Orders of Magnitude I: Majors, Mini-Majors, "Instant Majors," and Independents
7The Majors: Command and Control
Orders of Magnitude I: Majors, Mini-Majors, "Instant Majors," and Independents
Mini-Majors and "Instant Majors"
Conclusion: The Majors Bounce Back
The film studios are continuing to trim staffs as they liquidate inventories estimated at $400,000,000. MCA (which owns Universal) and 20th [Fox] hit new lows on the New York Stock Exchange. Universal has pink-slipped a number of senior executives and writers…. MGM has trimmed about 29 percent of its personnel and is expected to extend pink slips to another 25 percent…. At Warners the process will he extended over the next three or four months with new dismissal notices before the year end.
From about 1955 to 1970, as the effects of the consent decrees were gradually absorbed, the order of magnitude among the Hollywood studios changed. The minors of the studio era—Universal, Columbia, and United Artists—were able to become majors as the leverage of market control shifted from exhibition to distribution. The majors shrank by divesting their theater chains, and one—RKO, always the weakest of the lot—disappeared, leaving MGM, Paramount, Warner Bros., and 20th Century—Fox to compete with the former minors for market share. Without the stability provided by vertical integration, production came to exist on a film-by-film basis rather than as part of a rationalized institutional schedule, and many studios experienced a decline in long-term revenue as annual profits depended more and more on the success of individual films. By the 1960s, with their stocks undervalued, but with significant assets in real estate, film libraries, and working production facilities, the studios had become attractive targets for corporate takeover, and by 1970 four of them—Universal, Paramount, Warner Bros., and United Artists—had been merged with conglomerates and one—MGM—had been acquired by a wealthy entrepreneur, leaving only Fox, Columbia, and the family-owned Disney under original ownership. Conglomeration clearly strengthened Universal, Paramount, and Warner Bros., and during the 1970s conglomerate affiliation generally served to increase a distributor's market share. (According to Justin Wyatt, the average market shares for 1970-1980 were: Paramount 15 percent; Warner Bros. 14.5 percent; Fox 13.9 percent; Universal 13.4 percent; United Artists 11.5 percent; Columbia 10.2 percent; and MGM 5.8 percent, with Fox's strength attributable largely to the success of Star Wars; Disney had around 6 percent, leaving the numerous smaller companies to scramble for the remaining 10%.)1 As consciously diversified forms of corporate organization, conglomerates had grown rapidly since World War II. From just 3 percent in 1948-1953, conglomerate acquisitions had grown to 49 percent of all assets acquired by mergers in the period 1973-1977, and by the late 1970s many conglomerates stood poised to become multinational corporations.2
There were more changes in studio management during the 1970s than at any previous time in industry history. This was initially a response to the financial crisis of 1969-1971 but ultimately to the changing nature of the studios themselves, as they moved out of film production and into teleproduction while simultaneously consolidating their control of film distribution and finance. Along with the more or less continuous management reshufflings of the 1970s came a new set of relationships among studios, agents, independent producers, and stars.
The studio that experienced the most profound change during the 1970s was MGM, which to all intents and purposes was liquidated by its new corporate owner Kirk Kerkorian. MGM's problems dated from 1957 when the studio showed a loss for the first time in its history (a deficit of $455,000, down from a profit of $5.6 million in 1956). Although it recovered briefly between 1959 and 1961 thanks to the international success of a single blockbuster (its $15-million remake of Ben-Hur [William Wyler, 1959], which generated $37 million in domestic rentals—$80 million in rentals worldwide) and a third reissue (in 1961) of Gone With the Wind (Victor Fleming, 1939), MGM's profits took another steep plunge in 1962 (down $10 million from the previous year to $2.5 million), and the company hit rock bottom in 1963 when it produced a $17.5-million loss, owing largely to the failure of a single blockbuster (the $19-million remake of Mutiny on the Bounty [Lewis Milestone, 1962], which returned only $7 million in domestic rentals). The profits from yet another international blockbuster (Doctor Zhivago [David Lean, 1965], which returned $43 [ultimately $61] million in domestic rentals against an $11-million investment) allowed MGM to coast along until 1968, when its next big hit 2001: A Space Odyssey (Stanley Kubrick, 1968; $17 million domestic [ultimately $25.5 million] against a $10.5-million negative cost) and a 70mm reissue of Gone With the Wind ($9.5 million domestic) gave it another good year.3 But it was clear that this cycle of occasional blockbuster windfalls supplemented by reissues was not sustainable, and, after three years of proxy battles, MGM went through a series of management changes in 1969 as James Polk, Jr. succeeded Robert O'Brien as president, only to be replaced within the year by James T. Aubrey, Jr.4 Aubrey, a former president of CBS-TV (where he was known as "Jungle Jim" for the ruthlessness of his tactics), was handpicked by Las Vegas financier Kirk Kerkorian, who had gained a controlling interest in the studio in what amounted to a hostile takeover in 1969.
Kerkorian, once the single largest shareholder in Transamerica, had divested himself of its stock in 1968 in order to acquire a controlling interest in MGM after a careful study of its financial condition by his attorney Gregson Bautzer, with the intention of borrowing the additional funds for the purchase from a Transamerica subsidiary, the Transamerica Financial Corporation.5 MGM management, led by Edgar J. Bronfman and Louis F. Polk, Jr. (backed respectively by the Canadian company Seagrams and Time, Inc.) filed suit against Kerkorian, contending that this maneuver was an antitrust violation, since Transamerica had acquired United Artists in 1967.6 A federal district court agreed, and Kerkorian was temporarily blocked from buying into MGM, but was subsequently able to do so by borrowing from several European banks, including the Burstyn & Texas Commerce Bank, Ltd., of London, and Burkhardt & Company of Essen, W. Germany.7 In November 1969, Kerkorian bought a 40 percent interest in MGM for $80 million through his solely owned Tracy (later Tracinda, both named for his daughter Tracy) Investment Company, headquartered in Las Vegas.8 (Subsequent purchases brought Kerkorian's holdings up to 48.6 percent.) A year later, he needed $9 million to pay interest on the loans, but MGM reported operating losses of $35.4 and $8.2 million for 1969 and 1970, respectively, thanks in part to deficits produced by Zabriskie Point (Michelangelo Antonioni, 1970—a $6-million loss) and the 70mm Ryan's Daughter (David Lean, 1970—returning $13 million against a $14-million cost).9 Kerkorian amortized his debt by having Aubrey liquidate $62 million in company assets over the next four years, including its Culver City backlots, its Boreham Wood studio in London (MGM British), MGM Records, and fifty years worth of costumes and props.10 At the same time, Kerkorian plowed money into the 2,000-room, $110 million MGM Grand Hotel in Las Vegas, prompting Forbes magazine to write in its issue for October 1973: "From now on the company that brought you Ben-Hur and The Wizard of Oz will bring you crap—and roulette, slot machines, and all the other pleasures of a Las Vegas casino hotel."11 Aubrey was himself replaced by Frank E. Rosenfelt in November 1973, but during his four-year reign he had moved MGM headquarters from New York to Culver City, aborted a large number of projects in development, cut the studio work force from 6,200 to 1,200, closed two-thirds of MGM's thirty-two domestic sales offices, and generally made the company solvent by gutting it.12 Aubrey also intervened regularly in studio creative affairs, insulting directors (including Blake Edwards, Sam Peckinpah, and Jack Smight), re-editing films himself (most notoriously Ken Russell's The Boy Friend  and Peckinpah's Pat Garrett & Billy the Kid ), and initiating medium-budget projects like Soylent Green (Richard Fleischer, 1973) and The Man Who Loved Cat Dancing (Richard C. Sarafian, 1973), both genre-based mediocrities that cost around $1.2 million to produce and returned $3.6 million in rentals.13 As Vincent Canby wrote in the New York Times for October 30, 1973: "The Kerkorian-Aubrey management of MGM was the realization of everyone's worst fears of what would happen to Hollywood when the money-men take over."14 In 1973, MGM liquidated its international distribution organization, sold its overseas theaters, and announced that its domestic releases would be distributed through United Artists, to which it had also sold the North American theatrical and television syndication rights to its 1,400-title film library for a period of ten years.15 (The United Artists deal involved a total of $15 million in cash and included acquisition of MGM's music publishing company Robbins-Feist & Miller and a 50-percent interest in Quality Records of Canada.)16 Foreign distribution rights for MGM product went to Cinema International Corporation (CIC), a joint venture of MCA and Paramount, for $17 million.17 In 1974, what was left of MGM marked the fiftieth anniversary of the studio's opening in April 1924 by releasing That's Entertainment! (Jack Haley, Jr., 1974), a feature-length anthology of musical highlights from about a hundred of its films, 1929-1958, that seemed to many observers more of an obituary than a celebration. Yet its new president Frank E. Rosenfelt, whose job was to restore corporate credibility in the wake of Aubrey's depredations, made this commitment to continued, if limited, production: "One of our principal objectives will be to provide a climate at MGM which will attract creative filmmakers…Contrary to recent public speculation, the roar of Leo the Lion will not be reduced to a meow."18 For the remainder of the 1970s, MGM would operate like a small independent production company, releasing four to five films per year with budgets of between $3 and $5 million, until it began to increase its investment in new production in 1979 and ultimately merged with United Artists to form MGM/United Artists Entertainment Company in 1981.19
Aubrey had been typical of the new breed of businessmen brought to Hollywood in 1969-1970 to take over management of the studios for their new corporate owners. Well-educated (Princeton 1941), pragmatic, and dedicated to the bottom line, he sought to minimize risk by limiting production to sixteen to twenty features per year, keeping budgets under $2 million, and stepping up pre-production planning. His logic was simple: "If a movie costs $2 million, you get your costs back," he told Business Week in June 1973, "[but if] it costs $17 million, you can lose a lot if it is not a worldwide hit."20 And it was dictated by a new lending practice born of the recession: Formerly, banks and other lending institutions had negotiated revolving credit agreements with the studios, leaving the companies free to allocate the funds themselves, but in 1971 banks began to extend loans on a picture-by-picture basis, with the films themselves as collateral; MGM was among the first to receive this treatment, which placed a new premium on careful preparation and prompt release to amortize the debt.21 In fact, Aubrey tried to run feature production at MGM the same way he had run television production at CBS, where the product was cost-efficient entertainment, and like many of his peers he tended to blame the industry's financial crisis on creative self-indulgence and its recent appeal to counterculture values. "We've gone through the editorializing and social consciousness," he said in the Business Week interview, "and there has been a dropoff at the box office because of this introduction of social issues into films." True or not, the perception that the pursuit of social "relevance" had harmed the industry was widespread and contributed materially to the formation of the blockbuster mentality, although Aubrey himself had little instinct for "event" movies—for example, he assiduously overpromoted Ryan's Daughter (1970), which barely returned its $14-million cost, and vetoed the Jaws package in 1973 because he didn't like the story.22 With his contempt for creativity (for which he was nicknamed "the smiling cobra"),23 Aubrey epitomized the cost-cutting, anti-intellectual mentality that ruled the studios after the recession. Nonetheless, Daniel Melnick (b. 1934), who was MGM production chief from 1971 to 1977, was able to shepherd a handful of films through the studio that were simultaneously cost-effective, intelligent, and commercially successful. These included Slither (Howard Zieff, 1973), Westworld (Michael Crichton, 1973), That's Entertainment! (1974), Hearts of the West (Howard Zieff, 1975), The Sunshine Boys (Herbert Ross, 1975), That's Entertainment, Part 2 (Gene Kelly, 1976), Network (Sidney Lumet, 1976), and The Goodbye Girl (Herbert Ross, 1977) and constituting MGM's scant honor roll for the 1970s. Melnick, who had begun his career as a producer with Talent Associates' Straw Dogs (Sam Peckinpah, 1971), left MGM in 1977 to become production head at Columbia Pictures at the invitation of president Alan Hirschfield.
