Formative Industry Trends, 1970–1979
Because the industry is peopled with cretins, scoundrels, and bigots…does not mean that it may not have worked, once upon a time.
DAVID ROBINSON, CRITIC/JOURNALIST, 1982
Industry Recession, 1969-1971
For the American film industry, the 1970s began in a state of dislocation matched only by the coming of sound. The recession of 1969 had produced more than $200 million in losses; left MGM, Warner Bros., and United Artists under new management; and brought Universal and Columbia close to liquidation.1 By October 1969, the industry had declared a production moratorium and stood on the brink of a four-year period of retrenchment. Of the majors, only Warners and Columbia had started more pictures in 1969 than in 1968,2 and during 1969-1970 the number of feature films released by the majors dropped by nearly 34 percent, causing widespread unemployment and what the Los Angeles Times would call "an out and out depression" in the motion picture business.3 The reasons for the crisis, which lasted until the end of 1971 and generated another $300-400 million in losses, are directly traceable to the 1966-1968 overproduction boom, including a large number of expensively produced musicals bidding to cash in on the misleading popularity of Fox's THE SOUND OF MUSIC (Robert Wise, 1965), which had grossed $135 million nationwide in two years of release. The losses from these films, which included Fox's DOCTOR DOLITTLE (Richard Fleischer, 1967), STAR! (Robert Wise, 1968), and HELLO, DOLLY! (Gene Kelly, 1969); Warner Bros.' CAMELOT (Joshua Logan, 1967); Paramount's PAINT YOUR WAGON (Joshua Logan, 1969); United Artists' CHITTY CHITTY BANG BANG (Ken Hughes, 1968); Universal's SWEET CHARITY (Bob Fosse, 1969)—and other extravagant spectacles like Fox's THE BIBLE (John Huston, 1966), Columbia's CASINO ROYALE (John Huston, 1967), and United Artists' BATTLE OF BRITAIN (Guy Hamilton, 1969)—combined with the national recession of 1969 to trigger the industry's collapse under the burden of record-high interest rates (about 10 percent). (The flops continued well into 1970 with Fox's TORA! TORA! TORA! [Richard Fleischer, 1970], THE ONLY GAME IN TOWN [George Stevens, 1970], and MYRA BRECKINRIDGE [Michael Same, 1970]; Paramount's DARLING LILI [Blake Edwards, 1970] and THE MOLLY MAGUIRES [Martin Ritt, 1970]; United Artists' THE PRIVATE LIFE
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OF SHERLOCK HOLMES [Billy Wilder, 1970]; and Columbia's NICHOLAS AND ALEXANDRA [Franklin Schaffner, 1971], producing losses totaling $61.3 million.)
Exacerbating the situation was the entry in 1967 of two so-called "instant majors" into production and distribution from the exhibition sector of the industry—National General Corporation (which distributed product for CBS-TV's Cinema Center Films, and also produced its own films between 1967 and 1970) and Cinerama Releasing Corporation (which distributed product for ABC-TV's Circle Films).4 (Sometimes counted as a third "instant major," Commonwealth United Corp. was a real estate holding company that entered production and distribution in 1967 with the acquisition of Television Enterprises Corp. In 1968, it had released seventeen films and acquired interests in publishing and recording, but two years later the company was $80 million in debt, and it sold off the domestic and foreign rights to its product to American International Pictures and National Telefilm Associates respectively.)4a According to Tino Balio, these parvenus, each producing about ten films annually, drove up the price of talent and further served to glut the market with features.5 They also reduced distributors' overall share of box-office grosses to under 30 percent by offering exhibitors lower-than-average splits in order to compete with the majors.6 (The normal split during the 1960s rarely fell below 30/70, and was frequently higher.)7 At the same time, smaller companies such as Avco Embassy (THE GRADUATE [Mike Nichols, 1967]) and Allied Artists (A MAN AND A WOMAN [Claude Lelouch, 1966]) had achieved the status of "mini-majors" by distributing foreign and independent productions without the burden of costly studio overhead.8 Economic analyst
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A. D. Murphy estimated that at the end of 1968 Hollywood had an all-time peak inventory of about $1.2 billion, and the annual cost of inventory maintenance approached $120 million—virtually the entire annual film rental of a single major studio. As the recession deepened in 1969, inventory levels for features dropped to about $1 billion, and another $250 million was cut in 1970 in a variety of ways—by reducing the value of television residuals, accelerating amortization of films in release, using total write-offs of flops and write-downs of unreleased product, and using profits of big hits to offsets losses elsewhere. (Noting the use of profits to offset losses, Murphy believed that the $600 million in apparent industry losses was only the tip of the iceberg and that their true extent would never be known.)9
Immediate Responses to Recession
FEDERAL TAX RELIEF TO STIMULATE PRODUCTION
