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"Master Showmen of the World"

Prehistory and the Formation of the Company

The roots of RKO can be traced back to 1883. In that year, the vaudeville showman B.F. Keith opened a variety theater in a fifteen-by-thirty-five-foot remodeled store in South Boston, Massachusetts. Keith's theater was a success and he decided to expand. When he died in 1914, he controlled a nationwide circuit of vaudeville houses that could, and did, book entertainers on tours of more than a year's duration. Keith built his theatrical domain through expansion of his Keith houses and by amalgamating them with the Albee circuit.

During the early years of the twentieth century, the movies were generally regarded as a vulgar, low-class form of entertainment. Vaudeville theaters, like those in the Keith-Albee group, used films mainly as "chasers" to clear a house of patrons between shows. Birth of a Nation, the films of the great silent comedians, and such early stars as Mary Pickford and William S. Hart gradually changed the attitudes of even the most educated and cosmopolitan members of the public. Movies grew in popularity while vaudeville diminished in attractiveness. In some variety theaters, movies received equal billing with the live performers.

The leaders of Robertson-Cole, a British company whose primary business was exporting Roamer automobiles, decided to pursue a serious foothold in the movie business in the early 1920s. They purchased thirteen and a half acres on a site called Colegrove in Hollywood in 1920 and constructed seven buildings, including three production stages. This studio would become the West Coast headquarters of RKO eight years later. Harry Robertson and Rufus Cole had already dabbled in the distribution of motion pictures made by various Hollywood producers. Intrigued by the notion that their company could realize greater profits by producing its own films, Robertson and Cole began making movies on the new lot before the facilities were even finished.

Robertson-Cole's next-door neighbor at the time was the United Studios, a rental facility where First National and other producers shot films. A few years later, Paramount bought the property; thereafter, Paramount Pictures and RKO Radio Pictures would exist side by side, separated only by a wire fence, throughout RKO's history.

The first Robertson-Cole feature production was Kismet (1920). Personally overseeing the release of Kismet in Boston was Joseph P. Kennedy, who had formed a company to distribute R-C pictures in the New England area in late 1920. The thirty-two-year-old Kennedy's foray into the movie business must have been viewed as something of a lark by his family and acquaintances. A graduate of Harvard with financial expertise in everything from balance sheets to stock pools, he appeared headed for a career as a prominent Boston banker. Indeed, he had already succeeded in this arena, becoming "America's youngest bank president" when he assumed control of Columbia Trust at twenty-five. He also worked for the prestigious banking and brokerage firm Hayden, Stone during the period when he was looking after the distribution of R-C movies.

But Joe Kennedy did not become involved in film distribution because he needed a stimulating side interest to take his mind off the dull realm of ledgers, accounts, and portfolios or because he adored the movies. Kennedy jumped in because he smelled money. As would soon become apparent, he had contempt for the business acumen of nearly all the people he encountered in the rapidly expanding film industry and believed he could squeeze more dollars out of their efforts than they even imagined were there. He was right.

Kennedy was appointed to the Robertson-Cole board of directors in 1921. This gave him access to company balance sheets, which he soon realized were "a joke." Two years later he resigned from the board and sold his New England distribution franchise, but he would not forget what he had learned about the precarious financial condition of the organization.

That condition did not improve. In 1922 Robertson-Cole underwent reorganization, including a name change to Film Booking Offices of America, Incorporated. British banking interests took control of the company in 1923. Pat Powers was placed in charge of production, and, for a time, the lot on Gower Street was known as the "Powers Studio," though its releases were still labeled "R-C Pictures." Powers's productions were decidedly second-class, mostly B films and serials, though it did turn out an occasional middling drama featuring such actors as Pauline Frederick, Sessue Hayakawa, and Billie Dove. Film Booking Offices also continued to distribute independent films made by Chester Bennett Productions, Tiffany Productions, Hunt Stromberg Productions, and other companies. It even released Haldane of the Secret Service, directed by and starring Harry Houdini for the Houdini Picture Corporation.

