Each film studio maintained its own offices (or exchange as it was known) in every major city. The studios would send the films and their posters to all the exchanges and from there, they would be distributed to the surrounding theaters. The bigger city theaters would just go to the exchange and pick up the films and posters right before they would show them. If it was a big film they might order extra posters this wasy they could make a more elaborate display. Theaters in smaller towns would often receive their films via bus. The films would be in containers that would have the posters (often just one or two one-sheets and a set of lobby cards) tucked in a pouch on the outside of the container.
Back in the 1940's most theaters would show a film for 3 or 4 days (as part of a program that might include 2 features, a cartoon, a newsreel, and possibly a serial chapter), and then send it on (via bus) to the next theater. Often the theater manager would put the film on a late night bus right after his last showing and it would arrive at the next theater the following morning, in time to be displayed for that night's show. The film might go by bus through a circuit of many theaters before returning to an exchange. After the film returned to the exchange, it would go back out to other theaters, and often the posters had to be replaced, as they were torn and tattered from being put up and taken down several times.
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Editors note
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So you can understand why posters from before 1940 are extremely rare. Theater owners couldn't give their posters to collectors, no matter how hard they begged, because they were needed at the next theater. This whole system of having to deal with each studio separately might sound very inefficient, but remember that in the 1920s and 1930s many theaters were owned by the studios and so only showed that studio's product; and most of the independents would only get their films from a couple of studios, so it wasn't that complicated.
But if all the posters were returned with the films, how are there any posters at all from before 1940? For one thing, one type of poster, window cards (14" x 22") were bought in large quantities by an individual theater and (after they added their name and play dates to the top) distributed to store windows around town. Those were given away after the film was done playing. Another way they survive is in the backs of old picture frames, for framers would often use window cards (obtainable for free) as backing boards.
But as for other posters remaining today, a huge amount come from various countries, for those did not have to be returned to the U.S.A.; at the time, the value of the posters was less than the cost of the postage to return them. There have been huge finds of pre-1940 U.S. posters in Canada, Columbia, and many other countries.
In addition there have been some great finds in the U.S., such as the Cozy Theater Collection in Los Angeles. This was a theater that maintained its own exchange of posters from the early 1930s to the 1950s for distribution to Los Angeles theaters. In 1968 the theater owner offered his entire collection of posters (containing tens of thousands of posters and lobby cards, and hundreds of thousands of stills) for sale for $25,000, and it was hard to find a buyer! At today's prices, the collection would sell for millions of dollars.
Other than the huge finds (which probably account for 90% of the pre-1938 posters known), posters also are sometimes found in one other main way. In the 1910s and 1920s (and to a lesser extent in the 1930s), builders would often look for material to put within the walls of buildings (or under the floors) to serve as insulation. Some enterprising builders hooked up with poster exchanges to take large amounts of outdated posters and put them in the walls of their new homes. These have been discovered by people having renovations done. Sometimes they are moldy and mildewed and require large amounts of restoration, but sometimes they are so tightly pressed together that they survive in relatively excellent condition.
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