Emerging from the financial crisis of 1969—1971 were two major developments assisting recovery, both of which were expedited by the Nixon administration at the urgent request of industry leadership: 1) Federal income tax credits on losses (which created
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profit shelters in loss carry-forwards); and 2) a 7-percent investment tax credit on domestic production. (Investment tax credits had been introduced as a means of stimulating the economy in 1962, eliminated by Congress in 1969, and written back into the Revenue Act of 1971 at Nixon's request—as was a provision for the creation of offshore studio subsidiaries called Domestic International Sales Corporations, which could defer taxes on profits earned from exports by reinvesting them in domestic production.)10 Together these measures provided, for the first time in film industry history, a solid base for investment.
In fact, tax shelters and other tax-leveraged investment became the key mode of production finance for the rest of the decade. Until they were prohibited by tax reform legislation in 1976, both the "purchase" shelter and the "production service company" shelter were important instruments for raising production capital, financing 20 percent of all film starts between 1973 and 1976.11 Entertainment attorney Tom Pollack estimates that, all told, tax shelters added about $150 million in production money between 1971 and 1976.12 Their combination of nonrecourse (risk-free) loans and artificial losses through accelerated depreciation made them so attractive to outside investors that Alan Hirschfield, then president of Columbia Pictures, testified before Congress that the "availability of this kind of financing is the single most important occurrence in the
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recent history of the industry."13 (Columbia relied more heavily on tax-shelter financing than any other studio owing to its estimated $127-million debt, and led the MPAA in its fight to retain the shelters.)14 When film-production tax shelters were outlawed domestically, they migrated overseas, first to Germany and then to Australia as the governments of those countries sought to encourage investment in their own film industries.15 (Thus, during the late 1970s, American tax shelter money helped fuel the New German Cinema, and German investors helped finance American films).
The effect of the investment tax credit was less spectacular but ultimately more significant, since it allowed 7 percent of production investment to be deducted from a studio's overall corporate tax up to a 50-percent limit, with carry-forward provisions for seven years. Furthermore, a tax court ruling in a 1973 Walt Disney Productions case made the credit retroactive to 1962 and applicable to "runaway" (overseas) productions—which had reached their peak from 1962 through 1969—overturning long-standing IRS guidelines that excluded negatives as qualifying tangible property.16 This was an especially important break, given that the 1966-1968 production boom had caused the industry recession in the first place. Indeed, Variety estimated that an American theatrical film production investment of $3.5 billion (full negative costs, including overhead) from 1962—1969 would yield a total 7-percent tax credit of about $250 million against the majors' overall corporate taxes.17 As Martin Dale points out, such extensivePage 14 | Top of Article Federal tax breaks amounted to a government subsidy for the industry during the 1970s and early 1980s.18
DEFENSIVE PRODUCTION STRATEGY: THE BLOCKBUSTER SYNDROME
Another result of the recession was a new industry consensus—dictated by finite resources, a perceptibly stabilized market (weekly audience attendance reached an all-time low in 1971, plunging to 15.8 million, before a gradual climb and planing out at about 21 million later in the decade),19 and ever-rising per-picture costs (from $1.9 million in 1972 to $8.9 million in 1979)—that fewer films could profitably sustain any major company, because in any given year only a few releases captured a lion's share of the box-office dollar. For example, in 1971, 185 pictures returned $364 million in domestic rentals, with fourteen producing 52 percent of this income, and the remaining 171 left to scramble for the rest. Of these, fifty-four generated less than $250,000 each, and only seventy-one returned $1 million or more, which means that only one-third of the major product for that year broke even.20 By this kind of logic, only films that were carefully packaged and laden with "proven" elements, like pre-sold properties (best-selling books [novels], hit plays, popular comic strips) and bankable stars, had a reasonable chance of becoming top-echelon blockbusters. So the studios began to design their production schedules accordingly. This newly defensive production strategy caused the absolute number of films released by the majors to decline dramatically from around 160 between 1965 and 1971 to about 80 by mid-decade (1975-1977), and was accompanied by a new sophistication about distribution and marketing—where the concept of the movie as a discrete product (and, increasingly, as a franchise or product line) became ever more entrenched inside the Hollywood establishment.
