The Laemmles lose control

Universal's forays into high-quality production spelled the end of the Laemmle era at the
studio. Taking on the task of modernizing and upgrading a film conglomerate in the depths of
the depression was risky, and for a time Universal slipped into receivership. The theater chain
was scrapped, but Carl, Jr. held fast to distribution, studio and production operations.

The end for the Laemmles came with a lavish version of Show Boat (1936), a remake of its
earlier 1929 part-talkie production, and produced as a high-quality, big-budget film rather
than as a B-picture. The new film featured several stars from the Broadway stage version,
which began production in late 1935, and unlike the 1929 film was based on the Broadway
musical rather than the novel. Carl, Jr.'s spending habits alarmed company stockholders.
They would not allow production to start on Show Boat unless the Laemmles obtained a loan.
Universal was forced to seek a $750,000 production loan from the Standard Capital
Corporation, pledging the Laemmle family's controlling interest in Universal as collateral. It
was the first time Universal had borrowed money for a production in its 26-year history. The
production went $300,000 over budget; Standard called in the loan, cash-strapped Universal
could not pay, Standard foreclosed and seized control of the studio on April 2, 1936.

Although Universal's 1936 Show Boat (released a little over a month later) became a critical
and financial success, it was not enough to save the Laemmles' involvement with the studio.
They were unceremoniously removed from the company they had founded. Because the
Laemmles personally oversaw production, Show Boat was released (despite the takeover)
with Carl Laemmle and Carl Laemmle Jr.'s names on the credits and in the advertising
campaign of the film. Standard Capital's J. Cheever Cowdin had taken over as president and
chairman of the board of directors, and instituted severe cuts in production budgets. Joining
him were British entrepreneurs C.M. Woolf and J. Arthur Rank, who bought a significant
stake in the studio.[20] Gone were the big ambitions, and though Universal had a few big
names under contract, those it had been cultivating, like William Wyler and Margaret
Sullavan, left.

Meanwhile, producer Joe Pasternak, who had been successfully producing light musicals
with young sopranos for Universal's German subsidiary, repeated his formula in America.
Teenage singer Deanna Durbin starred in Pasternak's first American film, Three Smart Girls
(1936). The film was a box-office hit and reputedly resolved the studio's financial problems.
The success of the film led Universal to offer her a contract, which for the first five years of
her career produced her most successful pictures.

James Stewart and Marlene Dietrich in Destry Rides Again (1939)

When Pasternak stopped producing Durbin's pictures, and she outgrew her screen persona
and pursued more dramatic roles, the studio signed 13-year-old Gloria Jean for her own series
of Pasternak musicals from 1939; she went on to star with Bing Crosby, W. C. Fields, and
Donald O'Connor. A popular Universal film of the late 1930s was Destry Rides Again (1939),
starring James Stewart as Destry and Marlene Dietrich in her comeback role after leaving
Paramount.

By the early 1940s, the company was concentrating on lower-budget productions that were
the company's main staple: westerns, melodramas, serials and sequels to the studio's horror
pictures, the latter now solely B pictures. The studio fostered many series: The Dead End
Kids and Little Tough Guys action features and serials (1938–43); the comic adventures of
infant Baby Sandy (1938–41); comedies with Hugh Herbert (1938–42) and The Ritz Brothers
(1940–43); musicals with Robert Paige, Jane Frazee, The Andrews Sisters, and The Merry
Macs (1938–45); and westerns with Tom Mix (1932–33), Buck Jones (1933–36), Bob Baker
(1938–39), Johnny Mack Brown (1938–43); Rod Cameron (1944–45), and Kirby Grant
(1946–47).

Universal could seldom afford its own stable of stars, and often borrowed talent from other
studios, or hired freelance actors. In addition to Stewart and Dietrich, Margaret Sullavan, and
Bing Crosby were two of the major names that made a couple of pictures for Universal
during this period. Some stars came from radio, including Edgar Bergen, W. C. Fields, and
the comedy team of Abbott and Costello (Bud Abbott and Lou Costello). Abbott and
Costello's military comedy Buck Privates (1941) gave the former burlesque comedians a
national and international profile.

During the war years, Universal did have a co-production arrangement with producer Walter
Wanger and his partner, director Fritz Lang, lending the studio some amount of prestige
productions. Universal's core audience base was still found in the neighborhood movie
theaters, and the studio continued to please the public with low- to medium-budget films.
Basil Rathbone and Nigel Bruce in new Sherlock Holmes mysteries (1942–46), teenage
musicals with Gloria Jean, Donald O'Connor, and Peggy Ryan (1942–43), and screen
adaptations of radio's Inner Sanctum Mysteries with Lon Chaney, Jr. (1943–45). Alfred
Hitchcock was also borrowed for two films from Selznick International Pictures: Saboteur
(1942) and Shadow of a Doubt (1943).

As Universal's main product had always been lower-budgeted films, it was one of the last
major studios to have a contract with Technicolor. The studio did not make use of the three-
strip Technicolor process until Arabian Nights (1942), starring Jon Hall and Maria Montez.
Technicolor was also utilised for the studio's remake of their 1925 horror melodrama,
Phantom of the Opera (1943) with Claude Rains and Nelson Eddy. With the success of their
first two pictures, a regular schedule of high-budget, Technicolor films followed.

