In the 1930s, at the height of the Depression, Louis B. Mayer, the autocratic head of the leonine Metro-Goldwyn-Mayer studio, earned upwards of $7 million annually for seven consecutive years, making him by far the highest paid executive in America.
Mayer, who was as well known as the actors and actresses at his studio, which boasted "more stars than there are in heaven," ruled MGM like a medieval lord. To the outside world, he was also a potentate in his own right, receiving kings and presidents when they visited his realm.
Today MGM is more interested in running its Grand Hotel gambling casino in Las Vegas than in making pictures. Hollywood has lost its tycoons and its moguls. Instead, it is ruled by a new breed of largely anonymous former agents and financially oriented managers who, while well compensated in their salaries, earn nothing like individual stars, directors and independent producers who can become instant multimillionaires on the basis of a single motion picture hit.
While the Warner brothers, Walt Disney, Fox's Darryl Zanuck, Paramount's Adolph Zukor, MGM's Mayer and Columbia's Harry Cohn were household names in their day, their current successors - Ted Ashley, Donn tatum, Dennis Stanfill, Barry Diller, Frank Rosenfelt and, until recently, David Begelman - are hardly familiar to anyone outside of the movie business.
The studios, confounding repreated predictions of their eventual demise, have in turn been transforming themselves into diversified "leisure" companies. They have channeled much of their hefty cash flow into acquisitions rather than more movies, if they have not already been gobbled up by conglomerates themselves.
This new Hollywood is morre prosperous than ever and the economics of film making have never been better for the studios. Last year's box office receipts totaled a records $3.2 billion, with most of the major studios earning record or near-record profits, aided by blololockbusters and mega-blockbusters such as "Star Wars," the new all-time champ.
But in the midst of this unprecedented prosperity, the movie business is in considerable turmoil.
Hollywood is in an uproar over the reinstatement of David Begelman as the head of Columbia Pictures after he admitted embezzling more than $61,000 from the company through check forgeries and other means.
Begelman's return to power has focused attention on more general studio practices and unearthed numerous financial grievances the creative tttalents in Hollywood say they have against the major studios.
In the more traditional view of the recurring Hollywood sex scandal, director Roman Polanski last week skipped the country before facing sentencing on charges of having had sexual relations with a 13-year-old girl.
Meanwhile, at United Artists, which last year set a revenue record of $318 million in worldwiie film rentals, Chairman Arthur Krimm and four of his top associates recently shocked the industry by resigning en masse in frustation over what they claimed was heavy-handed management control by parent conglomerate Transmerica Corp.
The five U.A. executives are sticking together and are known to be seeking either to take over an existing movie distribution company or to start one from scratch. An aannouncement of their plans is expected within a week.
In Hollywood, their move now has agents and lawyers rubbing their palms in anticipation of an additional $80 million to $1000 million of potential new motion picture financing.
The people currently running the movie companies are a potpourri of agents, lawyers, investment bankers and business executives.
Warner Communications Chairman Steven Ross was president of Kinney Services, Inc., a real estate firm, which acquired Warner-Seven Arts in the late 1960s. Ross has since built the company into a major entertainment conglomerate. Ashley, the head of the Warner Studio, was head of Ashley-Famous, a talent agency, before being named chairman of the studio in 1969.
At Twentieth Century Fox, Stanfill, the chairman, came from the Times-Mirror Corp. in 1969 where he was the vice president for finance. Earlier he had been with Lehman Brothers, the Wall Street investment firm.Fox Studio chief Alan Ladd Jr. is the son of the actor and was an agent and film producer before joining the company in 1973.
Alan J. Hirschfield, the president of Columbia Pictures Industries, started out with Allen & Co., the inveeestment firm, and was installed in his current position when Allen took a major stake in Columbia in 1973. Begelman, the studio chief, was an agent, head of Creative Management Associates. Only Columbia's chairman, Leo Jaffe, is a long-time film industry executive.
Lew Wasserman, chairman of MCA (which owwnnws Universal Studios), has spent his entire career with the company, but began as a publicist when it was still the Old Music Co. of Ammerica, a talent and booking agency. MCA President Sidney Sheinberg is an attorney who worked his way through the television division.
Rosenfelt, president and chief executive officer of MGM, is a lawyer who was the firm's general counsel before being elevated to his current position in 1973.
Krim was a motion picture law specialist with Louis Nizer's law firm whhen he took over U.A. in 1951. He subsequently served as an aide to President Johnson and was finance chairman of the Democratic National Committee.Departing U.A. President Eric Pleskow, born in Vienna, has a background in foreign sales and distribution of films.
Krim's replacement as U.A. chairman is James Harvey, executive vice president for Leisure Time at parent conglomerate Transamerica,. Andy Albeck, the new U.A. presidient, has been with the company 29 years, coming out of its international sales department.
Donn Tatum, chairman and chief executive officer of Walt-Disney Productions, was an attorney for ABC before he joined the Disney organization in 1956.
At Paramount, Diller, chairman of the studio, also came from ABC where he was in charge of nighttime television. Above Diller is charles Bluhdorn, chairman of GuuGlf and Western, a Vienna-born businessman, who was also chief executive officer of Paramount for the first four years afte the conglomerate acquired the moviue company in 1969.
