudeville. In order to tighten the structure of his holdings (which, in turn, would favorably affect his ability to secure loans for expansion), he decided to consolidate. Out of this decision came Loew’s Consolidated Enterprises, founded in February 1910. Loew’s Consolidated stock was exchanged for People’s Vaudeville stock as well as stock in the associated companies. The Shuberts, who purchased $200,000 worth of newly issued stock in Loew’s Consolidated ($4.75 million in 2010 USD), further boosted the new company’s capitalization. Such confidence in Loew’s venture was an indication of how highly Loew and his associates were regarded in the entertainment business world of New York. Marcus Loew became president of Loew’s Consolidated, while Adolph Zukor served as the company’s treasurer and Nicholas Schenck its secretary. Although competitors at times, this business relationship illustrates the ability of Loew and Zukor to remain friends and prevent their rivalry from becoming hostile. The influx of capital allowed Loew to expand throughout New York City. In October 1910 he opened the National Theater in the Bronx; for a time this served as his flagship theater. Loew’s next important business arrangement came on March 3, 1911, when he took over the operating control and booking for William Morris’s independent vaudeville theater circuit.[15]

Loew was able to capitalize on the more independent-minded Morris’s business struggles against the United Booking Offices, which at the time was referred to as the “vaudeville trust.” The trust controlled most of the vaudeville theaters—and therefore bookings—in the United States. As an independent producer shut out by the trust, Morris tried to go his own way but in the end had to sell out to Loew. Loew, on the other hand, had no intention of bucking the trust. He well understood the lesson Morris had finally learned—that an independent producer simply did not control enough theaters to go it alone. The blacklist drove Morris out of the booking business since performers were unlikely to sign a contract that would result in their being excluded from the wider circuit. At the time the theater circuit deal was consummated it was speculated that in general performers’ wages would decrease because of the lessening of competition, but that this decrease would be offset in part by the removal of the so-called trust blacklist against those performers who in the past had signed contracts to perform on the Morris circuit. While both of these predictions came to pass, the burgeoning film industry soon provided the kind of competition to the vaudeville trust that Morris never could. For a time, Morris remained as an associate of Loew.

Loew’s formula of mixing film and vaudeville entertainment, coupled with his midrange pricing, ensured a steady revenue stream from a high volume of customers. Added to this formula was the higher profit margin of owning the primary theaters of his circuit: “He ran the operation as a real estate business in which the show could fail but the land was still his.”[16] Furthermore, most of the acts booked into Loew’s theaters were lesser-known or “small-time” acts, which meant lower overhead.

In mid-1911, Loew once again restructured his company, transforming it into Loew’s Theatrical Enterprises to take advantage of his expanded booking power. In this latest reorganization “three shares of Loew’s Theatrical common stock, with a par value of $100 ($2,370 in 2010 USD), were traded for one share of Loew’s Consolidated. A further issuance of $700,000 ($16,600,000 in 2010 USD) of common stock was then sold to private investors.”[17] The total capitalization of Loew’s Theatrical Enterprises reached $5 million ($118 million in 2010 USD). Loew had had the foresight to expand his operations at just the right time. By 1912 the U.S. film industry was moving beyond the one-reel films that comprised the content of the nickelodeons, just as Loew himself had moved beyond penny arcades and nickelodeons. Owning more theaters was a great competitive advantage.

Although Loew still considered his theaters primarily as vaudeville venues, he had established, back in the days of the People’s Vaudeville Company, another company, the People’s Film Exchange, which was the film acquisition arm of his entertainment business. Film exchanges were local distributors who bought the films from producers (at ten cents per foot of film—a little over $2 in 2010 USD) and rented them to the theaters. By establishing his own exchange, Loew made a classic move to “cut out the middle man” on his own theater rentals, plus he could rent films to other theaters in New York City. However, at the time the film industry had its own “trust”—the General Film Company.[18] Loew, who had not dared to go up against the vaudeville trust, also had no desire to buck the motion picture trust, even when his costs quadrupled in the early 1910s after it decided to alter its rental structure from the per-foot scale to a fixed rate.[19] Loew complied with the film trust’s rules for as long as it lasted, letting his People’s Film Exchange wither away in 1913.

The motion picture trust had increasing problems. Just as William Morris attempted to take on the vaudeville trust, others—notably Carl Laemmle and William Fox—sought to break the power of the General Film Company. Due to such activism, the courts declared the motion picture trust a violation of the Sherman Antitrust Act in 1915.

