As Lucas Goes Digital, Will He Ditch Hollywood?

Though he says it's not his goal, the Star Wars director admits that this new technology could mean we don't need gatekeepers

By Ron Grover

It's hard to think of George Lucas as the kind of guy who shakes things up. Short, a little pudgy, with a soft, almost high-pitched voice, he could be the guy who comes to fix your plumbing. But the 57-year-old Lucas has changed Hollywood as few have before him.

Let's return to 1977, when the one-time camera man and film editor directed a little film called Star Wars. His blockbuster ushered in an era of large, special effects-driven action films that today dominate much of the extravaganzas that studios churn out each year in search of hefty box-office receipts. These days, Lucas has his innovator's hat back on. Only this time, he intends to change the very way you and I watch movies, not simply the movies themselves.

Lucas is perhaps the prominent prophet of the coming digital age in movie distribution. That means making movies using newfangled digital cameras that turn images into bits and bytes that can be shipped over the Internet or by satellite directly into special digital projectors that theater owners would have waiting.


  The picture is brighter, the movie doesn't degrade to the point where you see the scratches from too many trips through the projector. And slam, bang, just like that, the snake-like film and the tin cans the reels are shipped in will go the way of the corner nickelodeon. And if Lucas has his way, maybe the studios will get a little competition, too.

How long before someone like Lucas, with a ton of money, lots of ideas, and a franchise of his own, decides, heck, I don't need Hollywood to get my pictures to the folks in Des Moines. It's a logical question, and I got to put it to Lucas recently. He was in Las Vegas to promote the new Sony high-definition camcorder with which he is now "filming" the upcoming Star Wars: Episode II that will show up in theaters next summer.

Lucas said all the right things to the Hollywood types at the National Association of Broadcasters convention. "I'll never use film again," he told a cheering group of Sony sales reps gathered in a massive ballroom. Later, talking to me and a handful of other reporters, he said using digital cameras would save him 1% to 2% of the cost of making this Star Wars installment, which has a budget pegged at just over $100 million. Even for Lucas, a million dollars isn't chopped liver.


  But I get the impression from watching the man's body language that maybe Lucas doesn't intend to stop there. He has always had this love-hate relationship with Hollywood, and maybe, just maybe, he'd like to bypass studios altogether. In short, Lucas may some day want to be his own studio, the heck with the middleman.

Lucas has operated largely as a force outside Hollywood ever since he made the second Star Wars installment, The Empire Strikes Back, in 1980. In a groundbreaking deal, Lucas took virtually no money to make the sequel and instead hung onto the merchandising and other rights to the characters he created.

Since then, he has set himself up in grand style at his Skywalker Ranch in the hills of San Raphael, on more than 3,000 acres just north of San Francisco. From there he runs his empire, which includes his very popular special-effects house, Industrial Light & Magic. It's also where he keeps his Star Wars franchise alive, and where he does his own deals, like the $2 billion that Pepsi dropped on him to help promote his films, to the $184.5 million in stock holdings he holds in toy company Hasbro, which last year also paid $3.9 million to make Star Wars toys.


  All told, his empire of video games, special effects, and merchandise generates an estimated $1 billion a year. The next step for Lucas, logically, would be to distribute his own films directly to theaters, which is where the digital camera and digital projection come in. As it stands now, Fox has the rights to Lucas' next two Star Wars pictures, although he retains the rights to dictate marketing, distribution, and just about everything else about how they'll be seen in theaters. Back in 1999, he restricted Fox from opening his Star Wars: Espisode 1 -- Phantom Menace in 3,000 theaters to stretch out its run for months. That kept the movie in people's consciousness longer, helping to sell more Star Wars lunch boxes and t-shirts.

But Lucas was only able to get a single theater, in San Francisco, to show the film with a digital projector. He'll want more next time. The problem, at least for now, is that not many theaters have digital projectors. AMC has a couple, but they cost $150,000 a pop, so only a handful are out there. Lucas sees hope in the rush of bankruptcies that have sent brand-name theater chains like United Artists into bankruptcy and has others, such as AMC, hobbled by mountains of debt.

Money guys like Denver billionaire Phil Anschutz, who bought up United Artists' bonds, rescued theater chains by paying a few cents on the dollar. Lucas says he's counting on guys like Anschutz and Leon Black, who recently put money into ailing AMC, for digital's next window of opportunity. "One good thing about a lot of those bankruptcies," he says, "is that there will new companies coming in that will be more receptive to looking at new revenue streams."


  For Anschutz & Co., those revenue streams might be digital streaming of videoconferences and heavyweight fights into their theaters. For Lucas, it might be the ticket that lets him bypass Fox and the rest of Hollywood the next time he makes a picture. Lucas, after all, doesn't need a studio's money to make his films. And if he can convince enough theaters to install digital projectors, maybe he won't need Fox's distribution folks to ship films either.

Lucas denies that's his aim, but not terribly convincingly. "I'm really not that great a businessman," he insists, despite the ample available evidence to the contrary. "I'm just an independent filmmaker who wants my audience to have the best experience they can when they see [my movies]. Films made digitally can give them that." Fair enough.

But in a burst of candor, Lucas allowed there might just be an upside for him and other filmmakers down the road. "You know, technology is the great democratizer," he says. "It frees us from the gatekeepers, and maybe we don't need gatekeepers in this business."


  That might be as close as Lucas comes to issuing his own declaration of independence from Hollywood. For now, he clearly is playing the game through Fox. He offered few tidbits about his new Star Wars installment -- not even the name, which he says he has picked out but won't release until later this year as part of the pre-debut hype. Pepsi isn't aboard for the next two films, so Lucas says he's contemplating who the next marketing partner might be.

He has talked to other directors about using Sony's digital camera, which he helped develop with the Japanese consumer electronics giant. "Steven [Spielberg] will never do it. He likes film, so does Marty [Scorsese]," he says, but "Francis [Coppola] has a couple of them and will probably use them for his next film."

In the months before Star Wars: Episode II hits theaters, I imagine we'll hear Lucas' name a lot. And some of those announcements may well come in connection with movie theaters that are experimenting with digital projectors. Technicolor, which for years has duplicated many of Hollywood's films, wants to get into the business of shipping them, as well. It has offered to help theaters with the cost of installing some projectors, no doubt seeing a potential business in distributing digital films direct.

A guy like Lucas may be able to help that process along a great deal, if for no other reason than he can insist that some of the chains upgrade their equipment to show his blockbuster-in-waiting. Lucas himself undoubtedly sees a business opportunity in there somewhere. Yoda could figure it out. I think George Lucas already has.

Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BW Online

Edited by Patricia O'Connell

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