8
Orders of Magnitude II: Costs, Agents, Stars

When you don't get participation, your front money naturally accelerates….The best participation is if you can get gross from every boxoffice dollar. The next best is gross after break-even, which means when the picture has paid back its negative cost and its advertising. After that, profits….So if you're a Robert Redford, you may get $2 million [in front money] for it, but what if suddenly the picture turns out to be Jaws?

Sue Mengers, ICM agent, March 5, 1976

Adefining feature of 1970s Hollywood filmmaking was rapidly escalating production and marketing costs. Average negative costs inflated from $1.9 million in 1972 to $8.9 million in 1979, an increase of over 450 percent in less than seven years. (In the preceding decade, it was estimated that film costs had nearly tripled between 1960 and 1970.)¹ Indeed, in 1980 Dennis Stanfill, chairman of 20th Century-Fox, predicted that the average cost of motion pictures would be $25 million by 1985—$14 million to produce and $11 million to market.² (He was too sanguine: the actual figures for 1985 were $16.8 and $12 million.)³ There were several major reasons for this rise, including an annual monetary inflation rate in excess of 7 percent, resulting mainly from the cartelization of international oil prices in 1973, which impacted interest rates on production loans from banks.

Laying Off Risk

For most of their history, the studios had taken the up-front risks of production upon themselves, but, increasingly during the 1970s, they sought to hedge their investments through coproduction, advance sales to network television and cable, and the extraction of large minimum guarantees from exhibitors.⁴ The most important means of laying off risk, however, was the turning to outside investors for production capital, especially in the form of tax shelters. In these configurations, movies could be made on money from people who did not necessarily want a profit, since the main purpose of their investment was tax relief through the creation of artificial losses. By putting venture capital into a "production service company," wealthy investors could take tax deductions for the investment itself and also produce paper losses by claiming accelerated depreciation on the unreleased film(s). One such company was Persky-Bright, which the New York Times called "the one major [industry] phenomenon—besides the disaster-film rage—of the 70s."⁵ "Production Services by Persky-Bright" was a credit that appeared on many notable 1970s films distributed by Columbia—for example, The Last Detail (Hal Ashby, 1973), California Split (Robert Altman, 1974), For Pete's SAke (Peter Yates, 1974), Funny Lady (Herbert Ross, 1975), Shampoo (Hal Ashby, 1975), The Missouri Breaks (Arthur Penn, 1976), and Taxi Driver (Martin Scorsese, 1976). Founded by Lester Persky in 1973, this company and others like it (most formed briefly for the production of individual films) were responsible for financing 20 percent of all film starts between 1973 and 1976, and added about $150 million in production capital during the same period. In 1975 alone, more than half of the total films in production, completed, or released by Columbia, Warners, Paramount, United Artists, American International Pictures, and Allied Artists contained some tax-sheltered funds.⁶ Shelters sustained the production schedules of several major studios, virtually keeping Columbia from bankruptcy, until September 1976 when Congress passed a tax reform bill that limited deductions for investment to the amount at risk (thus eliminating the "leverage" incentive in outside film investment and several other forms of high-risk speculation—that in real estate, livestock feeding, oil and gas, etc.).

While it lasted, tax-shelter financing created a situation in which, to paraphrase Michael Pye, it no longer mattered that nine out of ten movies lost money, because investors and studios were backing tax-shelter movies for reasons other than the direct and certain hope of profit.⁷ Persky-Bright, for example, would assemble large packages of films acquired from various producers and sell debentures to individual investors that cost around $150,000 but could yield more than $400,000 in tax deferrals.⁸ Furthermore, even if a tax-shelter movie like Shampoo (1975)—which returned $23.8 million on a $10 million investment (a $4 million negative cost, plus a $6 million marketing budget)—made money, most of it went back to the shelterers. Because they minimized risk, tax-shelter projects appealed to the banks, who would lend money to increase the sheltered funds (often by three or four times) and complete the financial package that subsidized production. But the presence of outside money had the unanticipated effect of dramatically inflating production costs. As A. D. Murphy described it in Variety: "Agents see the big money raised and then demand ever greater amounts for their clients. They know you have fifty million in outside money. The outer bounds of financial limits are broken." This ripple effect, he concluded, produced "a cancer on the business,"⁹ whose most prominent feature was soaring star salaries—ironically, salaries commanded by stars whose very presence in a film was seen as a hedge against risk. This was what the banks meant when they said they wanted projects with "upside potential," which Peter Guber facetiously defined as "Robert Redford and Paul Newman together, with Barbra Streisand singing, Steve McQueen punching, Clint Eastwood jumping, music by Marvin Hamlisch, all in stereo…."¹⁰

