Vertical Integration is Profitable!
In 1948, the U.S. government took Hollywood to court. To be precise, it took the "big five" studios to court under the Sherman Anti-Trust laws, alleging the movie behemoths were operating illegal monopolies. The government won the case, signaling the beginning of the end of the so-called "studio system" of Hollywood's Golden Age.
It all started in the 1920s when a small group of powerful studios began a process economists like to call "vertical integration" [source: Hansen]. This is a fancy way of saying they controlled the movie business from script to theater seat. One by one, producer-distributors began buying up theaters, and by 1929 the five majors (Paramount, Fox, MGM, RKO and Warner Bros.) who would rule Hollywood for the next two decades were established and vertically integrated from top to bottom.
When these five went about making a film, they used their in-house writers to craft scripts for their in-house directors to put their in-house actors on film that would be cut by their in-house editors into features that would then play in the theaters they owned across the country.
Vertical integration was hugely profitable for the majors, and while scores of classic films came out of the studio system, there was also a lot of dross. Part of the problem was that the studios used a practice called "block booking," whereby a theater would be obliged to buy a set of five films, one of them good and the rest not. It was a system Life magazine called "million-dollar mediocrity" in an article celebrating the end of the studio system [source: Hodgins].