Paramount Pictures (Gulf & Western Industries)
Paramount was another studio that had relied on blockbusters to carry it through lean years in the 1950s—White Christmas (Michael Curtiz, 1954; domestic rentals $12 million); The Ten Commandments (Cecil B. DeMille, 1956; domestic rentals $43 million)—all filmed in its proprietary widescreen Vista Vision process, and in 1958 it was able to announce its largest annual profit since 1949 ($12.5 million). Yet despite an occasional hit (Psycho [Alfred Hitchcock, 1960; domestic rentals $11.2 million]), profits declined to very low levels in the early 1960s, culminating in the 1964 disaster of The Fall of the Roman Empire (Anthony Mann, 1964), a $2o-million flop that virtually ruined producer Samuel Bronston and brought an end to the reign of Barney Balaban, who had served as Paramount's president since 1936. Joel W. Finler points out that, accounting for inflation, the losses of Bronston's epic nearly equaled those of Heaven's Gate (Michael Cimino, 1980) sixteen years later.24 There were also similar results—namely a management shakeup followed by a corporate buyout. In Paramount's case, the leadership of George Weltner, Balaban's executive vice president for operations, was challenged by dissident members of the board. Led by Broadway producers Ernest Martin and Cy Feuer, this group was preparing for a proxy battle when Gulf & Western Industries, a financial, mining, and manufacturing conglomerate founded in 1957 by Charles Bluhdorn, made a quickly accepted tender offer of $83 a share and bought the studio in October 1966.25 Bluhdorn installed himself as studio president and reconfigured Gulf & Western to include a Leisure Time Division that contained Paramount, Simon & Schuster Publishers, Madison Square Garden, a Canadian theater chain, and several other holdings that in any given year generated between 11 and 15 percent of the conglomerate's revenues. (During the 1980s, however, Gulf & Western—renamed Paramount Communications, Inc., in 1990—would spin off over fifty of its nonmedia companies one by one in order to concentrate exclusively on its media holdings, which included by that time broadcast stations, cable systems, and theaters.)26 Under Bluhdorn's leadership, Paramount diversified into television, acquiring Desilu Productions for $17 million in 1967 and supplying its pre-1950 films to television through MCA (as part of a deal negotiated ten years earlier). Bluhdorn also promoted the thirty-six year-old Robert Evans (b. 1930) from vice president in charge of production (which he had been since 1966) to executive vice president, in which capacity he nurtured such 1970s blockbusters as Love Story (Arthur Hiller, 1970) and The Godfather (Francis Ford Coppola, 1972), and such critical hits as Serpico (Sidney Lumet, 1973), The Godfather, Part II (Francis Ford Coppola, 1974), and Chinatown (Roman Polansld, 1974).27 Bluhdorn resigned the presidency in 1969 to become chairman of the board, and in 1970 he negotiated an historic deal with Lew Wasserman of MCA to form a joint distributorship for Paramount and Universal product abroad that effectively circumvented U.S. antitrust laws. This entity, the Cinema International Corporation (CIC), came to control about a third of Hollywood's overseas market, and when joined by MGM/United Artists in 1981 (when its name became United International Pictures), it was able dominate some European markets by as much as 85 percent.28
After Bluhdorn, Paramount's top management experienced numerous reshufflings. Successive presidents through 1977 included Stanley Jaffe, Frank Yablans, David Picker, and Michael Eisner; Robert Evans, who became an independent producer under contract to Paramount in a lucrative deal in 1974 (which allowed him to take profit points in his projects as well as draw salary), was replaced as production chief in 1976 by David Picker, who was replaced by Don Simpson in 1978, who was replaced by Jeffrey Katzenberg in 1982.29 In a surprise move, Bluhdorn replaced himself as board chairman in late 1974 with the 32-year-old Barry Diller (b. 1942), formerly vice president for programming at ABC-TV where he had originated the network movie-of-the-week concept during the 1960s.30 Diller served until 1984, a remarkably long tenure for the times, when he left to become chairman and CEO of 20th Century-Fox. At Paramount, Diller increased the studio's role in production finance and geared its marketing and distribution strategy toward wide release—a practice, for example, that enabled him to save the $24-million King Kong (John Guillermin, 1976) from disaster when it opened at 971 theaters and earned $35.8 million before bad word-of-mouth could kill it.31 Despite its participation in the game of corporate musical chairs that was being played all over Hollywood (commonly known as "the Hollywood shuffle"), Paramount experienced relative prosperity and stability during the 1970s, recovering from its recession-era disasters (Paint Your Wagon [Joshua Logan, 1969]; Darling Lili [Blake Edwards, 1970]; The Molly Maguires [Martin Ritt, 1970], which lost $34.1 million collectively) via the windfall profits from Love Story (1970—$48.7 million in domestic rentals) and The Godfather (1972—$86.3 million in rentals), and experiencing a second boom in 1977-1978 with Saturday Night Fever (John Badham, 1977—$74.1 million in rentals), Grease (Randal Kleiser, 1978—$96.3 million in rentals), and Heaven Can Wait (Warren Beatty and Buck Henry, 1978—$49.4 in rentals). This second blockbuster bonanza lifted Paramount's operating income to an unprecedented $80 million in 1978 and $116 million in 1979 and gave it the decades highest theatrical rental market share (15 percent) among the seven majors.32 Late in the decade, Paramount also began to benefit from synergy between its television and motion picture divisions as popular Paramount TV series were adapted as successful films (Star Trek [Robert Wise, 1979]) and vice versa. Conglomeration was clearly advantageous for Paramount in the long run, but the effects of becoming a small cog in a large and highly diversified machine—in 1977, Gulf & Western ranked 59th among Fortune's top 500 American industrial firms (the same year in which it came under widespread government scrutiny for conflict-of-interest in its financial reporting practices)33—hastened its reconceptualization of product and intensified its transition from producer-distributor to distributor-financier. As one of twelve Gulf & Western divisions during the 1970s, none of which had much in common with the others, the studio institutionalized the agent-packaged blockbuster as the industry's Holy Grail, so that Robert Evans could tell Time magazine in 1974, "[T]he making of a blockbuster is the newest art form of the twentieth century."34 Or as Frank Yablans, Paramount president from 1971 to 1975, had put it more bluntly the year before, when profits had soared to $37.7 on the wings of The Godfather: "We want one big picture a year. The rest are budgeted to minimize risk."35 (Examples of such lower-budgeted productions were the films of The Directors Company—Peter Bogdanovich's Paper Moon  and Daisy Miller  and Francis Ford Coppola's The Conversation ; The Directors Company was a creatively autonomous "prestige" unit of Paramount bankrolled by Yablans, 1973-1974, and dissolved in 1975 when it became unprofitable.)36
Warner Bros. (Warner Communication, Inc.)
Like Paramount, Warner Bros, benefited from conglomeration, although in its case the parent company did not intervene directly in the film business. By and large, Warners had not followed a blockbuster policy during the 1950s but advanced large sums to the producers of independent features ($38 million between 1954 and 1956 alone), creating cash flow problems for itself at mid-decade.37 These were temporarily concealed by the success of Giant (George Stevens), whose $12 million in rentals accounted for 90 percent of the studio's $3.4 million profit in 1956,38 but in 1958 Warners recorded its first deficit ($1,023,000) in thirty years. Profits surged to $9.4 million in 1959, however, on the box-office strength of Ben-Hur ($36.9 million in rentals). From that high point, profits declined at the rate of about $2 million per year, and the studio bottomed out with a deficit of $3.86 million in 1964. Profits were rising again in March 1967 (and would soon reach 1959 levels with the release that summer of Bonnie and Clyde [Arthur Penn]), when Warners merged with a Canadian distributor of films to television called Seven Arts Productions and became Warner Bros.-Seven Arts. Two years later, as the recession began and income dropped to an all-time low, the company was taken over by Steven Ross's newly formed conglomerate Kinney National Services, Inc. (For 1969, Warners had an after-tax loss of $27 million, which Kinney absorbed in a one-time writedown to show a 1969 profit of only $300,000 in what was, in fact, its most successful year.)39 Earlier in the 1960s, Ross had built his wife's family funeral business into a modest conglomerate that included rental car agencies and the Kinney parking lot systems, but he now resolved to create an entertainment empire with the studio (returned to its original name of Warner Bros.) as anchor. In 1967, Ross had acquired the Ashley Famous Agency, a talent agency headed by Ted Ashley, and he subsequently bought National Periodical Publications (publisher of sixty-three magazines and comics, including Mad, Superman, and Batman) Panavision, Inc., the company founded by Robert Gottschalk in 1953 to manufacture lenses, cameras, and other filmmaking equipment—most notably the anamorphic lens system that would replace CinemaScope as the industry standard for widescreen cinematography. In 1971, Ross spun off his nonmedia subsidiaries into the National Kinney Corporation and pooled his media companies (which included the Wamer-Elektra-Atlantic record company [WEA] via his studio purchase) into Warner Communications, Inc. (WCI), which by 1977 ranked 214th in the Fortune 500.40
Ted Ashley was installed as board chairman and CEO of Warner Bros, in 1969 with the mission of turning the company around, and he became the first of many former agents who rose to power as studio executives during the decade. (By 1977, in fact, six of the seven major distributors would be run by former agents.)41 Armed with a $65 million revolving production fund from Kinney, Ashley was determined to control costs, and of the sixty-nine films Warners released between 1970 and 1973, only one went significantly over budget, and that was The Exorcist (William Friedkin, 1973), which became the most profitable film in its history when it returned $89.3 in domestic rentals.42 By 1972, Ashley's leadership had increased film rentals to theaters and television by 56 percent (from $124.3 to $193.3 million) and profits by 42 percent (from $11.1 to $15.8 million).43 In 1973—sounding remarkably like MGM's James Aubrey—Ashley explained his management philosophy to Business Week this way: "First you must set your budget in relation to how well the proposed picture can be expected to do in its three principal markets—domestic theaters, foreign theaters, and broadcast TV,…[and then] you must decide if the creative persons available can execute the picture to make a profit."44 Ashley sought to develop foreign markets for low-budget films and to increase the studio's production of telefilms at Warner Bros. Television. He also formed a new company with Columbia Pictures to jointly operate twenty-three soundstages in Burbank, California (Burbank Studios, Inc.), but Ashley's greatest success was in delivering a string of top-grossing domestic features from Woodstock (Michael Wadleigh, 1970) through Superman (Richard Donner, 1978) that led Warner Bros, to a 14.5-percent market share for 1970-1979.45
Warners also produced a significant number of critically prestigious films during the 1970s, many of them under the stewardship of executive vice president for production John Calley (b. 1930). It was Calley, for example, who brought Stanley Kubrick to the studio in 1970 under a three-film deal that yielded A Clockwork Orange (1971), Barry Lyndon (1975), and The Shining (1980); Calley also worked closely with Federico Fellini on the production of Amarcord (1974), and he backed Alan Pakula's "paranoid trilogy," consisting of Klute (1971), The Parallax View (1974), and All the President's Men (1976), when commercial prospects for the films seemed dim (but was vindicated when the latter became the fourth-highest earner of the year, returning $31 million in rentals). On Calley's authority, Warners developed a unique relationship with Kubrick through its London office whereby the studio funded the purchase and development of projects for which Kubrick would receive 40-percent profit participation and the guarantee of the final cut.46 (Calley left Warner's in 1980 and went into semi-retirement, emerging in 1993 to run MGM's United Artists Pictures unit; in 1996 he was recruited as chairman of Sony Pictures Entertainment, Inc., to replace Peter Guber.) Less generously, Warners also provided the seed money for Francis Ford Coppolas American Zoetrope studio in San Francisco, putting up $600,000 in exchange for the right of first refusal to its projects; the only result of this deal was George Lucas's THX-1138, personally despised by Ashley but distributed (recut) by Warners in 1971 anyway. Finally, in November 1973, Warner Bros, closed a deal to take over the film library and releasing commitments of National General Pictures (NGP), which had formerly distributed the films made by Cinema Center Films (the feature production subsidiary of CBS-TV, disbanded in 1972) and First Artists Productions (FAP).47 The latter, modeled on the original star-owned United Artists, which was founded in 1919, was put together by Creative Management Associates (CMA) in 1969 to produce the personal projects of Barbra Streisand, Paul Newman, and Sidney Poitier, with Steve McQueen and Dustin Hoffman joining later. Although First Artists made only a handful of successful films (Sam Peckinpah's The Getaway  among them) and eventually disbanded, Warner Bros, president Frank Wells hailed the deal as "the single most significant development in terms of acquiring motion picture product for distribution in the history of our company." It represented a new industry trend to establish releasing ties with prestigious independent units, much as Paramount had done in 1973 with The Directors Company (see above).48 (This trend continued through the end of the decade: In August 1978 WCI entered into a joint venture with five former United Artists executives to form the financing and distributing company that became Orion Pictures [see below]; and in July 1979 WCI agreed to arrange the financing for the productions of The Ladd Company, newly founded by three former Fox executives [see below].)49
Meanwhile, parent company WCI, which in 1972 had earned as much as 65 percent of its pretax profits from its music division, was booming through diversification in several directions.50 By the decade's end, the Warner conglomerate had expanded into publishing (Warner Books), cable television (Warner Amex Cable; including MTV, which briefly became a marketing arm for its music division), video (Warner Home Video), and video games (Atari) in ways that made the synergistic marketing of franchises like Superman a winning strategy for decades to come.51 Starting with the 1970 experience of Woodstock, whose best-selling Atlantic Records sound-track album helped to sell the movie and vice versa, WCI had learned the value of integrated crossmarketing to keep the rewards of ancillary sales within the organization. Thus in 1978 Superman, the movie, was used to create demand for a sound-track album produced by Warner Bros. Records, eight Superman "nonbooks" published by Warner Books, an Atari video game, and over one hundred other Superman products licensed through Warners Licensing Company of America to DC Comics, a company owned by WCI; and these products in turn generated demand for the film(s) in theaters and, subsequently, on Warner Home Video cassettes and Warner cable outlets. As Robert Gustafson wrote in his analysis of the company in 1982: "WCI has become a conglomerate which is organized according to the principle of multiple profit centers which reinforce each other in an interlocking and financially conservative pattern…. All subsidiaries within WCI are structured so that an increase in one area can aid another."52 More than any other player, WCI ended the 1970s positioned for the integration of new media technologies with its filmed entertainment and music divisions; in 1982 it began to restructure its operations around distribution, and its 1989 merger with Time, Inc. to become Time-Warner made it (for several years, at least) the biggest, most powerful entertainment media conglomerate in the world.53
Twentieth Century-Fox was the only former major to avoid conglomeration during the 1960s, although it experienced the most radical boom-and-bust cycle of any studio in postwar Hollywood. During the 1950s, its fortunes were tied to the success of its CinemaScope proprietary anamorphic widescreen process. Starting with the first CinemaScope production in 1953, The Robe (Henry Koster; $17.5 million in rentals), Fox rode through the decade on average profits of about $7 million per year. But mismanagement after the departure of Darryl F. Zanuck (b. 1902) in 1956—he had been production chief since the studio's creation in 1935—placed the studio in jeopardy by i960. In that year Fox reported a small loss, which was, in fact, an enormous deficit concealed by the $43-million sale of 260 acres of back lot eventually developed as the Century City office complex. The company's serious instability was revealed in the form of losses for 1961 and 1962 of $22.5 million and $39.8 million, respectively, much of it cost-overruns from Cleopatra (Joseph L. Mankiewicz, 1963), whose troubled production would result in the most expensive motion picture ($44 million; adjusted for inflation about $160 million) made before the megabudgets of 1990s. Called back as president in 1962, with his son Richard (b. 1934) as production chief, Zanuck was able to see Cleopatra through release in 1963, when it earned a spare $26 million in rentals, but he also backed a number of winning productions, including The Sound of Music (Robert Wise, 1965), whose spectacular $80 million in rentals revived Fox temporarily and inspired the cycle of extravagant musicals (Doctor Dolittle [Richard Fleischer, 1967]; Star! [Robert Wise, 1968]; Hello, Dolly! [Gene Kelly, 1969]; Paint Your Wagon ) that two years later nearly destroyed it.54 In 1969-1970, in spite of hits like Butch Cassidy and the Sundance Kid (George Roy Hill, 1969; $46 million in rentals) and M*A*S*H (Robert Altman, 1970; $36.7 million in rentals), the company posted losses of $103 million and was in default on bank loans, causing its stock to hit a new annual low on the New York Exchange.55 At this point, Darryl Zanuck became CEO and chairman of the board and passed the presidency to his son Richard, who attempted to reorganize and diversify the company in ways that his father disliked56 (one of which included canceling the contract of Darryl's nineteen-year-old girlfriend, the "actress" Genevieve Gilles).57 The conflict between father and son escalated to open warfare, resulting in a proxy fight among stockholders, and in an effort to protect the company against lawsuits Fox's board requested the resignation of both Zanucks. Darryl resigned in May 1971, retaining the title of chairman emeritus; Richard stayed on as executive vice president for another year before leaving to form his own production company with David Brown. (Releasing through Universal, Zanuck-Brown would produce the paradigmatic 1970s blockbusters The Sting [George Roy Hill, 1973] and Jaws [Steven Spielberg, 1975].) A new Fox management team was brought in during 1971, headed by Dennis Stanfill (b. 1927), as chairman of the board, and Gordon Stulberg (b. 1923) as president.
Because it had not been merged with a diversified conglomerate like WCI or Gulf & Western, Fox continued to depend for most of its income on film production-distribution, which made it especially vulnerable to the deep industry recession of 1969-1971, and the new management clearly understood this. Stanfill, a former Rhodes scholar in economics who had served as a corporate finance specialist at Lehman Brothers and vice president for finance at the Times Mirror company, immediately closed the Fox New York headquarters, cut studio overhead, and sold off its 2,600-acre Malibu ranch.58 By 1974, Stanfill had liquidated $125 million worth of bank debt, secured a $44 million line of new credit, and turned the company around so that it could report net earnings of $10.9 million.59 Stulberg, a former Columbia executive who had headed CBS Cinema Center Films since 1967, ended the big-budget road show era at Fox and concentrated on films made for between $1.5 and $3 million to capture rentals in the $5 to $10 million range (e.g., The Mephisto Waltz [Paul Wendkos, 1971]; Little Murders [Alan Arkin, 1971]; The Culpepper Cattle Company [Dick Richards, 1972]; Battle for the Planet of the Apes [J. Lee Thompson, 1973]).60Variety reported in early 1971 that of eleven newly completed Fox features, not one had cost over $2 million,61 and in June 1972, Stulberg negotiated a deal with exploitation producer James H. Nicholson, formerly of AIP, to distribute six low-budget films from his newly formed Academy Pictures Corp. (including Dirty Mary Crazy Larry [John Hough, 1973] and Hell House ).62 This policy, combined with a few runaway hits (The French Connection [William Friedkin, 1971]; The Poseidon Adventure [Ronald Neame, 1972]) enabled the Stanfill-Stulberg regime to restore Fox to profitability by 1974, when its blockbuster disaster film The Towering Inferno (John Guillermin, 1974), coproduced with Warners to cut costs, earned nearly $100 million in worldwide rentals.
Stulberg returned to private law practice in 1975, and the following year Alan Ladd, Jr. (b. 1937), was promoted from senior vice president for production to president. Simultaneously, Fox began to diversify, creating a new entertainment group comprised of 20th Century Records, 20th Century Music Corporation, 20th Century Television Productions, and three television stations.63 The Fox creative personnel, who had suffered under the cost-accounting mentality of Stanfill-Stulberg, were encouraged when Ladd began to develop projects with directors like Mel Brooks (Silent Movie ; High Anxiety ), Paul Mazursky (An Unmarried Woman ), Fred Zinnemann (Julia ), and Herbert Ross (The Turning Point ). But Ladd's greatest coup was in optioning George Lucas's Star Wars (1977), justifying its $11.5-million production cost to Stanfill (who didn't believe in "event pictures," linking them—understandably—with what he called "the Sound of Music-Hello, Dolly! syndrome")64 on the grounds that it might earn as much as $30 million. When Star Wars unexpectedly became the decades ultimate blockbuster, grossing $100 million after only three months of release, it sent Fox's stock soaring from $6 to $25 per share and generated studio revenues at the rate of $1.2 million per day. Although it had just purchased Coca Cola Bottling Midwest, Fox's suddenly swollen cash flow enabled it to buy the Aspen Skiing and Pebble Beach golf corporations that year and still declare excess profits.65 As Stanfill would later remark, Star Wars gave the corporation "five years' growth in one," and the income from its re-releases, merchandising tie-ins, and sequels would continue to enrich the studio quite literally for decades to come.66
Fox was now an attractive target for conglomerate acquisition, and in 1979 the company fended off a hostile take-over bid from Chris-Craft Industries. That same year it acquired Magnetic Video and became the first studio to release recent features on prerecorded cassette.67 Also in 1979, Ladd, whose reputation for commercial and critical success was now huge, left Fox to form his own production unit called The Ladd Company.68 (With Warner Bros, financing, The Ladd Company had a remarkable debut when it acquired the American rights to the British production Chariots of Fire [Hugh Hudson, 1981], which subsequently earned $30 million in rentals and won numerous Academy Awards; other ventures were less successful and the company went out of business in 1984, with Ladd moving on to become president and CEO of MGM/United Artists.)69 Ladd was briefly replaced by Sandy Lieberson (b. 1936), who joined The Ladd Company himself in 1980 and was replaced by Sherry Lansing (b. 1944), a former actress who became the first female head of production in Hollywood history and the fifth Fox production chief since 1970.70 After much executive reshuf-fling, Alan Hirschfield (b. 1935), who had been president and CEO of Columbia Pictures Industries since 1973, was brought in by Stanfill to become vice chairman and CEO of Fox at the end of 1979. Chris-Craft continued to press its suit, but the company finally lost its independence to Texas oil millionaire Marvin H. Davis (b. 1925), who bought 20th Century-Fox in 1981 for $722 million (calculated at the rate of $60 per share).71 At this point Stanfill resigned and Hirschfield became board chairman until he was replaced by Barry Diller in late 1984, shortly after which Davis sold the company to Australian publishing magnate Rupert Murdoch. Whatever the 1970s reign of Dennis Stanfill had meant to Fox's production artists and their films, Fox's stockholders were bound to be grateful: between the time he took over on September 16, 1971, and the Davis purchase on June 8, 1981, the value of their stock had increased by 709 percent,72 and Fox had moved from the status of a nearly bankrupt production company to that of a thriving media conglomerate poised to achieve global reach.
Universal Pictures (MCA)
In late 1951, Decca Records bought a controlling interest in Universal Pictures (then Universal-International, following a 1946 merger) and took over management the following year in an early but unsuccessful bid to create synergy between the film and music industries.73 The former minor survived the 1950s by becoming actively involved in television production, but in 1958 showed a $2-million loss, prompting Decca to sell its Universal City studio lot to Revue Productions, the television subsidiary of MCA. This company, founded as Music Corporation of America by Dr. Jules Stein in 1924, was then the nation's largest talent agency. It had expanded aggressively into teleproduction during the 1950s and became so successful that it was able to absorb both Universal Pictures and Decca Records by 1962. The Justice Department opposed this integration of agency with production; MCA was forced by a federal consent decree to sell its agency business, MCA Artists, and it reorganized itself as a major entertainment conglomerate with MCA president Lew Wasserman (b. 1913) at its head. Wasserman, the first of many successful agents to run a modem Hollywood studio, upgraded studio facilities and instituted the lucrative attraction known as the Universal City Tour in 1964 (an idea that had originated with studio founder Carl Laemmle in 1916),74 but he was unable to make film production continuously profitable until the early 1970s. (An exception was the work of Alfred Hitchcock, who finished his career at Universal after shooting Psycho  there, and whose films from The Birds  through Family Plot  were consistently profitable.) As Hollywood entered the recession in the third quarter of 1969, MCA posted a net loss of $7.7 million and its stock dropped from $44.50 a share to a low of $22.50, making it a prime target for takeover. Both Westinghouse and Firestone Tire and Rubber made bids for the company, but the Antitrust Division of the Justice Department forbade the former and Wasserman rejected the latter.
Things began to turn around for Universal when Wasserman appointed Ned Tanen head of production in 1970. Another former agent, Tanen initially concentrated on films for the counterculture-youth market—Diary of a Mad Housewife (Frank Perry, 1970), Taking Off (Milos Forman, 1971), The Last Movie (Dennis Hopper, 1971), Silent Running (Douglas Trumbull, 1971), Two-Lane Blacktop (Monte Hellman, 1971), Ulzana's Raid (Robert Aldrich, 1972)—made for about one million dollars. These films were overshadowed by the success of the $10-million proto-blockbuster Airport (George Seaton, 1970), produced for Universal by Ross Hunter, which returned $45.2 million in rentals and enabled MCA to refinance $134 million in bank debt around a six-year revolving line of credit—the largest loan of its type ever negotiated by a film company (the lending group was headed by Bank of America and included First National Bank of Chicago and Marine Midland Bank).75 By 1972, Universal's profits were up by 32 percent over the previous year (from $15,088,000 to $19,932,000), thanks in part to the new federal investment tax credit, which allowed a 7-percent production investment deduction from overall corporate tax, up to a 50-percent limit (but with carry-forward provisions).76 But Tanen was vindicated when his pet project American Graffiti (George Lucas, 1973), produced for $743,000, returned $55.1 million to become the sleeper of the decade. In that year, a management shakeup at MCA indicated new directions for the future: Milton Rackmil, former Decca president and president of Universal since 1952, was succeeded by Henry H. Martin, head of distribution; and Jules Stein retired, handing the MCA chairmanship over to Wasserman, who was succeeded as MCA president by Sidney J. Sheinberg (b. 1935), the former president of Universal-Television. In 1974, Universal boarded the "event movie" bandwagon by introducing the new sonic presentation technique known as Sensurround in its blockbuster disaster film Earthquake (Mark Robson), which returned $35.9 million in rentals to become the year's third-highest earner. At the same time, Tanen helped to develop two independent productions of the new Richard Zanuck-David Brown team recently defected from Fox—The Sting (1973; $78.2 million in rentals) and Jaws (1975; $129.5 million in rentals)—which quickly made Universal the most profitable studio in Hollywood. In fact, Universal made industry history when Jaws broke both world-wide and domestic box-office records, and 1975 became the biggest single year in the history of the film business.77 The association with Jaws director Steven Spielberg, begun with The Sugarland Express in 1974, would stand Universal in good stead through E.T.: The Extraterrestrial (1982) and help to land Tanen the presidency of Universal Theatrical Motion Pictures, Inc., in 1976. (From 1976 to 1979, MCA restructured Universal internally so that Tanen's unit was the production component and "Universal Pictures," headed by former studio president Henry Martin, was the distribution component.)78
In 1976, MCA was once again threatened with takeover, this time by Edgar Bronfman's Montreal-based Seagrams Company, which would eventually succeed in buying it in 1995. (Bronfman had bought control of MGM in 1968, but sold out to Kerkorian a year later.)79 Wasserman was able to prevent the raid because MCA had filed an amendment to its certificate of incorporation with the SEC the year before requiring 75-percent shareholder approval for acceptance of an outside bid, and Stein and Wasserman between them owned 28 percent of MCA's voting stock.80 Some sense of the relationship between Universal and its parent during the decade can be gauged by net income figures for 1978. Studio net income for that year reached an all-time high of $318.7 million, but that was still less than half of the total for MCA's filmed entertainment division (which also included Universal Television and MCA-TV with $348.2 million and the Universal Tour with $38.7 million), and less than one-third of MCA's entire corporate income of $1.1 billion. (The other main components were music publishing with $131.5 million and mail order-retail with $167.5 million.)81 Clearly, MCA was still the "octopus" that it had been called some thirty years before in an article in the Saturday Evening Post, but a considerably more formidable one which the Antitrust Division of the Justice Department regarded as a perennial threat to competition within in the entertainment industry.82
During Ned Tanens tenure as production chief, Universal's operating income had increased from an average of under $20 million a year between 1971 and 1973, to $68 million in 1974 (when profits from The Sting were posted), to $110 million between 1975 and 1977.83 At the same time, the studio was releasing fewer films than ever before, hitting an all-time low with eleven in 1976—part of a deliberate strategy by the majors to create a "product shortage" and foreground their blockbusters. As Tanen told Fortune magazine that year: "You need to make a minimum number of films a year…[so that] the downside risk is fairly minimal."84 But it was two modestly budgeted films that sustained Universal's winning streak through 1978—Smokey and the Bandit (Hal Needham, 1977), made for $4 million and returning $59 million; and National Lampoon's Animal House (John Landis, 1978), made for $2.4 million and returning $70.9 million—demonstrating the volatility of the newly forming late 1970s audience, 57 percent of which was now composed of 12-24-year-olds).85 In 1979, operating income peaked at $175 million and then declined in 1980 and 1981;86 Tanen was replaced in 1982 by Robert Rehme, the head of distribution who was widely held responsible for the historic success of Steven Spielberg's E.T.: The Extra-Terrestrial (1982), whose $228.2 million in domestic rentals meant that Universal had broken the record for the highest-earning film of all time twice in seven years.