Powers was succeeded by B.P. Fineman in 1924. Fineman had experience as an independent producer for First National, but his R-C pictures were no better than Powers's. With the industry growing rapidly as evidenced by the construction of huge theaters in many cities, the formation of new "supercompanies" like Metro-Goldwyn-Mayer, and the emergence of stars like Charlie Chaplin, Douglas Fairbanks, Rudolph Valentino, and Harold Lloyd to delight audiences, R-C remained mired in a quicksand composed of equal parts bad management and poor productions.

In 1926 Kennedy made his move. He offered the rock-bottom sum of $1 million for the whole company, and the British bankers who owned R-C accepted. They had little choice, for the company was deeply in debt. But Kennedy understood something they failed to recognize. He would not need to pump in large sums of new capital or even appreciably improve the studio product to turn things around. Utilizing handpicked lieutenants E.B. Derr, Charlie Sullivan, and Pat Scollard to implement his policies, the new president reduced personnel, streamlined operations, and instituted other money-saving programs that stabilized the company in a short period of time. Hollywood insiders marveled at his accomplishment, leading the trade papers to publish stories for the next several years extolling Kennedy's managerial genius.

Joe Kennedy referred to his new company as FBO (after Film Booking Offices) and installed Edwin King as head of production. Though rarely a candid person, Kennedy admitted that his venture was not ready to compete on the same level with Paramount, Fox, or MGM. "We are trying to be the Woolworth and Ford of the motion picture industry rather than the Tiffany." To those who worked at the studio, FBO must have seemed more like the Cheyenne of the industry. Westerns were its specialty, starring Fred Thomson, Bob Custer, Tom Tyler, Yakima Canutt, Ranger the dog, and others. Among the other employees of R-C and FBO during the early years were a number of directors who would later contribute to RKO's history: Christy Cabanne, Wesley Ruggles, William Seiter, Al Santell, Sam Wood.

In the same year Kennedy took control, the first rumblings of the sound revolution were heard in Hollywood. Warner Bros. premiered Don Juan in New York in August 1926 with a synchronized musical score and sound effects. The film, starring John Barrymore, and the series of sound shorts that accompanied it were received enthusiastically, convincing the Warners to continue their sound film experiments. When The Jazz Singer opened fourteen months later, it transformed Al Jolson into an instant movie star and enabled the studio to assume a leadership position in the first great technological breakthrough since the invention of the medium. In 1928 the company released the initial true "talking picture," The Lights of New York. The enormous success of that film, along with the popular Movietone sound newsreels distributed by the Fox Film organization around the same time, demonstrated to even the most skeptical executive that he better start building sound stages if he wanted his company to survive.

What does this have to do with RKO? Everything-for RKO was a child of the sound revolution.

But Joe Kennedy was not thinking about the role he would play in the coming of sound-yet. Dissatisfied with the continuing lackluster films pouring forth from his lot on Gower Street, he replaced Edwin King with William LeBaron in 1927. Bill LeBaron was an educated and savvy show business veteran in his early forties. He had served as editor of Collier's magazine, written several plays produced on Broadway, and worked on films for Famous Players-Lasky starring Gloria Swanson, Richard Dix, and others.

FBO's product under LeBaron would improve, but only fractionally, because Kennedy continued to keep a tight grip on production expenditures. The studio's biggest star of the late '20s continued to be cowboy hero Fred Thomson. The rest of its films featured lesser-known performers and rarely cost more than $75,000 to produce. This apparently did not discourage Kennedy, who took a presentation credit on most of the releases and billed himself and his colleagues as "Master Showmen of the World" in FBO advertisements. Nevertheless, in July 1928 the company's reputation was such that it placed a notice in Motion Picture News declaring that the rumor that FBO planned to "produce pictures of an inferior quality" was absolutely unfounded.

There is no evidence to suggest that Joseph Kennedy had been paying much attention to sound film developments. But when new business opportunities presented themselves, he was quick to take advantage. In January 1928 Kennedy announced that the Radio Corporation of America, the General Electric Company, and the Westinghouse Electric and Manufacturing Company (allied companies at the time) had acquired "a substantial interest" in FBO Pictures Corporation. The original announcement stated that RCA's new sound reproduction and synchronization method not only would be used in FBO films but would also "be available to the entire motion picture industry."

While Warner Bros. and, to a lesser extent, the Fox Film Corporation were industry leaders in the introduction of sound pictures, the company that stood to make the most money was not one of the movie studios. It was A.T.T., which "through its subsidiaries, Western Electric and Electrical Research Products, [had] captured the entire market for sound equipment."