In such a nascent industry as motion pictures, new companies and new business methods quickly filled the vacuum left by the dissolution of the General Film Company. While Loew’s Theatrical Enterprises was not an innovator in the industry, because of Loew’s preference for vaudeville and short films (moving the people in and out of the seats quickly), some industry changes caught Loew’s attention. Foremost among these was the opening in 1914 of theaters that showed films exclusively—in retrospect the initial death knell for vaudeville. Coincidentally, 1914 was a year of major expansion for Loew’s Theatrical Enterprises. Loew may have been cautious when dealing with the vaudeville and motion picture trusts, but he was confident and shrewd when it came to expanding his company’s holdings in order to increase its revenue stream. On March 26, 1914, Loew purchased the Sullivan & Considine Theatrical Syndicate for between $3 million and $4 million ($67.5 million to $90 million in 2010 USD). The purchase added about thirty theaters in the Midwest and on the West Coast to the Loew’s Theatrical empire, enabling the chain to book acts for longer stretches of time.[20] Basically, these theaters would stick with what for Loew was a profitable formula of short film and live entertainment.

In 1915 Loew made an arrangement with Samuel Rachmann (also spelled Rachman), a Berlin booking agent and theater owner who had come to the United States to establish an office in New York City to book leading German vaudeville acts in Loew’s theaters.[21] This elevated Loew’s status as one of the main booking agents for major vaudeville acts in the United States. Simultaneously, Loew and Rachmann hoped that American vaudeville performers would travel to Germany and Austria-Hungary on their combined circuit. World War I, however, made this plan increasingly difficult and impossible after the United States entered the war in 1917. The war itself did not negatively affect Loew’s domestic business, though a vaudeville actors’ union known as the White Rats briefly struck Loew’s theaters in 1917. The strike lasted slightly longer than a month. Eventually the union, perhaps perceiving bad publicity, suspended its strike action citing wartime obligations of patriotism.[22] After the war, however, the union again pursued its grievances, claiming that Loew and other vaudeville managers such as E.F. Albee and Martin Beck had in effect created another Vaudeville Trust and were in violation of the Sherman Antitrust Act. In April 1920, the Justice Department ruled that the actions of the vaudeville managers were not in violation of federal antitrust law.[23] This was a major victory for the vaudeville managers, but some, like Loew, were already looking beyond what would prove to be a dying genre of entertainment.

Loew’s old friend, Adolph Zukor, had moved more quickly than Loew into the new motion picture industry. In 1912, Zukor formed his own film production company, Famous Players. In 1916 he merged the Famous Players Film Company with the Jesse L. Lasky Feature Play Company and a small production and distribution company called Paramount Pictures to form the Famous Players-Lasky Corporation. Paramount became the exclusive distribution arm of the company.[24] The new company vertically integrated production and direct distribution of its films, making it the first major production company to do so.[25] In the beginning Famous Players-Lasky controlled many of the best-known actors in the U.S. film industry and was therefore in a position to raise rental prices. However, chain-theater owners rebelled, and in 1917, twenty-six first-run theater chains combined to form the First National Exhibitors Circuit. When this alliance produced First National Pictures a strong form of vertical integration was achieved combining production, distribution, and exhibition. First National Pictures was the company’s production arm. It differed, however, from other motion picture production companies in that it had no studio. Instead it signed contracts with independent producers to make films under the First National imprimatur that were then exhibited on the First National Exhibitors Circuit.

Out of loyalty to Zukor, Loew did not participate in the formation of First National. In 1918 he booked every Famous Players-Lasky film that Paramount planned to distribute in 1919. However, First National had signed the industry’s two biggest stars, Charlie Chaplin and Mary Pickford, to multi-picture contracts and swamped the Zukor-Loew alliance. Both stars served as producers of their films, with Chaplin building his own studio.[26] Zukor needed to build more theaters of his own in order for his company to survive, and Loew had to guarantee that his theaters had a steady supply of films. For this, he would not be able to count solely on Famous Players-Lasky films. Aside from standing pat, Loew had basically three options: quit showing films in his theaters and present only vaudeville, join the First National Group, or produce his own films independently. Given how lucrative films were for his theaters—in 1914 admissions in some newly built film-only theaters ranged from twenty cents to one dollar (about $4 to $22 in 2010 USD)—ceasing to show them was probably never considered. Nor, because of his relationship with Zukor, does Loew seem to have seriously considered the idea of joining the First National group. That left film production. In addition, his erstwhile business partner, Zukor, altered the pricing system for Famous Players-Lasky films. For its higher-quality films, Zukor replaced the fixed rental price with a percentage of the first-run receipts, which would have seriously cut into Loew’s theatrical profit margins whose film showings depended on first-run movies.