"Bankable" Stars

In the late sixties, reacting to such fruitless superstar deals as the one in which Elizabeth Taylor reputedly got $1 million for her role in Fox's disastrous Cleopatra (1963), the banks saw things differently. In 1969, for example, a senior official at the Bank of America told Alexander Walker, "Established stars no longer bring any insurance to a film production,"¹¹ and in an article published in the Journal of the Producers Guild of America at about the same time ("A Banker Looks at the Picture Business—1971"), A. H. Howe argued that stars were not "bankable" in the sense that the films in which they appeared could be guaranteed to make money.¹² Even as late as 1976, William F. Thompson, Senior Vice President of the First National Bank of Boston, was telling Patrick McGilligan that "stars don't bring the people to the box office."¹³ Yet no one inside the industry has ever seriously doubted that stars can be counted on to bring money into the box office, some more than others. (Two major indices of star profitability are the annual rankings compiled by Variety on the basis of total domestic grosses, and the International Motion Picture Almanac on the basis of a poll conducted among several hundred motion-picture theater owners.)¹⁴ As Martin Dale points out, stars represent one of the few "brand names" in the business, and their appearance in a film is effectively a form of "character licensing" whereby they "endorse" that particular product.¹⁵ In an era of rapidly escalating blockbuster budgets, studios were more unwilling than ever to take casting risks. The wisdom of bankers notwithstanding, it became an article of faith in 1970s Hollywood that successful movies needed stars to provide a hedge against risk every bit as much as they needed outside investors to help pay for the soaring cost of talent—a calculus that obviously created a vicious circle of mutually escalating costs.

Several factors besides putative bankability account for this rise. Because the supply of acting talent is relatively inelastic, an increase in demand tends to drive up prices, and the entry of the "instant majors" into production-distribution in the late 1960s served this purpose well. The mid-1970s "product shortage" exacerbated the situation, since fewer new films each year created fewer new stars, and studio chiefs vied to outbid each other for the services of existing ones. As independent producer Peter Bart told the New York Times in 1976, "With everybody trying to get a blockbuster, they're all fighting for the same five or six stars and the same eight or nine star directors. Because so many people are bidding for their services, the stars can keep asking for more, and work as often or as infrequently as they choose."¹⁶ Infrequency was an option strategically chosen by many during the 1970s when, permanently liberated from the bondage of studio contracts, stars were free for the first time to steer the course of their own careers. As entrepreneurs of their own images, they came to value exclusivity through fear of overexposure and a pragmatic desire to increase the demand for their services. Dustin Hoffman, who achieved superstardom in the wake of The Graduate (Mike Nichols, 1967), averaged one film per year during the decade. (In 1972, for example, he made only the Italian comedy Alfredo, Alfredo [Pietro Germi]; in 1973, Papillon [Franklin J. Schaffner]; in 1974, Lenny [Bob Fosse]; and in 1976, All The President's Men [Alan J. Pakula].) Barbra Streisand, one of the era's most bankable stars, made only nine films during the 1970s. On the other hand, Elliott Gould, who began the decade as a New Hollywood icon and major star, is widely thought to have compromised his career through overexposure. (Gould appeared in eleven films from 1968 to 1973, when he was on the cover of Time magazine; he was so prominent during that five-year period that Ingmar Bergman chose him above all other American actors for the male lead in The Touch [1971], but by 1975, the public seemed to have tired of him, and he appeared in films only sporadically in the latter part of the decade.)¹⁷ By deliberately limiting the supply of their services, then, most stars of the 1970s dramatically inflated their worth as "pre-sold" elements in blockbuster packaging, and they did so at a time when Hollywood was producing fewer and fewer films each year.

Agency Control

Another factor in escalating star salaries was the rise of a new breed of aggressively competitive talent agencies, in the wake of MCA's withdrawal from the business in 1962 (as mandated by a Justice Department antitrust suit) in order to keep its Universal film and television studios. Shortly thereafter several former MCA agents, including Freddie Fields and David Begelman, founded Creative Management Associates (CMA—named so that it would have the same initials as MCA), taking with them such star clients as Judy Garland, Henry Fonda, Paul Newman, and Joanne Woodward. Whereas MCA had counted on volume, CMA was conceived as a boutique agency for stars; Fields and Begelman were known to be interested only in performers who could generate at least $100,000 a year in commissions, and by 1968 CMA had annual revenues of $11 million.¹⁸ (Within several years, Fields was negotiating development deals with the automatic power to green light a picture if any one of five actors he handled said yes to a script; in 1974, for example, he personally brought Fox and Warners together to coproduce The Towering Inferno [John Guillermin], and cast it entirely from his own client list.)¹⁹ After becoming the most powerful agency in Hollywood in the early 1970s, in December 1975 CMA was acquired by Marvin Josephson Associates, a small conglomerate that included a TV production firm, a concert-booking bureau, and International Famous Agency (IFA—formerly Ashley Famous Agency, headed by Ted Ashley until he became Warners' CEO in 1969). Josephson merged IFA, which specialized in television packages, with CMA to become International Creative Management (ICM), forming a company second in size only to the venerable William Morris Agency, which had been founded in 1898 to represent stage talent and grew into one of the most powerful talent agencies in Hollywood during the studio era and beyond. With 125 agents to Morris's 139, and earnings that would soon exceed Morris's $20 million a year, ICM was a formidable presence in the New Hollywood and for a while the older agency was its only competition.²⁰ At mid-decade, owing largely to the prowess of its top agent Stan Kamen, Morris was still very influential in the industry, although its power would decline after Michael Ovitz and four other agents left the company in January 1975 to form Creative Artists Agency (CAA), financing it with a $100,000 line of credit that two of them secured with their homes.²¹