This did not sit well with David Sarnoff, the young and ambitious leader of Radio Corporation of America. He also understood that substantial income could be generated by the manufacture, installation, and maintenance of sound equipment, both within production facilities and in theaters. Engineers at RCA had developed their own sound-on-film system, which they felt was competitive with the system offered by A.T.T. They trademarked their system "Photophone."

Photophone, however, had obstacles to overcome. Since nearly all of the important movie companies had signed agreements to use Western Electric equipment exclusively, Sarnoff and the other RCA executives had to find a way to wedge their products into the new market. They needed a foothold within the industry and they found it in FBO. RCA planned to use the movie company to showcase Photophone and as a base camp from which to launch an attack against the near-monopoly of Western Electric. Part of the following first notice of the plan is of particular interest in light of the subsequent formation and development of RKO: "This is the first time that any great industrial organization so closely related to the motion picture business, has ever become a directly interested associate of any motion picture company. It is one of the first times in the history of all business that two organizations representing distinct industries, have associated themselves to further the common interests of both industries." The contention that radio and the movies were related and shared common goals and interests would become a constant corporate refrain in RKO's early years.

February 1928 brought another tantalizing announcement. Joe Kennedy stated that he was joining the Pathe Film Company as an advisor. Despite Kennedy's denials that this meant a merger of FBO and Pathe, Pathe's class A stock nearly doubled in one day. Kennedy emphasized that he would simply be a business advisor to Pathe, without remuneration, and was taking on the job because of his long friendship with J.P. Murdock, the president of Pathe.

The next few months seemed to indicate the veracity of Kennedy's remarks. FBO and Pathe did not merge, at least not right away. But another merger did occur involving FBO. First, the Orpheum circuit of vaudeville theaters amalgamated with Keith-Albee. Almost before the ink was dry on this deal, the newly formed Keith-Albee-Orpheum purchased a significant interest in FBO. As the Motion Picture News declared, this transaction completed "a combination ... that is a tremendous power in the motion picture industry." It was obvious what the author meant. Now, in addition to the financial support and technical expertise of RCA, FBO could count on "assured bookings [for its pictures] in practically 700 theatres which make up the Keith-Albee-Orpheum circuits and affiliated houses in America and Canada." This comment, however, contained one significant misstatement. Many of the vaudeville houses would not be converted into sound film theaters. In actuality, the original chain of K-A-O motion picture theaters would number fewer than two hundred.

B.F. Keith's expanded theater empire retained much of its original thrust and purpose. Vaudeville performances continued for a few years as a significant element in the K-A-O houses. But there was no doubt about the general direction of entertainment trends. The movies were taking over, and live shows were moving swiftly into the background. Within ten years, nearly all the surviving K-A-O theaters would be film palaces exclusively.

By midsummer 1928 the Hollywood movie companies were engaged in a feverish rush to convert to sound. MGM, First National, Paramount, and other companies were building sound stages, installing equipment in theaters, and looking for properties that would make suitable "talkies." FBO was more conservative. Joseph Kennedy advocated a go-slow policy: "The expense that the industry will have to undergo because of talking pictures will be very excessive.... It behooves the utmost care and caution in handling this new invention so that it is properly and judiciously placed before the public, and not induce expenditures out of all proportion. There are too many concerns in this business within 6 or 7 percent of going in the red for any wild flinging about of money at present. That is far too small a margin."

William LeBaron echoed his boss's remarks. After decrying the "hysterical" responses of some film people to the coming of sound, LeBaron observed that the silent cinema would probably never disappear completely:

I believe ... that there will eventually be three distinct forms of entertainment. First, there will be the legitimate stage play with the human person and voice; second, the talking picture or all talking picture program; and third, the old reliable form of a good silent picture program, during which the patron as [sic] to exert but one sense-the sense of seeing. This enables the patron to relax, where on the other hand, either the stage play or the talking picture brings into use both hearing and sight. The silence and relaxation afforded by the silent drama is one of the chief reasons for its tremendous success.

Thankfully, LeBaron's abilities as a studio head were somewhat superior to his understanding of the pleasures derived from visual entertainment and the psychology of human perception.