Loew reacted to the consolidation and integration of the industry with two responses typical of his career: expansion and recapitalization. In 1919, he further expanded his holdings in the Midwest and acquired the small Ackerman & Harris chain of eighteen theaters on the West Coast. For this Loew needed to raise capital. He borrowed $9.5 million ($120 million in 2010 USD) for the expansion of his theater circuit and reorganized his company as Loew’s Incorporated to raise even more money and to secure the loan. Loew’s Incorporated issued 700,000 shares of common stock at $25 per share ($315 in 2010 USD). Of this, 380,000 shares were transferred to the brokerage houses of Montgomery & Company and Van Emburgh & Atterbury as collateral for the loan while the remaining shares were used to redeem the common stock of Loew’s Theatrical Enterprises at an eight-to-one rate.[27] With this new capitalization, Loew was now in a position to buy the Metro Pictures Corporation, which had been founded in 1915 by a small group of film exchange owners. Metro’s first president was Richard Rowland, Louis B. Mayer was its secretary, Joseph Engel its treasurer, and J. Robert Rubin its legal counsel. Mayer left Metro in 1918 to form Louis B. Mayer Pictures Corporation.

By mid-1919, Metro Pictures had become a film distribution as well as production company, but was clearly at a disadvantage vis-à-vis its larger, more powerful rivals, Famous Players-Lasky and First National. Perceiving that Loew needed a product as much as Metro needed theaters, Rowland and Rubin approached Marcus Loew with an offer to sell 50% of Metro to him. Loew countered that he preferred to own 100% of Metro Pictures, and when Metro stockholders approved the deal the newly-minted Loew’s Incorporated at the same time purchased the Metro Pictures Corporation for $3.1 million in January 1920 (about $33.7 million in 2010 USD). Metro stockholders received $1.5 million of Loew’s stock, while $1.6 million “was to be paid through the removal of 35 percent of the profits realized from the sale of Metro pictures abroad.”[28] It was paid off in a few years as Metro expanded its international sales.

Previously, Loew had been content to make only small investments in productions such as in Roscoe “Fatty” Arbuckle and Joseph Schenck’s Comique Pictures (formed to produce Arbuckle’s films) and prior to that a film titled Lost Souls.[29] By purchasing Metro, he was simply following the more general trend toward vertical integration. “I purchased Metro and determined to make pictures,” he later declared, “primarily to protect our own interests.”[30] Loew would eventually expand the production end of his business.

Metro was known for churning out “B” movies produced on budgets of seldom more than $20,000 (about $220,000 in 2010 USD). With the financial power of Loew’s Incorporated behind it, Loew pledged that film budgets would be increased to $200,000 (about $2.2 million in 2010 USD). He also announced that Metro would increase the number of films produced from fifty to seventy-four in 1920. For the time being, Loew left Rowland in charge of the studio. In 1920 Metro also signed one of its most important talents, an unknown actor, Rudolph Valentino, who became one of the most popular melodramatic actors of the silent era. Valentino’s first film, The Four Horsemen of the Apocalypse, released in March 1921, earned “several million dollars for Metro in the next few years.”[31] Prior to Loew’s takeover, Metro’s gross foreign receipts had been thin, at $285,000 net ($3.1 million in 2010 USD), but with Marcus’s son Arthur in charge of foreign distribution, foreign receipts increased steadily. By 1927, Loew’s estimated gross foreign receipts approximated $12 million ($151 million in 2010 USD), four times as large as foreign sales had been when Loew took control.[32]

Although Loew’s Incorporated owned Metro, Loew continued to think of his main business as that of a theater owner—unlike Adolph Zukor, who had also vertically integrated, but from the vantage point of film production. However, many of Loew’s theater competitors now viewed Loew’s Incorporated differently. They organized the Motion Picture Theater Owners of America to protect their interests, holding their first convention in Cleveland, Ohio in the summer of 1920. They severely criticized Loew and Zukor for attempting to create a second Motion Picture Trust. Loew appeared at the convention to assuage the owners; for a couple of years they were largely mollified. However, Nicholas Schenck and David Bernstein wiped out much of the goodwill Loew had built. A 1922 scandal in Peekskill, New York revealed that Schenck and Bernstein, who independently owned a theater in Peekskill, had attempted to drive a rival theater owner out of business. Film distributors assisted them by refusing to do business with the rival owner out of fear of retribution by Loew’s Incorporated. Loew remained loyal to Schenck and Bernstein, but the scandal seems not to have redounded upon Loew personally though the negative publicity could not help but affect his company.

