George Lucas: Box office billions

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1:18Welcome to Good, Bad, Billionaire. Each episode we pick a billionaire and we find out just how they made their money. And then we judge them. Are they good, bad or just another billionaire? I'm Simon Jack. I'm the BBC's business editor. And I'm Zing Zing and I'm a journalist, author and podcaster. And today's billionaire is from a galaxy far, far away. It's none other than the creator of Star Wars himself. George Lucas. This week's billionaire is pretty close to my heart. I was seven years old. Mark Hamill appeared on Blue Peter to talk about this little film they've made called Star Wars. So I went to see it and it was the most exciting thing that had ever happened to me in my entire life to that date.

2:04But before we get into that, let's look at George Lucas in numbers. So currently he's valued at$4.9 billion. Not bad for a Hollywood guy. Not bad for a bloke who only directed six films in his life. I mean, that's pretty shocking when you think about it. He owns 4 ,700 acres of Marin County, California, known as the Skywalker Ranch. And it's so big that it has its own fire department and a lake called Lake Ewok. You're kidding me, Lake Ewok. And I don't know how many Star Wars toys that were sold, but I'm willing to bet it's in the hundreds of millions. So this is George Lucas talking to the BBC on Newsnight in 1999.

2:43You know, I wish there was a world where nobody had to get paid. People could just do things for free, but they don't. You know, all the tens of thousands of people that make the toys and all the thousands of people that make the films and the theaters that own the films, they all have to pay their bills. And so they sort of demand to be paid. Most people don't like toys, and they don't think that children should be able to play with toys. I happen to be a fan of toys, and I think it helps kids to be able to play and expand their imaginations and have their own little world. And I think play is a very important thing.

3:16and to contribute to that is, I think, a good thing. Quite convenient that he's also a big fan of the Star Wars toys, which made him quite a lot of money. I remember there was this myth that was going around that George Lucas had bought the rights to sell the toys, the merchandising, of which I had many, for$1. And that was the thing that made him all the money. And it turns out, as we unpick this story, it was not entirely true. It certainly didn't hurt, but that wasn't where the big money came from. So that's what we're going to look at. So let's start off from a zero to a million. Our story begins in a kind of bucolic childhood in the 40s in little small town Modesto, California.

4:03And George Lucas is born to a small town business guy who runs a stationary shop. And he described him as the kind of guy you'd meet in a movie. And actually some of his early success was around the nostalgia of that kind of scene. Right, that kind of suburban Americana, right? Exactly. So he loved making things. He was into science fiction comic books. He was a massive fan of Flash Gordon. And that actually becomes quite an important moment in his career. OK, I have to admit that I sort of vaguely know the name Flash Gordon, but I don't actually know what it's about. Oh, man, you're making me feel old now.

4:35OK, so when I was a child, there were these black and white TV shows. And Flash Gordon was a kind of all American, good looking guy. It was interesting because in the opening credits for Flash Gordon, the words about, you know, what had happened so far in Flash Gordon gently drifted off into the distance exactly like it does at the beginning of the Star Wars film. So the influence is very plain to see. Interesting. And actually, you know, what I did find out in the process of researching this is that all of those kind of childhood influences came up again and again in George Lucas's adult life as a filmmaker.

5:11So that opening sequence of Indiana Jones, where he's being chased by a boulder. When he was growing up, George Lucas was a huge fan of Scrooge McDuck from the Disney comics. And there's a Scrooge McDuck comic that opens with the exact same scene. What, with a big boulder rolling? Yes, with a big boulder rolling after Scrooge's henchman. God, isn't it funny how these notes come back? I mean, it's kind of wild how, you know, your childhood kind of comes back to influence you. And, you know, he clearly loved fantasy, science fiction. His best subject was art and music. He's a creative guy, but he doesn't really do that well at high school.

5:44And he didn't do so well for a reason that really surprised me. And that is because he wanted to be a racing car driver. He wanted to be a racing car driver, but I think his dad bought him a pretty sensible little car. But he souped it up. He's pretty practical. He was an early kind of tinkerer, basically. Not so far removed from, you know, Luke Skywalker, for instance. But his kind of boy racer dreams are kind of dashed, right? Because around high school, just before he graduates, so you can imagine this young George Lucas riding around his souped up yellow car. He gets hit by a truck and he gets flung out of the car driving seat and very nearly dies.

6:22Yeah, and this is an important moment because that's when he stopped driving the cars and started filming them instead. Which in those days, you know, wasn't as easy as just getting your phone out and filming it, right? You required a camera. He actually had a Super 8 and you had to know what you were doing. which is why I think he ends up going to a very famous film school called USC to study film. University of Southern California. Obviously, everyone has to make some kind of, you know, movie. And he comes up with a kind of weirdly titled film, which was his kind of major student contribution.