The RCA engineers did not proceed so cautiously. They were making impressive strides toward the perfection of the Photophone equipment. In August 1928 an important breakthrough was announced. David Sarnoff informed the press that "complete interchangeability of sound picture films made by Movietone and Photophone processes had been achieved." This meant that films synchronized with Western Electric's optical sound system would be fully compatible with Photophone's projection and sound reproduction equipment and vice versa. Theater owners would not have to worry about whether their system would work with each individual film.

At first, there was some skepticism about RCA's claim. But when FBO's first partial "talkie," The Perfect Crime, opened at the Rivoli in New York, Sarnoff was proven correct. The picture, synchronized by Photophone equipment, was run on a Western Electric projector with no technical difficulties.

The fall of 1928 was a time of extraordinary ferment in the film business. Many of the choicest rumors involved Joseph Kennedy and the FBO situation. After several months of speculation about Kennedy assuming the presidency of Pathe, the trade papers reported that he would instead take over First National. This seemed to indicate that FBO and perhaps Pathe, as well, would amalgamate with First National. One week later, however, the entire deal had come undone. Disagreement over complete versus partial authority annulled the arrangement. Kennedy wanted complete autonomy, but the First National board of directors refused to give up all its power.

If Joe Kennedy had been able to gain control of First National, he would have created his own superstudio by merging it with FBO, Pathe, and K-A-O. Now that this was no longer possible, he began to consider exiting the movie business and, of course, how he might realize significant monetary rewards for his short sojourn in Hollywood. David Sarnoff provided the answer.

Kennedy had been working with Sarnoff long enough to know that he coveted FBO and K-A-O. Thus, in October 1928 Kennedy began to put together a deal that would deliver the movie studio, its distribution arm, and the K-A-O chain of theaters to RCA. Consummated late in the month, the transaction made Kennedy a rich man and gave David Sarnoff a vertically integrated movie company whose product would demonstrate the quality of RCA sound equipment, as well as complement his growing radio and radio equipment businesses. Published reports indicated that Keith-Albee-Orpheum and FBO Pictures would now stand together as one giant, $300million corporation. The stated purpose of the new enterprise was obvious: "to produce, distribute and exhibit perfected synchronized pictures made by RCA's Photophone system."

The merger was confirmed on October 23, 1928-the birthday of RKO. On that day, the venture was officially named the Radio-Keith-Orpheum Corporation, and David Sarnoff became chairman of its board of directors. According to an industry trade journal, Radio-Keith-Orpheum appeared to have unlimited potential: "This new organization will be, at its outset, one of the most powerful and potentially most promising in the amusement industry. The consolidation of an established producing unit with a string of theatres and an important synchronizing company, possessed of existing discoveries and equipped for future research, is a matter of outstanding importance to motion picture circles." David Sarnoff stated that "he did not know who would be president of the new company and he did not know when he [the president] would be appointed, or announced." Employees of the various companies were assured that there would be "a minimum of unsettling of the present personnel."

The new corporation's executive positions were filled in the final month of 1928. Some were surprised when Kennedy did not become the first leader of RKO. Instead, Hiram Brown, whose experience included the public utilities field and the leather industry but nothing remotely related to show business, was named president of the Radio-Keith-Orpheum Corporation. David Sarnoff explained his selection of Brown:

The Radio-Keith-Orpheum Corporation is building upon a foundation that has no exact parallel in the amusement field. The new company is associated with the Radio Corporation of America and its subsidiary, the RCA Photophone Company; with vaudeville by ownership of the Keith-Albee-Orpheum Corporation; with motion picture production, through acquisition of the FBO Productions Company; and with broadcasting, through the cooperation to be given by the National Broadcasting Company.

The existing personnel of the enlarged Radio-Keith-Orpheum Corporation already includes the entertainment, picture production and theatre experience necessary to the successful operations of the company. It is evident, therefore, that the primary requirement for the administrative task involved in such a combined effort ... calls for great coordinating and executive ability. The board of directors believe that the company is fortunate in obtaining the services of an administrator whose capacity has been so thoroughly proven in other fields. Mr. Brown will have the advice, support and aid of all the directors. It is my own expectation to maintain an active interest in the affairs of the company and to work closely with Mr. Brown.