Meanwhile, Loew’s Incorporated expanded still further by either building or buying theaters in the South and in New York City, where there always seemed to be room for another opulent movie house. On August 29, 1921, the Loew’s State Theater opened on Broadway at 45th Street—in the heart of the theater district, symbolically challenging the legitimate stage. It was a 3,200-seat film and vaudeville palace designed in the ornate style of the era, with a sixteen-story office building above, in which Loew relocated the offices of Loew’s Incorporated.[33] The real-estate savvy Loew now controlled his corporation from the heart of Manhattan. The construction cost of the building was estimated at $1 million ($12.2 million in 2010 USD).

Loew’s expansion, though, could not alter the fact that within a few years of its purchase Metro Pictures was drifting back into the doldrums from which its sale to Loew’s had temporarily rescued it. Loew discovered that making a huge number of quality films was not as easy as it sounded, especially as production costs increased annually. By the end of 1923 Metro had produced seventy-nine films since Loew had purchased the company (it had distributed a further eighty or so during that time), far less than the annual number Loew had predicted.[34] Yet few of these were of the quality that he desired: good stories with popular actors that would prolong the first run in his theaters. Among the better Metro productions of this period were the aforementioned Four Horsemen of the Apocalypse (1921), The Saphead (1920) starring Buster Keaton, The Prisoner of Zenda (1922) directed by Rex Ingram, and Scaramouche (1923), also directed by Ingram.[35] But most of Metro’s production was second-rate: Ingram could not direct everything, and Valentino had switched to Famous Players-Lasky after making just three films for Metro. Loew began to wonder whether film production was worth the headache: “The exhibitors can afford to pay for big pictures and high costs and all that, but they can’t pay for extravagance and waste and inefficiency” in film production, he complained.[36] He had been mulling over this problem for some time, including potentially selling Metro Pictures, when he met Frank Godsol, president of the Goldwyn Pictures Corporation, in Palm Beach, Florida, while wintering there in 1924. Godsol proposed that Loew purchase Goldwyn Pictures, which was doing even worse than Metro Pictures. Theatrical producer Lee Shubert, an investor and member of the board of directors in both companies, provided the link.

Film producer Samuel Goldfish (formerly Schmuel Gelbfisz, a Polish Jew) and Broadway producers Edgar and Archibald Selwyn had founded the Goldwyn Pictures Corporation in 1916. By the time Loew entered the scene, Godsol had forced out Goldfish (now Samuel Goldwyn) as the company president.[37] Although the company suffered hard times, it did have a major California studio and—particularly attractive to Loew—some theaters of its own including a half-interest in the 4,500-seat Capitol Theater in New York City. Furthermore, Goldwyn Pictures had existing contracts with newspaper magnate William Randolph Hearst’s Cosmopolitan Pictures and other small production companies for film distribution. Loew’s Incorporated complemented the Goldwyn production facility with its strong distribution and exhibition network.

The deal involved three-way negotiations between Loew’s, Goldwyn Pictures, and independent producer Louis B. Mayer, who had been one of the founders of Metro. The idea was to merge the two firms into a new entity to be known as Metro-Goldwyn Pictures, with Mayer as production chief.[38] Loew’s Incorporated would own the new studio entirely, but the deal hinged on Mayer. His success as an independent made it imperative that he take over as studio boss (neither Rowland nor Godsol were ever considered for the position)—otherwise Loew need not saddle himself with another finance-draining entity, there being no one at Loew’s Incorporated capable of running a film studio. Mayer instinctively understood this and arranged financial deals for himself, his assistant Irving Thalberg, and for J. Robert Rubin, his friend and Loew’s lawyer, who had suggested Mayer as studio boss to Loew and Nicholas Schenck. Neither Loew nor Schenck seemed to recognize Rubin’s conflict of interest—or care about it if they did recognize it. These three men, known as the Mayer Group, were to receive numerous salary increases, bonuses, and stock options during the studio’s heyday.

