The day of the almighty mogul is over. Now moviemaking is in the hands of packagers and budget-watchers who are the hired hands of the conglomerates that own the studios. And what they're after is blockbusters.
August 7, 1977
By Robert Lindsey

Each morning, just before 9, a 36-year-old former Hollywood talent agent who was born in Shanghai pulls up to the Metro-Goldwyn-Mayer studio in Culver City, Calif. His name is Mike Medavoy, and he is senior vice president in charge of West Coast production for United Artists Corporation.

He is an engaging, intense, red-haired man who reads history books in his leisure time and plays soccer on weekends. After parking his Mercedes 450 SL (license plate UA) Medavoy strolls into the Irving Thalberg Building at M-G-M, the seat of power of the late Louis B. Mayer, a man who for 36 years ruled much of Hollywood like a feudal monarch ruling medieval England.

Medavoy sits at a desk where he can see two golden statuettes - Oscars awarded U.A.'s "One Flew Over the Cuckoo's Nest" and "Rocky," the films chosen by members of the Motion Picture Academy of Arts and Sciences as the "best pictures" made during each of the past two years.

Mike Medavoy is riding high these days. On his desk are some financial reports with the kind of figures that in Hollywood glitter brighter than any star- they say that five of U.A.'s pictures released since December have returned more than $20 million.

Across town, in Hollywood, Mike Eisner, a 35-year-old native of New York who studied English literature and theater at college, arrives for work about the same time. With a nod to a guard, he enters the lot at Paramount Pictures, where Adolph Zukor, a furrier from New York, helped create the motion-picture industry more than 50 years ago. Paramount has not had a blockbuster hit in more than two years. "King Kong" and "Black Sunday" were this year's hopes, but they fell short, and pressure is mounting on Barry Diller, its youthful chairman, and on Eisner, its president, whom Diller plucked from their former home at ABC-TV. Diller is a controversial and somewhat aloof figure in today's Hollywood, and there's been gossip in the trade papers that he or Eisner or both may be on their way out.

Things run in cycles here - first there were the furriers, then the entrepreneurs, writers and former producers who took over the powerful studios, and now the agents. There is one school of thought that says that as television blends more deeply into the American psyche, more and more studios will be headed by men from television. This is one reason why Diller's record is being watched so closely.

But Eisner is optimistic, and pleased that Paramount will be raising its yearly production of films from a dozen or so to 18. " I know Paramount has a certain image right now - the image is mixed; I wouldn't attempt to describe it," he said. "My hope, because I'm like the new guy in town, is to do my best to get a different image."

"You know," he added, "a year ago, people were talking about the disastrous year 20th Century was having. Then came 'The Omen,' 'Silent Movie,' 'Silver Streak' and, now, 'Star Wars,' and suddenly they're the geniuses of the Western world."

An ex-agent and some émigrés from television: In today's movie business, they are typical of the new moguls who run the new Hollywood. They belong to a handful of men at seven companies who choose the pictures that will be seen by close to 100 million people in America, and millions more overseas, each year. In most ways, today's studio production chiefs, and the times in which they operate, are as different from the men who used to make the movies as "Last Tango in Paris" was from a Mary Pickford comedy. They're the hired hands of the conglomerates -not showmen or picture makers in the conventional mold - like Mayer, Zukor or Darryl F. Zanuck - but deal makers, package buyers, concept buyers, talent coddlers and  budget watchers. Their hold on their jobs is intrinsically tenuous, yet the power they wield is the greatest in movieland. They must walk an extraordinary tightrope - carefully balancing external and internal politics.

David Begelman was a co-founder of Creative Management Associates. Now he is the president of Columbia Pictures, whose latest release, "The Deep," rescued the company. Columbia expects another hit in "Close Encounters of the Third Kind.”

"When I was at M-G-M I once asked Dore Schary [who was then running the studio], if it was tougher then or tougher now," Daniel Melnick, the 43-year-old production chief at Columbia Pictures, another former television executive, recalled recently. "He told me, 'I could walk into the commissary and cast a picture in 10 minutes; I'd point to Gene Kelly, Clark Gable, Walter Pidgeon and Judy Garland, and tell them to report at 8 o'clock Monday morning.' You can't do that anymore."

