The rewritten version was much more elaborate than the original and required the use of grandiose visual effects. The budget climbed to S9 million, then to $12 million, and grew still further after shooting began. Having vowed when they took over the company that Columbia would shun big-budget blockbusters, Alan Hirschfield and Herbert Allen grew very concerned about the cost of
Close
Encounters.
They seriously considered inviting another studio to become a partner in the venture, bearing half the cost and cutting both the risk and potential profit. But David Begelman was convinced that
Close Encounters
would be a big hit and fought protracted battles with his colleagues in top management against seeking a partner. On one occasion, in front of several directors in the boardroom in New York, he sketched on a blackboard an analysis of the film's cost and likely revenues, concluding with the prediction that it would gross $80 million. Everyone laughed skeptically, especially Irwin Kramer, Herbert Allen's cousin-in-law. Eventually, however, Begelman talked Hirschfield and the board out of soliciting a full partner, in part because Joe Fischer had become convinced that Columbia could cover much of the production cost with advance guarantees from theaters.
(In the end, Columbia took investments in the film from three outsiders—Time Incorporated; EMI Ltd., the British entertainment conglomerate; and a group of German tax-shelter investors. But the investments totaled only $7 million out of what became a production cost of $19 million, and Columbia was to spend upwards of $10 million more on advertising.)
Close Encounters
initially was scheduled to open at Easter of 1977, then was postponed to June, and then to the fall. After Dan Melnick became head of production and saw parts of the film, he persuaded
Begelman
and Hirschfield to commit an additional $4 million to permit Spielberg to shoot a new beginning for the movie.*
*The scene is a desert sandstorm. The time is the present. Scientists discover several military aircraft missing since World War II. Although there is no sign of the pilots, the planes are in perfect working order and show no evidence of aging. It is as if they had been in a time capsule somewhere, perhaps in outer space, and then suddenly were redeposited on Earth
.
The intensity of the top executives' anxiety over money was matched at the production level where, by the late summer of 1977, bitter disputes were raging between Spielberg and coproducer Julia Phillips over every major aspect of the film from its content and editing to its marketing and advertising. Phillips, who was carrying much of the producer's responsibility at that stage while her husband, Michael, was occupied elsewhere, wanted total control of the
Close Encounters
project. Her demands were seriously disrupting Spielberg's efforts to complete the editing of the film and also were disrupting the studio advertising staff's efforts to formulate its advertising and marketing plans, which were the most expensive and elaborate ever mounted by Columbia. Finally, David Begelman felt compelled to assert the studio's ultimate legal authority to control the project. He barred Julia Phillips from the premises, sending her into a rage that reverberated through Hollywood's gossip networks for days.
The Phillips brouhaha erupted in August, a few weeks before
Begelman
and the corporation were engulfed by the embezzlement crisis. After the revelations about Begelman, Hirschfield and Fischer necessarily had ignored
Close Encounters,
trusting the people directly responsible for it to rise to the occasion. As they were gathering in the Todd-AO screening room, however, the great importance of the film came flooding back. If it became the commercial success that they all hoped for,
Close Encounters of the Third Kind
held the possibility of garnering enormous profits and of turning Columbia Pictures Industries into something quite rare in corporate America—a debt-free, cash-rich company with virtually complete freedom to expand in any direction it wanted, unfettered by obligations to banks and other creditors.
If, on the other hand, the film fell short, Columbia stood to lose millions of dollars. While Joe Fischer's prediction of substantial advance guarantees by theaters had been correct, the guarantees still did not cover nearly all that the company would spend on the movie. Commercial failure, therefore, would curb severely Columbia's flexibility and capacity for growth.
As the projection room darkened and the film began. Director Spielberg and Douglas Trumbull, who had created the special effects, were feeling their own anxieties. Having been hunched over editing equipment day and night for months, they were emotionally and physically exhausted and had lost much of their perspective on the film. They felt it was wonderful, of course, but could hardly judge it objectively.
The least worried people at the screening—and even they were anxious—were
Melnick
and Begelman, who had followed the project closely enough and had seen enough of the movie to be convinced of its high quality and commercial potential.
An hour into the film, anxiety was ebbing and excitement was growing. After two hours, as the space ships began descending around Devil's Tower, the people in the projection room knew they were seeing something very special. By the time the mother ship loomed over the mountain and settled to earth, they knew they were seeing one of the most spectacular motion pictures ever made. When the film ended, the first audible reaction was from Robert Cort, the young vice president for advertising, who leaped in the air like a giddy child, whooping and giggling and pounding Spielberg and Trumbull like players who had just won the seventh game of the World Series. The others were enthusiastic, too. The joy and relief were palpable. A few people rather awkwardly paid respects to Begelman. Others confined their congratulations to Spielberg, Trumbull, and Melnick.
Maybe, just maybe, Hirschfield thought as he left the building, this picture will attract enough attention to make the
Begelman
scandal seem insignificant.
Chief Investigator Peter Gruenberger had flown out from New York on Sunday evening and had been joined on Tuesday by two other lawyers from Weil, Gotshal
& Manges and by Michael Passare
lla, a senior partner from the New
York headquarters of Price Wate
rhouse & Company. Those four, who would stay in Los Angeles for the duration of the investigation, except for brief trips to New York, were supplemen
ted by four CPAs from Price Wate
rhouse's Century City office. The investigation woul
d comprise what Price Waterhouse
called a "fraud audit," in which normal auditing procedures were expanded to include correlation of all of Begelman's corporate financial records—such things as his salary and his travel and entertainment expenses—with all of his and his wife's personal financial records, including income tax returns and bank deposits and withdrawals.