Hiram Brown's entry into the entertainment field was not greeted with such unbridled enthusiasm by Martin Quigley, publisher of the Exhibitors Herald and Motion Picture World. While admitting that business executives like Brown could "enrich" the industry, Quigley cautioned Brown to study "the regrettably large number of instances outside executives have come into the industry with little regard and little respect for things as they are, and for the personalities who occupy leading positions in the industry." Quigley's advice was quite sensible. The movie business bore little resemblance to the leather trade or public utilities; indeed, it was a unique industry with demands that rarely cropped up in other professional fields. Hiram Brown needed to do plenty of homework to catch up with the seasoned executives who ran the other Hollywood companies.

Joseph I. Schnitzer became the president of the film production company, still named FBO at the time. Schnitzer, unlike Brown, was well acquainted with the movies. He had begun his career as manager of the Des Moines branch of the Pittsburgh Calcium Light Film Company during the early days of American cinema. After serving as general manager of Universal, he was president of Equity Pictures from 1920 to 1922. From there he moved to R-C, then FBO, where he was the ranking vice-president when the merger was announced. Although Schnitzer had supervised film production at various points in his career, he would cede this responsibility to William LeBaron, who was retained as production chief. In addition, Lee Marcus was named vice-president of FBO and B.B. Kahane, its secretary-treasurer. Both of these men would play more important roles than Schnitzer in RKO's subsequent history.

Joseph Kennedy resigned as president and chairman of the board of FBO and also gave up his chairmanship of the K-A-O board. To outsiders, it probably appeared that Kennedy was tiring of the vicissitudes and wacky personalities of the movie business. In the midst of the whirlwind negotiations of 1928, Kennedy had organized a new company around Gloria Swanson called Gloria Productions, Incorporated. Erich Von Stroheim was engaged by Gloria Productions to direct Swanson in Queen Kelly, resulting in one of "the costliest misadventures of the twenties." The picture, whose budget ultimately ballooned to approximately $800,000, turned out to be unreleasable.

But the real reason Joe Kennedy would play no active role in RKO's future was that David Sarnoff did not trust him. Sarnoff had spent enough time with Kennedy to recognize that the man from Boston was a profiteer. Kennedy's personal fortune, which the RKO deal had enriched by more than $4million, was his only concern. Sarnoff wanted to work with builders, men with vision determined to make this new company into an outstanding success. He sought executives with values that mirrored his own. Joe Kennedy did not fit the mold.

The formation of RKO was unique in Hollywood history, but it did not take place in a vacuum. The year 1928 will be remembered as a time of frantic conversion to sound and the beginning of a consolidation trend that led to the dominance of eight major movie companies. The basic thrust of these companies was theater acquisition. Warner Bros., for example, bought the Stanley circuit in September 1928. The deal gave the Warners two hundred theaters and was worth $100million. Paramount, Fox, and MGM (the last through the Loew's organization) also increased the number of outlets for presentation of their product, for the belief at this time seemed to be that no company could control too many houses. The accumulation of theaters continued in 1929 and was not even completely quelled by the stock market crash in October of that year. Many of these corporations (including RKO) would regret their profligate acquisitiveness when the Great Depression finally started to pummel the movie business.

Initially, FBO's subpar production history appeared to be of little concern to David Sarnoff. He understood the company had always made movies on the cheap, and he was prepared to give LeBaron a budget sufficient to create better product and upgrade its reputation. Indeed, Sarnoff had big plans. Although he had created RKO primarily to make RCA a player in the sound equipment business, he believed that someday a giant entertainment octopus would emerge from the arrangement, combining talking pictures, vaudeville shows, radio broadcasts (RCA controlled NBC), and television (then in the experimental stage at RCA) into a mutually symbiotic package. A man of extraordinary vision, David Sarnoff could foresee the world of show business conglomerates that dominate public entertainment today. Unfortunately, he could not foresee the economic cataclysm that would soon bring the bullish business environment of late-1920s America to a shocking conclusion; the stock market crashed during the week in which RKO was celebrating its first birthday. Soon afterward, Sarnoff found himself working day and night to lead RCA through difficult times, able to pay only cursory attention to RKO. Lesser men would pilot the new movie concern through the Depression.