Lucasfilm Ltd. Business Information, Profile, and History

History of Lucasfilm Ltd.

The 16th largest motion picture producer in the United States, ranked by revenues, Lucasfilm Ltd. is an independent film and television production and distribution company developed by George Lucas, creator of the popular and profitable Star Wars and Indiana Jones film series. By 1995, Lucasfilm consisted of three entities: Lucasfilm Ltd., Lucas Digital Ltd., and LucasArts Entertainment Co. Lucasfilm Ltd. created Lucas's motion picture and television productions and administered the THX theater and the home theater licensing and certification procedures. Lucas Digital Ltd. oversaw operations of Industrial Light & Magic (ILM), the world's foremost visual effects production facility, and Skywalker Sound, one of the world's premier sound engineering facilities. Finally, LucasArts Entertainment Company produced multimedia and interactive computer entertainment and educational computer software, while also overseeing the licensing responsibilities for Lucasfilm stories and characters.

1970s: George Lucas Breaks into the Movie Business

Company founder George Lucas was born in 1945 in Modesto, California, and was educated at the University of Southern California's (USC) film school. Having won a scholarship to observe Francis Ford Coppola direct the film Finian's Rainbow, Lucas would later recall in a New York Times interview, "Francis forced me to become a writer and to think about things other than abstract and documentary films." In 1971, Lucas wrote and directed his first feature film, THX 1138, the story of a future world in which people live in underground cities run by computers. Inspired by a short film he wrote while a student at USC, THX 1138 was produced by Francis Ford Coppola's American Zoetrope studios. The following year, Lucas created his own film company, Lucasfilm Ltd., with offices in Hollywood, across the street from Universal Studios.

In 1973, Lucas experienced his first commercial success with the film American Graffiti, a humorous look at one evening in the lives of some recent high-school graduates in the early 1960s, which Lucas co-wrote and directed. In addition to receiving a Golden Globe award and awards from the New York Film Critics and the National Society of Film Critics, American Graffiti received five Academy Award nominations. Moreover, Lucas became known as one of the most popular directors in Hollywood, and his company began to expand. During this time, for example, Lucas founded Sprocket Systems, which later became Skywalker Sound, a full-service audio post-production facility. He also created Industrial Light & Magic (ILM) to develop the use of computer graphics in film, focusing particularly on the striking visual effects that would be used in the upcoming film Star Wars.

Late 1970s to Early 1980s: Star Wars Is Born

Lucas wrote and directed the first Star Wars film in 1977. Made by Lucas and Lucasfilm for Twentieth Century Fox, the film reportedly incurred production costs of around $6.5 million. A fantasy/science fiction (sci-fi) tale featuring a young hero, a princess, a pilot, a villain, and a host of robots and creatures, Star Wars became a number one box-office attraction as well as an important part of U.S. culture and film history. The film's characters also became the basis for a very profitable line of children's toy figures and other merchandise. In fact, profits from Star Wars allowed Lucas to fully finance subsequent films in the series and to retain a higher portion of the profits. Over the next six years, Lucas wrote and executive produced the Star Wars sequels The Empire Strikes Back (1980) and The Return of the Jedi (1983). Through 1995, all three films would maintain positions among the top 15 box-office attractions of all time and would continue to generate record toy sales.

Mid-1980s: The Empire Expands

In the early 1980s, a wholly owned subsidiary, LucasArts Entertainment Company, was added to Lucasfilm's holdings, providing, according to company literature, "an interactive element in George Lucas's vision of a state-of-the-art, multi-faceted entertainment company." LucasArts developed, in part, under the leadership of R. Douglas Norby, who joined Lucasfilm in 1985 after serving as chief financial officer at Syntex Corporation. As president and chief executive officer of LucasArts until 1992, Norby helped the subsidiary become a leading developer of entertaining and interactive multimedia computer software for schools, homes, and arcades. Such products combined Lucas' storytelling and character development strengths with the newest, most advanced technologies available. Early game efforts included: "Maniac Mansion," "Battlehawks 1942," "Their Finest Hour: The Battle of Britain," "Secret Weapons of the Luftwaffe," "Loom," and "The Secret of Monkey Island." The company also produced software products based on the Star Wars and the Indiana Jones series. "X-Wing" would become the best selling CD-ROM entertainment title of 1993, and in 1994 "Rebel Assault" became one of the best selling CD-ROM software of all time. Educational products, developed by the LucasArts Learning sub-unit, included "GTV: American History from a Geographic Perspective," an interactive video disc and computer learning effort involving both the National Geographic Society and the California State Department of Education. Another program, "Life Story," was developed in partnership with Apple Multimedia Lab and the Smithsonian Institution.

