He envisioned a nationwide distribution structure that would make states rights obsolete, and provide profit-sharing with producers to encourage filmmakers to concentrate on higher quality films that would yield higher box office.
During the pre-studio era (before the fall of the Edison Trust in 1915), movie releases were generally handled in one of two ways—either by states rights or by road show. But the methods proved ineffective for wide-scale feature distribution.
Under the Hodkinson system, the distributor would provide a cash advance to an independent producer to cover the costs of producing each feature film. The distributor then received the exclusive rights to the finished movie, using a network of exchanges to control distribution and marketing, and even offering to pay for the producer's film prints and advertising.
Hodkinson kept 35 percent of the box office as a distribution fee, and gave the rest of the profits back to the producer. Hodkinson discovered that by financing film producers, the distributor was guaranteed a steady stream of high-class pictures without ever having to operate a film camera, while the producers themselves made much more than they would under the states rights system. The Hodkinson distribution system proved so advantageous for all involved that, with slight modification, it has remained in full practice in Hollywood to this day.
Hodkinson immediately had all the independent producers such as Zukor and Lasky sign 5 year distribution contracts to assure availability for going nation wide.
Though the producers were far better off than they were under states rights, they soon started resenting the amount of profits they shared with the Hodkinson. So Adolph Zukor devised a plan, involving his friend Lasky, that would turn the tables on Hodkinson.
Only one year into his five-year contract—and desperately wanting out—Zukor surprisingly renegotiated a new 25 year deal with Paramount on March 1, 1915. By May, Zukor and Lasky had sold a 51 percent interest in their production companies to Paramount Pictures. This made Zukor subordinate to Hodkinson's Paramount; but it also made Zukor and Lasky cash-rich, and opened up a newly extended line of credit that allowed them to secretly accumulate Paramount stock.
Zukor and Lasky together acquired a majority of the capital stock of Paramount Pictures, Inc. They took control of Paramount and ousted Hodkinson. New directors were elected, followed by the forced resignation of W. W. Hodkinson and his treasurer Raymond Pawley on June 13, 1916. Zukor instituted his own president Hiram Abrams as the new head of Paramount.
Zukor decided that controlling the stars would control the box offices, so Paramount went through a huge amount of mergers and acquistions to acquire the top celebrities of the day. As he gained more control of the top box office stars he started raising the fees to the exhibitors, and when they balked, he would take out ads in their local newspapers criticizing them for keeping the top name stars from the people.
This hard line tactic caused a lot of resentment to the point that many independents organized to form First National to combat him. Complaints were filed against Zukor as early as August 30, 1921 for some of his tactics including block booking.
While this was going on, Zukor started a campaign of acquiring the theaters to control them. Within a few years, 3 or 4 studios owned almost all of the first run theaters in the US. Then the battleground became each studio blocking of celebrities to only 'their' theaters.
The FTC continued investigations until it came to a head in early 1927, when the FTC ruled against Zukor and gave Zukor, Famous Players-Lasky Corp. and Jesse Lasky 60 days to comply with a reformation. In April, 1927, Zukor changed the name of the company to Paramount-Famous Lasky Corporation and made several maneuvers. Zukor place Barney Balaban as president of Paramount. Balaban has headed the successful Balaban & Katz chain that Zukor had acquired the year before.
In 1927, Paramount signed Dave & Max Fleischer to provide the animation for the Paramount theaters.
In 1930, the company had another name change to Paramount-Publix Corp because of the huge Publix theater chain that was acquired. But by 1933, the over-extension placed Paramount Publix into bankruptcy.
Miraculously, the bank re-organizer kept Zukor but made Balaban chairman. By 1935, Zukor brought the studio out of bankruptcy and Zukor reorganized the company as Paramount Pictures, Inc.
Paramount cut back on the budgets and produced more moderate films which carried them into the 1940s and through the war. After WWII, the Federal Trade Commission and the Justice Department decided to reopen their case against the five studios that had integrated studio-theatre corporations. By 1948, a ruling was made that each would have to divest and separate their studios and theater chains.
In December 1949, Paramount split into 2 companies - Paramount Pictures Corp. for production and distribution and United Paramount Theaters, Inc. for theater operation.
With the loss of the theater chain, Paramount Pictures went into a decline, cutting studio-backed production, releasing its contract players, and making production deals with independents.
By the early 1960s Paramount's future was shakey and on October 19, 1966 Paramount was acquired by Gulf & Western Industries. Charles Bluhdorn from Gulf & Western took control and placed Robert Evans as head of production.
In 1970, Paramount and Universal formed Cinema International Corp (CIC) to handle their international distribution.. MGM joined a few years later.
In 1974, Evans left and production head was handed over to Richard Sylbert, which handed it over to Barry Diller two years later.
Paramount's successful years extended into the 1980s with Ned Tanen leaving Universal to become president of Paramount.
In 1989, when Charles Bluhdorn died, Martin Davis took over. He sold off all the other Gulf & Western properties and changed the company name to Paramount Communications, Inc. to focus on the entertainment industry. Davis used the influx of cash to buy television stations and the Kings Entertainment amusement parks, changing their names to Paramount Parks.
In 1992, Viacom purchased Paramount and it's holdings for approximately $10 billion. Paramount has continued with growth and success.