Unlike the factory system of the 1920s, 1930s and 1940s - where studios controlled movie production from start to finish, kept a stable of stars and other talent under long-term contracts, and retained all movie profits for themselves - the moviue companies today are often just financing, distribution and marketing umbrellas for independent productions. A company like U.A., for example, doesn't even need to have a studio.
Profits from movies today often are split, under compex formulas, with independent producers, with other creative participants, or with other studios, if a movie is a joint venture because of a large budget and concommitant large risk.
An example of how convoluted this can get was the fact, unearthed by The Los Angeles Times last week, that producer Ray Stark's Rastar Productions was quietly purchased by Columbia Pictures several years ago.
Stark's current hit, "The Goodbye Girl," is under joint release by Warner and MGM. Executives of both companies expressed surprise that they were thus effectively in partnership with Columbia without their knowledge. Industry sources questioned whether some antitrust violation might be involved given the small number of Hollywood studios.
At the same time, the profit potential for movies has become astronomical.
More recently, "Star Wars" obliterated box office records within months of its release, reaching rentals of nearly $200 million. It produced a five-fold increase in the earnings of Twentieth Century Fox for 1977, raising them to $50.8 million.
Meanwhile, despite rising production costs, analysts say that the financial risks for the studios have been reduced.
This is the result of several factors - advance bidding up product-hungry theater ownsers, stratospheric prices paid by television networks for broadcast rights, the rising importance of ancillary merchandising tie-ins such as records, and the increasing ability of the movie companies to market films like soap through intensive, hard-sell media advertising campaigns.
"The risk-reward ratio has improved considerably over the last two or three years" for moviews, commented Warner Brothers' Ashley.
One thing that is obvious about ththis industry, and what has attracted the conglomerates in the first place is that if you take any recent four- of five-year period, and you match total investment in production costs with pre-tax profits, it is not unusual to to come up with average rates of return of 40 to 50 percent, "said Anthony Hoffman, entertainment anyalyst for Beche Halsey Stuart Shields.
"As long as a studio is managed effectively, and you are willing to spend $70 milllion to $80 million annually on production, it is reasonably assssured of a high rate of return on capital," Hoffman added. "No other industry has that rate of return, particularly one that has such a low asset base."
For gross profit pp articipants such as Sylvester Stallone, the writer and star of "Rocky," for example, or "Star Wars" director George Lucas, it is possible to become multimillionaires on the basis of a single movie. The reward for an independent producer can be even more lucrative.
Paramount's Diller estimated that Robert Stigwood, whose organization produced the current hit "Saturday Night Fever," which was released by Paramount, stands to earn $20 million on that picture alone.
Despite the jackpot potential for creative artists in Hollywood, what one top movie executive said was "the last bastion of the strike-it-rich American dream," many actors, writers and directors insists they do not get a fair shake from the studios.
Complaints range from the wayy studios allocate overhead and distribution costs on pictures, leaving net profit participants on most pictures wiith virtually nothing, to allegations that studio executives bury personal expenses on movie budgets, unfairly reducing what is available to profit participants.
Actors Sean Connery and Michael Caine recentlyy filed suit against Allied Artists Pictures, charging that they were cheated out of profits that were due them on "The Man Who Would Be King." Allied hahas vehemently denied the charges, but conceded that the accounting procedures on the film have been the subject of a long-running dispute.
The heads of the major studios, to a man, contend that, while some points in a contract between a studio and an individual actort or director may become the subjects of an interpretive dispute, especially because contracts can run for 40 or 50 pages, there is nothing resembling cheating or fraudulent activity on the part of the studios.
"An awful lot of this is in not understanding the contract that was carefully negotiated for some actor by his agents and lawyers, or it is just sour grapes," said Ashley.
"There truly is a fiercely competitive marketplace that artists and agents take advantage of," he said.
Diller said, "At a time when a group of people can make a relatively small investment in terms of their life, and no personal financial investment, and in one year make a fortune, it is surprising to me - and maybe it is the cause of it - that these old dragons of accounting ripoffs area at the center of our attention.
"In a talent pool which is so small that compensation has risen into the seven figures for even a medium talent, one can't say the power of the movie companies in dealing with this talent is great," he added.
Attorneys representing Hollywood talent disute the negotiating power of their clients, even if they happen to be one of the handful of superstars such as Barbra Streisand or Steve McQueen, or someone such as Stephen Spielberg, director of "Jaws" and "Close Encounters."
When Congress in 1976 closed down movie tax shelters, there were predictions that financing sources for movies would be severely curtailed. However, industry sources say that the amount of independent financing remains strong. There is a greater emphasis on quality productions because, without the write-offs, the only incentive to invest now is if a movie makes a profit. But there remains some concern that when money once again gets tight, these funds will dry up.
The movie companies - except for Columbia which relied on tax-shelter financing - did not lobby actively for retention of the shelters, preferring instead to concentrate their energies to get written into law the application of investment tax credits to motion pictures. This allows films to be depreciated for tax purposes, and codifies an earlier court ruling.
The provision is calculated to be worth hundreds of millions of dollars to companies such as MCA and Disney with large annual television and motion picture production schedules.
But although the profit-rich movie companies are flush with cash to finance projects, this has not led to any dramatic increase in movie production.
According to Motion Picture Association of America figures, 155 new pictures were released in 1977, down from 177 the year before and the lowest number in the last five years. New releases for January and February of 1978, however, total 42 compared with 30 for the same two months a year ago.