The Advent of Marketing and Ancillary Merchandising
Strategic or "scientific" marketing in the motion picture industry began in 1972 with Paramount's spectacular success in promoting Francis Ford Coppola's THE GODFATHER, which by the time of its release had attained "event" status through mass sales of the Mario Puzo novel (published during production) and intense publicity focused on both the shooting of the film and protests by Italian-American groups about its supposed prejudicial content.21 THE GODFATHER became a huge commercial and critical hit, almost single-handedly restoring industry confidence in the blockbuster formula by generating about 10 percent of the year's gross box-office revenues of $1.64 billion. Shortly thereafter, Business Week pointed out that recent market changes had forced the movie industry "to do what most other industries had to do generations ago: synchronize production with marketing." That is, to make investment decisions based on a product's actual potential for sales in its main markets—which, in the early 1970s, were basically U.S. theaters, foreign theaters, and television—rather than "assume a market that would justify the outlay" (rational behavior before divestiture, perhaps, but not after).22
Marketing, which differs from publicity and advertising but includes them both as part of its "market position," or selling strategy, usually begins before a film is even scripted—with concept testing by a studios market research department determining what the public wants to see.23 If the elements of a project seem to have broad popular appeal, it will get the green light from the production head. The completed film will then be launched with a sales campaign tailored to its most marketable qualities as determined by demographically echeloned test screenings—from which studios attempt to shape their advertising material, allocate advertising expenses among media, and predict box-office performance nationwide.24
Predictions of box-office performance became particularly important after JAWS pioneered the practice of saturation booking, combined with massive television advertising, for major studio releases in 1975. This distribution pattern, which was new to the mainstream but had been used by exploitation producers for years, depended on generating a high level of audience awareness of a film before it opened and helped institutionalize market research within the industry.25 (The textbook example of a research-driven blockbuster is Columbia's THE DEEP [Peter Yates, 1977], which was pre-sold as a high-profile "event" through every conceivable marketing channel—as a book, a sound-track album, and a panoply of related merchandise—for months before it opened in 800 theaters [approximately 6 percent of die nations total] to terrible reviews. It went on to become the second highest grossing film of 1977, after STAR WARS.)26 By 1979, the commonly accepted cost for marketing a major film through general release was $6 million—much of it going to huge purchases of network television time. Since the average production cost rose to nearly $10 million the following year, by the end of the decade a typical picture had to net $16 million just to break even,27 reiterating the industry's hit-driven, blockbuster imperative.