LucasArts was also charged with overseeing the licensing and design of toys and other products based on Lucasfilm ideas and characters. Comic books and novels extending the Star Wars and Indiana Jones universes were successful ventures for LucasArts. In 1991 The New York Times indicated that LucasArts licensed Star Wars toys had grossed over $2.6 billion dollars around the world.

George Lucas Breaks from Tradition

As Lucasfilm continued to profit, George Lucas gradually began to separate himself from traditional Hollywood. In 1981, he relinquished membership in the Academy of Motion Picture Arts and Sciences, the Writers Guild, and the Directors Guild and began moving his offices to Skywalker Ranch, a 3,000-acre secluded production facility located in San Rafael, 25 miles from San Francisco. Named for the Star Wars character Luke Skywalker, the ranch became the business and production hub of the Lucas financial empire. Discussing his intentions for the new ranch complex in an interview for the New York Times, Lucas said, "As opposed to Hollywood, where the film makers support the corporate entity, Lucasfilm will support the overhead of the ranch. We'll make money out of the money by buying real estate, cable, satellite, solar energy--without buying anything we're ashamed of, like pesticides--and then the corporation will give us the money to make films."

Despite their detachment from Hollywood, Lucas and Lucasfilm continued to create widely successful films, producing a popular series of Indiana Jones movies, which were directed by Lucas's friend and colleague Steven Spielberg. The three movies, Raiders of the Lost Ark (1981), Indiana Jones and the Temple of Doom (1984), and Indiana Jones and the Last Crusade (1989), featured the adventures of Indiana Jones, an heroic archaeologist whose work brings him into contact with villains, dangerous situations, and romance. All three films achieved wide financial success.

Not all Lucasfilm productions achieved commercial success. Such motion pictures as More American Graffiti (1979), Howard the Duck (1986), Labyrinth (1986), and Radioland Murders (1994) met with disappointing ticket sales and critical reviews. Nevertheless, George Lucas remained a leader in his field; in 1992, he received the Academy of Motion Picture Arts and Sciences' prestigious Irving G. Thalberg award for pioneering work in film technology. Moreover, any losses the company incurred by its few commercial disappointments were offset by Lucasfilm's involvement in all aspects of movie production; ILM in particular began to thrive and gradually became the company's most profitable division.

Described by Lucasfilm as "the largest and most advanced digital effects system in the entertainment industry," ILM not only mastered the traditional arts of blue screen photography, matte painting, and model construction, but also pioneered the development of motion control cameras, optical compositing, and other advances in special effects technology. Its use of computer graphics and digital imaging in feature films also involved developing such breakthrough techniques as "morphing," which allowed the seamless transformation of one object into another. ILM's film credits in the 1980s and 1990s included most of the Star Trek movies, ET: The Extraterrestrial (1982), Cocoon (1985), Back to the Future (1985), Who Framed Roger Rabbit? (1988), Ghost (1990), Terminator 2: Judgment Day (1991), Jurassic Park (1993), Schindler's List (1993), Forrest Gump (1994), and many others. In fact, by the end of 1994, ILM had handled special effects for over 100 feature films, several of which won Academy Awards for best visual effects and technical achievement.

ILM also began working with Walt Disney Productions in 1985, developing over the years such theme park attractions as Captain EO (1986) for Disneyland, Star Tours simulator ride for Disneyland, Body Wars (1989) for Disneyworld's EPCOT Center, and Space Race (1991) a simulator ride for Showscan.

Skywalker Sound was also thriving during this time, with sound post-production studios in Santa Monica, West Los Angeles, and at the Skywalker Ranch complex. At these facilities--which comprised sound and foley stages, mixing and editing studios, and screening rooms, all renowned for their technical sophistication and versatility--the sound was recorded for such popular films as Jurassic Park, Mrs. Doubtfire, and Quiz Show. Skywalker also undertook television commercial projects for such products as Pepsi, Listerine, the Jenny Craig diet plan, and Malaysian Air, among others.

