Lucas Strikes Back

San Francisco is about to bet its future on the power of “the force” and, if it wins, Southern California may be a big loser.

The bet is the decision last month by the Presidio Trust, an independent body created by Congress in 1993 to transform the former military base at the foot of the Golden Gate Bridge into a financially self-sufficient national park, to begin exclusive negotiations with filmmaker George Lucas to develop a digital-arts complex on the site. The “force” is the digital revolution, which is changing the ways films are made and distributed and creating new possibilities for a convergence of media and technology. The potential payoff is a substantial head start in the race to become the global capital of the new digital century.

A Lucas digital complex in San Francisco may be more bad news for Southern California’s entertainment industry. Cost pressures were already pushing studio production overseas, most notably to Canada and Australia. Then, on July 1, DreamWorks SKG, the studio co-founded by filmmaker Steven Spielberg, former Disney executive Jeffrey Katzenberg and music mogul David Geffen, abandoned its much-heralded plan to build “the digital studio of the future” at Playa Vista. The DreamWorks team still may expand its facilities in Glendale and at Universal Studios, and Mayor Richard Riordan, a big booster of DreamWorks’ Playa Vista plans, continues to hope that the site will be developed.

But no contingency plan will satisfy the great expectations the project raised. After a year in which 23,500 entertainment jobs and $2.8 billion in film production fled the United States, boosters had hoped the Playa Vista project would create 21,000 high-tech jobs over the next 30 years, as well as 8,000 construction jobs. The scent of money coming from the last remaining wetlands in Los Angeles County overcame the objections of environmentalists, but, in the end, even $35 million in tax breaks could not ease the DreamWorks founders’ apprehensions about rising interest rates and higher construction costs associated with the planned studio. The DreamWorks decision, coming two weeks after the Presidio announcement and a week after the runaway-production figures were released, underscored Hollywood’s halting momentum in the race to create a digital infrastructure.

Two decades ago, when Lucas moved Industrial Light & Magic, the special-effects company he established in 1975 to work on the original “Star Wars,” from a warehouse in Van Nuys to San Rafael, nobody believed that the director from Modesto would be able to build a base from which to mount a serious challenge to Hollywood. But a combination of Lucas’ ingenuity and drive, a financial boost flowing from his ownership of the sequel and merchandise-licensing rights to “Star Wars,” and the geographic advantage of being near Silicon Valley--all have enabled Lucas to create a dense network of visual-effects, computer-graphics and animation companies that dominate the technical side of filmmaking. If Lucas realizes his plans for the Presidio, the convergence of the entertainment and technology industries will most likely be centered in San Francisco. As a result, more and more film production, creative and technical talent--and profits--will migrate north to the Bay Area, away from Los Angeles.

The proposed Letterman Digital Arts Center will house five Lucas-owned companies on the site of the former Letterman Army Hospital, including Industrial Light & Magic, the undisputed industry leader in visual effects and digital animation; the LucasArts Entertainment Company, a leader in the rapidly growing interactive-software entertainment industry; THX Group, which creates state-of-the-art theater-sound systems; Lucas Learning Ltd., an education-software developer; and Lucas OnLine, which focuses on e-commerce and the Internet. In addition, the Presidio site will be home to the George Lucas Educational Foundation, a planned Advanced Digital Training Institute, for individuals interested in a career in digital arts, and a visual-effects archive, open to both researchers and the public. The Lucasfilm company and Skywalker Sound studios will remain in San Rafael at Skywalker Ranch. Before the deal is finalized, the Presidio must complete an environmental-impact review and negotiate the specific terms of what will be a 99-year lease, expected to be completed by early fall.

Moving the technical core of the Lucas empire from Marin to the Presidio will give the digital entertainment revolution a center just as that revolution is transforming the art, technique and business of filmmaking. When Lucas made “Star Wars” in 1975, it was difficult to imagine that characters and scenes could be created and manipulated using computers. But that’s exactly what Lucas and Industrial Light & Magic did with “Star Wars: Episode I The Phantom Menace,” which includes nearly 2,000 digital-effects shots.

The result is to turn the computer into a studio, where virtual characters such as Jar Jar Binks can be brought to life and live actors such as Jake Lloyd can be inserted into virtual scenes such as the pod race in Mos Espa. As these effects become more widely used, the need to shoot real-life characters on real-life sound stages and locations will be reduced, which may ultimately lead to more blue-collar job losses in Hollywood than those created by runaway production. In contrast to the inflated hopes for new jobs in Los Angeles, Letterman planners have not promised to raise employment. Digital production instead reflects the values of the “new economy”: dynamic technology, fast-growth companies and skilled jobs. The protest of thousands of Hollywood film workers who marched in Sacramento last week are faint cries amid the buzz of the digital revolution.

The release of “Star Wars: Episode I” marks the first time a feature film is being digitally projected. Four theaters, including two in Southern California, are testing rival projection systems developed by Texas Instruments and Hughes-JVC. If these trial runs prove successful, film distribution could be revolutionized: The need for costly celluloid prints and for the support industry that produces them could be eliminated.

Lucas is aiming to shoot the next installment in the “Star Wars” epic with a digital camera, doing away with film entirely. The final cut of a totally digital motion picture could be sent directly, via satellite or fiber optic cable, from a computer screen to hard drives at theaters around the world. If this dream were realized, a major source of big studios’ leverage over independent filmmakers--control of distribution--would be reduced. Large independent producers, like Lucas, who can finance their own movies and small independents making low-budget alternative films too niche-oriented to attract Hollywood money could cut deals directly with theaters.

A digital distribution system will not necessarily displace Hollywood’s major studios. With their tremendous financial assets, ability to create, package and “repurpose” content, access to cable television and Internet distribution channels, and global relationships, studios will remain dominant players in the entertainment industry. Furthermore, as long as UCLA, USC and Santa Monica City College continue to invest heavily in their film and television studies programs, Southern California will still be the place where most students go to learn to become filmmakers. But the Bay Area will be the place where, as Jim Morris, president of Lucas Digital, the parent company of Industrial Light & Magic, puts it, “the digital pieces come together.”

Lucas’ companies have bolstered the Bay Area’s position as the digital center of the entertainment industry. The Presidio development will further solidify San Francisco’s digital hegemony. According to Lucasfilm President Gordon Radley, it’s also as much about shaping the future of convergence--the coming together of different technologies and communications media--as it is about shaping the future of the film industry. Beyond its impact on the movie business, a Lucas-led digital arts center will have these effects:

* It will help to bring together and provide leadership to the Bay Area’s diverse and growing network of digital arts and new-media companies.

* It will enable regional businesses, nonprofit organizations and education institutions, a number of which are planning to establish headquarters at the Presidio, to develop the core competencies necessary to communicate effectively in an interactive digital world.

* It will serve as a magnet to attract individuals and companies desiring to be on the cutting edge of the digital revolution.

But the most consequential effect of the Lucas empire’s move into the heart of San Francisco will be the boost it gives to the Bay Area’s ambition to be the global capital of the 21st Century. By almost any measure, the Bay Area is the world’s leading economic region. It is home to many important information-technology and biotechnology companies, key 21st-century industries. Two of the world’s most influential universities--UC Berkeley and Stanford--are located there. It dominates the world’s most important new communications medium: the Internet.

Yet, the region has lacked a center, a place where people and ideas converge to dream and plan and act. The Lucas magic could make the Presidio that place.