Peter Gruenberger's immediate concern, as he was setting up his headquarters in David Begelman's locked and deserted office, was the diary of
Begelman
's secretary, Connie Danielson. The seizure of the diary by Jim Johnson the previous Friday had quickly been labeled "the
pantie
raid." Columbia had sought an opinion of the legality of the seizure under California law from a Los Angeles law firm. The firm's opinion was that if the diary was read only by Peter
Gruenberger, and if Connie Danie
lson was interrogated only on entries which concerned the business of the company, its seizure was legal. The diary had been left on company premises, after all, and certain entries did mention busines
s matters as distinct from Danie
lson's personal life.
G
ruenberger determined from Danie
lson, and eventually confirmed with other sources, that the references in the diary to the Mafia and the Los Angeles Police Department related to a plan at the studio to develop a motion picture based on the so-called "Skid Row Slasher" killings—a series of random murders in Los Angeles in the mid-seventies in which the killer slashed t
he throats of his victims from e
ar to ear and occasionally drank their blood. The killer had struck several times in slum neighborhoods of downtown Los Angeles and again in the Hollywood area before being caught. A would-be producer had approached the studio early in 1977 claiming he had exclusive access to the police department's confidential investigative file on the slasher case. The project appealed to
Begelman
but he had made no final decision to proceed. Then
Begelman
began getting telephone calls from a man who urged him to buy the slasher project. The man, identifying himself as the producer's uncle, claimed his name was Carlo Gambino. David
Begelman
doubted that the man was
the
Carlo Gambino, who was an East Coast Mafia boss and very elderly. Further checking revealed that the would-be producer might have obtained the slasher file by bribing a Los Angeles police officer or former officer.
Connie Danie
lson had recorded several musings about these ev
ents in her diary, and when Grue
nberger arrived to begin his investigation of Begelman, the slasher
matter remained unresolved. Grue
nberger's greatest concern was not the slasher project. His greatest concern was the possibility that David Begelman might have had contacts with Mafia boss Gambino. Gruenbergcr located on
Begelman
's telephone log the calls from the man claiming to be Gambino, and found the name Carlo Gambino and a telephone number in
Begelman
's office Rolodex. However, Gruenberger's efforts to trace the phone number to anyone named Gambino, or anyone familiar with the slasher project, proved fruitless. And
Begelman
assured Grucnbcrgcr that he had never known anyone named Carlo Gambino before the recent spate of calls. The Los Angeles police, meanwhile, revealed to Columbia investigators that someone indeed had obtained the slasher file through improper means and had been trying to peddle it at just about every studio in town. The police were embarrassed and were attempting to identify the person or persons responsible.
In the end, Columbia Pictures dropped the slas
her movie project and Peter Grue
nberger dropped his line of inquiry, satisfied that David
Begelman
had no connection to Mafia boss Carlo Gambino. It would not be Peter Gruenberger's last blind alley.
Later in the week, one of Gruenberger's investigators turned up something much more germane to the inquiry into Begelman's finances—a letter to
Begelman
from his financial manager warning David that his personal monthly cash flow was in the red. On its face the letter proved nothing. But it could help establish a motive for embezzlement.
Centering the investigation in David Begelman's office suite, instead of at a less conspicuous site at the studio or away from the studio altogether, posed a visible daily distraction for studio executives and staff members already stunned by the dramatic circumstances of Begelman's departure, and by the absence of
Begelman
himself. David Begelman was a popular president, very active in the day-today activities of the studio, a calming influence in an anxious business. Under the most benign of circumstances his absence would have been felt. Under the existing circumstances, it caused dislocations. Very little work got done at the studio on Monday and Tuesday, as people clustered, gossiped, exchanged what few fragments of information were available outside of the press reports, and took a deluge of inquisitory telephone calls from their friends at other studios. By the end of the week a sens
e of siege had set in. The obtru
sive group of strangers who had commandeered their leader's office would be there indefinitely. Every phone call to anyone at the studio still began with a question about the
Begelman
crisis. Moreover, it was clear that the leadership void at the studio had not been filled effectively. Danny Melnick, for all his filmmaking talent, had no interest in studio administration. And Alan
Hirschfield
would be in New York most of the time and knew little about running the studio anyway.
Perhaps the calmest of the studio executives that week was Eli Horowitz, the fifty-eight-year-old senior vice president for business affairs, the man who negotiated the details of all motion-picture contracts, once the studio heads had structured the deals' outlines. The oldest of the top studio officers, Eli Horowitz was never confused with the garrulous Norman Horowitz of Columbia television by people who knew them. Eli Horowitz was a quiet, perceptive man, a product of working-class New York City in the Depression. He had been with Columbia Pictures since 1946 when he was laid off as a garment-industry bookkeeper and joined the film company as an accounting clerk. Horowitz had seen a lot of studio presidents come and go. As he was glancing through
Newsweek
on Wednesday, he spotted an essay on the "My Turn" page which, he felt, coinci-dentally enunciated an important lesson on the
Begelman
episode. Entitled "Replaceable You," the article had been written by an ABC newsman out of a job. It began: