When Hollywood Had a King

by Connie Bruck

  “That was such a defining moment for me with Lew,” Zanuck added. “I’d never seen it before and have never seen it since—where a guy in charge says, I don’t believe in this but I believe in you. Go.” Sugarland Express was Spielberg’s debut as a feature film director—heralded by critic Pauline Kael as “one of the most phenomenal directorial-debut films in the history of the movies.” It did not do well at the box office, however, as Wasserman had predicted. But Zanuck and Brown were more than vindicated by the success of The Sting—the number one domestic box office hit of 1974.

  And The Sting was a mere aperitif. Zanuck and Brown bought the rights to Peter Benchley’s best-selling thriller Jaws, and they argued that Spielberg should direct the movie. “Lew said, ‘The kid is great, but we need somebody tried and true—because when you get out on the water, you need somebody with real experience,’ ” Zanuck recalled. “I said, ‘We want that inexperience—something fresh.’ ” The production, budgeted at $4 million, encountered a harrowing range of obstacles, and eventually cost about $10 million. But when it was previewed in Dallas, Texas, it seemed plain that it was worth the overages. “It was a huge hit, we had to show it three times that evening,” Zanuck continued. “We made a few changes and previewed it in Long Beach. Lew was there. The audience just ate it up, screaming. At the end, Lew gathered the executives and we all crammed in to this little manager’s office. We were euphoric. The reaction had been even bigger than in Dallas. Lew said, ‘This has been an extraordinary evening.’ He turned to Hy Martin, who was in charge of distribution. ‘Hy, how many theaters do you have lined up?’

  “Hy said, ‘We have a record number of theaters. The word of mouth out of Dallas was so good. I’ve booked five hundred theaters.’ He was beaming. ‘It’s never been done before.’

  “Lew said, ‘Hy, I want you to call up two hundred of them and tell them you’re cutting back. I don’t want to play Palm Springs. I want people to drive from Palm Springs to L.A. to see this. I want lines! I want to take this summer!’

  “We were the number one picture from the beginning of the summer to the end. People were clamoring for it. Lew was so smart. He made it into a precious commodity.”

  Wasserman had been fixated on box office figures for many years, but he had never been as galvanized as he was by Jaws—which would have a first-run box office of $243 million. According to Brown, Wasserman told him that based on the opening figures for Jaws, he could predict within 5 percent what the ultimate numbers would be—and he did. “Lew could tell you what a picture did on Thursday night in a theater in Puerto Rico,” Zanuck declared. “He would call exhibitors around the world very early in the morning. An exhibitor would tell me, ‘Jesus, I got a call from Wasserman himself, and it was 3:00 a.m. his time.’ He knew the theaters—when he traveled, he would go to them. And he had a photographic memory when it came to numbers. He could tell you what a particular gross was in any one of six hundred theaters, at any time. He’d say, ‘Do you know we did $11,392 at the Empire Theater in Omaha?’ I think he got more joy out of the figures than anything else about the whole process. He may have loved the movie, but the figures had a real fascination for him. He was captivated.”

  Jaws was the first in a new genre, the summer blockbuster movie. Its success ratified the notions about the movie business that had been engendered by The Godfather in 1972. Paramount had turned that movie into an event—spending heavily on advertising and marketing, booking the movie to open in a huge number of theaters across the country, and, ultimately, convincing the public that it was a moment of viewing experience they could not afford to miss. Wasserman brought the marketing approach for The Godfather to a new level. He had been somewhat contrarian in cutting back on the number of theaters for Jaws—but that, of course, had been contrived to make it even more of an event. Eight months before Jaws opened, Zanuck, Brown, and Benchley began appearing on TV and radio talk shows, promoting the story of the monster shark. Three days before the opening, on June 21, 1975, Universal began a national advertising blitz on radio and television. The campaign’s poster—an image of the shark approaching the girl—was parodied in dozens of nationally syndicated cartoons. And the Jaws motif itself appeared on everything from beach bags to pajamas. Jaws became so much a feature of popular culture that summer, in so many ways, that Universal published an ad in the Wall Street Journal that read, “It is a movie too.”

  It marked a turning point in the business. Advertising and marketing budgets grew; the number of movies, overall, decreased; and a smaller number of blockbusters dominated the market. Movie critics’ influence was somewhat diminished, since so much access to information was controlled by the studios through advertising and marketing. These mega-movies were used to promote a raft of other products—games, toys, T-shirts, books, records—so that each movie became a small industry. MCA excelled at these spin-off products, creating them for its television hits, too—so there were Kojak lollipops, and Bionic Woman dolls. The principle—marketing products connected to one’s main attraction—was similar, in a way, to what Jules Stein had done decades earlier in his selling of confetti and liquor and party hats and souvenir ashtrays.

  In the historic tension between the business and the art of movie-making, one side had plainly won this round. Looking back at the various golden ages of film, New York Times critic Janet Maslin cited the early seventies not as one of the true high points, but an undeniably fertile, valuable period, in all its passion and experimentation. “The early ’70s were a fine time for personal, idiosyncratic films not aimed at the lowest common denominator, the kinds of films that would be deemed much too chancy by major studios today,” Maslin wrote in 1994. “Why were films that aimed to please distinct, specialized audiences so much more possible then? Maybe because the mega-mass-audience phenomenon was barely a gleam in the average studio executive’s eye. If there was a single day when the era ended, it was June 21, 1975. . . . When Jaws made it possible for every would-be viewer in America to be targeted for a unilateral marketing blitz, it created irrevocable change. Films would now be held to a different and increasingly exacting standard, one that accepted across-the-board popularity as the ultimate sign of merit. A stellar new generation of film makers would do their best to translate personal concerns into broad, crowd-pleasing terms, and would often do so with great success. But the golden age was over. The time of the blockbuster had begun.”

  Much as Wasserman aspired to join the pantheon of the great movie producers, he continued to approach the business in a way that had always set him apart from his predecessors—focused on international opportunities, and searching for esoteric tax loopholes, lobbying against trade quotas, scouring for ways of cutting foreign distribution costs. Others saw romance in movies, but for Wasserman, the romance unquestionably lay in the numbers that made movies a business, and a worldwide one at that. “Numbers,” he commented once, “are what make the world go round.” Now, in the seventies, he instituted a system for the international distribution of Universal movies that was designed to cut costs, and, if all went well, achieve tax advantages more spectacular than any MCA had ever obtained before.

  It all began in 1970, when Charles Bluhdorn, founder and chief executive of Gulf & Western, the conglomerate that had acquired control of Paramount, arranged a meeting with Wasserman. The two men knew each other only slightly; they had been introduced by Ed Weisl, who remained a power at Paramount even after the departure of Barney Balaban. Bluhdorn, an Austrian immigrant who fled Hitler and arrived in this country in 1942 as a sixteen-year-old, was a wild fount of capitalistic energy; he made his first million in the import-export business when he was twenty-one, and went on from there to acquire companies at a furious rate. By the mid-sixties, when conglomerates were the vogue (and Wasserman had begun molding his version), Bluhdorn was the ultimate conglomerateur, his creation satirized as “Engulf & Devour” in a Mel Brooks movie. Bluhdorn had many faults, but timidity was not one of them—and the idea that he brought to Wa
sserman was characteristically bold. The two companies should merge their feature film distribution arms overseas (they were prohibited by antitrust laws from doing so domestically). Thus, they should be able to cut the high cost of foreign distribution, strengthen their marketing clout through their dominance of the marketplace, and—if they were sufficiently clever in exploiting a loophole in the U.S. tax laws—pay no taxes on the profits of those overseas operations until that money was repatriated. Which, in effect, might mean never, if the funds were used abroad or brought back in creative ways. It could amount to billions of dollars, tax-free.

  Stanley Jaffe, president of Paramount, recalled that this overseas enterprise was Bluhdorn’s “economic dream,” but he had brought it to Twentieth Century-Fox, MGM, and Columbia Pictures, and all had turned him down. “The impression was MCA was almost the last place you would go—this was just before Airport, so they were huge in TV but had no hits in feature films,” Jaffe said. “A group of us met with Lew at the Essex House. We expected a long meeting, and that Lew would then say he had to think about it. Charlie told him his concept and Lew stuck out his hand and said, ‘You got a deal.’ Lew grasped it, and he didn’t want to play games.”