Experienced mainly in television packaging, Ovitz, Ron Meyer, Bill Haber, Rowland Perkins, and Mike Rosenfeld had been proteges of veteran Morris agent Phil Weltman. They left Morris when their mentor was fired, ostensibly for advancing age.²² The foundational concept of CAA was thus loyalty and teamwork, combined with a fierce aggressiveness in stealing other agents' clients that earned it the sobriquet of "the wolfpack." Ovitz's corporate model was MCA streamlined as a boutique agency for stars. As Connnie Bruck would write in a New Yorker profile, "If CAA was in many respects an adaptation of MCA, it was MCA with a New-Age twist; the ethos that Ovitz preached was collectivism—a blend of team sports and Eastern-style management techniques somewhat reminiscent of the human potential movement of the early seventies."²³ CAA initially had a weak client list, taking with it from Morris not a single star, but a merger with the Martin Baum Agency in October 1976 brought it names like Sidney Poitier, Julie Andrews, Blake Edwards, Richard Harris, and Dyan Cannon.²⁴ By 1979, thanks largely to Ovitz's samurai-like tenacity and hypnotic powers of persuasion, CAA had become a major force in the industry, representing Robert Redford, Paul Newman, Dustin Hoffman, Sean Connery, Barbra Streisand, and about 700 others.²⁵ Among them, these three agencies—William Morris, International Creative Management, and Creative Artists Associates—dominated deal-making and packaging in the New Hollywood with a thoroughness that was very nearly complete; and talent representation, which had assumed a distinctly corporate character during the 1960s, became a central element in the management structure of the industry during the 1970s.

The Agent Package

The new power of agents stemmed from the studios' diminishing role as developers and hands-on producers—as opposed to financiers and distributors—of new projects. Once mere middlemen working for a flat percentage, agents now rushed into the vacuum left by the majors to become proprietary packagers and producers of films, with options to share in their profits. Increasingly they would bundle a property, writer, director, and star(s), all represented by their agency, together into a discrete package for sale to a distributor. The result was often a film made for the benefit of the packager rather than for some reason of merit or synergy inherent in the project itself. In fact, it became common in the 1970s to distinguish between films that were "packaged" with the main intent of maximizing agency profit and those that were "cast"—packaged only in the broad sense of bringing together the most desirable elements to produce a film. Aljean Harmetz sketched a scenario of the former in 1978: "The agent of two desirable stars packages them with a mediocre director he also represents gaining for himself 10 percent of three salaries instead of two."²⁶ (By the late 1970s, the agent would also collect 10 percent of his client's profit participation points; and for telefilm productions, big agencies could demand a "packaging fee," taking 6 to 10 percent of the entire budget instead of individual commissions from its clients.)²⁷ The agent might also produce, building his salary into the picture's budget; increasingly agents, entertainment attorneys, and business managers were becoming the producers, executive producers, or associate producers of their stars' films. Jon Peters, for example, who was Barbra Streisand's business manager during the 1970s (as well as her boyfriend and former hairdresser) was usually hired as the producer of her films, and at one point actually convinced Warners that he should direct the remake of A Star Is Born (1976).²⁸ (Calmer heads prevailed, and Frank Pierson did the job, although it's hard to think that Peters could have done any worse.)

The most famous example of agent-packaging in the 1970s is Jaws, where the rights to the novel, author-screenwriter Peter Benchley, director Steven Spielberg, and producers Richard Zanuck and David Brown were packaged by ICM and sold to Universal (with the agency collecting 10 percent of 54 percent of the film's profits, as owned collectively by its clients);²⁹ but the film was ultimately cast by Spielberg himself, resulting in the highly successful but offbeat combination of Richard Dreyfuss, Roy Scheider, and Robert Shaw.³⁰ As noted above, however, many films of the 1970s were packaged for no other reason than that an agent wanted two or more of his clients to work together to increase his fee (or her clients and fees—ICM's "super-agent" during this era was the legendary Sue Mengers, whose clients for 1976 alone included Barbra Streisand, Ryan and Tatum O'Neal, Peter Bogdanovich, Candice Bergen, Cher, Faye Dunaway, Michael Caine, George Segal, Bob Fosse, Mike Nichols, Gene Hackman, Sidney Lumet, Ali MacGraw, Arthur Penn, Cybill Shepherd, and Tuesday Weld, generating some $1.5 million in commissions).³¹ This practice resulted in some of the decade's most forgettable work, but occasionally even the most profit-driven packaging could have felicitous results. Young Frankenstein (1974), for example, was born when IFA agent Mike Medavoy suggested that his client Gene Wilder make a film (any film) with two other clients, Marty Feldman and Peter Boyle, and Wilder proposed a horror-film spoof on the basis of a four-page "treatment" he had done several months before. Medavoy then brought in two other clients, Michael Gruskoff and Mel Brooks, to produce and direct, respectively, and pitched the project as a $2.3-million package first to Columbia, which turned it down as too expensive, and then to Alan Ladd, Jr., at Fox, who optioned it.