"Unfortunately, you no longer have the only game in town," said Ned Tanen, the president of Universal Theatrical Pictures, who five years ago decided to make a picture about teenage life in a small California town, "American Graffiti"; it cost $760,000, and since then has brought Universal $52 million. He continued: "Those gentlemen who ran the studios could drive around Beverly Hills and Bel Air and they could tell America what they wanted to see. Period. Now you've got that big eye of television to compete with. And every four to six weeks, every time you come out with a new picture, you've got to audition all over again - each time, you're the new kid on the block." Says Mike Medavoy: "Those so-called moguls owned the theaters, they owned the public. Before television, there was no one else people could turn to."

This summer, the seven majors are rolling out close to $150 million in new celluloid fantasies. Just a sampling: "Star Wars," cost: $10 million; "A Bridge Too Far," $24 million; "New York, New York," $9 million; "The Deep," $10 million; "Sorcerer," $21 million; "MacArthur," $9 million.

Hollywood probably has not released so many big-budget pictures at one time since the late 60's - an era the industry dearly likes to forget, because a lot of its big-budget pictures then, quite unintentionally, turned out to be disaster movies. Big-budget pictures are now again in vogue. The reason: Like plungers at a race track all betting on different longshots, the film companies are all lusting after Hollywood's Holy Grail- the blockbuster.

The first returns from the summer pictures are in, and some are not encouraging for the Hollywood high rollers. While "Star Wars" has had a stellar reaction at the box office and Columbia's "The Deep" is a strong second in popularity, "Sorcerer," a Universal and Paramount joint venture, has had a limp start; United Artists' "A Bridge Too Far" and "New York, New York" are doing far from sizzling business. Universal's $9 million "Rollercoaster" is rolling slowly and Warner Brothers' $11 million "The Exorcist, Part II: Heretic" has been a disaster.

Wall Street says the movie companies are better managed now than they were in the 1960's. But, in their more candid moments, most of the studio managers concede that good management is only one element of the equation that determines hits or misses. What they really survive on, they say, is intuition, and what they really need is luck - the kind of luck that can come with happenstance - sometimes an accidental coalescence of talents - and the luck of good timing, an intangible diamond mine that, because it mysteriously triggers something latent in the national psyche, can turn a good movie such as "Jaws" or "Star Wars" or "Rocky' ' into a must-see phenomenon.


Barry Diller, Paramount's 35-year-old board chairman, visits his New York office in the headquarters of Gulf and Western, the conglomerate that owns Paramount. A former Wunderkind at ABC-TV he is under pressure to come up with a blockbuster.

Hollywood these days makes fewer pictures than it used to - about 50 percent as many as in the early and mid-1960's. The average production cost for a picture by one of the majors is about $4 million; the average has been rising, though, and budgets of $6 million to $12 million or more are not rare anymore.

The major film companies used to finance as many as 50 pictures a year, but they now make 12 to 20 (M-G-M, only five or six), with the expectation that perhaps only 25 percent to 30 percent will break even.

This does not sound like very good arithmetic for any business. But in the crazy economics of today's movie industry, it is theoretically possible for a film financing-distribution company to make a dozen $4 million turkeys and still end the year with remarkable profits from only two or three, or even one winner. "Jaws” was about $5 million over budget, causing considerable nervousness at the time for Tanen and his colleagues at Universal, but, so far, it has brought almost $200 million to the studio and its producers; "Rocky" cost about $1 million to make, and so far has returned almost $50 million to United Artists; Fox's $10 million financing of "Star Wars" is likely to be returned at least 10 times. Such profits can erase an awful lot of red ink.

A major factor in the new gigantic budgets is promotion - and promotion on this scale leads to the one word which characterizes much about the new Hollywood: hype. With fewer movies being made, but more money being tossed on the table with each roll of the dice, the film companies are leaning more than ever on press agents and more sophisticated marketing techniques in hope of creating a "big event” mystique about their pictures. In the wake of "Jaws," which showed how much money could be made with a single picture, the movie business has plunged into a frenzied game of one-up-manship, a macho confrontation aimed at coming up with higher and higher grosses, all in hope of impressing the conglomerates back in New York on Wall Street.

