By George, He Can Thank His Lucky 'Stars'

SPECIAL TO THE TIMES

May the ownership be with you.

A major studio finances your movie, gives you gross-profit participation and agrees to hand over all rights to the characters, merchandising and sequels.

What is this, science fiction?

In hindsight, the deal that George Lucas got from Fox on "Star Wars" appears unbelievable to anyone familiar with the way studios operate today.

"Nobody will admit to being the person at Fox who let this deal happen," says Tom Pollock with a laugh. Pollock was Lucas' longtime attorney and the man who negotiated the deal for him.

"From a studio standpoint, it was one of the major mistakes of all time," says Pollock, who until last year was a top executive at MCA. "It essentially took a billion dollars away from the studio and transferred it to George."

(Universal passed on the movie altogether, but that's another story.)

The story of how Lucas ended up with what became one of the best deals in entertainment industry history, which made him one of the richest men in the country, turned on two points: Lucas' desire for ownership and the fact that "Star Wars" has become arguably the most successful franchise in the history of the entertainment business.

Pollock and others are quick to point out that no one could have foreseen that "Star Wars" not only would become one of the biggest-grossing movies of all time, but also would create a whole new template for how big movies are marketed and merchandised. Indeed, had the movie flopped, Lucas' deal would have been remembered as a shrewd negotiation by Fox.

No studio today is likely to make the same mistake again. Even if you're a highly successful writer-director, you probably won't ever be able to get what Lucas got 20 years ago. Studio executives today may not be clairvoyant, but they have definitely come to appreciate the value of ownership.

Ownership is what Lucas wanted more than anything else in making the deal for "Star Wars," recalls Pollock.

"George wanted control over his work and characters more than money," says Pollock. "He always knew there were going to be three movies, and he had faith in his vision."

Lucas was coming off "American Graffiti," a movie that grossed $80 million--the equivalent of about $200 million today at the box office. "He could've gotten half a million just to write or direct after that. Instead, he took $50,000 to write and $50,000 to direct "Star Wars," says Pollock.

Alan Ladd Jr., who was then head of production for Fox, says, "We would have paid George much more, because he was worth it. But he was very smart in asking for the merchandise rights instead."

Fox financed "Star Wars" for about $10 million and also agreed to pay Lucas a share of the profits. So even without ownership of the first film, Lucas made about $20 million on the original release of "Star Wars."

Fox executives figured they weren't giving up much when Lucas asked for eventual ownership of the merchandising rights.

"Fox, like most of the studios at the time, had no real merchandising department as we know it now. They had a guy who just went over deals that were brought to them," recalls Charlie Lippincott. Lippincott, a producer and now president of his own firm, Creative Movie Marketing, was head of marketing for Lucas on "Star Wars."

"Fox had tried to do a merchandising program on 'Doctor Dolittle' [in 1967], and it flopped," Lippincott said. "There were isolated examples of movies that had successful merchandising programs, but it really wasn't considered a big deal."

Pollock negotiated for a 60-40 split of merchandising between Fox and Lucas to begin with; the percentage diminished over two years until all rights reverted to Lucas. It's been estimated that "Star Wars" to date has sold about $4 billion in merchandise. If Fox's consumer-products arm owned the franchise today, it would be its crown jewel, as "Star Trek" is to Viacom/Paramount.

Similarly, nobody thought sequel rights were any great shakes. So Lucas got the right to do as he wished with sequels, as long as he financed them himself and offered them to Fox for distribution first.

Even after "Star Wars" had broken box office records, it wasn't easy sailing for Lucas. He put up his own money and guaranteed money from merchandise sales against the loan, but his company, Lucasfilm, had trouble getting a bank loan to cover the $30-million budget of the first sequel, "The Empire Strikes Back."

"Bank of America said no sequel has even earned a third of what the original movie did," recalls John Moohr, who worked in business affairs at Lucasfilm from 1978 to 1981. "So we took out Bank of America halfway through production and went to Bank of Boston. The film came out in May, and they got paid off in full in September," says Moohr.

Thus Lucas today owns outright "The Empire Strikes Back" and "Return of the Jedi" as well as rights to future sequels, in addition to the merchandising, publishing and soundtrack rights. He's not bound by any long-term contracts to Fox, except for the original "Star Wars."

A promotional deal Lucasfilm struck last year with PepsiCo alone is likely providing a good chunk of the financing for the first "prequel" that Lucas is set to direct for 1999 release. Forbes magazine estimated last year that Lucasfilm would be valued at $5 billion if it were a public company, a significant portion of which can be attributed to the value of the "Star Wars" franchise.

Bruce Tobey, who heads the entertainment practice at the L.A. law firm of Troop Meisinger Steuber & Pasich, said, "Lucas and this franchise is an aberration. Almost nobody can get anything close to that kind of ownership today unless they put up their own money. If Spielberg was a free agent and owned the sequel rights to 'E.T.,' he could probably get something like that."

Steven Spielberg, who currently gets the best deals available to movie makers in Hollywood, has shared in the profits and merchandising with Universal on movies like "E.T. the Extra-Terrestrial" and "Jurassic Park," but he doesn't own those movies outright, as Lucas does with the "Star Wars" sequels.

With DreamWorks, Spielberg has something approaching that level of control for the first time, but sequels to his previous movies remain tethered to Universal.

Deal makers point to a handful of major directors including Bernardo Bertolucci who raise their own financing. But that's very rare, and you won't see any "Last Emperor" or "Sheltering Sky" action figures or Pepsi promotions.

A top entertainment attorney who asked not to be named says that in the wake of the renewed press about Lucas' ownership of the "Star Wars" franchise, he's had two stellar clients seeking a way to obtain ownership of their work.

"Most people, when they hear what you have to risk and give up, aren't willing to do it. But I think these guys will," the attorney said.

Now all those filmmakers will have to do is make the next "Star Wars."

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