After weeks of negotiations, handled primarily by Schenck, as Loew was ailing, the merger was finally announced on April 17, 1924. This time Marcus Loew did not need to borrow money or reincorporate as no money changed hands. Loew’s Incorporated acquired the Goldwyn Pictures Corporation through a straight exchange of stocks. Before this could happen Samuel Goldwyn, who was still a Goldwyn Pictures stockholder and opposed the deal, had to be bought out by Goldwyn Pictures trustees. Following the stock swap in which Goldwyn Pictures was absorbed, Metro-Goldwyn Pictures was created, and Loew’s Incorporated took possession of the common stock of the new company (in exchange for Metro stock). With Mayer’s coming on board his own production company was absorbed by the merger—Metro-Goldwyn paid $76,500 ($976,000 in 2010 USD) for Mayer’s studio property, which included cameras, equipment, and office furniture.[39] The new company continued to serve as distributor for Cosmopolitan Pictures, which pretty much assured favorable MGM reviews in Hearst’s newspapers.

Mayer struck a deal wherein he had choice screen credit (such as “Louis B. Mayer Presents” above the film’s title) for every picture Metro-Goldwyn produced; he eventually opted for his name to be added to the production company—becoming the famous Metro-Goldwyn-Mayer, or MGM. Loew was generally content to leave film production in the hands of Mayer and Thalberg, but he did intervene at first. In the summer of 1924 he traveled to Italy to personally review the problems on the set of Ben-Hur, where production had stalled. Loew replaced the film’s director, screenwriter, and lead actor with people he had brought along with him. Thus, from the beginning, the parent corporation defined the hierarchy. If costs were out of line at MGM—or if films were simply unprofitable—changes would be made at the production or studio level. Yet Loew remained primarily an exhibitor, albeit one whose power extended into all phases of the industry. When discussing the huge amounts invested in the production of top-rank films, he declared “it is essential to control proper channels of distribution so that the money can be turned over.”[40]

One of the ways Loew ensured that production remained profitable was by introducing to MGM the practice of “block booking,” which became standard in the industry. Zukor’s Paramount Pictures first used it, and Loew’s Incorporated followed suit along with the other major studios until the government brought suit against Zukor’s Famous Players-Lasky. The Supreme Court finally outlawed the practice in 1948. Block booking meant that a theater had to take on (or book) a number (or block) of a studio’s films in order to rent the better films; the distributor had discretion as to how many and which films a theater would rent. From the studio’s perspective this ensured a continuous revenue stream, and made most films at least minimally profitable. However, the Federal Trade Commission launched an investigation into Zukor’s Famous Players-Lasky corporation for its business practices in 1923 prior to the MGM merger. The investigation eventually revealed that after the MGM merger Famous Players-Lasky and Loew’s Incorporated gave each other preferential treatment when it came to releasing films.[41] By 1925 Zukor had created a new theater company, Paramount-Publix, in which he merged the Famous Players-Lasky theaters with the Balaban & Katz vaudeville chain. Paramount-Publix now began to encroach on what had been considered Loew’s Incorporated territory, specifically Times Square where a new Paramount Theater was planned. This led to an “agreement” between Loew and Zukor that future theater building in suburban New York would be jointly owned by Loew’s Incorporated and Paramount-Publix.

At the same time, Loew continued expanding throughout the United States and abroad, particularly in Great Britain, France (where the company contracted to run the Gaumont circuit for three years) and South Africa. He did not expand into Germany, however, perhaps because the instability and inflation of the postwar years were daunting. Loew also branched out into the other new form of entertainment: radio. In 1923, Loew’s Incorporated purchased WHN, a small radio station in Queens, and promptly moved it to the State Building in Manhattan.[42] There the company leveraged its leading vaudeville acts from Loew’s theaters to perform briefly (for no pay) on the radio, thereby providing advertisement for the theaters. This formula proved successful enough that Loew contemplated expanding his radio holdings to other cities, but he was slow to act. The National Broadcasting Company (NBC) formed in 1926, and the following year the Columbia Broadcasting System (CBS) came into existence. Both networks quickly dominated the airwaves. The advent of talking motion pictures (“talkies”)—short films with sound that appeared after 1923 in New York City and then the first feature length film, The Jazz Singer, released by rival Warner Brothers in 1927—forced Loew’s Incorporated to focus on introducing sound technology at its production studio and upgrading theaters for the transmission of the new technology.