Related to the rise of marketing during the 1970s was ancillary merchandising, which served both to advertise a given film and reduce risk through generating profits in and of itself. Sound-track albums and novelizations had brought income to the studios since the fifties, but the idea of product tie-ins was born simultaneously with the need to create mass market consciousness for blockbusters like JAWS and THE DEEP. (Disney was an early pioneer of nonpromotional merchandising, and its product licenses, tied mainly to cartoon characters, had been a significant source of studio income since the 1950s.)28 The profitability of merchandising was certified indisputably by STAR WARS (George Lucas, 1977), whose spin-off toys, posters, T-shirts, clothing, candy, watches, and other products grossed more money by the end of the decade (reportedly $1 billion) than the film took in at the box office.29
Merchandising is defined by the studios as the use by an outside company of a film title, logo, or image on a product or as part of an advertising campaign—for the average picture, posters and T-shirts are the most common tie-ins.30 But if a film has characters that can be made into toys or video games, or marketed in conjunction with fast-food products, the studio can reap windfall profits through licensing them to outside companies. Such licensing arrangements are essentially risk-free, since the outside companies incur all manufacturing and distribution costs and the studio typically receives an advance plus royalties on all product revenues.31 Furthermore, if the product line fails to make a profit, the studio has at least gained free national publicity for its film.
Refinements of merchandising in the eighties would lead to the now-standard industry practice of "product placement," whereby a producer accepts a fee or in-kind service to feature a manufacturer's product in a film. More perversely, manufacturers themselves began producing films as extended commercials for their toys (for example, THE CARE BEARS MOVIE [Arna Selznick, 1985] and MY LITTLE PONY [Michael Joens, 1986]). Product placement began rather modestly in the late seventies, when two companies—one in Hollywood and one in New York—specialized in getting "product identification" props into movies and telefilms. By 1986 there were more than twenty-five product-placement firms in Hollywood alone.32 A similar relationship exists between studios and record companies in terms of licensing movie sound tracks—national airplay of potential hit songs provides free publicity for the film even if the album doesn't sell. By the late seventies, high-quality Dolby sound reproduction in theaters had made the cross-marketing of music a key feature in selling films like Paramount's SATURDAY NIGHT FEVER (John Badham, 1977) and GREASE (Randal Kleiser, 1978), whose songs were given repeated air time and became hits weeks before the release of the films.
The Mainstreaming of Saturation Booking, or "Wide" Release
As previously noted, the run-zone-clearance distribution system of the studio era gave way after divestiture to "platform" distribution, in which a gradual release pattern was followed over a period of months from exclusive urban first-run through wider suburban-rural sub-run, accompanied by a lengthy newspaper advertising campaign. By the 1970s, the high costs of maintaining inventory made speedy distribution a new priority and "saturation" booking became an alternative to platform release. Adapted from exploitation cinema, where it was used to generate quick profits before negative word of mouth could set in, seventies-style saturation booking emphasized simultaneous openings and speedy playoffs within a well-defined region, accompanied by demographically tailored television spots. (The majors were attracted to the formula by the stunningly successful "four-wall" re-release of Tom Lauglin's low-budget BILLY JACK  in southern California in 1973.)33
After Universal released JAWS to 409 theaters in the wake of a massive television ad campaign that raised it from the level of film to national media event, generating $7.06 million in its opening weekend, the pattern of wide release and significant pre-release marketing became the American industry standard for high-quality films. As Justin Wyatt points out, after JAWS studios experimented with ever-wider release patterns for "event" movies which, fueled by television advertising blitzes, enabled audiences from coast to coast to see their films on the same day. Paramount's KING KONG (John Guillermin, 1976) opened at 961 theaters; Columbia's THE DEEP (1977) at 800; Paramount's SATURDAY NIGHT FEVER (1977) at 726, and GREASE (1978) 902; each vying to become the next "super-grosser"—a film achieving the level of a national obsession.34 (By the 1980s, saturation booking involved between 1,700 and 2,000 theaters—the technique was ideally suited to series [especially horror films], sequels to hits, and films pre-sold through other media, for example, those based on comic-strip heroes like Superman and Batman.) Furthermore, after Fox's 1978 summer re-releasePage 17 | Top of Article of STAR WARS (1977) generated $10 million in its first week of business, it became common practice for distributors to strategically withdraw event movies from their initial runs, and then to recycle them with new advertising campaigns as virtually new products. (In the eighties, re-release became just one stage in a marketing sequence that included sales to cable movie channels, home video licensing, network broadcast, and syndication.)35
The "Product Shortage": Limiting Supply
At the same time that saturation booking and new promotion mechanisms were institutionalized, the studios cut back on their production schedules in ways that forecast a major structural change in which their role would shift from that of producer to financier-distributor. In 1975, for example, the seven majors released 40 percent fewer films than in 1970, in essence abdicating what Variety called their "historical and tacit commitment to provide 12 months of full product" to theaters.36 Among other things, this artificially created "product shortage," or "film famine," enabled the major studios to exact exorbitant terms from exhibitors. They began demanding 90/10 percent splits of the box-office gross—once reserved only for first-run road shows—for potential blockbusters, requiring blind bids on the films (which the theater owners did not get to see, usually because they were still in production) and nonrefundable guarantees, and setting play-date minimums. Such hard-driven distribution deals helped studios to amortize soaring marketing expenditures (they also sometimes required exhibitors to pay directly for part of a film's advertising costs, as was the case with JAWS).