6:53It's quite an odd film. I mean, I watched a little bit of it. It's called Electronic Labyrinth, THX 11384EB. Bit of a mouthful, to say the least. Sounds like something Elon Musk would call his dog or something. Oh, yeah, definitely. Or, you know, a parakeet or something like that. But if you want to go look it up, it's actually pretty interesting for the time. You know, this is the kind of late 60s and it's about a dystopian world where people are reduced to numbers. You know, that THX 1138 is actually a person's name and they live in this authoritarian system where they're trying to break out.

7:28So it's actually very reminiscent of the Star Wars universe. And interesting that, you know, just THX in itself will come up later. I don't know if you've been to cinemas in the last 10 years, but there are times when they'll flash up the sound system that you're using in this movie theatre. It's called THX. And THX is the company that he founded, which specialised in cinema sound. You can still see that THX logo in cinemas today. And that was when he was at film school. Oh, wow. OK, well, I had no idea that was what THX actually came from. I just assumed it was a coincidence. No, not at all. No, that's his company.

8:03So one of many, as we'll see. So as weird as the title was, it actually launched him. Right. So he wins this prize at the National Student Film Festival and gets a scholarship to Warner Brothers, which is, you know, this big film studio. It's still going. And he meets this guy who's five years older called Francis Ford Coppola. Francis Ford Coppola. Never heard of him. So he's met Francis Ford Coppola, who goes on to be the director of The Godfather. and they found a new film studio together called American Zoetrope. He's only 25 so he's clearly got a commercial head on his shoulders as well as a creative one.

8:37And is at this point that Warner kind of throws 300 ,000 Lucas's way to develop this THX student short into a feature? But it is unfortunately a commercial flop and Warner hates it. They actually withdraw their money. And even though, you know, it's now considered a little bit of a cult classic, at the time people just kind of wrote it off. And learning to fail is kind of an important thing about becoming a billionaire. You've got to have the balls, I suppose, or the wherewithal or the determination sort of dust yourself down from your first misstep to do it again, having learnt from that. And I think that that is a defining feature of some of the billionaires we've covered, actually, their ability to have another go.

9:20And failure actually works out pretty well for at least Coppola, because to pay back some of the money that they lose from this Warner deal, he has to take on a paid job to direct a film that makes him The Godfather. Oh my God, what a happy accident that is. A happy accident, a little fun twist of fate, but it doesn't go so well for George, right? So after THX flops, he marries his film editor girlfriend, Marsha Lou Griffin, and ends up having to live off her salary for a bit. He's basically out there scrabbling around, living off her salary. I think they spent their last$2 ,000 on a trip to Cannes, the famous film festival, to try and raise some money.

9:56Cannes is like all the great and the good of the film world. Lots of deals are done, lots of parties are had. And some of the things that we'll see on cinema next year were probably deals done in Cannes last year. That's the kind of way it works. At 2am over a glass of champagne. Oh yeah. Or something else. Or something else, by all accounts. But he gets$10 ,000 from David Pickett, who's the president of United Artists, to develop this film called American Graffiti, which ends up being the film that turns his career around. By the way, he sets up his own company on that$10 ,000. $10 ,000 you think, I'm going to pay my rent, whatever.

10:31He sets up Lucasfilm Limited. That turns out to be a really good idea. American Graffiti. Now, I don't know if you've seen it. I've seen it. I can't remember what happens in it but I remember the kind of impression of it. It was this great nostalgic snapshot of America set, I think, in Modesto, California. it's an enormous critical and commercial success. But again, you know, George Lucas doesn't have a very good time on the journey to getting it out. So everyone turns American graffiti down. Universal ends up offering$750 ,000 and budget to get it made. But this is relatively small bucks for a movie.

11:11And he has to be pretty smart about how he uses that money. So, for example, rather than hiring in stuntmen and cars, He goes and finds people who owns these cars and pays them, you know, peppercorn, man of money just to drive them around. So he doesn't do it through the agencies or whatever. He's pretty smart about how he uses the money. And I think that's a real billionaire trait, right? I mean, he's making these deals with people who otherwise wouldn't be able to get a look in. He's taking risks rather than doing things the right way that Hollywood says it should be done. Yeah. So he's pretty canny about the way he uses his money.

11:41And he's also, it's interesting because in movies, you can either take a big upfront fee or you can take what they call points. And a point means a percentage point, which means that for every dollar of the cinema ticket price, he's getting some money. Shows him remarkable confidence in his own product and his own thinking to turn down more money up front, but keep hold of the property long term. In American Graffiti, for example, he turns down more money up front, but wants a 40 % share of the profit of the entire movie. And that's something that is not normally given out to, you know, a jobbing director, for example, or a jobbing writer.

12:19They would usually be on five or ten points max. So he's taken less money up front, but is confident in what he's doing. He'll make more money later on if and when it proves to be a success, which it did. And is that something that studios are open to kind of negotiating or because it's seen as less risky for them? So if the movie doesn't do well, they're like, well, we only paid this guy. I mean, he got paid 50 grand for American graffiti. So the studio can just say, well, we didn't pay him that much anyway. Exactly right. You're reducing your fixed costs and you are giving this person an option on the success.

12:56Now, studios always regret giving money away once it proves to be a success. That's the way it works. And I think the studio at this point thought American Graffiti would not do well because they actually wanted to re-edit it for TV, which at the time was not considered a very good place for a film to end up unlike right now. But when they showed the studio editors the film, they said, oh, this is going to be a hit. So they went with a kind of cinema release. And guess what? George Lucas and the studio editors were right. It was a smash hit. It made over$55 million. It cost just over a million dollars to make.

13:30One of the biggest returns on initial investment, like 55 times of any film ever. And in Hollywood, if you can turn a little bit of money into a lot of money, you suddenly become a player. And of course, his share of this gets him to his first million, in fact,$4 million. So at this point, American Graffiti, he's a millionaire. And don't forget, this is all done at the tender age of 28. And he got five Oscar nominations, Best Film, Best Director, Best Screenplay, one for his wife as co-editor. Sadly, they didn't win any of them, but that didn't stop them. Who cares about the Oscar when you've got four million in the bank at the age of 28?

14:05It's funny. I think when they look back, they really care about the Oscars, but only when they're really rich. And then they go, oh, gosh, the Oscars count more than anything. It's all about the art when you've got the money. When you haven't got the money, it's all about the money.

14:21we've now established he's four times a millionaire but how does he get to a billion because that is quite a significant amount more money it's a mind-boggling amount of money so to do that he needs to move into a totally different league but it was just after the making of american graffiti that he starts on the project that we all know him for and he described it at the time as a space opera in the tradition of Flash Gordon and Buck Rogers. It's James Bond in 2001, a space odyssey combined, but it's not camp. Yeah, because you'd be forgiven thinking it might be with that description. Exactly.

14:55But what's interesting also is that he wanted to do a film version of Flash Gordon, but it turns out that Dino De Laurentiis, the Italian American director, owned the rights and wouldn't let him do it. So actually, it was only because he couldn't do Flash Gordon that he basically said, OK, well, if I can't do Flash Gordon, which I'd love from a child, I'll invent something else, something better. And that's what he did. So there wasn't loads of pickup initially for Star Wars. So Fox offered him 150k to write, direct and exec produce it. He managed to renegotiate that after the success of American Graffiti.

15:28And he was offered half a million. But he again kind of decides to take a lower director's fee. And a longer view. he took£150 ,000 plus merchandising. And as someone who owned a lot of Star Wars figures in my youth, that turned out to be one of the smartest spoofs ever. And important for something that will eventually become a franchise, he gets the sequel rights and he also gets a 40 % profit share. Some people have talked about that as maybe the best deal in Hollywood history. It probably didn't look like that at the time because this thing doesn't exist yet, right? So the studios are signing away the rights to something they haven't even imagined or thought about.

16:09But he has, clearly. And I think that's one of the things when people say, oh, the studios are really stupid. Maybe they were, but it's kind of hard to say. 40 % of nothing is nothing. And funnily enough, I actually went and found out what the first name of Star Wars was. Do you want to know what it is, the first draft? It was called, originally, Adventures of the Starkiller as Taken from the Journal of the Will. Saga 1, the Star Wars. Whoever edited that needs a medal. And I guess if you're a studio exec and this kind of excitable guy in his late 20s who's only ever made two films, one of which was a commercial flop, comes in and says, I've got a great idea.

16:48It's called The Adventures of the Starkillers, taken from the Journal of the World Saga 1, the Star Wars. You are going to think to yourself, yeah, right, pull the other one. Yeah, thanks, kid. Not today. But I think this is the thing about George Lucas. He's consistently underestimated by studios who just don't have faith in his vision. But he seems like a pretty idiosyncratic, persistent guy to want to keep going regardless. And that's the thing about fantasy, right? It's really hard for someone else to imagine your vision unless you kind of bring it to life. Yeah. And the other thing is, if you think about Hollywood at this time in the 1970s, it's a moment of high art.