But there is a whiplash to this hype that can swing back and choke its source. The origin of the Paramount rumors is a prime example: "In my opinion, the rumors are absurd," ' Diller, the 35-year-old Paramount chief executive says with a sharp edge in his voice. "There were two series of circumstances that started them. First, 'King Kong' and 'Marathon Man,' while they were highly profitable for the company, were less profitable than we expected them to be. That's how the rumors got started. Then, 'Black Sunday,' which was also profitable, was not a great success. I doubt if you could find 100 people on this earth who thought 'King Kong' was successful," Diller continues; but he says it will be profitable for Paramount - although he won't give the projected figures. "It's the 'perception' that's behind things." Much of the perceived failure of "King Kong," he believes, was the widely quoted prediction of Dino De Laurentiis, the producer, that it would score more at the box office than "Jaws." Diller admits Paramount joined in the hyping. "Did we expect it to do $150 million? Yes, we did. But so what? The only thing that can be said is that we were hurt by our expectations." Diller, formerly an ABC vice president in charge of prime-time television, says, "1 don't feel under pressure." As soon as Paramount gets one major hit, Diller says, "the rumors will disappear. Rumors start, and rumors die."

Since the late 1960's, there has been a modest resurgence of moviegoing following the postwar arrival of television. The upturn in moviegoing, combined with the studios' diminished output of pictures, has placed the seven major film financing-distribution companies in a sweet position. The movie industry, which once coupled production with theater ownership until the Government prohibited the practice as being monopolistic, has replaced one type of economic oligopoly with another. Instead of having to maintain a steady pace of pictures each week to fill the screens of their own theaters, the studios can ration their movies to theater owners who are, hungry to fill screens, and who these days complain constantly of not having enough pictures to show; the companies can demand favorable rental rates and hold the upper hand in dealing with the theaters in many ways.

It would be unfair and inaccurate to call the arrangement a cartel, but it is inescapable that the seven companies - and the Walt Disney organization, which plays in a different stadium from the rest of the industry - are enjoying the benefits of what amounts to one.

The nation's theater owners have a long tradition of griping, poor-mouthing and feuding with the studios; some seem to be making more money than ever from the new Hollywood, but the hype means the commitment of money by theater owners, so their combat has never been more intense. Their complaints were summarized at a convention of owners in Connecticut recently, where one complained that each feature film "has become like a coveted gem dangled before the hungry eyes of exhibitors. We live in an industry where tens of thousands of dollars must be gambled by exhibitors on motion pictures which they have not even seen pictures which have not been completed, and sometimes on which production has not even commenced."

According to Frank Yablans, former chief executive of Paramount, now an independent producer: "Say a picture costs $12 million to make, and it grosses only $6 million. The companies can get $12 million or $15 million up front from the exhibitors. On the books, they make money. But this can't go on; the exhibitors are in desperate straits; there are going to be some massive bankruptcies." Yablans adds: "1 think it's serious, and I'm hardly the one to be calling wolf; I started it when I was at Paramount."

By and large, Wall Street has cheered the emergence of what it construes as a generation of more business-minded specialists who watch budgets, try to minimize and balance risks and think about diversification. The newest departure from tradition is United Artists' announcement that the producer-directors of their films will have to pay the cost of over-budget pictures out of their own pockets. In addition, many studios have executives who function like investment bankers in control of the studios' heavy flow of capital. Fox, for example, decided recently to invest some of its profits from "Star Wars" and other pictures in a Coca-Cola bottling plant, and Columbia has diversified into the pinball-machine business.

Peter-Geiger, a Bank of America vice president who specializes in financing Hollywood's celluloid fantasies, gives today's studio chieftains high marks as businessmen, but observes that they still occupy perilous positions. "They ride high as long as they are successful, but when they fall down, just like a baseball manager, they're removed; it's a little like the advertising business; they take the young people, use up their ideas, and when their brain cells dry out, they're shunted aside."

