February 13, 1978

It’s the best of times.

AT Ma Maison, the chic restaurant currently favored by Hollywood's elite, sleek Rolls‑Royces fill the parking lot as owner Patrick Terrail greets the luncheon crowd with a deft combination of deference and familiarity. Along Rodeo Drive in Beverly Hills, the posh boutiques do blockbuster business‑and in the famed Polo Lounge a mile away, the dealmakers "take a meeting" to cut contracts over coffee and English muffins for what they pray will be another "Star Wars." In a seller's market, the major studios are richer than ever and the major stars, directors and producers seemingly richer still. In the big‑budget world of Hollywood 1978, says chairman Dennis Stanfill of Twentieth Century‑Fox, "nobody is poor‑mouthing."

It is the worst of times.

Variety calls Hollywood "shell‑shock city"‑and even in the nation's fountainhead of hyperbole, the description is painfully accurate. For what started with an isolated case of corporate embezzlement by Columbia Pictures executive David Begelman has suddenly escalated into a far‑reaching examination of the ways Hollywood conducts its business. As never before, a public camera is probing the movie industry's arcane financial and accounting practices, its extravagant perquisites, its procedures for divvying up the take between superagent and star, distributor and theater, writer, producer and outside financier.

Dozens of show‑business figures‑fed up with what they contend is a pattern of deceit and distrust- are breaking movieland's traditional code of silence to tell their stories about padded budgets, secret payoffs and kickbacks. They have aroused the Securities and Exchange Commission, the Justice Department and the Internal Revenue Service, and as a result, a Hollywood that tends to shrug off its intermittent scandals of sex and drugs is plainly running scared. "It is a crisis, says "Jaws" coproducer Richard D. Zanuck. "This has just got to be the tip of the iceberg when it comes to investigations."

Columbia’s David Begelman: Bonanza, scandal and sympathy

Topic A, of course, is the Begelman affair. A former agent, Begelman was ousted as head of movie operations at Columbia Pictures last October, only days before the studio's superhit, "Close Encounters of the Third Kind," had its smash première. He eventually admitted forging and cashing three company checks and embezzling other funds totaling $61,000, repaid Columbia with interest and forfeited promised benefit worth $1.3 million; then, even though stripped of his officer's title and board membership, he was reinstated‑to the astonishment even of Hollywood. Topic B‑the recent mass resignation of United Artists's top five officers in a dispute with UA parent Transamerica Corp.‑ touches another raw nerve. “These men represented a certain type of integrity and the way a company should be run,” says Mar E. Youngstein, a respected independent consultant. "To lose those symbols when the business is so chaotic is truly shocking.”

Still, Youngstein and other industry defenders discount the Begelman affair as an aberration and chafe at reports of financial gimmickry and payoffs. "By its over­publicizing, the movie business's warts look like mountains," argues president Jack Valenti of the Motion Picture Association of America. "I'm not suggesting that it's like the annual Cub Scout meeting. Some of the people in it are weird, but percentage‑wise, it's probably got no more flaky characters than any other business." Paramount Pictures chairman, Barry Diller, 36, says the studios' books are open: "Our key executives are under almost constant audit by our outside auditors in areas where there could be improprieties," Diller says. But that's the point, says accountant Sidney Finger, who for fifteen years has been auditing books for Hollywood's creative talent. Finger's business is to prevent the studios from cheating his clients‑and "If we didn't have findings," he says, "people wouldn't come back."

Such critics point to a fine line, between outright illegality and questionable practices‑and they charge that many people in the business frequently cross it.  "Listen, this industry does attract a lot of unscrupulous people," says lawyer Kenneth Ziffren, one of a small army Of attorneys serving stars, directors and producers. When it comes to calculating the split between studio and stars, Ziffren adds, 'the studio computers seem to be much more sophisticated about accruing costs than about accruing incomes."