Exhibitors fought back through two trade groups, the National Association of Theater Owners (NATO) and the National Independent Theater Exhibitors (NITE), lobbying state legislatures throughout the decade to pass anti-blind-bidding laws and succeeding
in placing nineteen such statutes on the books. Some exhibitors (Ted Mann of Mann Theaters Corporation and General Cinema Corporation are examples) countered the "product shortage" by venturing into production themselves. In 1975 one Oregon circuit organized Exhibitor's Production and Distributors Cooperative (EXPRODICO) to finance feature production by theater owners nationwide.37 None of these enterprises met with much success, despite the fact that in December 1979 the Justice Department modified the 1948 consent decrees to permit Lowe's Theaters to enter production in response to a suit filed by the Mann, Loew's, and RKO Stanley-Warner theaters in March 1979. In fact, as Suzanne Mary Donahue has demonstrated, the industry during the 1970s became a "seller's market," with distributors' share of box-office receipts rising from about 30 percent in 1971 to 40-45 percent in 1979—averages that include the increasing use of the 90/10 formula for blockbusters.38
It might serve here to explain some of the terms and mechanisms involved in determining film revenues. The distributors share is known as "film rental" because that is the percentage of the box-office gross that the exhibitor pays to the distributor to rent the film—excluding his own percentage under the terms of the licensing agreement (normally 30-45 percent on a sliding scale, but as little as 10 percent for blockbusters), taxes, and the house "nut," or theater operating expenses.39 Against film rentals, the distributor deducts his "distribution fee," a 30-percent charge (35 percent in the U.K. and higher elsewhere abroad) on continuing film rentals from theaters (and later on the revenues from television, pay cable, etc.); it is a service fee, pure and simple. It does not apply to the recovery of any expense directly related to releasing a film—for example, to manufacturing prints, marketing, or interest charges pertaining thereto—deductions for which are made after the imposition of the distribution fee and usually run aboutPage 19 | Top of Article 20 percent.40 The remainder of the film-rental dollar is called the "net producers share," and is first used to pay off the loan that financed the film's production (its "negative cost"). Anything left after that is split as profit between distributor and producer—if they are separate entities—in ranges of 50/50 to 80/20.41 The distribution fee amortizes the fixed costs of the marketing organization, which for a major American producer-distributor with a global sales force during the 1970s ranged between $15-20 million annually. After profit taking, excess distribution-fee income creates a pool of money for underwriting new production, a recycling of income that keeps the system running (bank lines of credit serve mainly for seasonal or occasional standby use).
Coming out of the 1969-1971 recession under new corporate management, the majors learned to manipulate the market by limiting product supply and driving up demand through marketing. Throughout the 1970s they grew in power as distributors, as the number of theaters screens increased by 25 percent and soaring production costs and their own strategic planning reduced the number of available films. Between 1972 and 1978, in fact, distribution's share of the domestic market increased from $500 million to $1,215 million (143 percent), whereas domestic box-office grosses increased only 67 percent.42 By mid-decade, as Harlan Jacobson wrote in an article on Broadway movie theater closings, many exhibitors had "nothing to project"43—a situation that encouraged the growth of chains, since independents found it difficult to book films without a major circuit affiliation.