Casting Companies and Completion Bonds

Two important elements of packaging that evolved during the 1970s and became part of the industry mainstream were the use of casting directors and completion guarantees. During the 1950s and 1960s, all of the major studios maintained casting departments, but by the mid-1970s the studios were making so few films that they could no longer afford the overhead. At this point, independent casting directors like Lynn Stalmaster, Mike Fenton, Jane Feinberg, and Joyce Selznick stepped into the vacuum, founding services like Stalmaster and Associates, Inc. and Fenton-Feinberg to outsource casting decisions.³² In collaboration with a film's director, these services would cast every speaking part, negotiate deals with the agents on salary and billing, clear the actor's good standing through the 43,000-member Screen Actors Guild (SAG), prepare contracts for all daily and weekly players (a studio's business affairs department usually drafted the contracts of major stars), make the actors' "first work call" (telling them when and where to report) and supervise voice-dubbing when principal photography was complete.³³ Fees for these services during the 1970s ranged between $6,000 and $20,000 per picture, and by the end of the decade casting directors were beginning to receive screen credit for their work. Casting directors frequently brought new talent into the industry that later rose to stardom, but they could only suggest lists of actors to producers and directors, who had the ultimate power to hire them, and their most vital contributions were in the casting of the smaller roles.

Like casting services, completion guarantee companies grew out of Hollywood's increasing reliance on independent production to supply a full year's schedule of films. Once production had left the studios, completion of a film on time and at or near budget became a major issue. Acting as financier-distributor rather than hands-on producer, the studio needed some means to assure a project's timely delivery to market. Studios might, for example, require a producer with other films in distribution to pledge income from them in order to complete delivery of the new film, or to pledge stocks and bonds or other securities against the film's completion pursuant to contract.³⁴ In the latter part of the decade, however, studios increasingly turned to completion guarantees from third parties who would have the right to take control of the production if the terms of the original agreement were not met. Such guarantees came to be known as "completion bonds," and they were written in the form of surety instruments to insure that a picture would come in on time and within 10 percent of its budget.³⁵ A number of companies were formed that specialized in completion bonds (Kurt Wollner's Film Finances and Bette Smith's Completion Bond Company are examples), typically charging producers a fee of about 6 percent of a film's budget, half of which was refunded if the guarantee was met; if not, the completion bond company kept the 6-percent premium, assumed control of the production, and paid its own money to complete the film.³⁶ By the mid-1980s, hundreds of films a year were covered by bond guarantees, and completion bond companies had acquired a good deal of power within the industry, owing not only to their "takeover positions" but to their vast files of financial reports and insider information about which directors and stars were "bondable" and which were not.

Agents As Producers

In strengthening their hand as financier-distributors, the majors had tacitly ceded control of production to independent producers and agents. In 1980, Jeff Berg, the new 34-year-old president of ICM, who had packaged both American Graffiti (George Lucas, 1973) for Universal and Star Wars (George Lucas, 1977) for Fox, described the transformation this way: "Studios today, for the most part, don't initiate material that can be transformed into motion pictures. Therefore, most of the projects that are produced are offered to the studios by filmmakers or writers, through their agents. The process of initiation and creation has changed. The studio is the bank; the agent is the talent."³⁷ The impact of these changes on production was profound, as Frank Yablans, president of Paramount from 1971 to 1975, recalled in a 1996 interview: "During my era in the early '70s…[you] got a script, you hired a director, you hired the actors, you made the movie. Now they did it backward. The package was put together before the movie was ready to get made, so the script became the slave to the process, rather than the other way around. It was a lazy man's way of making movies."³⁸ Fundamentally a negotiating tool for agents, the package offered studios an attractive combination of production elements lacking only finance capital to become "a major motion picture," and if the price was high, so too was the promise of reward. Furthermore, as Yablans noted, package deals reduced studio executive workloads by leaving the really tough parts of the blockbuster calculus to someone else.

The power of agents in the New Hollywood was such that by 1977 six of the seven majors were run by former agents, five of them graduates of CMA. (The latter included David Begelman, president of Columbia, 1977-1978; Mike Medavoy, vice president in charge of West Coast production for United Artists, 1974-1978; Alan Ladd, Jr., president of 20th Century-Fox, 1976-1979; Richard [Dick] Shepherd, senior vice president and worldwide head of production for MGM, 1976-1980; and Martin Elfand, executive vice president in charge of worldwide production at Warner Bros., 1976-1978. The sixth former agent heading a studio was Ted Ashley, founder of the Ashley Famous Agency, board chairman and CEO of Warners, 1969-1980.)