1990s: The Empire Continues to Expand

In February 1993, Lucasfilm announced a reorganization, opting to spin off ILM and Skywalker Sound into units of a new company called Lucas Digital Ltd. Film producer Lindsley Parsons, Jr., a former manager of production at MGM/UA Entertainment, CBS Theatrical Films, and Paramount Pictures, was named president and CEO of Lucas Digital, while George Lucas served as the company's chairperson.

Two months later, Lucas Digital's ILM subunit teamed up with Silicon Graphics Inc., of Mountain View, California, to create The Joint Environment for Digital Imaging (the acronym JEDI referring to the heroic knights of the Star Wars trilogy). The joint effort was created to serve as a film production unit as well as a test lab for new technology in visual effects. The connection between Lucasfilm and Silicon Graphics was actually forged in the late 1980s, when Lucasfilm began using Silicon Graphics workstations to create their special effects. By working together, Lucasfilm gained greater access to Silicon Graphics's more advanced computer workstations, while Silicon Graphics gained access to Lucasfilm's proprietary software. The companies expected to revolutionize filmmaking through their use of computer graphics and reduce the costs of producing special effects by as much as 90 percent.

During this time, Lucasfilm also made a name for itself in the field of television production, performing its most notable work perhaps in 1993 through the television series The Young Indiana Jones Chronicles. Written and executive produced by George Lucas, the series won the Banff Award for Best Continuing Series, a Golden Globe nomination for best dramatic series, an Angel Award for Quality Programming, and ten Emmy Awards.

Another of Lucasfilm's activities involved its THX Group, which, according to Lucasfilm literature, was "dedicated to ensuring excellence in film presentation." The commercial portion of the certification program, developed in 1982, involved certifying the quality of the listening environment in commercial theaters. THX-certified theaters were required to meet Lucasfilm standards for such factors as speaker layout, acoustics, noise levels, and equalization of the signal. By 1995, Lucasfilm claimed over 770 certified installations in theaters and soundstages around the world.

Mid-1990s: A Pioneer in Fields of Technology and Workplace Satisfaction

The THX system also had applications in the home theater, a concept that was gaining popularity in the mid-1990s. Lucasfilm's home THX system certified equipment to ensure that it maintained the quality of film sound as it was transferred to the home. Specifically, home THX certification and licensing program controlled parameters that affected the clarity of dialogue, "soundstaging" (localizing sounds), surround sound diffusion, frequency response, and transparency. Such licensing was available to equipment manufacturers for certification of front and center speakers, surround speakers, subwoofers, amplifiers, preamplifiers, receivers, laser disc players, front video projection screens, and cords and interconnects.

In 1994, for the fourth year in a row, Working Mother magazine named Lucasfilm, Lucas Digital, and LucasArts Entertainment among the top 100 workplaces for working mothers. The magazine praised the companies' child-care centers, flexible working hours, and profit sharing plans, as well as their reputation for equal treatment in pay. Moreover, the companies subsidized 100 percent of health care costs for the employee and 75 percent for the family. Not surprisingly, the three companies enjoyed a low turnover rate.

In the mid-1990s, George Lucas remained very involved in the arts and education, serving as chairperson of the George Lucas Educational Foundation as well as on the board of directors of the National Geographic Society Education Foundation, the Artists Rights Foundation, The Joseph Campbell Foundation, and The Film Foundation. He was also a member of the USC School of Cinema-Television Board of Councilors. Moreover, Lucasfilm also remained poised for growth, announcing plans in 1994 to produce three more installments of the Star Wars series and one more installment of the Indiana Jones series. Plans were to film the three Star Wars films simultaneously and to released them biannually, beginning in 1998 or 1999. Steven Spielberg agreed at that time to direct the fourth Indiana Jones movie. With such projects underway, the companies that Lucas founded seemed well prepared for continued profitability.