Independent Producers Fill the Gap
Independent producers benefited handsomely from the blockbuster-driven product shortage, rushing in to fill the vacuum created by the majors' partial abandonment of the field. For more than fifty years the Hollywood production establishment had honored a year-round commitment to supply films in various mixes, from exclusive first-run features through B-films and sub-run exploitation product. But in the postrecession, post-JAWS environment, when every film the majors produced was launched as if it were the second coming of Christ, project initiation fell to the ordinary producer (or, just as often, to a celebrity director, star, or writer with a track record of hits).
Initially, this left room for many other kinds of movies. Indeed, the record shows that in the twelve months between June 1975 and June 1976, 300 independent films were produced, representing an investment of $100 million outside the majors.44 Of these, some 80 percent were R- and PG-rated action-adventure or exploitation dramas, 12 percent were G-rated, and 9 percent were X-rated. But, while they accounted for about two-thirds of all American production, these independent features generated only 10—15 percent of U.S. box-office rentals, and by the end of the decade they had been crowded off American screens by the majors' saturation-booking tactics and by their invasion of the exploitation field itself. In a study of independent features made between 1970 and 1980, Variety concluded that English-language films without ties to a major distributor stood only a 50 percent chance of being released.45 In fact, by the end of the decade, it was frequently said that "everybody is an independent producer," since only a few producers enjoyed the continuous patronage of a major studio and the rest spent their days looking for development capital, existing from deal to deal.46 (As Leo Janos wrote of this situation in 1978, there were "approximately 3,000 deal makers actively competing to make about 70 major releases a year.")47
The Rise of Agent Power
In the wake of the 1948 consent decrees, development deals were increasingly shaped by agent-packaging, and the power of agents within the industry grew exponentially over the next twenty years. As divestiture and other forces caused the studio contract system to wane, agents like Lew Wasserman of MCA became essential in bringing together the key elements of a film project and presenting them to the majors for finance and distribution. By the sixties, according to some estimates, nearly 70 percent of all films were brought to the studios as pre-packaged deals comprising a property (usually a bestselling book or play), stars, director, screenplay, and producer already under agency contract. The package would often be sold to studio executives in New York, bypassing the Hollywood-based production chief, whose role was all but eliminated—or, rather, replaced—by that of the agent. The 1970s blockbuster syndrome gave even more power to agents by increasing the value of "pre-sold" properties and proven stars. By 1974, Variety could proclaim "Agent Power Now Rules Hollywood,"48 without hyperbole. As primary suppliers of talent and story material, agents now performed much of the work once done by the major studios, and some of them had actually become producers and studio chiefs—Lew Wasserman became board chairman and CEO at MCA/Universal in 1967; Ted Ashley of the Ashley Famous Agency became chairman at Warner Bros. in 1971; David Begelman of Creative Management Associates was production head at Columbia from 1973 to 1978, before moving to MGM. David Pirie described this power shift succinctly in 1981:
The agents moved into production because their power had already changed production in such a way that agents possessed exactly the right skills it required. It was no longer an assembly-line but a highly competitive market-place where the individual risks and rewards were greater than they had ever been. Each film became the product of long and frequently tortuous negotiations to establish whether, and on what terms, and with whom, it would be made…. It was only at the end of this tunnel, called the deal, that the actual process of shooting could begin.49
During the 1970s, agents regularly conceived story ideas for films, packaged projects and talent, and even arranged financing. By 1986, another industry observer could write that the only studio function the agencies had not yet usurped was "the actual distribution of pictures to theaters."50 (Today three mega-agencies—CAA [Creative Artists Agency, which was founded by Michael Ovitz in 1975], the William Morris Agency, and ICM [International Creative Management]—have come to dominate the field, doing most of the work once done at the studios, with the latter often functioning as little more than financiers.)