"The Art of the Deal"

The rise of agent-packaging was a clear index of how the balance of power over creative affairs was shifting away from the studios in favor of agents and stars. As David Puttnam remarked, agents were no longer "salesmen peddling their clients' wares to the studios; they had become key brokers in the industry, instrumental in getting pictures off the ground."³⁹ By the late 1970s, more films were initiated in agent's offices than at the studios, and the big agency heads had become more powerful than their studio and network counterparts. And the incentives were high.

Profit Participation: The Gross Point Deal

As budgets rose, so too did the fees agents could demand from the studios for their clients and demand from their clients for themselves. In addition to higher fees, agents also began the practice of negotiating for a percentage of the box-office gross. Ever since Lew Wasserman had negotiated a 50-percent share of the net profits from Universal's Winchester '73 (Anthony Mann, 1950) for Jimmy Stewart in 1950, stars had been able to demand a contractual share of a film's box-office net; and as early as the 1960s agents began taking 10 percent of their clients' profit participation points in addition to 10 percent of their fees. (Stewart's was actually an "adjusted gross" deal, since his percentage was guaranteed after the studio had deducted for negative costs, distribution, and overhead; as a result, the star earned more than $600,000 on a film that was produced for $917,374.)⁴⁰ But a percentage of the gross meant sharing in all of the film's income before deductions were made for any expenses except the exhibitor's share and the distribution fee, so that a gross-point participant would make money regardless of whether the film succeeded or failed. Furthermore, the percentage was calculated on the so-called "distributor's gross," which normally included all moneys received by the distributor for the exploitation of a film, including sales to ancillary markets like television and cable. This practice arose in part to combat the majors' notoriously mendacious book-keeping practices that used "studio overhead" and other hard-to-verify expenses (combined with outright cheating) as a way of concealing profits. In addition to overhead, often charged at a flat rate of 25 percent of actual production expenses and included as an accounting entry within the film's "negative cost," the studios also charged producers substantial penalty fees for going over budget (Alien [Ridley Scott, 1979] was fined $1.9 million by Fox),⁴¹ and they assessed interest on the negative cost at the rate of 125 percent of prime until the film broke even—a point commonly considered to have been reached when it returned 2.5 times its negative cost.⁴² All of these charges were assessed against profits before profit-sharing could begin. As Robert Evans remarked at the time: "To be successful as a profit participant, it's not enough to have a film that makes money. You have to have a blockbuster."⁴³ And sometimes not even then: for example, Fox declared a $4-million profit on its $11-million Alien, which was the fifth highest grossing film of 1979, only after it had returned $40.3 million in domestic rentals in July 1980.

Super-Star Leverage

Ultimately, however, it was the blockbuster syndrome and its obsession with risk reduction that led studios to bid up the price of talent during the decade. Major stars were especially important in securing foreign markets, which in the 1970s accounted for roughly half of a studio film's grosses. By 1977, the handful of superstars who were thought to guarantee box-office success both at home and abroad could command the then-unprecedented compensation of $1-2 million in salary plus a percentage of the gross receipts (sometimes as high as 20 percent). The mere presence in a package of figures like Clint Eastwood, Robert Redford, Barbra Streisand (considered the decade's only bankable female star, although by the end of it Jane Fonda had edged toward that status),^43A Steve McQueen, Paul Newman, Dustin Hoffman, Jack Nicholson, and Burt Reynolds was enough to secure financing and distribution.⁴⁴ In one famous example, the project to film Ken Kesey's novel One Flew Over the Cuckoo'sNest (1962) was shopped around Hollywood for years before producer Michael Douglas was able to raise $3 million to produce the movie in 1975 by signing Jack Nicholson to play the lead. After it went on to become the second most profitable film of the year and sweep the Oscars (including winning the Best Actor award for Nicholson), Nicholson was packaged with Marlon Brando in a complicated deal to star in The Missouri Breaks (1976), a Persky-Bright tax shelter production and one of the decade's major flops. (Negotiations among lawyers, agents, and accountants were so convoluted, according to director Arthur Penn, that "the picture took only a few months to shoot but the deal lasted nearly a year.")⁴⁵

Although the film earned just $7 million in rentals, Nicholson and Brando collected $1.25 million each in salary and shared 21.3 percent of the gross between them, canceling all hope of profitability. Yet the producers would never have been able to raise the film's $8.2 million production budget without the guaranteed presence of the two stars whose compensation accounted for nearly one-third of it. Producer Tony Bill remarked of this phenomenon in 1978: "There are only 20 people in this business who can get a film made—seven movie stars, six heads of studios, and seven top directors. Since they decide what movies will be made anyway, we ought to make [the stars] heads of the studios."⁴⁶ (Some stars, in fact, attempted to establish their own studios during 1970s; for example, First Artists Production Company, Ltd. was operated by Paul Newman, Barbra Streisand, Sidney Poitier, Dustin Hoffman, and Steve McQueen to produce their own independent projects, under the agency of CMA president Freddie Fields.)⁴⁷