Talking pictures struck yet another blow to vaudeville. For Loew, it had been clear since the 1924 MGM merger, if not from the 1920 purchase of Metro Pictures, that that the future was in film, although his company still ran the most successful of the combination film and vaudeville chains. The year before the antitrust ruling, 1926, “its second full year in existence, Loew’s/MGM was the most profitable company in the industry, clearing $6.4 million” ($78.8 million in 2010 USD).[43] More worrisome to Loew, however, was the July 11, 1927 court decision on a lawsuit initiated by the Federal Trade Commission that banned block booking. Loew publicly denounced the ruling: “An executive wouldn’t even buy one picture at a time. Such a practice would be analogous to limiting a jewelry salesman to selling one article of jewelry to a store on one trip to a city… or a plum salesman to selling one plum at a time.”[44] Nevertheless Loew’s Incorporated and other studios managed to evade the ruling for a number of years (after Loew’s death). In fact, Loew’s Incorporated relied less on the practice than did the company’s competitors. Instead, Loew’s focused on first-run films for its theaters, which meant that MGM at that time produced more high-quality films than the other studios, such as He Who Gets Slapped (1924) and The Unholy Three (1925), both starring Lon Chaney; Ben-Hur (1925), Flesh and the Devil (1926), with Greta Garbo and John Gilbert; The Scarlet Letter (1926), starring Lillian Gish; and The Taxi Dancer (1927) with a young Joan Crawford. In 1928 Gish made her final film for MGM, the classic The Wind, directed by Victor Seastrom.

In the first year or so following the MGM merger, Loew’s treated the studio like a colony shipping raw material to the mother country. Loew’s Incorporated took thirty percent of total theater rental receipts—a standard practice for distributors—though almost from the outset Mayer and others at the studio “found, or strongly suspected, that the films the studio produced were being turned over first to Loew theaters and quietly rented to them on terms well below the rentals that such pictures would ordinarily fetch in the trade.”[45] The primary effect was that this obviously cut into MGM’s bottom line, thus reducing bonuses for the Mayer group, and would eventually affect future film budgets. The dispute was not settled to Mayer’s satisfaction until October 1925.

By the time of the court ruling outlawing block booking Loew was a very sick man. He had been troubled by ill health for years. It had forced him from the day-to-day negotiations that brought about the MGM merger in 1924, and in 1926 he had suffered a serious, and recurring, bout of pneumonia. He died of heart failure less than two months after the court ruling, on September 3, 1927 at the age of 57. Nicholas Schenck succeeded him as head of Loew’s Incorporated.

Family Life, Social Status, and Networks

Marcus Loew was involved deeply with the immigrant experience in New York City, and his background enabled him to make connections and form partnerships with other immigrants throughout his working life. As he expanded his entertainment empire he drew his closest business associates from this group. As a child Loew’s life was circumscribed by the German-Jewish immigrant experience of Manhattan’s Lower East Side, and his earliest ventures into business were in New York’s garment industry, to which immigrants flocked. As an on-again, off-again broker of furs Loew eventually came into contact with Herman Baehr, who had learned the essentials of the fur industry in Germany before coming to the United States. Eventually the two formed a partnership with Loew serving as the “outside man” traveling in the East and Midwest selling their goods. It was no accident that Loew became the firm’s traveling representative. He had already succeeded as a salesman of newspaper advertisements as well as furs because of his outgoing personality. Described as “a good-natured jokester” who “disliked solemnity and often disconcerted the meetings of his directors by flipping matches when they were engaged in serious talk,” Loew was also a superstitious man who “wouldn’t sign a contract on [a] Friday.”[46]

Loew made contacts, some of them lifelong, with other ambitious first- and second-generation immigrants from Central and Eastern Europe. The most important of these was with the young Hungarian immigrant Adolph Zukor. Zukor’s earliest success in the entertainment business, specifically penny arcades, convinced Loew of the efficacy of reaping financial profits in that industry. As he progressed from penny arcades and nickelodeons to presenting vaudeville and films Loew worked with other immigrants. Of these William Morris was the most prominent German immigrant, while many of the early leaders in the film industry—Zukor, the Schenck brothers, Louis B. Mayer—were from Eastern Europe. However, the financing with which Loew was able to expand and reorganize his organization came, with the exception of the Polish immigrant Shubert brothers, from banks and the brokerage houses of Montgomery & Company and Van Emburgh & Atterbury that represented old New York money. His dealings with the latter added a patina of legitimacy to Loew’s business enterprises that vaudeville and the nascent film industry sorely lacked. His embrace of elite business and social status was defined when he purchased Pembroke, an estate in Glen Cove, Long Island, for $1 million ($12.8 million in 2010 USD) in 1924, the year he engineered the Metro-Goldwyn-Mayer deal.