The Studios Become Financier-Distributors
In point of fact, however, the studios continued to dominate the finance and distribution aspects of the industry, despite losing control of production in the old sense of originating film projects. Rather than maintain a continuing program of films financed by capitalPage 21 | Top of Article accrual from box-office revenues (as in the days of vertical integration), the studios became the ad hoc distributors of independent productions financed in whole or in part by their own distribution fees (and often made at studio facilities leased to the independent producers). As distributors, the majors branded these productions with their corporate logos, retaining and even bolstering their image as purveyors of feature films to the nation. They mounted the advertising and marketing campaigns, collected revenues from exhibitors, and paid the producers-of-record—after deducting their distribution fee and costs. The shift from production to finance and distribution had occurred gradually in the wake of the Consent decrees, but was accelerated to the point of near completion during the 1970s by the unique economic circumstances of postrecession Hollywood. For example, in 1973 Paramount produced ten of the twenty-two films it distributed; in 1974 it produced fourteen of twenty-five; but by 1975 it produced only five of twenty—a fairly typical progression for the majors throughout the decade.51
Foreign Markets and Television Sales Amortize Production
Although their key focus in the 1970s was on domestic (i.e., North American) income, the majors also distributed product to an overseas market that had become increasingly important as the domestic box office declined. Certain kinds of films—World War II epics, for example, and disaster films—were designed with international casts specifically to appeal to foreign audiences. When the decade began, as much 50 percent of rental income came from abroad (80 percent of it from Europe); by its end, a resurgence in the home market reversed a quarter century of erosion (1946-1971) and restored the domestic-foreign ratio to 60/40, with the largest overseas share going for the first time to Japan.52 (In the eighties and nineties, however, the international market became crucial to sustaining the profitability of certain blockbusters, with films such as Paramount's FATAL ATTRACTION [Adrian Lyne, 1987], United Artists' RAIN MAN [Barry Levinson, 1988] and ROCKY V [John G. Avildsen, 1990], Touchstone's PRETTY WOMAN [Garry Marshall, 1990], and Amblin's GREMLINS 2 [Joe Dante, 1990] earning significantly more money abroad than in the United States; by the late 1990s, the rule of thumb was that overseas box office would account for at least 50 percent of a studio films revenue.)53
Throughout the 1970s, then, the majors' access to a world market insured them economies of scale sufficient to amortize the production costs of most films. Some foreign markets they penetrated significantly but not fatally—in Italy they had a 33.7-percent share, in Spain a 35-percent share, and in France a 35.2-percent share. Others they dominated to the near extinction of the respective national cinema—most notably Germany (54.9-percent penetration), Greece (58 percent), and the U.K. (88 percent).54 The most important agent of overseas distribution was Cinema International Corporation (CIC), formed by Paramount and Universal in 1970 to handle distribution in Europe, South America, and South Africa—about one-third of the overseas market, and modified in 1973 to include MGM. Circumventing U.S. antitrust laws, CIC merged the three separate distribution organizations of its partners outside North America and controlled the first-option international rights to all motion pictures they produced or acquired. CIC became United International Pictures (UIP) when MGM merged with United Artists in 1981, and is today one of the world's leading distributors of feature-length films to theatrical exhibitors.55
The other pillar of support for domestic production during this era was television. In the 1960s, about 70 percent of filmed television programming was produced in Hollywood on backlot space rented to independent companies like Desilu and Hal Roach. At mid-decade, the studios themselves had entered the syndication business, supplying programs directly to affiliates as an alternative to the network feed. Simultaneously, Hollywood feature films were gaining enormous popularity on television. By 1967 such films were receiving the highest Nielsen ratings on prime-time television,56 and the networks were clamoring for product, causing rental prices to soar. In 1961, when there were only forty-five features broadcast in prime time, the average price per film was under $200,000; by 1970, with a total of 166 features, it had climbed to $800,000.57 At this point the majors had become dependent on television for their fis cal health, using profits from network movie sales to underwrite theatrical production and amortize losses. (They would soon become dependent on television in another way, as it achieved the status of a national sales medium sine qua non and became crucial to the marketing of studio blockbusters.)