By the second half of the decade, then, a small number of stars and their agents were effectively running the industry—choosing which films got made and by whom—and they demanded compensation both in terms of enormous salaries and residual income. (In the 1980s, "salary" for superstars would disappear as a concept and be replaced by "upfront money," that is, an advance guarantee against a percentage of the distributor's gross from the first dollar earned at the box office.)⁴⁸ In several more flagrant examples, Robert Redford was paid $2 million by Joseph E. Levine for three weeks' work in A Bridge Too Far (Richard Attenborough, 1977), Steve McQueen wanted $3 million for three weeks in Apocalypse Now (Francis Ford Coppola, 1979; Coppola refused),⁴⁹ Marlon Brando negotiated $3 million plus 10 percent of the gross above $60 million for his brief appearance in Superman (Richard Donner, 1978), and Jane Fonda received $2 million from Columbia in 1979 to appear in a prison movie to be called "Her Brother's Keeper" whether or not it was ultimately made—which it wasn't.⁵⁰ (This kind of "pay or play" deal, in which the studio was obliged to pay actors their full fee irrespective of whether a film was ever produced, became increasingly common in the 1980s, resulting in a "use-it-or-lose-it" mentality among studio executives and a number of misbegotten pictures.)

By the end of the decade, gross percentage points for stars, directors, and other production artists had reduced the money returned to the distributor from the box office by as much as one-third⁵¹—an astounding shift in intramural industry income that intensified the blockbuster mentality and left the majors more desperate than ever to option only films with mass appeal. It was clear, moreover, that too much gross participation could drain off a movies revenue stream, so that it never generated net profits. (In a classic case from the 1980s, Jack Nicholson's sliding 15-20-percent gross participation in Batman [Tim Burton, 1989] accounted for over $50 million—which, after deductions for the distribution fee and expenses, left the top-grossing blockbuster of 1989 virtually without net earnings.)⁵² Thus, the practice of gross participation added yet another bizarre dimension to the surreal economic landscape of the New Hollywood—one in which stars could get rich by appearing (or in cases like Fonda's, not appearing) in movies like The Missouri Breaks (1976) and A Bridge Too Far (1977) that were box-office failures, while box-office hits like Alien (1979) would generate only miniscule net profits for their producers and other profit participants (often writers, directors, and mid-level stars). And if the film were also a tax shelter, its investors would benefit either way. With more money (sometimes) to made on producing a movie than on releasing it, some producers ceased to regard filmmaking as a speculative investment at all. On the surface at least, it seemed that at some point during the 1970s the American film industry had inverted the logic of capitalism by making commercial failure pay.

A New Balance of Wealth and Power

As the newly privileged "art of the deal" drove star salaries and gross-point participation through the roof, it was observed by Joan Didion, Andrew Sarris, Tom Wolfe and others (e.g., AIP's Samuel Z. Arkoff) that deal-making had replaced filmmaking as the principal activity of Hollywood.⁵³ And as studios and producers devised intricate new methods of production finance—the sale of ancillary and foreign distribution rights, product licensing, attracting "outside money" through tax-leveraged investments—deals became increasingly complex, with more elements to coordinate and higher risks. According to Mark Littman, by the mid-1980s it was not unusual for studio contracts to append eighteen-page definitions of net profits.⁵⁴ Given the enormous sums suddenly being spent on production, promotion, and distribution; complicated decisions about property acquisition ("literary purchase agreements"), project development, financing, and multimedia marketing; and investments in high-priced talent that, as producer Walter Coblenz put it, "often have little relation to the economics involved and the moneys that the film is going to generate,"⁵⁵ it seemed to many observers that Hollywood had indeed lost its reason and turned capitalism upside-down.

In fact, what had occurred was a redistribution of wealth among the managing elites in favor of stars, agents, and major distributors at the expense of independent producers and exhibitors. For stars and their agents, the legacy of the 1970s was to make them the most powerful constituents of the industry, after the major studios themselves. From Freddie Fields at Creative Management Associates (CMA) to Sue Mengers at International Creative Management (ICM) to Stan Kamen at William Morris to Michael Ovitz at Creative Artists Agency (CAA), the super-agents of the 1970s restructured power relationships in Hollywood for decades to come. (During the 1980s and 1990s, for example, no one in Hollywood wielded more power than CAA president and founder Michael Ovitz, whose influence was greater than that of any single studio head or bankable artist, including Steven Spielberg.) As star compensation and agent fees continued to rise beyond the 1970s, production cost inflation caused a leap-frog escalation of budgets that has never stopped. By the early 1980s it was possible for a superstar like Sylvester Stallone to earn $15 million a picture (Rocky IV [Sylvester Stallone, 1983]), and the average negative cost had risen to $16.8 million (1984). A decade later, the outer limit of advance compensation for stars had reached $20 million and the average negative cost was $34.3 million, an increase of nearly 300 percent over 1980; the spiral continues unabated.