Nobody in town knows this better than Frank Yablans. "I don't think anyone likes to resign power willingly - Nixon didn't," says Yablans, who had all the trappings of the studio boss - the limousines, obsequious underlings, the power to make careers and help others make millions - until the day he was fired. At Paramount he rose to power like a rocket and came down almost as abruptly. "It was one of the most powerful jobs in the industry, and no one likes to surrender that kind of power but you create an environment that makes you leave. I was too young then."

Yablans joined Paramount in 1969 as assistant sales manager; a year later, he was executive vice president, and two years later, president - at the age of 33. By January 1975, not long after a memorable interview with Andrew Tobias in New York Magazine in which Yablans was interpreted as trying to upstage his boss, Gulf and Western's chairman Charles Bluhdorn, Yablans was out of a job.

"I had an empty suitcase and 14 navy blue suits from my presidency - and Dennis Stanfill and Alan Ladd [of Fox] agreed to take me in," he recalls. For Messrs. Stanfill and Ladd, giving Yablans a contract as an independent producer was not a bad idea: His first picture, "Silver Streak," cost $5.2 million to make and, so far, it has brought Fox $32 million in film rentals. A soap-operatic release this summer, "The Other Side of Midnight," cost $4 million, and Yablans claims, with more than a modicum of hype, that it will bring $45 million in worldwide rental income.


With a movie star for his father, Alan Ladd Jr. took to Hollywood naturally. After a stint as an agent, he joined 20th Century Fox and became president within three years. His coup, "Star Wars, " may become the biggest box-office draw in history.

At 41, Yablans, a short, seemingly driven man, says, "There are projects I'd like to do that I can't do because I can't sell them" - but, he says, running a studio now isn't what it used to be: "You have to realize that all you are is an employee of an enterprise, an employee of a public company."

How do these men make pictures? As production heads of the seven major companies they are paid between $150,000 and $300,000 a year, perhaps a little more in some cases, primarily to pick and choose. They sift through thousands of ideas, hundreds of scripts, scores of new books in galley form and dozens of "packages," preassembled script-director-cast deals brought to them by producers and agents.

The ideas and scripts flow over the transom and over the telephone. They are thrust at the producers at parties, in parking lots, in stores and on airplanes. "It seems like everybody has a script," says Alan Ladd Jr., the 38-year-old president of 20th Century-Fox Feature Films. To cope with the material he must read, Ladd tried to take a speed-reading course, but said he gave it up because he had so much material to read he did not have time for the classes.

A surprising new source for ideas is current news. The success of movies such as "Dog Day Afternoon" and "All the President's Men" has galvanized the trend. Suddenly, newspaper reporters find themselves being courted by the packagers and agents. They write a story about a major crime and soon the phones are ringing with promises of big dollars if they will turn their story into a book or movie. There are at least six books and three movies in development, for example, about the murder of the Phoenix reporter Don Bolles. There is a joke making the rounds of the business these days that agent-packagers will be buying options on future crimes or commissioning crimes in order to sell movie rights.

From all of the material that is reviewed, each film company selects perhaps 50 to 100 projects a year on which to invest "developmental money" - from $5,000 to $500,000 or more - to develop an idea further, usually into a script, but without committing any money for production. Finally, each company selects the 15 to 18 or so movies on which it will invest an average of $4 million for production and millions more for promotion.

Some of the ideas that each studio chief rejects will eventually become hits at other studios. But, in turn, each hopes some projects developed and initially financed at another studio and then abandoned will in turn come to him and become a hit. Picking movies, they say, is not a very exact science - a "crapshoot" is everybody's favorite expression. In the age of the computer, the conglomerate, saturation television advertising and sophisticated market research techniques, the men who make the movies say they still don't have any objective way of predicting whether the movie they release next week will be a hit or a flop.

"In the end, it all comes down to relying on the seat of your pants,"  Dan Melnick says in describing how he helps pick the pictures Columbia makes. "If one in four pictures is successful, that's a good track record," says Ladd, currently a hero because he supported director George Lucas when he wanted to make the expensive "Star Wars."