17:23You've got things like Dog Day, Afternoon, Serpico, Heaven's Gate. It was all really artistic directors doing highbrow cinema about stuff. And so this comes in at a completely different level. It's a blockbuster. It's got robots and blasters and lightsabers and good and evil and Jedi warriors and all that kind of stuff. and they're going, man, that is so far away from the kind of worthy, arty stuff we're doing. And actually, it changed the entire movie industry in unpopular ways for those people who think it was Jaws and Star Wars that destroyed for many people the movie industry, because then it became all about the big blockbuster.

18:01Right, the death of cinema and the birth of the blockbuster. Exactly right. So initially, Star Wars is shot in Pinewood in the UK, still a big location for films. and it doesn't really cost that much. It only goes 600k over budget, partly due because the pound isn't doing very well at that time. One of the reasons they came to London to do it, in fact, is because the pound was weak. But with post-production, special effects, that budget goes up to 2 million, which is mostly covered by Lucasfilm themselves. And you've got to hand it to him for that. There's very few who put their own money on the table.

18:32So he basically takes the money he made from American Graffiti and ploughs it into his next film. And as we'll see, that's a pattern that emerges. So he backs himself. He's not just spending other people's money. He's spending his own. And when you take on the risk yourself, that also means you have to set up structures and institutions for you to funnel that risk through, which is why he creates his own special effects company, Industrial Light and Magic, to do all the effects for Star Wars. And the thing that I find really lovely and sweet about the first Star Wars is I went and read up about how they did a special effects and, you know, that crawling text going up.

19:06Apparently, that wasn't even CGI because that kind of effect didn't really exist at the time. So they actually got a six foot long piece of black paper with the yellow text. You're kidding me. And rolled the camera over it to make it seem like the text was moving. And that's the first movie. That is unbelievable. I did not know that. But, you know, when Star Wars was being made, even during that point, George Lucas's best friends were not very sure about it. So there's an amazing story about how Lucas shows an early version of it to friends with some World War II movie footage spliced in with the action scenes.

19:38And the story is that everyone just absolutely hated it. Apart from? A little guy called Steven Spielberg. He said it would make$100 million. He was wrong because he was low. I mean, you know, there's an amazing interview with George Lucas where he says, my friends saw the film and they said, poor George, what was he thinking? And Steven Spielberg jumps up during the screening and says, this is going to be the biggest movie of the year. and everybody in the room looks at Stephen Spielberg and goes, poor Stephen. Who's laughing now? Those two. So it was released, so Star Wars was released on the 25th of May 1977.

20:15Its final budget was$11 million and it soon became the highest grossing film of all time, $307 million on its first theatrical release and Lucas made an initial$12 million on that first release after taxes. So it's a massive success. And what's interesting is that I don't even think George Lucas himself knew it was going to be this much of a hit. I think he knew in his mind, you know, sci-fi films, they attract a certain demographic. Cult following. But what changes his mind is this phone call from a studio exec while he's on holiday in Hawaii. And the studio exec calls up and goes, George, turn on Walter Conkroy on CBS right now and take a look.

20:53And they had a huge story on the news about the number of people lining up to see the film. and it's queues around the block all over America. I was in that queue when it came to England. I have to confess there I was in the queue, seven years old, couldn't wait. It's hard to imagine now that kind of hysteria for a film. I mean, maybe you get it with the early Harry Potters or the early Marvel films, but certainly it's kind of hard to think of a film right now. I guess the closest one you could say is Barbie. I suppose the only parallel at that time would have been something like Jaws, which was 76, 75, 76.

21:28but nothing which was kind of out there in terms of creating a new world. And also multi-generational, right? So a seven-year-old, you could watch it. A 28-year-old could watch it. A 50-year-old could watch it. Yeah. My mum fell asleep whilst I was watching it. She took me to sleep. Not your mum. I said, how did you fall asleep in that? There were like explosions going on all over the place. It was the most exciting thing I've ever seen. You fell asleep. So it's a massive success. And also the thing I remember from that period was that everyone had the toys. Everyone wanted the Han Solo, whatever, because he was the coolest guy in it.

22:00Obviously, Mattel had been doing this with Barbie. But that sense of wanting to own something, which was connected to the franchise, I think was kind of new. And lots of people think that's where he made all his money, right? But I think the merchandising is where actually he may have come off with a slightly bad deal. Yeah, that's right. It was made by a company called Kanner Products. And they gave Lucasfilm only 5 % of sales. For every dollar, they're getting five cents. Nevertheless, you know, they sold a lot of them. So by 1979, he made about$20 million out of that. But suffice it to say, his business partner, the toy manufacturer Kanner, made a lot of money.