Distribution Takes Command

Far from damaging the majors, however, ever-rising costs served to drive all but the giants out of the market. During the 1970s, the seven major film financing-distribution companies watched their share of the domestic market increase from $500 million in 1972 to $1,215 million in 1978; an increase of 143 percent, while the domestic box-office gross rose only 67 percent.⁵⁶ Put another way, film rentals—the share of admissions money paid over by exhibitors to distributors—escalated as a percentage of box-office gross from 31.6 percent in 1972 to 45.8 percent in 1978. During the same period, operating profits of the film and television divisions of the majors rose a corresponding 140 percent.⁵⁷ While distribution was dramatically increasing its share of the box-office dollar, however, exhibition was making only modest gains and depended more and more on concession revenues to balance the books. In fact, between 1972 and 1982 the percentage of total exhibitor revenues generated by concession sales increased from 13.5 percent to 20 percent, which, according to the National Association of Concessionaires, accounted for 100 percent of the net profits of most American theaters.⁵⁸ Yet resurgence of film attendance in the late 1970s combined with the studios' rationing of product left theater owners hungry for movies to fill their screens (by the end of the decade, the majors were releasing on average just over 100 features per year, down from about 150 ten years before).⁵⁹ As virtually the only game in town, the majors could demand favorable rental rates and, through the practice of blind-bidding, force exhibitors to gamble millions in advance guarantees on films they had never seen (often because they had yet to be made). Furthermore, having streamlined their operations by consolidating key city exchanges into regional ones, distributors were able to impose multiple runs and amortize soaring advertising costs, since it was much more cost effective to advertise a picture opening in forty theaters at once than in one.

In effect, the majors had limited product supply and multiplied its exposure by wide release, meaning that there were fewer films to see but more opportunities to see them. One result was that throughout the decade the audience for the ten highest-grossing films each year grew at three times the rate of the total audience, with the effect that, as James Monaco put it, "increasingly we are all going to see the same ten movies."⁶⁰ Two years earlier, Robert Lindsey had been more blunt, writing that although they were not a cartel in the strictest sense, the majors were inescapably "enjoying the benefits of what amounts to one."

Multiplexing and The Chilling of Distributor-Exhibitor Relations

Much of the power and prosperity of distribution during the 1970s came at the expense of exhibition, which had simultaneously undergone a significant structural change. During the 1960s, a trend began toward dividing single-screen theaters into two or more smaller ones to save on new construction and operating costs. Known as "multiplexing," the practice initially sprang up in shopping centers, which had experienced an exponential growth from about 1,500 in 1965, to 12,500 in 1970, to 22,500 by 1980.⁶¹ The key players in multiplexing were American Multi-Cinema (AMC) and General Cinema Corporation, who worked with shopping center developers throughout the late sixties and 1970s to preplan hundreds of new malls anchored by their multiple-screen theaters. As Douglas Gomery notes, by the early 1970s an increasing number of American cities had no single-screen cinemas left within their borders, with the exception of art houses, adult theaters, and other such specialized venues.⁶² By the early 1980s, four multiplex chains dominated the North American market—General Cinema, with 1,050 screens in 350 locations; United Artists Communications, Inc., with 1,005 screens in 350 locations; American Multi-Cinema, with 734 screen in 130 locations; and Plitt Theaters, with about 600 screens in 300 sites.⁶³ Throughout the 1970s, while the number of screens was growing steadily thanks to the multiplex phenomenon, the number of seats was actually declining (probably because so many multiplexes were created through the subdivision of existing single-screen theaters). The Commerce Department's 1982 census of indoor theaters revealed the existence of 14,977 screens with a seating capacity of 5.12 million, as compared with 10,694 screens and a seating capacity of 6.1 million in 1972. (The number of drive-ins remained relatively constant, declining from 3,734 in 1972 to 3,043 in 1982.) During the same ten years, furthermore, the average number of seats per auditorium declined from 567 to 342.⁶⁴

For the exhibitors, the advantages of multiplexing were clear—in addition to consolidating operating costs, more screens meant the ability to offer more variety to the consumer and increased the odds of coming up with a hit. During the 1970s, when distribution contracts began to demand longer runs, multiplex exhibitors could amortize the cost of an unpopular or played-out film by shifting it from a larger to a smaller auditorium, in effect creating a "second run" for the film within the walls of a single theater. In fact, multiplexes virtually eliminated the second tier of exhibition, reducing many former second-run houses in the suburbs to sub-run ("dollar theater") status. At the same time, the new distribution practice of saturation booking or wide release, inaugurated for mainstream films by Jaws in 1975, caused a significant increase in the number of theaters

in key or sub-key status from 23 to 25 percent of the total in the late 1960s to 45 percent in the late 1970s; and 55 to 60 percent by 1981.⁶⁵ Undertaken mainly to defray soaring production and marketing costs, especially those of advertising on national television, saturation booking kept major films at a higher level of release for longer periods of time, during which higher admission prices could be charged. This resulted in a steady 7.7 percent annual growth in revenues throughout the decade, culminating in the record-breaking $2.8-billion box-office gross of 1979, although admissions grew only 2.1 percent. Meanwhile, the majors' increasing involvement with megabudget "event" pictures led them to impose blind-bidding on exhibitors in order to raise production capital and lay off risk, creating a shakeout in which the four chains listed above were left to dominate the American exhibition market with 2,719 screens—16 percent of the domestic total, nearly the percentage controlled by the majors before the Paramount decrees.⁶⁶