"It's a very tough industry, and the stakes are very high," according to Richard Shepherd, the head of production for M-G-M. "You rely on your gut feeling; I think the first requisite is that you have to have a story in which there is someone the audience can care about, somebody they want to root for. They pay ballplayers a lot of money for hitting .333; I'd pay anybody a lot of money if they could be right 33.3 percent of the time in this business."

Medavoy says he was unabashedly in love with Hal Ashby's "Bound for Glory," an opulent, exquisite biography of Woody Guthrie, the folk singer, that was released this year and flopped at the box office. "Sure it hurt," Medavoy says, "but I think I now understand, in retrospect, what was wrong; it just lacked the emotional impact that the picture should have had, and I think it was too long.”

"The odds are terribly against you," says Ned Tanen, a dark-haired Californian and former agent. "It's very difficult to find 10 to 14 pictures you really believe in; if you end up with four or five really great pieces of material, you're
lucky. You're trying to guess two years from now what the mass audience will pay $4 to see. I'd like to know two days in advance what the people want. What do you do? You pray for a hit."

Still, as he talks about the movie business on the top floor of Universal's office tower on the edge of the San Fernando Valley, Tanen can find something to marvel about. "Nags Head, N. C… I never heard of it, and thought I knew something about geography. But 'Smokey and the Bandit' did $15,000 a week there. The picture didn't do much in New York or L.A., but we should come out of the South with $8 million in three and a half weeks."

"You can't make movies by committee - we've all tried, and failed; it's suicidal," Tanen continued. "It comes down to somebody really believing in material and something in him telling him that here is something that the masses want to see.

"There's no orphan like the movie that doesn't work; a hit movie has 90 fathers."

"You try, but you just can't predict what's going to happen with a movie," he said. "With 'Gable and Lombard,' we ran 30 different audience previews, in Buffalo, New Orleans, New York, other places; we never before received such a good response. Then it came out, and never has a picture been so massacred.

"Nobody sets out to make a bad picture; everything always looks good when you start; then there's that terrible moment when you look at the film and say, 'What happened? What happened to the picture we started to make?' You ask yourself at 4:30 in the morning: 'How could I pass that?' It's amazing so many good movies do get made. And, boy, it sure is a cold slap in the face to make a picture that you love and then nobody cares to see. But, the public is right it picks it and it's always right."

For all their power, today's studio chiefs can never possess the kind of unalloyed authority the moguls of the past enjoyed. Mike Medavoy has Eric Pleskow and Arthur Krim, United Artists' president and chairman respectively, looking over his shoulder from New York, and it is Pleskow who gives the final go-ahead on a film. Looking over Pleskow's shoulders are Krim and executives of Trans America Corporation, the San Francisco conglomerate that owns U.A. Barry Diller and Mike Eisner have Charles Bluhdorn, chairman of Gulf & Western, the New York conglomerate that owns Paramount, looking over their activities. The same holds true for virtually all of the local studio chiefs.

Columbia Pictures is part of Columbia Pictures Inc., the New York conglomerate headed by Alan Hirschfield and dominated by Charles Allen Jr., the Wall Street financier. Warner Brothers is part of Warner Communications Inc., a New York conglomerate headed by Steven Ross. Universal is part of MCA Inc., the entertainment conglomerate headed by Lew Wasserman; its interests range from movies and television to running the hotels at Yosemite National Park.

M-G-M gets more of its revenues from Nevada gambling than from movies. Fox remains the least diversified of the companies, but is racing hard to become a conglomerate; its stock has doubled since the release of "Star Wars."

The conglomerates play a number of roles in the drama, but the main one is that they serve as bankers for the film companies. When a company needs cash, a conglomerate can divert revenues from one of its other enterprises - say the production of automobile parts - to Hollywood. And, when a blockbuster comes along, the cash flow is staggering - and the conglomerate moves some of the profits from Hollywood into its major drive: acquisitions.

Their finger in the movie business can lend the conglomerateurs a touch of glamour and an added sparkle on Wall Street. If from time to time some of the conglomerateurs leave their executive suites and accounting statements and climb aboard their company's jet for a visit to Hollywood, where they can cultivate some of the attractive women who work in the business, it is a fringe benefit that the major stockholders do not complain about.