Universal-International and Decca Records takes control

In 1945, J. Arthur Rank, who already owned a stake in the studio since almost a decade
before, hoping to expand his American presence, bought into a four-way merger with
Universal, the independent company International Pictures, and producer Kenneth Young.
The new combine, United World Pictures, was a failure and was dissolved within one year.
Rank and International remained interested in Universal, however, culminating in the studio's
reorganization as Universal-International; the merger was announced on July 30, 1946.[21]
William Goetz, a founder of International along with Leo Spitz, was made head of production
at the renamed Universal-International Pictures, a subsidiary of Universal Pictures
Company, Inc. which also served as an import-export subsidiary, and copyright holder for
the production arm's films. Goetz, a son-in-law of Louis B. Mayer decided to bring "prestige"
to the new company. He stopped the studio's low-budget production of B movies, serials and
curtailed Universal's horror and "Arabian Nights" cycles. He also reduced the studio's output
from its wartime average of fifty films per year (which was nearly twice the major studio's
output) to thirty-five films a year.[22] Distribution and copyright control remained under the
name of Universal Pictures Company Inc.

Play media
Universal-International Studio, 1955

Goetz set out an ambitious schedule. Universal-International became responsible for the
American distribution of Rank's British productions, including such classics as David Lean's
Great Expectations (1946) and Laurence Olivier's Hamlet (1948). Broadening its scope
further, Universal-International branched out into the lucrative non-theatrical field, buying a
majority stake in home-movie dealer Castle Films in 1947, and taking the company over
entirely in 1951. For three decades, Castle would offer "highlights" reels from the Universal
film library to home-movie enthusiasts and collectors. Goetz licensed Universal's pre–
Universal-International film library to Jack Broeder's Realart Pictures for cinema re-release
but Realart was not allowed to show the films on television.

The production arm of the studio still struggled. While there were to be a few hits like The
Killers (1946) and The Naked City (1948), Universal-International's new theatrical films
often met with disappointing response at the box office. By the late 1940s, Goetz was out,
and the studio returned to low-budget and series films such as Ma and Pa Kettle (1949), a
spin off of the studio's 1947 hit The Egg and I and The inexpensive Francis (1950), the first
film of a series about a talking mule, became mainstays of the company. Once again, the
films of Abbott and Costello, including Abbott and Costello Meet Frankenstein (1948), were
among the studio's top-grossing productions. But at this point Rank lost interest and sold his
shares to the investor Milton Rackmil, whose Decca Records would take full control of
Universal in 1952. Besides Abbott and Costello, the studio retained the Walter Lantz cartoon
studio, whose product was released with Universal-International's films.

In the 1950s, Universal-International resumed their series of Arabian Nights films, many
starring Tony Curtis. The studio also had a success with monster and science fiction films
produced by William Alland, with many directed by Jack Arnold and starring John Agar.
Other successes were the melodramas directed by Douglas Sirk and produced by Ross
Hunter, although for film critics they were not so well thought of on first release as they have
since become. Among Universal-International's stable of stars were Rock Hudson, Tony
Curtis, Jeff Chandler, Audie Murphy, and John Gavin.
Although Decca would continue to keep picture budgets lean, it was favored by changing
circumstances in the film business, as other studios let their contract actors go in the wake of
the 1948 U.S. vs. Paramount Pictures, et al. decision. Leading actors were increasingly free
to work where and when they chose, and in 1950 MCA agent Lew Wasserman made a deal
with Universal for his client James Stewart that would change the rules of the business.
Wasserman's deal gave Stewart a share in the profits of three pictures in lieu of a large salary.
When one of those films, Winchester '73 (1950), proved to be a hit, the arrangement would
become the rule for many future productions at Universal, and eventually at other studios as
well.

MCA takes over

Ceremonial gate to Universal Studios Hollywood (the theme park attached to the studio lot)

In the early 1950s, Universal set up its own distribution company in France, and in the late
1960s, the company also started a production company in Paris, Universal Productions
France S.A., although sometimes credited by the name of the distribution company,
Universal Pictures France. Except for the two first films it produced, Claude Chabrol's Le
scandale (English title The Champagne Murders, 1967) and Romain Gary's Les oiseaux vont
mourir au Pérou (English title Birds in Peru), it was only involved in French or other
European co-productions, including Louis Malle's Lacombe, Lucien, Bertrand Blier's Les
Valseuses (English title Going Places, 1974), and Fred Zinnemann's The Day of the Jackal
(1973). It was only involved in approximately 20 French film productions. In the early 1970s,
the unit was incorporated into the French Cinema International Corporation arm.

By the late 1950s, the motion picture business was again changing. The combination of the
studio/theater-chain break-up and the rise of television saw the reduced audience size for
cinema productions. The Music Corporation of America (MCA), the world's largest talent
agency, had also become a powerful television producer, renting space at Republic Studios
for its Revue Productions subsidiary. After a period of complete shutdown, a moribund
Universal agreed to sell its 360-acre (1.5 km2) studio lot to MCA in 1958, for $11  million,
renamed Revue Studios. MCA owned the studio lot, but not Universal Pictures, yet was
increasingly influential on Universal's product. The studio lot was upgraded and modernized,
while MCA clients like Doris Day, Lana Turner, Cary Grant, and director Alfred Hitchcock
were signed to Universal contracts.