Two of MCA's less successful ventures of the 1970s involved home video and cable. In December 1972, Wasserman announced that MCA would soon market a system for home playback of its movies on videodisc, with hardware to be manufactured by the Dutch electronics firm N. V. Phillips.87 MCA had been exploring this billion-dollar potential market since 1965, as had many other companies. Shortly thereafter, RCA announced its videodisc system, SelectaVision, which would compete head-to-head with MCA's, and the Sony Corporation revealed that it was developing a videotape cassette system (VCR) that would compete with them both as playback units but also have the capacity to record audio-visual images. When Sony unveiled the Betamax in late 1976, MCA and Walt Disney Productions sued the Japanese company on behalf of the Hollywood majors for copyright infringement; but MCA was also intent on buying time for the breakout of Disco-Vision which was currently experiencing problems of software manufacture and computability.88 As it became increasingly clear that Sony was going to win the case, MCA debuted Disco-Vision in September 1979. By then it was too late: The competition from VCR technology was fierce, and though SelectaVision had failed, the Japanese Victor Corporation (JVC) was marketing its own superior videodisc system. With nearly $100 million invested in the operation and only 35,000 players sold by 1982, MCA wrote off its biggest failure by selling Disco-Vision to Pioneer Electronics of Japan who would subsequently market it as "laserdisc" technology to about three million upscale consumers rather than the mass market envisioned by MCA. (The Disco-Vision sell-off in some sense prefigured Wasserman's sale of MCA to the Japanese electronics manufacturer Matsushita for $6.6 billion in 1990.)89 If Disco-Vision was MCA's 1970s corporate nightmare, the Premiere Network offered the punctuation of a very bad dream. Conceived by Hollywood as a counterpunch to the encroachment of both home video and cable, Premiere was a joint venture of MCA, the Getty Oil Company, Columbia Pictures, Paramount Pictures, and 20th Century-Fox to form a satellite-delivered pay-cable network for their movies, with Getty providing the satellite circuits through its 85-percent ownership of ESPN.90 Before Premiere's service even began, however, the Justice Department charged the studios with forming an illegal cartel by conspiring to fix prices and impose an embargo on their product, which accounted for about 60 percent of all American filmed entertainment. Although Justice successfully argued that Premiere constituted a "horizontal monopoly in constraint of trade," it allowed MCA to acquire a one-third interest in USA Network the following year (which grew, in 1984, to become a 50 percent share), giving Universal the foothold in cable that it needed to stay competitive in the coming decades.91
Columbia Pictures Industries (CPI)
Columbia Pictures navigated through the 1950s on the strength of Screen Gems, its highly profitable television production subsidiary founded in 1952. Columbia was the first major studio to enter this field and, although it soon had to compete with MCA's Revue Productions, was able to briefly dominate it, acquiring several television licenses in the process. When studio founder Harry Cohn died in 1958, however, the company was thrown into crisis and simultaneously recorded its first-ever loss (for fiscal year 1957-1958). Management passed into the hands of Cohn insiders Abe Schneider (president, 1958-1963) and Leo Jaffe (president, 1963-1967), but with the notable exceptions of Sam Spiegel's British-produced David Lean epics The Bridge on the River Kwai (1957) and Lawrence of Arabia (1962), Columbia's film generated only enough income to keep the studio alive until 1966. Late that year, ABC-TV paid Columbia a record $2 million for two showings of The Bridge on the River Kwai, and a recovery began, catalyzed by a series of British-made hits, including A Man for All Seasons (Fred Zinnemann, 1966), To Sir, with Love (James Clavell, 1967), and Georgy Girl (Silvio Narizzano, 1966), and culminating in two popular big-budget musicals—Oliver! (Carol Reed, 1968), which earned $16.8 million, and Funny Girl (William Wyler, 1968), which earned $27.3 million. The latter was produced by Ray Stark (b. 1914), who had produced the original Broadway hit and came to Columbia in 1967 to form his own production company. This unit, Rastar, would be responsible for some of the studio's most successful 1970s films, and Stark himself would play a major role in Columbia's later corporate life.
In mid-1966, Columbia had become the target of a hostile takeover bid by corporate raider Maurice Clairmont working in concert with the Banc de Paris et des Pays-Bas, which together attempted to buy a controlling share of the company's stock. The move was foiled by the FCC, which invoked a provision of the Communications Act of 1934 preventing aliens from owning more than one-fifth of any American company with broadcast holdings.92 To protect itself from future takeover threats, Columbia merged with its Screen Gems subsidiary in September 1968 and took the new name Columbia Pictures Industries (CPI) to indicate that it had become an "integrated entertainment complex."93 At that time, Columbia production head Mike Frankovich was succeeded by Abe Schneider's son Stanley, whose brother Bert would soon collaborate with Bob Rafelson to produce Easy Rider (Dennis Hopper, 1969). (Under the new corporate structure, the head of production had the title of president of Columbia Pictures, which Stanley Schneider held from 1970-1973.) When the huge success of Easy Rider (which returned earnings of $19.1 million against costs of $375,000) woke the industry abruptly to the fact that both the demographics and the tastes of its audience had changed, Stanley signed a deal with Bert Schneider's newly formed production company BBS to produce six low-budget films for the youth market in hopes of repeating the Easy Rider windfall (so long as the budgets were under $1 million BBS could make what it pleased and Columbia would finance and distribute the final product—see Chapter 4).94 In fact, Columbia's films of the early 1970s produced little but red ink, most notoriously its disastrous remake of Lost Horizon (Charles Jarrott, 1973), which earned only $3.8 million against its $12-million negative cost. Despite such cost-cutting measures as combining with Warner Bros. to share the Burbank Studios in 1972 (and to generate income by renting its facilities to third-party producers), by the end of 1973, the company was nearly bankrupt. As Axel Madsen points out, the money Columbia lost in 1958-1959, 1961, and 1970-1972 alone added up to $87 million, the exact sum total of its profits since its founding in 1924.95
At this crucial point, Herbert Allen, Jr., of the Wall Street banking firm of Allen & Company, bought control of the company and brought in a new management team headed by Alan J. Hirschfield, a former Allen investment banker, as corporate president and CEO. (Abe Schneider was made honorary board chairman and Jaffe de facto chairman.) It was Ray Stark who alerted Allen to Columbia's potential, having been involved with Allen & Company in the formation of Warner Bros.-Seven Arts in 1967. (Stark had co-founded Seven Arts, with Eliot Hyman, in 1957.)96 After experiencing three losing years in a row and piling up an estimated $127.5 million in debt, Columbia needed cash, and Hirschfield's first move was to mortgage its ten-station broadcast holdings in the form of warrants to a number of banks and insurance companies for $45 million.97 This financially sophisticated maneuver enabled the company to raise money on the stations without really selling them (one, WVUE-TV, New Orleans, was eventually sold to Gaylord Broadcasting for $13.5 million). Next, CPI's motion picture division, Columbia Pictures, needed to cut its expenses, and David Begelman (b. 1922) was hired as president to ring in new production economies.98 Begelman was a Yale graduate, a powerful agent, and the co-founder of Creative Management Associates (CMA), and as Columbia's de facto production chief he quickly succeeded in putting the studio back on sound financial footing. (One of his first moves was to end the studio's ties with BBS.)99 His solution was to minimize the role of producer, which his CMA ties clearly helped him to do; as he said on taking the helm, "I feel that in the past several years, Columbia has been a strongly producer-oriented company and I think there should be a short line between the people making the decisions at Columbia and the people who actually make the films—a shorter, leaner line."100 Accordingly, producers were ordered to cut budgets by rewriting scripts and to accept reduced fees and profit points, and Begelman began to negotiate one-film deals with directors without middlemen (or at least with middlemen he knew how to manipulate from his agency days).101
Begelman's regime generated a number of hits—Shampoo (Hal Ashby, 1975), Tommy (Ken Russell, 1975), Funny Lady (Herbert Ross, 1975), Murder by Death (Robert Moore, 1976), The Deep (Peter Yates, 1977), and, preeminently, Close Encounters of the Third Kind (Steven Spielberg, 1977), and by the beginning of 1976 he had more than doubled Columbia's film rental average over the past decade.102 But Begelman himself resigned amid scandal in 1977, when he was compelled to plead nolo contendere to charges that he had misappropriated some $61,000 in company funds, as much as $40,000 of it by forging actors' residual checks (including one for $10,000 to Cliff Robertson, who blew the whistle). This incident, quickly popularized as the "Begelman affair," not only embarrassed the studio but created a crisis of confidence in the industry that became especially acute when Columbia's directors reinstated Begelman as Columbia Pictures president in December 1977, apparently on the basis of his financial track record. (The industry was not simply chagrined but also fearful of a Congressional investigation of its business practices.)103 Outraged, CPI president Alan Hirschfield pressed for Begelman's resignation, which he received voluntarily in early 1978, and was then himself fired by Columbia's board, as he later told Variety, as a "direct consequence of the David Begelman affair."104 Begelman then became president of MGM's film division (and president of United Artists after the MGM/United Artists merger of 1981), and Hirschfield became vice president (later president) and CEO at Fox. Hirschfield was replaced at CPI by Francis (Fay) Vincent, Jr., a former Securities and Exchange Commission official who would help to restore Columbia's ethically tarnished image.105 Columbia production chief Daniel Melnick (b. 1934) briefly inherited Begelman's job before leaving to become an independent producer in March, 1979, when Frank Price became president of Columbia Pictures and kept the job through 1983.