Brando, Nicholson making “Missouri Breaks”: points and perks

Quid pro quos also tend to be a matter of interpretation. “What one man may consider bribery, another man considers clout," says 34‑year‑old producer Peter Guber ("The Deep"). "An independent producer may say to a studio, 'If you take this, I'll give you my next project'." In the end, nearly everyone is drawn into the rat race of comparative advantage ‑and in the self‑serving pulling and hauling, mutual trust often breaks down. "The terrible thing is that you operate in a general atmosphere of distrust," says Youngstein. Adds screenwriter Josh Greenfeld ("Harry and Tonto"), "The movie business is at the moral level of the South Vietnamese Army."

Its not quite that bad: some studios play straighter than others, and individual agents, producers and studio executives can be as proud of their word as any other businessman. But there is little doubt that Hollywood frequently trips over the narrow edge of probity. Among the games people play:

• Big‑name screenwriters called in for a fast rewrite sometimes forgo screen credits and cash fees in return for expensive gifts from a studio or producer. One such 'body‑and‑fender man," In Hollywood's parlance (page 73), got a Rolls‑Royce Corniche for his trouble, another a new $19,000 driveway. The studio buries such gifts in its overhead budget‑and the screenwriters may neglect to report them to the IRS.

• In New York, a grand jury was convened last month to hear allegations that Twentieth Century‑Fox had demanded that theater owners take "The Other Side of Midnight," a critical bomb with a questionable box office, if they wanted to show "Star Wars." The practice, called block‑booking, was outlawed in 1948 when the studios were forced to divest themselves of their theater chains. Fox denies the charge.

• Producers Robert Chartoff and Irwin Winkler made "Rocky" and "New York, New York" for United Artists; the former soared, the latter sank. Under a complex contractual arrangement called cross‑collateralization, UA has used black ink from "Rocky" to offset red ink on "New York, New York"‑and thus, Chartoff and Winder have not seen all of their "profit participation" from the hit.

• During the filming of "The Missouri Breaks" in 1974, Marlon Brando convinced producer Elliott Kastner to give the star the new $30,000 motor home that had been purchased for location shooting in Montana. How? According to one account by Jack Grossberg, production manager on the 111m, Brando blew his lines for two days, and Kastner, worried after losing $25,000 in production costs, finally got the message. "Another day, another $10,000," Brando would say as he stepped from his new possession.

• Director William Friedkin and au­thor William Peter Blatty have sued Warner Bros., charging the studio with shortchanging them on the profits from the immensely successful 'The Exorcist." Similarly, actors Michael Caine and Sean Connery filed suit last month against Allied Artists Pictures, charging that the smallish distributor withheld $218,000 of their profit from "The Man Who Would Be King."


That such charges are tossed about is hardly surprising, given the stakes involved. In Hollywood, each picture is, in effect, a separate business ‑and an expensive one at that. In addition to the normal price increases that affect all businesses, salaries of superstars are riding the same rocket as those of sports heroes. That kind of double inflation last year drove the average picture budget to $5.3 million, up 178 per cent in just four years. To insure themselves against losses from box‑office bombs, studios are promoting their films more aggressively than ever. The marketing tail," says producer Peter Bart "is now wagging the filmmaking dog." But advertising is no guarantee of a hit‑and given the instant anonymity that financial failure often produces, each player involved generally goes for the big score each time out. Under such conditions, in a business where success hinges on the pub­lic whim, the long term is measured in months, and ethics, loyalty and probity often take a back seat to profit.

But for those who stay on top, or near it, life in Hollywood brings riches that would make Croesus blush. To help executives keep up with the wealthy stars they must court, studios underwrite perks from a $200,000 home‑screening room to the ubiquitous Rolls or Mercedes-Benz. There are so many Mercedeses in the MCA‑Universal parking lot, chuckles David Brown, Dick Zanuck's co‑producer, "you think you're in Stuttgart." Begelman, with a salary of $300,000, not only dipped into the till for $61,000 and piled up disputed "expenses" of $23,000, but also enjoyed still another perk: during its last fiscal year, Columbia picked up a "substantial" portion of his rent and "related costs." The annual tab: $66,000.


Since the sex scandals of the ‘20s Hollywood has always leaned to personal excess as well‑and the current scene is apparently no different. Last week, director Roman Polanski made front page headlines by skipping the country