Late 1990s: Deals, Re-releases, and Prequels

George Lucas's announcement that he would re-release the original Star Wars series remastered and enhanced, and that he would direct three additional Star Wars films ("prequels"), that would reveal the history behind the original trilogy, sparked a host of commercial deals. Companies clamored to negotiate for a piece of the Star Wars legacy. In 1996, Lucasfilm and PepsiCo aligned forces in an approximate $2 billion global marketing deal. PepsiCo gained rights to for the launch of the enhanced movies, while Lucasfilm retained the ability to search for additional partners for the new franchise coming in 1999. Random House and Scholastic got a piece of the pie when they signed agreements with Lucasfilm to develop books based on the forthcoming prequels. The agreement allowed that Scholastic would publish three sets of Star Wars books for each new format, and a novelization of each new film. Fox also secured a deal; Fox agreed to distribute all three of the upcoming movies and received, for an undisclosed sum, the network broadcast rights to the first of the three films. Unity, a communications agency, was hired to mastermind the global marketing launch of the Episode One, in 1999. The much sought after multi-year, multi-million dollar toy rights went to Galoob and Hasbro, prompting Hasbro to purchase Galoob. Nintendo snagged another hot deal--the rights to Star Wars videogames.

The 1997 re-release of Star Wars, the first movie in the original trilogy, grossed more than $250 million domestically, a good start to the upcoming string of re-releases and prequels.

New Technologies and New Star Wars Movies

George Lucas stunned the movie industry in 1999 when he announced that Lucasfilm would bankroll the first digital projectors to be used in theaters. The projectors debut would be timed to show Phantom Menace, the title of the first of the three Star Wars prequels. The first movie in the prequel series, Star Wars Episode One: Attack of the Clones, was released on May 19, 1999.

Later in 1999, Lucasfilm was selected by the trustees of the new Presidio national park, intended to become a part of Golden Gate National Recreation Area in San Francisco, California, to develop a motion picture complex at the site.

Additional strides in technology were taken, over the years, by ILM, the largest f/x studio in the film business. The company supplied complex computer graphics for several computer graphic-rich films, including A.I. Artificial Intelligence, Pearl Harbor, The Mummy, and Harry Potter and the Chamber of Secrets.

2000s: Learning from His Mistakes

Although the release of Star Wars Episode One: The Phantom Menace, and Star Wars Episode Two: Attack of the Clones, (released in 2002) were successful, there were lessons to be learned. One of which was that although toys and games sold as forecast, apparel and some other products did not sell as anticipated. Howard Roffman, vice president of sales for Lucasfilm, told Discount Store News in August, 1999, that although apparel had never been a strong category for licensing, "Some retailers bought into it heavily, and in some channels there is too much merchandise." After a disappointing run of apparel sales after the Episode One release, retailers have vowed to be more cautious.

Lucasfilm also learned from the release of Episode One. Just days after releasing the movie in the United States, Lucasfilm found that hawkers in many foreign countries managed to procure bootleg copies of the film to sell on the streets. In order to avoid the same problem, Lucasfilm decided to release the second movie worldwide on the same day--May 16, 2002. Additionally, in order to scoop the unauthorized Internet sites, Lucasfilm created his own "underground" Web site, complete with fake news stories and features in order to keep ahead of the game. Episode Two, released in 2002, was one of the top-grossing films of the year, and Episode Three is expected to perform at least as well. Lucasfilm is sure to have more gems up its sleeve, and is poised to continue its legacy.

Principal Subsidiaries:Lucas Digital Ltd.; LucasArts Entertainment Co.; Industrial Light & Magic (ILM); Skywalker Sound.

Principal Competitors:New Line Production Inc.; Paramount Pictures.

Chronology

• Key Dates:
• 1971: Lucasfilm Ltd. Incorporates; George Lucas writes and directs his first feature film, THX 1138.
• 1973: George Lucas experiences commercial success with the film American Graffiti.
• 1975: Industrial Light & Magic is established to produce visual effects for the upcoming Star Wars film.
• 1977: Star Wars is released and received six Academy Awards.
• 1980: The Empire Strikes Back is released.
• 1981: Raiders of the Lost Ark is released.
• 1983: Return of the Jedi is released. The Computer Division reorganizes to form Pixar and Games.
• 1984: Indiana Jones and the Temple of Doom is released.
• 1986: Lucasfilm sells Pixar to Steven Jobs.
• 1989: LucasArts Entertainment Company is established, which includes the Games Division.
• 1995: The Library of Congress honors American Graffiti by naming it to the National Film Registry.
• 1997: Star Wars Special Edition premiers nationwide.
• 1999: Star Wars Episode One: The Phantom Menace is released. Trustees of the Presidio National Park in San Francisco select Lucasfilm as preferred developer of 23 acres for its proposed Letterman Digital Arts Center, pending an environmental review.
• 2002: Star Wars Episode Two: Attack of the Clones is released.