During his five-year tenure as CPI president, Hirschfield had undertaken an aggressive program that combined divestiture with diversification, the high point of which was the 1976 sale of the Screen Gems music publishing division to Britain's EMI Ltd. and the simultaneous acquisition of D. Gottlieb & Company, the nation's largest pinball machine manufacture, for $50 million.106 Although he had once described the availability of tax shelters as "the single most important occurrence in the recent history of the film industry," Hirschfield's strategy was to wean Columbia away from its dependence on tax-sheltered production finance, which had accounted for 54 percent of the funding for all of its 1975 films, before Congress outlawed the practice—as it would do in the Tax Reform Act of 1976.107 (In fact, Hirschfield told the Wall Street Journal in August 1975 that without tax shelters Columbia wouldn't have had a production program at all.)108 Despite these efforts—which had resulted in a quadrupling of Columbia's net worth between 1973 and 1978—the company's financial health was still marginal enough that its $19.4-million investment in Close Encounters of the Third Kind was seen by many observers as a mortal threat, and its success briefly sent CPF's stock soaring on Wall Street.109
Yet Columbia was once again threatened by takeover in 1979, when Kirk Kerkorian attempted to gain control of it in order to merge it with MGM. Kerkorian had acquired 25.5 percent of CPI stock, valued at $76.4 million, in 1978, and attempted the following year to buy more.110 To prevent this, Columbia annexed Ray Stark's Rastar Films, Inc., placing 300,000 shares of its stock in Stark's friendly hands. After several lawsuits, Kerkorian was forced to sell his interest back to Columbia, at a healthy profit of $60 million (or $13.50 a share), and Columbia was able to enter the 1980s intact.111 (Kerkorian would realize his goal of a merged MGM by acquiring United Artists in 1981.) In addition to overseeing such late decade hits as Kramer vs. Kramer (Robert Benton, 1979; $60 million in rentals), The Electric Horseman (Sydney Pollack, 1979; $30.3 million in rentals), and The Blue Lagoon (Randal Kleiser, 1980; $28.8 million in rentals), Frank Price would soon guide the company into a home video partnership with the RCA Corporation (RCA/Columbia Home Video), CPI corporate development vice president Allen Adler having earlier negotiated an inventive licensing agreement with HBO that amortized 20 percent of the studio's production costs in exchange for exclusive pay-TV rights.112 This lucrative deal led board chairman Herbert Allen to proclaim that "selling software is even better than the oil business,"113 but it further enhanced Columbia's attractiveness for acquisition. In January 1982, Columbia's long independence ended when the Coca Cola Company bought CPI for $823 million in a friendly takeover, paying nearly twice the market value for Columbia's stock ($71 a share), and considerably enriching Allen & Company with its 495,800 shares.114
United Artists (Transamerica Corporation)
Because it owned neither studios nor theaters, United Artists had prospered in the wake of the consent decrees, distributing hits for producers such as Mike Todd (Around the World in Eighty Days [Michael Anderson, 1956; $23 million in domestic rentals]) and the Mirisch Corporation (West Side Story [Robert Wise, 1961; $19.6 million]); Woodfall Films (Tom Jones [Tony Richardson, 1963; $17 million]); Harry Saltzman-Albert R. Broccoli (Thunderball [Terence Young, 1965; $28.6 million]), and its profitability attracted the attention of Transamerica Corporation, which acquired the company for $185 million in 1967.115 Transamerica at the time was a gigantic $2.4-billion conglomerate with diversified but interrelated interests in a range of financial services, including banking, consumer loans, and insurance. (It had been formed in 1924 as a holding company for the Bank of America, but since 1960 had become a multi-market, multiservice enterprise under the leadership of John R. Beckett.) The acquisition left existing United Artists management intact, and although it became a wholly owned subsidiary the movie company operated throughout the late 1960s and early 1970s with complete autonomy.116 In fact, United Artists had one of the longest continuities of management of any Hollywood major, with virtually all changes until the late 1970s coming from within.117
When the merger was completed Robert Benjamin and Arthur Krim, since 1951 United Artists chairman and president respectively, both took partial leaves of absence and production head David Picker, who was then 38 years old, was named United Artists' president in June 1969. His appointment was part of a late-1960s industry pattern which called for the filling of top studio posts with young executives who were thought to be more in touch with the youth culture of the moment (for example, Sam Jaffe was made president of Paramount at 30, and Robert Evans became studio production head at 36; Richard Zanuck was appointed president of Fox at 27; etc.).118 However, Krim had assessed the United Artists inventory and discovered a backlog of thirty-five over-budget unreleased features costing a total of $80 million, which he calculated would lose the company at least $50 million in the newly volatile marketplace.119 Returning to take control of the situation, Krim decided to write off the entire loss in 1970 instead of amortizing it over three years as the law allowed, which produced a record loss of $45 million, most of it absorbed by Transamerica. In fact, the parent company's total profits dropped in 1970 to $43 million from $87 million in 1969, with 80 percent of the difference attributed to the United Artists write-off.120 At this point, Transamerica imposed a number of cost-cutting measures on United Artists that resulted in firing 300 employees, closing several of its foreign exchanges, and capping production budgets at $2 million. Although these constraints would chafe at United Artists management for the rest of the decade, Transamerica continued its hands-off policy in the area of film choice and marketing, so that relative autonomy still prevailed.
After experiencing a few more bad years in 1971 and 1972, United Artists received an unanticipated boon in 1973 from a deal negotiated between Krim and Kirk Kerkorian whereby United Artists became the exclusive distributor of MGM product for the next ten years (see above). This included both theatrical and television syndication rights to all of the 1,400 features MGM had made since 1924, plus the four to six features MGM was projected to make annually over the next decade.121 In October 1973, David Picker left United Artists to become an independent producer, and Krim became chairman of the board, with Benjamin as head of finance. Austrian-born Eric Pleskow (b. 1924) was then appointed United Artists president and CEO, and Mike Medavoy (b. 1941), a 32-year-old super-agent who had worked for both CMA and International Famous, became vice president in charge of West Coast productions. In 1974, United Artists experienced a sustained turnaround that began one of the most profitable periods in its history.122 It contributed $9.9 million in after-tax earnings to Transamerica on film rentals of $141.9 million; in 1975 United Artists posted after-tax earnings of $11.5 million on rentals of $187.4 million; and in 1976 the studio posted $16 million on rentals of $229.5 million.123 Much of this profit was hit-driven: for example, in 1974 MGM's That's Entertainment! unexpectedly returned $12 million in domestic rentals; in 1975 Return of the Pink Panther (Blake Edwards) earned $25.4 million and One Flew Over the Cuckoo's Nest (Milos Forman) an astounding $59.9 million); and in 1976 and 1977, Rocky (John G. Avildsen) returned $56.5 million (this on a budget of about $1 million), so that Variety could proclaim "Boomy United Artists Contributes Fiscal Glow to Transamerica."124
By the end of 1977, United Artists had generated $318 million in global rentals, breaking the all-time industry record previously set by Universal with $289 million in 1975.125 At this point, as he had done at least once before, Krim proposed a United Artists spin-off to Transamerica's board of directors to regain his company's autonomy. Predictably, the plan was turned down, with Transamerica chairman John Beckett sub-sequently telling an interviewer for Fortune magazine, "…[I]f the people at United Artists don't like it, they can quit and go off on their own."126 In January 1978, that is exactly what they did when Krim, Benjamin, Pleskow, Medavoy, and William Bernstein, United Artists vice president for business affairs—to be known henceforth as the "United Artists Five"—all resigned and three weeks later formed Orion Pictures Company with a $100 million revolving line of credit negotiated through First National Bank of Boston. Orion, named for the five-star constellation and described as "the first major new film company in 50 years," was initially a joint financing and distributing venture between the United Artists Five and Warner Bros., and it was widely predicted to leave United Artists an empty shell.127 A stunned Beckett named James R. Harvey, Transamerica's vice president for leisure-time services, as new United Artists chairman and Andy Albeck, head of United Artists' international operations, as president.128 In their wake, the United Artists Five left the company to receive all-time high revenues for the next three years and its third Oscar in a row for Best Picture (for 1977's Annie Hall [Woody Allen], which followed Rocky and One Flew Over the Cuckoo's Nest in receiving that honor).129
This legacy of success notwithstanding, the Albeck regime led United Artists into a disaster of literally epic proportions in 1979 when it allowed the production of Michael Cimino's Heaven's Gate (1980) to go wildly out of control. Steven Bach, head of United Artists production at the time, has chronicled this fiasco in his book Final Cut: Dreams and Disaster in the Making of "Heaven's Gate," in which the film becomes a paradigm for both 1970s auteurism run amok and the fatal flaws of the blockbuster syndrome.130 Originally budgeted at $11.6 million, Heaven's Gate eventually cost $36 million ($44 million, including promotion costs) and, at a running time of 219 minutes, was virtually unreleasable when post-production was finished in the fall of 1980.131 In November it was opened in New York anyway, but to such witheringly hostile reviews that it was withdrawn two days later and its Los Angeles premiere canceled. A 149-minute version, re-edited by Cimino, was re-released in April 1981 but earned less than $1 million, and Transamerica had already decided to write the film off as a loss.132 Thanks to the cash flow created by the Krim and Benjamin regime, the financial blow to United Artists wasn't fatal, but the negative publicity very nearly was. With trade press headlines like "United Artists, Directors' Paradise, Under Loss Cloud," and "'Heaven's Gate' Is Hellish Dilemma,"133 as Bach notes: "The weaknesses and foolishness of an entire industry had been focused and exposed by Heaven's Gate and United Artists, and the press and the industry were going to let neither director nor corporation forget it."134 (A. D. Murphy, however, maintained that the real source of industry outrage was United Artists' other $36-million boondoggle, Apocalypse Now [Francis Ford Coppola, 1979], which had barely returned its costs in the previous year and was widely regarded as the product of a megalomaniac.)135 It was in this context that Transamerica received and accepted Kerk Kerkorian's 1981 bid to buy United Artists for $320 million. Kekorian then merged the company into a new corporate constellation known as MGM/United Artists Entertainment Company, which was bought for $1.5 billion by Ted Turner in 1986. Turner kept it just long enough to siphon off ownership of the nearly 3,000-title MGM film library (which includes the pre-1950 Warner Bros, library) to feed his satellite networks, before selling United Artists back to Kerkorian for $480 million. Kerkorian paid Turner another $300 million for the MGM corporate logo; MGM/United Artists then went through a succession of owners until it was bought by the French bank Credit Lyonnais in 1992 and repurchased by Kerkorian in 1996.136
Walt Disney Productions/Buena Vista Distributing
Walt Disney Productions remained consistently profitable throughout the 1950s and 1960s, largely by having formed its own distribution outlet, Buena Vista, in 1953, thereby reducing its distribution costs from 30 percent to 15 percent of gross rentals.137 During this same time, rising labor and production costs associated with animation led Disney increasingly into the realm of live-action features, where it scored significant hits with films like 20,000 Leagues Under the Sea (Richard Fleischer, 1954—$11.3 million in domestic rentals) and Mary Poppins (Robert Stevenson, 1964—$45 million in rentals) which it was able to promote and cross-market via its television series Walt Disney Presents. The spectacular success of Mary Poppins, which was the highest-grossing film of 1964 (significantly outperforming both of its closest rivals, My Fair Lady [George Cukor] and Goldfinger [Guy Hamilton]) pushed company profits to record highs of $11 million in 1965 and $12 million in 1966.138 When Walt died in 1966, Roy Disney—his brother and business partner since the 1920s—took over the company, naming Donn B. Tatum as president and E. Cardon (Card) Walker as executive vice president in charge of operations. As a closely held family company, however, Walt Disney Productions did not experience an orderly succession because the founder himself had done little to prepare for one. Instead of continuity, there was increasingly bitter rivalry between factions loyal to Walt's vision—which encompassed synergies among film, television, and theme park enterprises (Disneyland had opened in Anaheim, California, in 1955)—and Roy's, which concentrated more heavily on the traditional Disney product, described by Tatum as "constructive and wholesome entertainment for the entire family" (Presidents Letter to Shareholders, 1969).139
In five years as CEO, Roy managed to double the company's net worth, and when he died in 1971—the year that its second theme park, Disney World, opened in Orlando, Florida—Tatum became CEO and Walker president and de facto head of production.140 Despite the changes going on in the industry at the time, Walker clung to the belief that audiences still wanted the kinds of family films evoked by Tatum's description, and during the early 1970s he seemed to be right. Films like The Aristocats (Wolfgang Reitherman, 1970), Robin Hood (Wolfgang Reitherman, 1973), and Herbie Rides Again (Robert Stevenson, 1974) were solid winners, and Bedknobs and Broomsticks (Robert Stevenson, 1971) and The Snowball Express (Norman Tokar, 1972) did respectable business. But by mid-decade the old magic had worn thin.
In 1974, most of the film division's $48 million in rentals were generated by reissues of Lt. Robin Crusoe, USN (Byron Paul, 1966) and Alice in Wonderland (Clyde Geronimi, 1951). (Institutionalized in the 1950s, multiple reissue was—and still is—standard Disney marketing practice; between 1968 and 1973, for example, 35 percent of the studio's total gross came from reissues, and some of its films have been re-released as many as seven times.)141 Between 1972 and 1976, in fact, revenues from film rentals increased from $78.3 million to $119.1 million, but they did not keep pace with those of other corporate divisions, most notably theme parks (Disneyland and Disney World), and consumer products (merchandise, licensing, publishing).142 The reason was that Disney had failed to acknowledge the revolution in public taste registered by the success of "event" films like The Godfather (1972), The Exorcist (1973), and Jaws (1975). Walker consistently refused to move into the production of hard-PG and R-rated films, although he knew that the new teenage audience wanted more sex and violence than the G rating would allow; and even when Star Wars (1977) demonstrated that blockbusters could be made without sacrificing a commitment to family values, the studio proved unwilling to pay the price for them.143 As late as 1979, for example, it was Disney policy not to grant profit "points" in making deals with producers, which ended early negotiations for both Raiders of the Lost Ark and E.T.: The Extra-Terrestrial. It was this short-sighted conservatism that caused a new generation of Disney animators, profiled in The New York Times Magazine for August 1, 1976, to complain that the studio had become creatively stagnant by losing continuity with its past.,144 Despite these charges, it was the animated feature The Rescuers (Wolfgang Reitherman) and the live action-animation combination Pete's Dragon (Don Chaffey) that were Disney's highest earners of 1977 ($30 million and $18.4 million, respectively). In fact, the studio hadn't seen a big live-action hit since The Love Bug (Robert Stevenson) became the second highest earning film of 1969, ranking ahead of Midnight Cowboy (John Schlesinger), and Easy Rider, and just behind Butch Cassidy and the Sundance Kid.