When his twin sons, Arthur and David, came of age Marcus Loew brought them into the business. Arthur Loew became one of his father’s trusted lieutenants. After the purchase of Metro Pictures, Arthur was placed in charge of foreign distribution and was successful enough that the debt from the purchase was paid off quickly. He remained in this post (officially president of the subsidiary, Loew’s International) after the MGM merger was effected and was an officer in Loew’s Incorporated. On December 14, 1955 he was chosen as head of Loew’s following the retirement of Schenck. He served in this position for only a little more than a year, resigning on January 8, 1957. He briefly returned to his post as president of Loew’s International but resigned from that on November 20, 1957. David Loew left his father’s company in the mid-1930s to become an independent producer, having founded David L. Loew Productions.[47] His films were seldom distributed domestically by MGM, but the company occasionally handled the foreign rights.

Suffering from numerous ailments throughout the last decade of his life, Marcus Loew spent his last years at Pembroke with his wife, Caroline. At the time of his death Loew’s estate was valued at several million dollars, but two years later it was reappraised at $1.67 million gross and $826,647 net ($21 million and $10.4 million in 2010 USD respectively). The majority of his estate went to his widow and the rest to his sons, his brother, sister, and surviving half-brother. Loew held no stock in Loew’s Incorporated, but did own 135 shares of the Empire Corporation, a holding company he and others had created back in 1923 to hold Loew’s Incorporated stocks.[48] Legally, the Empire Corporation placed him at a further remove from MGM, but it allowed him to continue his control of Loew’s Incorporated while receiving tax benefits and further limiting his liability.

Though Marcus Loew had a few years of religious education as a boy he was primarily secular in his outlook. That is not to say, however, that he forsook his heritage. In 1916 he and several other theater owners in New York City (including William Fox) donated their theaters for a Passover Festival. The following year he was involved in collecting money for the Jewish War Relief Committee. And in 1919 he contributed $4,000 ($50,000 in 2010 USD) to the Jewish United Building Fund. After the United States had entered World War I Loew, through his theaters, was instrumental in various fundraising campaigns in New York City, including Liberty Bond drives and the multi-million dollar United War Work Campaign.[49]

From the time of the creation of Metro-Goldwyn-Mayer Loew was considered a “mogul” of the film industry.[50] His forthright business reputation and prestige within the entertainment industry brought him respect as an entrepreneur. As such, a few months before his death in 1927 Joseph P. Kennedy invited him to take part in a lecture series at Harvard University on the film industry. At the dawn of the talking pictures era, Loew, during his lecture, allowed that while his company still spent more for vaudeville acts than for films, it was the film that carried the greater weight “both as to entertainment and drawing power.”[51]

Conclusion

Marcus Loew’s success has the makings of myth, but was a result of both his immigrant and American backgrounds. His early failures in the fur business made him somewhat conservative in his future dealings (he never took up the fight against the vaudeville or film trusts), but when he finally hit upon the successful combination of vaudeville and film presentation he continually expanded his theater holdings, correctly viewing them as the source of his wealth and power. All of his major corporate decisions were based on protecting and increasing that source: his initial venture into the film industry; the merger of Metro-Goldwyn-Mayer, which completed the vertical integration of his Loew’s Incorporated; his continued presentation of vaudeville; his purchase of a radio station; and, most important, his continued expansion of his theater holdings in the United States and abroad. At the time of his death Loew was one of the most powerful men in the film industry, though he had almost no hand in film production. The corporation he built was unique in that the exhibition arm of the company controlled production. In essence it was created in reverse order, and neither Loew nor his successors veered from the notion that the theaters were the corporation’s most important asset. After surviving a takeover attempt in the 1930s, the company Marcus Loew created continued to be a leading force in the film industry and was the last of the major film companies to break up its vertical integration. Loew’s divested its production and distribution arms from the company in 1958.

Notes