  It was left to the subordinates to hammer out the specifics of the deal. Because of antitrust and also tax considerations, it was important that this be a new, separate entity, not a Paramount or MCA subsidiary; it was named the Cinema International Corporation (CIC). The lead negotiator for Paramount was Arthur Barron, someone Bluhdorn relied on considerably. Barron recalled that he and his colleagues discovered a big flaw in the deal as it was close to being finalized: whoever did the most business got screwed—and that, at the time, was clearly Paramount. “We called the MCA guys, George Smith and Dick Baker, and we said, we’ve discovered this, it can’t be right,” Barron said. “They said, ‘That’s the deal Lew made.’ He’d given his marching orders. That was it. I called Bluhdorn—he was fried. He’d made a handshake deal with Lew, just wanted to sweep it up. He was shouting, ‘You screw up this deal, I’m going to kill you!’ Finally, I was able to calm him down enough to explain it to him. He said, ‘That can’t be. I’ll call Lew.’ Fifteen minutes later, he called back. ‘I talked to Lew. That’s gone.’ ”

  The most challenging part of the deal, however, was its tax-related structuring. “CIC was largely tax-driven,” explained Larry Levinson, who had left the Johnson White House to become Paramount’s Washington representative. “Under the rules at the time—the famous Sub-Part F—if you intended to keep money over there, you could defer taxes until it was repatriated. Smart tax people took advantage of these deferral provisions. You could never pay taxes. But you had to set up this intricate latticework. I used to see these diagrams on these big boards: this entity on top of this entity on top of this entity—and the money would flow through and never be taxed. The IRS was not looking at offshore deals then (you could never get away with it today). And whenever Congress would get close to ending these deferral tax provisions, we would work to keep them away.”

  George Smith agreed that MCA reaped remarkable tax benefits from CIC. “I would say that, on the average, one hundred to two hundred million tax dollars were deferred every year. So it was like the government giving you a $100 to $200 million loan, interest-free, every year.” He said that there were strictures on how the money could be spent overseas, however. “You couldn’t make a movie with it, couldn’t pay distribution costs. Generally, we put it in a bank and got interest.” Smith also claimed that MCA eventually did repatriate the funds, and paid taxes at that time. But Barron and several other Paramount executives asserted that the money was indeed spent on movie pro-duction—and, despite the fact that Paramount was making the production decisions, MCA was Paramount’s partner. “The MCA guys became furious, because they were in for 50 percent on these movies, and we were all getting killed on them,” Barron said. Another investment was movie theaters; essentially, CIC (and its successor organization, United International Pictures) re-created in Europe the integration of production, distribution, and exhibition that movie companies in the U.S. had so enjoyed before the Paramount Decree in 1948. Barron also was unequivocal about the tax benefits. “We weren’t paying foreign tax, and we weren’t paying domestic tax,” he stated flatly. “Taxes weren’t paid even when the money was repatriated, because you could bring it back other ways.” Barry Diller, who became chairman and chief executive officer of Paramount in 1974, essentially confirmed what Barron said about the tax benefits, though he differed on the question of repatriation. “The money was mainly not repatriated. Gulf & Western handled some of it differently, because it was such a worldwide company. But once MCA had the whole thing explained to them, they organized their whole business structure around it. And the end result, for both companies, was the same—the money was mainly not to be repatriated, the taxes not paid. It was a brilliant tax dodge,” Diller said.

  CIC’s tax treaty was with the Netherlands—a locale that was uniquely favorable. “We signed the deal in Amsterdam on July 1, 1970,” Barron recalled. “Technically, we were supposed to hold our meetings in Amsterdam. Soon, though, Charlie was saying, ‘Let’s go meet with the troops in Acapulco!’ ‘Let’s go meet with them in Hong Kong!’ Lew humored him. It got so we weren’t meeting in Amsterdam at all, and the tax guys said, this has got to stop!”