For most the 1970s, corporate policy was set by an executive committee comprised of Tatum, Walker, Ron Miller (Walt's son-in-law and heir apparent), and Roy E. Disney, or Roy, Jr. (Roy's son and heir apparent). In 1977, Roy, Jr. resigned, and Ron Miller was named head of production and attempted to bring the studio into the mainstream by venturing PG production for the first time. In August 1978, Variety's editors noted that "the hardest thing to do in Hollywood is sell a G-rated picture (unless it has a Disney tag attached),"145 but by that time even the tag didn't help much, so Miller ventured into PG production profligately with The Black Hole (Gary Nelson, 1979—Disney's first PG-rated release took place in March 1979, when it distributed the wrestling film Take Down [Kieth Merrill, 1978], a negative pick-up that contained some foul language).146 Disney's $20-million Star Wars imitation was aimed directly at the teenage market147 and went down to perdition during the busy Christmas box-office season of 1979, returning a disappointing $25.4 million in rentals. Miller followed with two PG-rated imitations of R-rated genre hits—Midnight Madness (David Wechter, 1980), an Animal House clone; and The Watcher in the Woods (John Hough, 1980), a contemporary teenage horror film—both of which lost money.
To make matters worse, in September 1979, 42-year-old Don Bluth and a dozen other top animators quit the studio in protest over constant cost-cutting and a decline in artistic standards to form Don Bluth Productions (whose first film was 1982's remarkable The Secret of NIMH [Don Bluth], distributed by the new MGM/United Artists).148 The walkout decimated Disney's already weakened animation department, leaving just nine animators on staff, and delayed the release of The Fox and the Hound (Art Stevens, 1981) by eighteen months and stopped the troubled production of The Black Cauldron (Ted Berman, 1985) until computer-generated animation (and Michael Eisner) arrived to resurrect it.149
By the end of 1979, Disney's film profits were the lowest in a decade ($40.3 million), and yet during the 1970s it had risen decisively into the ranks of the majors by becoming the kind of broadly based entertainment-recreation company that its cohorts would all aspire to become in the 1980s and 1990s. In spite of the fact that Disney's market share among the seven majors had shrunk to 6 percent, the company had stabilized its position within the industry through diversification, so that less than a third of its income came from filmed entertainment, about half came from its theme parks (for much of the 1970s, Disneyland accounted for 60 percent of its profits alone),150 and most of the rest from its merchandising operations. (Walt Disney pioneered the product tie-in when he sold licenses for the international production and sale of Mickey Mouse merchandise to the George Borgfelt Company in 1930.151 His first feature, Snow White and the Seven Dwarfs [Ben Sharpsteen, 1937], was accompanied by an array of tie-in merchandise ranging from books and toys to a 78-rpm sound-track album.)
In 1980, as work was beginning on EPCOT Center in Orlando and Tokyo Disneyland, Tatum retired, Walker became chairman of the board, and Ron Miller was named president and CEO. As the 1980s wore on, however, it became increasingly clear that theme park revenues were leveling off, and in 1983 the motion picture division reported a loss of $33.4 million, much of it due to the poor showing of the Disney Channel cable venture and the box-office failure of several big-budget projects like Tron (Steven Lisberger, 1982) and Something Wicked This Way Comes (Jack Clayton, 1983). (Expectations for the high-tech, CGI-enhanced Tron were so high that bad reviews caused Disney's stock to fall two-and-a-half points the day after it opened.)152 In a bold move, Miller founded the subsidiary Touchstone Pictures to market films for adult audiences while Walt Disney Pictures continued to produce family-oriented films. Despite the success of Touchstone's first feature, Splash (Ron Howard, 1984), Miller was ousted later that year in a power struggle with a consortium of stockholders led by Roy Disney, Jr., who in September hired Michael Eisner, then president of Paramount, as Disney's new CEO and chair. Former Warner Bros, president and co-chief executive Frank Wells joined the company as president, and this new management team oversaw the transformation of Disney into the international entertainment conglomerate it became in the 1990s.153
In addition to the majors, several smaller companies were involved in distributing films during the 1970s, including American International Pictures, Allied Artists Pictures, Avco Embassy Pictures, and New World Pictures. Additionally, CBS and ABC, the two television networks that had established their own production companies in the late 1960s, had agreements with two large theater companies, National General Corporation and Cinerama Releasing Corporation respectively, to function as the distributors of their films. Finally, there were Associated Film Distributors, a British company that briefly attempted to compete with the majors at the end of the decade, and EXPRODICO, a cooperative formed by exhibitors to produce and distribute their own films in response to the "product shortage" created by the majors.
American International Pictures (AIP)
Founded in 1954 by James H. Nicholson (b. 1916) and Samuel Z. Arkoff (b. 1918) as American Releasing Corporation (ARC) before changing its name in 1956, American International Pictures (AIP) began as a releasing company for low-budget exploitation films in all genres, selling them in double bills directly to twenty-three regional subdistributors around the country (including Joseph H. Levine of Boston who would later form the rival Embassy Pictures).154 (In this "states rights" system, regional distributors paid a flat fee to producers for limited exclusive rights to exhibit a film within a given state or group of states, with the distributor absorbing the cost of release prints and promotion.) Working with independent producers like Roger Corman and Bert I. Gordon, and ultimately coproducing themselves, Nicholson and Arkoff tapped into the "youth market" at least a decade before anyone else (except perhaps "Jungle" Sam Katzman), and by the early 1960s had become the paradigmatic teenage exploitation studio. (According to Richard McKay, AIP's advertising director, by 1959, 65 percent of the company's revenue came from drive-in theaters, prime teenage venues known facetiously in the trade as "passion pits.")155 At this point AIP was, with Disney, the most consistently profitable studio in Hollywood, enabling it to absorb many of its subdistributors and set up its own national distribution network.156 (Internationally, Fox distributed for AIP in Mexico; Anglo Amalgamated in Britain.)157 As it grew more successful, AIP sought to compete with other low-budget distributors by producing its films in CinemaScope and color, the first of which, Roger Corman's The House of Usher (1960), was also the first AIP film to be booked into theaters on a percentage basis rather than at the flat rate reserved for B-films. Later in the decade, the success of teen films like Beach Party (William Asher, 1963), Bikini Beach 1964), and Beach Blanket Bingo (William Asher, 1965) enabled AIP to set up the subsidiary Trans-American Films to distribute foreign product, and its popular biker-protest film The Wild Angels (Roger Corman, 1966) spawned a subgenre and provided the model for the ultimate "youth cult" movie, Easy Rider—which was produced by BBS and distributed by Columbia in 1969, but had been brought first to Arkoff, who turned its down because he didn't trust Dennis Hopper to direct.158 During this period, AIP cut costs by recruiting creative personnel from local film schools—non-unionized actors, directors, and cinematographers who were willing to work for low wages and eager for professional experience. Thus, many filmmakers who would give 1970s cinema its characteristic look and shape did their apprentice work at AIP, including performers like Jack Nicholson and Peter Fonda; directors like Francis Ford Coppola, Peter Bogdanovich, and Martin Scorsese; and cinematographers like Laszlo Kovacs and Vilmos Zgismond.
During the 1970s, AIP quickly jumped on the blaxploitation bandwagon and became the leading studio for this kind of product, releasing Black Caesar (Larry Cohen, 1972), Blacula (William Crain, 1972), Coffy (Jack Hill, 1973), Hell Up in Harlem (Larry Cohen, 1973), Foxy Brown (Jack Hill, 1974), Truck Turner (Jonathan Kaplan, 1974), Bucktown (Arthur Marks, 1975), and even Michael Schultz's distinctive Cooley High (1975), among many other less remarkable titles. AIP also produced a rash of domestic kung fu features (Deep Thrust [Huang Feng, 1972], Shanghai Killers , Golden Needles [Robert Clouse, 1974], etc.) and, as an early practitioner of saturation booking, flooded inner-city markets with both blaxploitation and martial arts product. It was during this time that AIP's market share as a distributor began to register on the Variety charts: in 1974, the company accounted for 3.8 percent of total domestic rentals, followed by 3.4 for 1975, 3.8 for 1976, 3.4 for 1977, and 1.4 for 1978, when about 96 percent of its annual revenues came from theatrical rentals.159
This success inspired Arkoff to compete with the majors (James Nicholson had left the company in 1972 to become an independent producer), and in 1975 he announced plans to start making "big-budget" films in the $3 to $4 million range. Owning no production facilities, AIP typically leased studio space for its own projects and enforced an economically exacting regime on the makers of these "prestige" films, some of which enjoyed box-office success (for example, Love at First Bite [Stan Dragoti, 1979—$20.6 million domestic]; The Amityville Horror [Stuart Rosenberg, 1979—$35 million domestic]). Others, however, barely broke even (The Island of Dr. Moreau [Don Taylor, 1977—$4 million]), and one of them, the $20-million disaster film Meteor (Ronald Neame, 1979), coproduced with Hong Kong's Sir Run-Run Shaw, lost $15.2 million and threatened the company's solvency.
In 1979, in fact, AIP posted the first loss in its history ($1.5 million) and in July of that year merged with Filmways, the television production-syndication company founded by Martin Ransohoff (b. 1927) in 1972, which had recently acquired interests in publishing (Grosset & Dunlop) and feature film distribution (Sigma III). Arkoff left in 1981 to form Arkoff International Pictures, and in 1982 Filmways/AIP was bought by Orion as it trembled on the edge of bankruptcy. A casualty of the 1970s hit-or-miss blockbuster syndrome, AIP nevertheless led the way early on in demographic exploitation, target marketing, and saturation booking, all of which would become standard procedure for the majors in planning and releasing their mass-market "event" films by the end of the decade.
Avco Embassy Pictures
Avco Embassy Pictures Corporation began life in 1956, when Joseph H. Levine's Embassy Pictures released a recut, "Americanized" version of a Japanese monster film originally called Gojira (Toho, 1954). Retitled Godzilla, the film became an enormous hit, not least owing to Levine's relentlessly energetic exploitation. (Levine [1905-1987] was a states rights distributor operating out of Boston and a major client during the 1950s of AIP—see above.)160 He then worked the same transformation on a cheaply made Italian peplum called The Loves of Hercules, whose world rights he acquired for a $125,000; as Hercules (Pietro Francisci, 1959). The film returned $4.7 million in domestic rentals on the strength of a $1.5 million advertising blitz and a Warner Bros. saturation release on 600 screens, made a star of its protagonist Steve Reeves (an American bodybuilder turned actor), and touched off a long cycle of sword-and-sandal imports with local musclemen posing as classical heroes.161 (The film did even better abroad, and in several markets became the first motion picture advertised on national television.)162
Levine continued his relationship with the Italian industry into the 1960s, providing some financing and American distribution for films as varied as Two Women (Vittorio De Sica, 1960), Divorce—Italian Style (Pietro Germi, 1961), Boccaccio '70 (Vittorio De Sica, Federico Fellini, Luchino Visconti, 1962), 8 1/2 (Federico Fellini, 1963), Marriage Italian-Style (Vittorio De Sica, 1964), The Tenth Victim (Elio Petri, 1965), and Romeo and Juliet (Franco Zeffirelli, 1968); as well as for such British productions as Zulu (Cy Endfield, 1964) and Darling (John Schlesinger, 1965). Domestically, Levine produced such hits as The Carpetbaggers (Edward Dmytryk, 1964), Nevada Smith (Henry Hathaway, 1966), The Producers (Mel Brooks, 1967), and The Graduate (Mike Nichols, 1967).163 The windfall success of the latter, which cost less than $3 million and returned $44 million in rentals, made Embassy attractive to the Avco Corporation, a conglomerate involved in defense and aerospace manufacture, consumer lending, land development, and broadcasting, which bought the company in 1968.164
As Avco Embassy, with Levine as president, it briefly became a major force in the industry, producing the award-winning The Lion in Winter (Anthony Harvey, 1968) and the epoch-making Carnal Knowledge (Mike Nichols, 1971), together with such disasters as The Adventurers (Lewis Gilbert, 1970) and The Day of the Dolphin (Mike Nichols, 1973), but by 1978 was providing just over 1 percent of its parent's revenue.165 Levine himself left Avco Embassy in 1974 to form Joseph A. Levine Presents, producing two unsuccessful Richard Attenborough films—A Bridge Too Far (1977) and Magic (1978)—before retiring in 1981.166 In 1975, Avco Embassy briefly withdrew from production but steamed ahead as a distributor, releasing fifteen features, but by 1977 it was down to only six.167 The company was reinvigorated in 1978 by its new vice president for marketing, Robert Rehme, who generated production capital with such successful exploitation films as The Fog (John Carpenter, 1979; made for $1.5 million and returning $10 million in rentals) and The Howling (Joe Dante, 1981; made for $1.7 million and returning $9 million), so that by 1981 the company was able to release fifteen features and capture 5 percent of the domestic rentals for that year.168 After a failed takeover bid by Billy Jack producer Tom Laughlin in early 1981, Avco Embassy was acquired by Norman Lear and Jerry Perenchio in November of that year for $26 million.169 Renamed Embassy Communications, the company handled syndication of Lear's former Tandem television productions and home video distribution of Avco Embassy films. It also maintained a theatrical film division which released some foreign product (notably Ingmar Bergman's Fanny and Alexander ) and ventured into production on the Universal lot in 1982.170 In 1985 Embassy Communications was acquired by Dino De Laurentiis.
