The Panic of 1893 devastated banks and investors all over the country, which took a full decade to recover from its financial impact. It also affected Edison, who was forced to lay off 240 workers at the Edison Phonograph Works and curtail the activities of his less profitable companies. The good news was that Edison discovered a new, lucrative field of interest that same year: the motion picture business.

The first person to shoot motion pictures with a single camera was a French physiologist named Etienne-Jules Marey. In 1882, he invented a camera that circulated twelve times per second and allowed for twelve exposures. Edison was the first to develop a commercial motion picture machine in the late 1880s. Ironically, he was primarily interested in increasing the value of the phonograph by uniting it with a set of projected photos. He had no plans to develop a new medium.

Edison actually assigned the project to William Dickson, a young man working in the West Orange facility. Dickson first propped up pictures on a rotating cylinder as a crude projection device. This did not prove successful until he stumbled upon the use of celluloid film. Celluloid film was first invented by George Eastman, the inventor of the Kodak camera. Dickson added perforations to the edge of the strip to allow it to pass through a projection device. This breakthrough allowed for the development of the first motion picture camera and projector.

After Dickson developed the basic technology, Edison worked with him to perfect the sound reproduction and image quality. He filed a patent for the Kinetograph, used to take pictures, and the Kinetoscope, used for viewing pictures, in 1891. Although he was busy with the ore-milling project and did not get a chance to effectively market and package the new inventions for a few years, the Kinetoscope was the first commercially used viewing technology. They were placed in viewing parlors, called Nickelodeons, which charged customers twenty- five cents admission to peer into each machine. The first parlor was opened in Manhattan in April 1894.

Although the Kinetoscopes were instantly successful, trouble heated up when competitors began pushing for the development of a screen projection camera and Edison's relationship with Dickson deteriorated. Dickson left West Orange during the summer of 1895 and went on to develop the first screen projection camera, the Biograph. Edison's response was to enter into business with a new partner, Thomas Armat, a Washington, D.C. realtor who had designed a projector named the Vitascope. They entered into an agreement that had Edison marketing the Vitascope under his own name. The projector debuted on April 23, 1896.

Unfortunately, it quickly became clear that the motion picture business was going to be a hot market. A large number of inventors were involved in the development of the technology and there were a great many conflicting patent claims. By 1900 there were some 500 legal actions, 200 of them pending, on patent claims related to motion pictures. Even Armat, who grew angry when Edison claimed the Vitascope as his own, sued Edison in court.

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