  Wasserman and Bluhdorn made an odd couple. Bluhdorn was in a state of constant eruption—of rapture, fury, revelation, murderous threats, apoplexy. Wasserman was composed, and generally arranged his volcanic moments as carefully as though they were opening scenes. Bluhdorn, who adored luxury, was one of the first corporate chiefs to indulge in a company G3 jet. Schooled by Jules Stein, Wasserman disapproved of his more flamboyant peers, and resisted that perquisite for years. Their approach to negotiation was altogether different. “Lew would say x, and if you said y, he would literally get up and leave or throw you out,” Diller recalled. “Charlie was a trader—he’d be throwing in the rug, then the lamp, he’d crawl up your socks!” If Bluhdorn had a sense of the big picture, Wasserman seemed to have X-ray vision—and he was always, always prepared. “Lew would look at the financials the day before our meetings in London, and come up with five vicious points to trap people with—that was his management style,” Diller said. “Charlie was a genius—he hardly read the papers, but he could smell it.” Smiling at his recollection of these tempestuous CIC meetings in the mid-seventies, Diller added, “Charlie was very exasperating to Lew because they were opposite sides of the moon. Charlie tried to trick him, manipulate him—and you couldn’t do that to Lew. When Lew was at his pitch (and he was still, then), it was a dazzling game to watch.”

  The two men had similarities, too, which in a way were even harder on the pairing than their differences. They were fiercely competitive, arrogant, accustomed to having their way, and fixated on winning the game of every negotiation. In the best of times, they were friendly rivals. Wasserman had built his fifteen-story black glass tower, which seemed much taller than it actually was, looming like a mirage over the flatness of the San Fernando Valley; Bluhdorn built his forty-four-story skyscraper on Columbus Circle, overlooking Central Park. One Paramount executive recalled accompanying Bluhdorn on a visit to the MCA tower, where the iron floor strip in the front of each elevator was engraved “MCA.” “Godammit! Why don’t we have ‘G&W’ on our elevators?” Bluhdorn demanded.

  Their relationship became seriously fractious, however, when they decided to bring in a third partner. CIC’s overhead costs had begun to rise again, and Wasserman and Bluhdorn reasoned that they could cut them by sending more product through the existing distribution system. Their prospective candidate to provide this product was Kirk Kerkorian, the wealthy Las Vegas financier who in 1969 had gained control of MGM (Wasserman’s historic icon) from Edgar Bronfman, Sr. Now, under the pressure of an immense, high-interest debt load, Kerkorian was considering selling MGM’s overseas theaters and real estate, as well as leasing f
oreign rights to its library of films. Complex three-way negotiations commenced. Wasserman, Bluhdorn, and their respective entourages were meeting, as they often did, at Paramount studio head Robert Evans’s Beverly Hills home, in a screening room that bordered his pool. Evans’s place was a secluded spot, situated at the end of a long, wooded drive (it had been Greta Garbo’s retreat), and, according to one participant, the Paramount and MCA executives met there, rather than at either company’s offices, because of antitrust concerns. Wasserman and Bluhdorn could not agree on a price for the MGM transaction. Wasserman, of course, prided himself on his ability to assess his advantage in a negotiation, and act accordingly; Bluhdorn liked to drive a hard bargain, but his excitement about the MGM deal evidently made him approach it more extravagantly than Wasserman. Frank Yablans, the president of Paramount who succeeded Stanley Jaffe, recalled, “Lew got so exasperated with Charlie. Finally, he said, ‘If you’re so anxious to buy something, I can sell you some of Edie’s jewels.’ Lew was saying Charlie was a peddler, which he was! But so was Lew. Except here, he was assuming the posture of someone with a higher calling. I had to walk Charlie around the pool for twenty minutes, just to calm him down—he was furious! He took it as a personal insult—which is how it was intended.”

  A frequent participant in these screening room meetings was Sidney Korshak, who—in a role that it is difficult to imagine anyone other than Korshak playing—was representing all three parties. Korshak had known Kerkorian for many years; and Ed Weisl, an old friend of Korshak’s from Chicago, had introduced him to Bluhdorn. “We all paid him—Charlie, Lew, and Kirk,” Yablans said. “He was a facilitator.” While Yablans, who was close to Korshak, professed to find nothing unusual in Korshak’s tripartite role, Barron said he was taken aback when he first realized it. “I knew that Sidney had represented Kirk with the unions in Las Vegas, and that he was very close to Lew,” Barron said. “The first time I realized he was representing us in this, too, was when one of the guys from Paramount gave me a piece of paper and said, ‘Call this number anytime, day or night, if you have a problem.’ I looked at it. ‘Sidney Korshak.’ I said, ‘Jesus, he’s Kirk’s lawyer!’ The guy said, ‘No, it’s okay.’ ”