By the 1971-1972 season, however, the success of theatrical features on television had led all three networks to produce their own made-for-TV movies. Although movies then comprised over 25 percent of the primetime schedule, only half of 227 films broadcast were Hollywood features,58 and this market would continue to decline throughout the decade. (In 1974, for example, 130 made-for-TV movies appeared in prime time as compared with 118 theatrical features.) Many of the new made-for-TV movies were produced in association with the majors, but studio profits from such productions could not match those generated by distributing and licensing their own theatrical films to television. Nonetheless, thanks to a 1971 change in the FCC's syndication rules that required the networks to reduce their interest in program production, the studios were able to become the main producers and syndicators of television programming during the 1970s.59 By mid-decade, in fact, they were devoting most of their facilities to the production of TV movies and weekly series, with Universal alone supplying nearly onequarter of the prime-time shows for all three networks. In 1978 the majors made more films for television than they had produced for theatrical distribution in the past five years.60 (As early as 1971, only 24 percent of Screen Actors Guild members' income came from film work, with the rest coming from television.)61 Thus, while feature-film production remained Hollywood's most salient and culturally prominent role in the 1970s, its main function within the American media industry became that of TV producer and film distributor, shifting its posture dramatically from the classical era but completing a transition that had been ongoing since the consent decree.
The Industry Lands on Its Feet and Reasserts Its Power
Although it had begun in industry-wide crisis, the decade of the 1970s ended with most of the negative trends ameliorated or reversed. After hitting an historic low of 15.8 million in 1971, attendance grew at the steady rate of about 2 percent annually for the rest of the decade (though the audience share of the ten top grossing films tripled that rate). Domestic box-office receipts grew 7.7 percent, climbing from about $1 billion in 1971 to $2.8 billion in 1979,62 thanks largely to 22 films earning rental in excess of $50 million. Nine of those films exceeded $75 million, and three of them—STAR WARS, JAWS,Page 23 | Top of Article and THE EMPIRE STRIKES BACK—exceeded $130 million. The six majors—Paramount, Warners, Columbia, Fox, Universal, and MGM/United Artists (functioning as a single distributor)—continued to dominate the industry, accounting for 90 percent of North American rental income throughout the decade. Near its end, when the majors had pretax profits totaling $640 million, the risk associated with moviemaking for most of it had been significantly reduced.63 In 1977, for example, Warner Bros.' chair Ted Ashley told the Washington Post that the risk-to-reward ratio had "improved considerably in the last two of three years,"64 and in 1980 The Hollywood Reporter carried the headline "Wall Street Embracing Film Co.s Now That Risk Is Virtually Gone."65 The failure of Michael Cimino's $36-million epic HEAVEN'S GATE (United Artists) in 1980 proved otherwise, causing Transamerica to sell United Artists to MGM. But the debacle helped to bring a new measure of caution to the budgeting process and became a cause célèbre, motivating studio executives to reassert rigorous production control.
During the same period, Hollywood was discovering new markets in videocassette and cable distribution, and began to tap a massive new youth market. In 1977, a survey prepared by the Opinion Research Corporation of Princeton, New Jersey, for the MPAA had revealed that 57 percent of all U.S. movie tickets were purchased by those under twenty-five, a group whose tastes were inherently more conservative than those of the late 1960s counterculture. (Furthermore, from 1977 to 1979, the number of tickets sold to twelve-one- to twenty-year-olds increased by 8 percent, while those sold to twenty-one- to thirty-nine-year-olds declined by the same percentage.)66 Subsequently, "bubble gum" blockbusters67 targeted at that audience—mainly action-adventure films (SUPERMAN [Richard Donner, 1978]; RAIDERS OF THE LOST ARK [Steven Spielberg, 1981]) and comedies (NATIONAL LAMPOON'S ANIMAL HOUSE [John Landis, 1978]; PORKY'S [Bob Clark, 1982])—became the top-grossing films of the late 1970s and early 1980s. But the HEAVEN'S GATE disaster was a grim reminder of the 1969-1971 recession, and it brought a new sense of responsibility toward controlling film costs68 that would stand the industry in good stead for at least another decade—near the end of which costs would again escalate suicidally.