The age of the conglomerates is the latest turn in a twisted history for the movie business. The men who run the studios today are the corporate descendants of a group of mostly Jewish émigrés from Eastern Europe who discovered after the turn of the century that there was money to be made in the operation of movie theaters. They began accumulating chains of theaters, and in time some moved to Hollywood to begin making the movies they needed to fill screens of their theaters.

These pioneers - Samuel Goldwyn, Jesse Lasky, Mayer, Zukor, Harry Cohn of Columbia, Jack Warner of Warner Brothers, Spyros P. Skouras of Fox, Carl Laemmle of Universal and others were to rule their studios as absolute monarchs. They had hundreds of actors, actresses, producers, directors and writers on contract. And, with the theaters they owned, they had a guaranteed market for their movies.

In time, an equally powerful second generation of bosses, such as Darryl Zanuck and Dore Schary, moved into some of the studios. Clearly, more than faces were to change.

After the Justice Department forced the studios to abandon control of the theaters on antitrust grounds, the studios no longer had an assured market; worse, the menace of television had arrived. The studios began to dissolve their rosters or contract players; the power of the moguls waned; some of the back lots were sold for real-estate developments.

In 1952, two New York lawyers, Arthur Krim and Robert Benjamin, took over the grievously ailing United Artists Corporation- it had been founded almost 30 years earlier by Charles Chaplin, Mary Pickford, Douglas Fairbanks and D. W. Griffith, who had wanted to dilute some of the strength of the big studios - and began making movies in a different way. Instead of owning huge sound stages and back lots, they began financing independent producers and distributing their movies to theaters around the world. They soon set a pattern for the industry.

This development made the independent producers highly important. Some of the toughest bargaining that goes on in the business is between the studios and these independents over what share of profits should go to which camp.

With the end of the old studio system, a handful of stars and, to a lesser extent, a handful of star directors - became very powerful, which in turn led to the rise to power of the Hollywood agent. In the new scheme of things, agents negotiated for the stars and top directors, and gradually they became the mighty dealmakers.

Six of the seven film companies are run by former agents. And, amazingly, five are supervised by executives who worked together in the same firm, Creative Management Associates, a talent agency founded in 1960 by David Begelman, now the president of Columbia Pictures, and Freddie Fields, an independent producer. Besides Begelman and Medavoy, the list of former C.M.A. agents who head studios includes Ladd, Martin Elfand, the production chief at Warner Brothers, and Shepherd.

"We all came from Freddie Fields," Elfand said. "Freddie came into being at a most interesting time in the motion-picture business. It was a time the studios were abandoning all of their responsibilities for handling actors and actresses, directors and producers; everyone went on the marketplace - it was like what happened in baseball two years ago. Everyone got to bargain for what they were worth without having to sign long-term contracts. Freddie was the best of all the guys who did this; he took it upon himself to start packaging motion pictures. He trained all of us in how you put movies together; he gave us an instinct about the amount of authority we could have in handling talent; he exploited the fact that if you handled talent, you had an awful lot to say about what people did, and he was wonderful at it."

"The feudal system is long and well gone," Shepherd said. "Part of your job today is to persuade people you think have basic talents to try to build a picture with you. An agent learns the basics of about how to do this, how to deal with artists, whether they be writers, actors or directors; you learn that responsibility is a fiduciary responsibility; you learn an awful lot about the anatomy of putting films together.

"I never liked the word 'packaging.' Good agents become clearinghouses for the creative talents they represented. You learn to put somebody's talents in conjunction with somebody else's. Since you have the obligation to further those careers, you can take a little bit of the sugar, a little bit of the salt and a little of the pepper, and you put them all together and go see somebody with a sign on his door that says 'We finance motion pictures' and present all of that, or as much as you can.

You learn to calculate, at least mathematically, what, on paper, appears to be a realistic or viable motion picture."

It's the studio head -usually an ex-agent, who must say yes or no to the equation. And his calculations had better be right. Otherwise, someone else will be making the calculations in his place -scrambling to alchemize Hollywood glitter into Wall Street gold.