Allied Artists Pictures (AA)
Another distributor at the margins during the 1970s was Allied Artists Pictures, Inc., which was the latter-day incarnation of Monogram Productions, Inc. Under the management of its new president (and former sales manager) Steve Broidy, this classical-era B-film studio had incorporated Allied Artists Productions as a wholly owned subsidiary to produce higher-budget films in 1946; then in 1953 the company dropped the old name entirely and, as Allied Artists Pictures (AA), produced and distributed such successful mainstream films as Friendly Persuasion (William Wyler, 1956), Love in the Afternoon (Billy Wilder, 1957), and the Elvis Presley vehicle Tickle Me (Norman Taurog, 1965), having set up its own film exchanges in major cities. (Allied Artists continued to finance low-budget exploitation product like Don Siegel's Invasion of the Body Snatchers  and Roger Corman's War of the Satellites , and it also produced telefilms under the imprimatur of Interstate Television Corporation, which was renamed Allied Artists Television in 1970.)171 However, Allied Artists ceased production in 1966 and sold its studio facilities a year later, becoming for the rest of the decade an import distributor. The company scored hits with foreign titles like A Man and Woman (Claude Lelouch, 1966) and Belle de Jour (Luis Buñuel, 1967), and under Emmanuel L. Wolf (b. 1927), who became president and board chairman in 1968, returned to production in the early 1970s.
The first Allied Artist venture of the decade, coproduced with ABC Pictures (which provided 50 percent of the financing), was Cabaret (Bob Fosse, 1972), whose critical and commercial success seemed to auger great things for the "new" AA. The Bob Fosse musical won eight Academy Awards and became the sixth highest earning film in the year of The Godfather, with $22.2 million in rentals; and it inspired Wolf to seek blockbuster gold with Papillon (1973). Directed (and nominally coproduced) by Franklin J. Schaffner, whose Patton had swept the 1970 Oscars, this grim film was based on the best-selling account of a true escape from Devil's Island which French producer Robert Dorfman had acquired shortly after it was published in 1969. (Twenty years earlier AA had produced as its first mainstream hit Riot in Cell Block 11 [Don Siegel, 1954], based on producer Walter Wanger's prison experiences.) In a complicated financing arrangement, a Chicago investment brokerage lent Allied Artists $7 million plus another $2.5 to cover cost overruns at the usurious interest rate of 20 percent (at the time, AA had a net worth of just over $2 million).172 Inflated star salaries ($2 million for Steve McQueen; $1.25 million for Dustin Hoffman) and Schaffner's $750,000 director's fee, together with location shooting in Spain and Jamaica, combined to push declared negative costs above $13 million (Schaffner believed they were closer to $15 million).173 Papillon was a hit, returning $22.5 million in rentals to become the fourth-highest earner of 1973, but given the staggering debt it had incurred in production it was hardly the blockbuster AA needed to remain competitive. Still looking for a winning combination, Wolf raised $8 million for the production of The Man Who Would Be King (John Huston, 1975), a version of a Rudyard Kipling adventure story set in nineteenth-century Afghanistan and shot on location in the Atlas mountains of Morocco with a British cast and crew. Some of the money was raised from Columbia Pictures in exchange for the European distribution rights; much of the rest came from Canadian tax shelters.174 Despite glowing reviews and a massive publicity campaign,175 the film returned only $11 million, and that same year Conduct Unbecoming (Michael Anderson, 1975), another British period film distributed by Allied Artists, lost money.
At mid-decade, Allied Artists' only significant earner relative to its costs was the French-produced softcore pom film The Story of O (Just Jaeckin, 1975), but its distribution was complicated by obscenity prosecutions in several major markets, including Detroit and Atlanta, and the company spent much of its $4.7-miIlion return on legal fees. Seeking to diversify, in early 1976 Allied Artists Pictures was merged with two consumer products groups, Kalvex, Inc. and PSP, Inc., to become Allied Artists Industries, Inc. The new company distributed a wide range of products, from pharmaceuticals to sportswear to mobile homes, and only about 30 percent of its revenues came from filmed entertainment.176 But, as Michael Conant points out, AA had released only forty-four theatrical features between 1970 and 1977, and fell below the critical minimum size for national distribution.177 With only twelve exchanges and an annual overhead in excess of $3 million, it barely had enough staff to collect its exhibitor billings (in fact, one theory held that AA had risked Papillon in order to accelerate collections on its Cabaret billings).178 In 1978 it contracted for the release of one hundred AA titles on pre-recorded videocassette, becoming one of the first producers in Hollywood to do so,179 yet by that point the company had posted net losses for four years in a row. In May 1979 it filed for bankruptcy, and was acquired the following year by Lorimar Productions, a successful television producer that ventured briefly into filmmaking in the late 1970s and early 1980s.
New World Pictures
By far the most successful independent producer-distributor of the decade was New World Pictures, founded by Roger Corman with his brother Gene in 1970 after leaving AIP. Corman sought to duplicate the success of Nicholson and Arkoff's company on a broader scale, in his own words, by producing "a series of low-budget films made by new, young filmmakers" for worldwide distribution.180 Ultimately, New World failed at global reach, opening ten domestic sales offices and one each in Canada and the U.K., with subdistributors handling its productions regionally.181 Initially, these were R-rated exploitation films—the softcore "Nurse" series begun by The Student Nurses (Stephanie Rothman, 1970) and the women-in-prison cycle kicked off by The Big Doll House (Jack Hill, 1971)—which brought the company a first-year profit of $3.2 million. (The Big Doll House, for example, shot in the Philippines for $120,000, grossed $10 million.)182 Corman continued the production of such sex-and-sadism programmers throughout the 1970s, as always with the cheapest available talent. One beneficial effect of this production economy, as at AIP, was to provide apprenticeships for recently trained filmmakers who later became major industry talents. In the case of New World, these included Jonathan Kaplan (Night Call Nurses ; The Student Teachers ; White Line Fever ), Jonathan Demme (Caged Heat ; Crazy Mama ), Ron Howard (Grand Theft Auto ), Paul Bartel (Death Race 2000 ; Cannonball ), and Joe Dante (Hollywood Boulevard [1976, with Alan Arkush]; Piranha ).
New World's other contribution during the 1970s was to import and distribute a large number of European art films, starting with Ingmar Bergmans Cries and Whispers in 1972. Corman did this initially to enhance the image of his company ("I don't want a reputation like AIP of doing only exploitation films," he told New World's executive vice president Barbara Boyle),183 but in the auteur-conscious 1970s it also proved unexpectedly profitable. Thus, for short while, American audiences read "Roger Corman Presents" in the credits for films by Bergman (Autumn Sonata ); Federico Fellini (Amarcord ); François Truffaut (The Story of Adele H. , Small Change ); Joseph Losey (The Romantic Englishwoman ); Volker Schlöndorff (The Lost Honor of Katharina Blum , The Tin Drum ); Akira Kurosawa (Dersu Uzala ); Alain Resnais (Mon Oncle d'Amerique ); and Bruce Bereford (Breaker Morant ).184 In the same vein, New World also distributed such unusual work as the Jamaican cult classic The Harder They Come (Perry Henzell, 1973), Rene Laloux's animated science fiction film Fantastic Planet (1973), Jeanne Moreau's directorial debut Lumiere (1976), the Stephen Sondheim musical A Little Night Music (Harold Prince, 1978), Peter Bogdanovich's Saint Jack (1979), and the early films of David Cronenberg (Rabid , The Brood ). New World reached its maximum profitability in 1980, by which time it had become the largest independent production-distribution company in the United States. (A venture into the British market had proven unsuccessful.)
In 1983, Corman sold New World to an investment group for $16.5 million; he subsequently formed Concorde Pictures Corporation with his wife Julie and acquired distribution rights to about 120 New World films that he had produced or distributed when he had owned the company, 1970-1982.
Associated Film Distributors (AFD)
A final independent player in 1970s American film market was the British producer-distributor Associated Film Distributors (AFD). Unlike AIP, Allied Artists, and New World, AFD attempted to compete head-to-head with the majors in the arena of big-budget mainstream films by combining the resources of the European electronics-media conglomerate Thorn-EMI with those of television magnate and film producer Lord Lew Grade. Lord Grade's ITC had been producing features for the American market since 1975 without notable success. These included heavily promoted star vehicles like The Eagle Has Landed (John Sturges, 1977), distributed by Columbia, and The Boys From Brazil (Franklin J. Schaffner, 1978), distributed by Fox. EMI had also entered film production during the 1970s, starting with That'll Be the Day (Claude Whatham, 1974) and Stardust (Michael Apted, 1975), but had managed only one hit in the United States—Michael Cimino's The Deer Hunter (1978). In 1979, EMI was acquired by Thorn, and the merged company combined with Lord Grade to form an American distribution company called AFD. Backed by a U.K. distribution company and the Boston-based General Cinema Corporation, the nation's largest theater chain,185 AFD aimed at the heart of American market with The Muppet Movie (James Frawley, 1979), which unexpectedly became the tenth-highest earner of the year with domestic rentals of $32.2 million. (The Muppets in that film are on their way to Hollywood to sign a movie contract with a studio mogul named "Lord Lew.") But failure attended the next AFD production, disco musical Cant't Stop the Music (Nancy Walker, 1980), and absolute disaster sank Raise the Titanic! (Jerry Jameson, 1980), a $35-million would-be blockbuster that returned only $6.8 million in rentals and forced Grade to resign as ITC chairman. Financially crippled, AFD entered into a distribution agreement with Universal and remained in the American market with nearly as many hits (The Great Muppet Caper [Jim Henson, 1981]; The Dark Crystal [Jim Henson, 1983]) as misses (The Legend of the Lone Ranger [William A. Fraker, 1981]), until Thorn-EMI was sold off in the mid-1980s, with its substantial film library going to the French company Lumiere and Cannon/Pathé acquiring its theater circuit. (Lord Grade was reappointed chairman of ITC in 1995.)