Before the post-Jaws blockbuster era, there was a certain amount of give-and-take in distributor-exhibitor relationships, especially in the area of booking contracts. For example, if the exhibitor booked a flop at exorbitant rates, the distributor's sales department would traditionally offer "relief" by renegotiating the contract or giving the exhibitor a favorable deal on an upcoming release.⁶⁷ Such latitude was possible when there were seven major studios annually releasing twenty to twenty-five films each; but by 1977 there were six majors releasing twelve to fifteen films a year, and distributors had begun to enforce contracts calling for large advances and guaranteed runs of up to ten weeks. In this way, distributors could extract income from films like Midway (Universal; Jack Smight, 1975) and Lucky Lady (Fox; Stanley Donen, 1975) that exhibitors didn't want to rent and the public wouldn't pay to see. By limiting supply, the studios increased demand in classical Keynesian fashion (thus the terms "product shortage" and "film famine" so prevalent in mid-1970s trade publications).⁶⁸ Yet the 100—125 films per year produced by the majors during this period did not even come close to satisfying market demand, and, as distributors, they came to depend more and more on privately financed independent producers to supply exhibitors with a full year's supply of product.⁶⁹

Distributors And "Indies"

To attract the independents, or "indies," the majors began to lower their distribution fees—typically, from the range of 30-35 percent of gross rentals down to 25 percent or lower. (The fee is charged for handling the film, exclusive of print and advertising costs, although these are negotiable as part of the deal—for example, the deal made by United Artists to distribute MGM films domestically called for a 22.5-percent fee, with United Artists advancing the cost of prints and advertising.⁷⁰ Another kind of distribution deal used in the 1970s, most commonly for negative pickups—that is, films acquired for distribution on the basis of a completed negative—involved a straight split of the gross rentals between producer and distributor without any deductions for costs, usually 40/60 percent—a division corresponding to the multiple of two-and-a-half used to calculate the break-even point.)⁷¹ According to A. D. Murphy, by 1976 independent film production in the United States represented an investment of nearly $100 million, and "outside indie" production had reached a level of 300 pictures per year, or about two-thirds of the American total.⁷² Furthermore, despite the elimination of tax-shelter financing in September 1976, there was an unprecedented boom in independently produced features in the first six months of 1977 as filmmaking's potential for short-term high yields continued to attract private investors away from stocks and real estate.⁷³ Yet Variety calculated that between 1970 and 1979 an independently produced English-language film without a major distributor stood only a 50-percent chance of getting a domestic theatrical release.⁷⁴

Thus, as negative costs continued to rise toward the decade's end, the major risks of production were increasingly borne by the exhibitor and independent producer, not the distribution company (for whom by 1979 it typically cost $4 million to open a film nationally with a minimum of 500 prints).⁷⁵ For example, distributor outlays for the $55-million Superman (1978) were largely amortized by advance minimum

guarantees, and the $36-million Apocalypse Now (1979) was secured by the producer (Francis Ford Coppola) pledging his personal assets.⁷⁶ Despite the fact that advertising and promotion costs were soaring and that star talent was exerting leverage against the studios as never before, box-office dollars were rising far ahead of costs, and the industry had stabilized around a new product—the blockbuster, or "event" movie, prepackaged by agencies, pre-sold by marketing departments, and franchised through remakes, sequels, and series, so that its shelf-life might extend for decades. Hollywood's new focus on "special attractions" affected release schedules as well as booking practices. Instead of distributing their films at regular intervals throughout the year (as they had done when committed to supplying exhibitors with a full twelve months of their own product), the majors concentrated their most important releases in peak seasons—summer, Thanksgiving, Christmas-New Year's, Easter—which accounted for 20-25 weeks per year, to which another ten weeks might be added for good-to-average business.⁷⁷ With one-third of the year not covered by "Establishment" production, independent producers and exhibitor-producer combines like EXPRODICO were left to fill in during the "low seasons" of autumn and spring, with the majors as their distributors. But because the majors dominated the U.S. box office so completely, independents were left to scramble for 10-15 Percent of the rental market—barely enough to recoup costs—and sometimes much less. (In 1977, for example, the majors accounted for 93 percent of American distributors' gross in the United States and Canada, and in the same year distributed all but one of the films that earned over $10 million in rentals.)⁷⁸ On the other hand, the distributor's share of box-office admissions rose steadily from 31 percent in 1970 to 45 percent in 1979 because film rentals grew much faster than grosses.⁷⁹ Combined with the revenue streams flowing from such ancillary markets as foreign distribution, network and syndicated television, and emerging pay cable and home video, surging theatrical rentals left the majors in an unchallengeable position of strength at the decade's end, in complete recovery from the deficits, buyouts, and near bankruptcies of the 1969—1971 recession.