National General Corporation (NGC)-CBS Cinema Center Films
In 1967 there appeared two so-called "instant majors"—National General Corporation-CBS and Cinerama-ABC. (National General and Cinerama are sometimes counted separately as "instant majors" because they both briefly entered production in the late 1960s.)186 In each case, a television network entered feature film production with the idea of supplying its own prime-time movie programming in addition to distributing its product to theaters through independent exchanges. The CBS production unit was called Cinema Center Films. Its films were distributed by National General Corporation (NGC), successor to the 20th Century-Fox circuit and the third-largest theater chain in the country (250 screens), which had entered distribution in 1966 under a temporary waiver of the consent decrees (first granted to the company for three years in 1963 and extended for another three years to 1969).187 Until he migrated to Fox in 1971, Cinema Center's president was Gordon Stulberg, and its studio was set up on the old seventyacre Republic Pictures lot in Hollywood, for which CBS had paid $9.5 million in February 1967.188 Cinema Center produced thirty films, including such star vehicles as With Six You Get Egg Roll (Howard Morris, 1968), with Doris Day; A Man Called Horse (Elliot Silverstein, 1970), with Richard Harris; Little Big Man (Arthur Penn, 1970), with Dustin Hoffman; Le Mans (Lee H. Katzin, 1971), with Steve McQueen; and Big Jake (George Sherman, 1971), with John Wayne; as well as the pre-Jaws shark documentary Blue Water, White Death (Peter Gimbel, 1971), an acknowledged influence on Spielberg.189 Despite a handful of hits, the majority of Cinema Center features incurred losses. When it posted a loss of $10 million for 1971, CBS board chairman William S. Paley ordered that the company shut down after it completed the several productions in progress.190
Under the leadership of former Paramount executive Charles Boasberg (b. 1906), NGC itself had entered production in 1967 as National General Pictures, producing and distributing Divorce American Style (Bud Yorkin, 1967) and The Stalking Moon (Robert Mulligan, 1969). (It had also coproduced The Quiller Memorandum [Michael Anderson, 1966] with the Rank Organization for distribution by Fox.) The following year NGC produced by itself coproduced with Cinema Center about ten films—including the long-forgotten Charro! (Charles M. Warren, 1969), A Fine Pair (Francesco Maselli, 1968), The April Fools (Stuart Rosenberg, 1969), Daddy's Gone A-Hunting (Mark Robson, 1969), Me, Natalie (Fred Coe, 1969), and All Neat in Black Stockings (Christopher Morahan, 1969)—and it petitioned the Justice Department to further ease consent decree restrictions so that it could produce and distribute "indefinitely." Judge Edmund L. Palmieri of the New York Federal District Court granted another three-year extension but refused an indefinite term.191 After a failed bid to acquire Warner Bros, in 1969 (foiled by the Justice Department's Anti-Trust division), NGC closed its production unit in 1970 but continued to distribute for Cinema Center, as well as for its new partner First Artists Productions (FAP), formed in 1969 by Barbra Streisand, Sidney Poitier, and Paul Newman (later joined by Steve McQueen and Dustin Hoffman). Prestigious as it was, FAP produced only five films and one real hit between 1969 and 1973 (Sam Peckinpah's The Getaway , which earned $18.4 million in domestic rentals), and when Cinema Center closed in 1972, NGC was taken over by American Financial Corporation, which sold its film library and releasing commitments to Warner Bros, in November 1973 (see above).192
Cinerama Releasing Corporation (CRC)-ABC Circle Films
ABC's production unit was named Circle Films, and its distribution partner was Cinerama Releasing Corporation (CRC), a division of Cinerama Inc., whose multi-camera widescreen process had catalyzed the widescreen revolution in 1952. In 1963, the company had been bought by William R. Foreman, owner of the Pacific Coast Theater chain, who in 1967 set up CRC to distribute its own widescreen films (now shot mainly in 35mm and 70mm single-lens processes) and ABC's Circle Films productions.193 (ABC also operated theaters—in fact, with 418 theaters of the former Paramount circuit, in the 1960s ABC Theaters was the largest chain in the country.)194 In the late 1960s CRC released Custer of the West (Robert Siodmak, 1968), in Super Technirama; Hell in the Pacific (John Boorman, 1968), in Panavision; Krakatoa, East of Java (Bernard Kowalski, 1969), in Super Panavision 70; and Song of Norway (Andrew L. Stone, 1970), in Super Panavision 70.195 Between 1967 and 1972, under the leadership of former Creative Management Associates executive Martin Baum, ABC itself produced or coproduced thirty-seven films, including Charly (Ralph Nelson, 1968); The Killing of Sister George (Robert Aldrich, 1968); Candy (Christian Marquand, They Shoot Horses, Don't They? (Sydney Pollack, 1969); Song of Norway (Andrew L. Stone, 1970); Kotch (Jack Lemmon, 1971); Sam Peckinpah's Straw Dogs (1971) and Junior Bonner (1972); The Touch (Ingmar Bergman, 1971); and its only big hit, Cabaret (Bob Fosse, 1972), whose success it shared with Allied Artists.196 Before profits from the latter were taken, the company's total operating loss for the five-year period was $47 million, and half of Cabaret's $22.2 million just wasn't enough to save it. After ABC Circle Films went out of business in early 1973, CRC subsisted mainly on acquisitions—that is, pick-ups distributed but not financed—of which it had released some 125 by August 1974.197 At that point, AIP became the domestic distribution agent for CRC, which needed to release between twenty and twenty-five films a year to meet its over-head and make a profit.198 Cinerama Inc. was ultimately liquidated in May 1978, although Pacific Coast Theaters retained the corporate name.
Despite the fact of an ongoing FCC inquiry into the networks' control of program production, and an antitrust suit brought by the MPAA against CBS and ABC for their entry into theatrical production,199 the "instant majors" were able to achieve a 10-percent market share by 1970.2O0 Their later failure—and that of the other independent producer-distributors discussed above—was symptomatic of a deep-seated institutional problem: the central fact that the production, finance, and distribution of feature films are, in David Gordon's words, "irrevocably linked."201 During the 1970s they became even more so. Until the coming of the video revolution in the 1980s, separation of finance and distribution was doomed to fail, and the distribution sector provided only sporadic entry for independents. Both NCG and CRC hoped to streamline their sales operations by maintaining small staffs and flexible structures, with eight to ten branches (NGC opened with only six in 1966) as opposed to twenty-five to thirty for the majors, but economies of scale dictated the release of two to three films per month in order to remain competitive, and this became impossible after the collapse of their product suppliers.202 As Tino Balio points out, the only lasting effect of their attempt to become television-oriented, vertically organized "instant majors" was to bid up prices for talent and glut the market with features.203
Exprodico and the "Product Shortage"
The entry of the "instant majors" and mini-majors also had the effect of reducing distribution's share of box-office grosses to under 30 percent between 1969 and 1972, since the new companies offered lower than average splits with exhibitors (normally no lower than 70/30, and frequently higher, during the most of the 1960s) in order to get their business, which forced the majors to lower their rates accordingly.204 By 1972, however, the distributors' share had risen again to 31.6 percent. It increased to 39 percent in 1977, and ended the decade at an average high of 45 percent.205 The main cause was the artificial "product shortage" created by the majors, who had cut distribution by 36 percent between 1972 and 1975, so they were able to demand 90/10 splits for potential blockbusters and bind exhibitors to the practice of blind-bidding with nonrefundable guarantees. In the latter, theater owners were called upon to bid competitively for films they had yet to see (usually because they were still in production), and to put up a nonrefundable cash-guarantees in order to book them, often for a minimum guaranteed playing time as well.206 The MPAA argued that blind-bidding helped the studios to amortize millions in interest charges on big-budget films by insuring their immediate release, but theater owners correctly saw it as a tactic for making them shoulder most of the financier-distributor's risk for a considerably lower share of the profits. (However, the non-refundable guarantee was much less risky for exhibitors than a straight production investment loan, since the money was not due to the distributor until shortly before a film's opening, and after opening the exhibitor got to keep all box-office revenues until the guaranteed amount was earned back.)207
It was to combat these abuses that EXPRODICO (Exhibitors Production and Distribution Cooperative) was formed in 1975 by Tom Moyer, the owner of an Oregon theater chain, with the support of NATO (the National Association of Theater Owners).208 The idea was for exhibitors to go into direct production, on the model of Fox and Loews earlier in the century, to insure the steady supply of films to their theaters. Although its cooperative purpose was never really fulfilled, many individual EXPRODICO members entered production on their own account. (In fact, many individual EXPRODICO members reneged on their pledges of financial support, and the organization was dissolved in 1979, but with the caveat tellingly noted in a Variety headline: "Film Famine Could Revive EXPRODICO.")209 These included General Cinema Corporation of Boston, the nation's largest exhibition chain, which produced Capricorn One (Peter Hyams, 1978), Lost and Found (Melvin Frank, 1979), and Hanover Street (Peter Hyams, 1979) and attempted unsuccessfully to acquire a 20-percent share of Columbia Pictures in 1979; United Artists Theater Circuit, the second largest chain, produced aloha, bobby and rose (Floyd Mutrux, 1975), The Kentucky Fried Movie (John Landis, 1977), Sunburn (Richard C. Sarafian, 1979); Ted Mann Productions, a subsidiary of Mann Theaters Corporation, produced Buster and Billie (Daniel Petrie, 1974), Lifeguard 1976), and Brubaker (Stuart Rosenberg, 1980); Henry Plitt of Plitt Theaters, Inc., the fourth-largest (and largest privately owned) circuit in the country, financed Bucktown (1975) and The Seniors (Rod Amateau, 1978); and Sherrill Corwin, chairman of the Los Angeles chain Metropolitan Theaters Corporation, co-financed and The Poseidon Adventure (1972) and Viva Knievel! (Gordon Douglas, 1977).210
With some exceptions, these films were notably unsuccessful at the box office, and the attempt by exhibitors to solve the "product shortage" of the 1970s by becoming producers themselves had little industry impact. Nevertheless, in early 1979 three exhibition circuits—Loew's, Mann, and RKO-Stanley Warner—asked the Federal courts to vacate the 1948 Paramount decrees so that they could enter production-distribution, and in 1980, over strident objections by the majors, Judge Edmund L. Palmieri agreed that with certain restriction Loews could do so.211 In effectively ending the twenty-eight year-old consent decree, Palmieri acknowledged the new realities of the blockbuster era, writing that "the great bulk of the substantial rental, 85 percent or more, derived from all feature motion pictures have accrued to a small number of firms…. [which] has been accompanied by what many exhibitors characterize as a scarcity of feature motion picture product."212 The judge noted that in "any given year, 20 pictures have been likely to account for anywhere from one-half to about two-thirds of all film rentals," and expressed the hope that "Loew's' entry into production and distribution would represent the entry of a new competitor and a probable increase in the supply of successful feature films."213 In fact, it did not, because by 1980 the barriers to entry into production-distribution had become nearly insurmountable. (As Harold L. Vogel pointed out in his classic financial analysis Entertainment Industry Economics, for example, there were eleven unsuccessful entry attempts between 1970 and 1980 alone.)214
Yet nearly all independent producer-distributors experienced a boom in the late sixties and early seventies when the recession briefly forced the majors to loosen their grip on the mainstream marketplace. New investors, including industrial manufacturing corporations and other nonmovie companies, entered the field to bankroll independent productions (for example, Quaker Oats backed Willy Wonka and the Chocolate Factory [Mel Stuart] in 1971; Mattel, Inc., partnered with Robert B. Radnitz to produce Sounder [Martin Ritt] in 1972), or became producers themselves (Westinghouse with Group W Films; Bristol-Myers with Palomar Pictures International).215 By some accounts, independent distributors as a whole had achieved close to a 30-percent market share by 1971, but by 1979 it had shrunk to under 10 percent.216 With the exception of MGM, the majors recovered strongly from the crippling write-offs of 1969-1971 and ended the decade dominating both the domestic (i.e., North American) and international markets for filmed entertainment. By 1977, their combined annual turnover from theatrical features was close to $2 billion—up from $1 billion at the height of the recession—and they accounted for over 93 percent of American distributors' gross.217 By that point, too, the one area in which AIP, New World, and other independents had truly been competitive—exploitation—had been preempted by the majors, who learned from the experience of The Exorcist (1973) and Jaws (1975) that exploitation material could produce blockbuster profits if it was aggressively marketed to the mass public.
The soaring costs of advertising and promotion produced by the blockbuster strategy were offset by new strategies of distribution ("four-walling" and saturation booking) and new ancillary markets (television, cable, and video sales; merchandising, tie-ins, and product licensing), leading one observer to remark that movies "no longer exist as autonomous industrial products, but are increasingly manufactured as one item in a multimedia package."218 On average, the majors took in 90 percent of all box-office revenues for the entire decade, and since they handled only about a third of the films produced during that period (as determined by MPAA rating submissions), the distributors of the other two-thirds shared the remaining 10 percent.219 Furthermore, the majors received about half of their theatrical film rentals from foreign markets, which expanded during the decade and extended their hegemony abroad. In 1979, Japan became the number one export market for American films—the first time that a non—English-speaking nation had held that position. In the same year, the industry's domestic resurgence was such that 60 percent of its $1.9-billion worldwide rental revenues came from the American market, restoring a historic balance not achieved since the early 1950s.220
The commercial stability that the blockbuster strategy brought to the American industry was achieved at the cost of much administrative turmoil. Thomas Schatz has pointed out that, unlike classical-era studio bosses, studio heads of the New Hollywood were less moguls than employees of publicly held corporations who were supposed to act on behalf of stockholders and boards of directors and could, technically, be fired by them.221 Whereas the likes of Harry Cohen, Jack Warner, and Louis B. Mayer had owned a substantial share of their studios, most chief executives of the 1970s were "one percenters," owning only tiny pieces of their companies (Steven Ross, for example, owned just under one percent of Warners' stock; Martin Davis owned 1.35 percent of Paramount's; Michael Eisner owned one percent of Disney's; and so on). As International Creative Management super-agent Sue Mengers told an AFI seminar in 1976: "You've got to remember that the people in the studios are salaried employees. They are not owners. They are people who are employed by the boards of directors, and they're scared. When you're dealing out of insecurity it's hard to make good creative decisions."222 These conditions exacerbated the hit-or-miss mentality of the blockbuster syndrome, and produced fear and loathing in Hollywood's executive suites throughout the decade—a paranoia clearly justified by circumstance. Of the seven majors, only Warners and Universal ended the decade with roughly the same management as they began it (with Warners' Ted Ashley second only to Lew Wasserman in staying power),223 and within three years of the Heaven's Gate disaster, with the exception of Orion, the management of every major company in the motion-picture industry had changed.224