Tuesday, November 22, 2005

The Mystery of Prague

Was the putative Prague Connection an invention of the Bush Administration– or was it the product of an incomplete intelligence operation?
To sort out the confusion , I met earlier this November 11 in Prague with Jiri Ruzek, the chief at the time of Czech counterintelligence service(BIS), Ruzek, a professional intelligence officer, is in a position to know what happened, He personally oversaw the investigation of Iraq’s alleged covert activities that began, with full American collaboration, nearly two years before Bush became President and resulted, some five months before the 9-11 attack, in the expulsion the Iraqi intelligence officer to have met with Atta, Ahmad al-Ani. I also spoke with ex-Foreign Minister Jan Kavan, who headed the Intelligence Committee to whom Ruzek reported, and to Ambassador Hynek Kmonicek, who, as deputy foreign minister at the time, handled the al-Ani expulsion for the foreign ministry. According to them, here is how the the Prague connection developed.

The proximite cause for the BIS’ interest in al-Ani was a sensational revelation made by Jabir Salim, the Iraqi consul who defected in Prague in December 1998. He said in his dbriefings that the Mukharabit, Iraq intelligence service, had given him $150,000 and tasked him with job of carrying out a covert action against an American target in the Czech Republic, using a free-lance terrorist to blow up the headquarters of Radio Free Europe in Weneclas Square in the heart of Prague. This intelligence about state-sponsored terrorism was taken very seiously by both America and the Czech Republic. The US, for its part, doubled security at the Radio Free Europe facility, and began its own counter-survellience, including photographing suspicious individuals in Weneclas Square. The BIS did what counterintelligence service do in such circumstances: they sought to penerate the Iraq Embassy by recruiting Arabic-speaking employees familiar with its operations.

Al-Ani was Salim’s replacement at the Iraq Embassy. Soon after he arrived in March 1999 , he was picked up by US countersurvellence cameras. The interest in him intesified after the BIS’ learned from its penetration of the Iraq Embassy that he was attempting to acquire explosives and contact foreign-based Arabs. Then, on April 9th 2001, the BIS’ source in the Embassy reported that al-Ani had gotten into a car with an unknown foreign Arab. After al-Ani’s car managed to elude BIS survellience, concern mounted that he was in the process of recruiting his bomber, and, since the BIS could not find the ystery Arab, Ruzek decided to act pre-emptovely. He recommended to Foreign Minister Kavan that al-Ani be immediately expelled from the Czech Republic, and, accepting it. al-Ani was given only 48 hours to get out of Prague on April 19t.h– and he returned to Baghdad.

On September 11th, Atta’s picture was shown on Czech TV, and the next day, the BIS’s source in the Iraq embassy dropped a bomb shell. He told his BIS case officer that he recognized Atta as the Arab who got in the car with Al-Ani on April 9th. Ruzek immediately relayed the secret information to Washington through the CIA liaison. The FBI sent to Prague an interrogation team, which after questioning and testing the source, concluded that there was a 70 percent liklihood that he was not intentionally lying and sincerely believed that he saw Atta with al-Ani. The issue remained whether he had mistaken someone who resembled Atta. Meanwhile, records were found showing that Atta had applied for a Czech visa in Germany in 2000, and made at least one previous trip to Prague.
Less than a week after Ruzek shared the BIS’ secret information with American intelligence, it was leaked. The Associated Press reported "A U.S. official, speaking on condition of anonymity, said the United States has received information from a foreign intelligence service that Mohamed Atta, a hijacker aboard one of the planes that slammed into the World Trade Center, met earlier this year in Europe with an Iraqi intelligence agent," and CBS named with al-Ani as the person meeting with Atta in Prague. Ruzek was furious. He consider what he had passed on to the FBI to be unevaluated raw intelligence, and the disclosure of it not only riskedt compromising the BIS’s penetration in the Iraq embassy but it greatly reduced the chances of confirming it. In Baghdad, al-Ani, through an Iraqi spokesman, denied he ever met Atta. In Prague, Czech government officials, who had not been fully briefed, added to the confusion. The Prime Minister,. Milos Zeeman , wrongly assuming that the meeting had been confirmed, stated on CNN, for example, that Atta and al-Ani had met to discuss Radio free Europe, not 9-11 attack.

Meanwhile, the pressures on Ruzek mounted. Richard Armitage, Powell’s deputy at the State Department, complained to Prime Minister Zeeman that Ruzek was not cooperating in resolving the case, eben though Ruzek had extended unprecedented access to the FBI and CIA, including allowing their representatives to sit on the task force reviewing the case. He was also warned by a colleague in German intelligence that could be entangled in a heated Hawk-Dove struggke over Iraq. He decided that if this was an American game, he did not want part of it. So he threw the ball back in the CIA’s court, by taking the position that if al-Ani did meet Atta for a nefarious purpose, it would have been not on his own initiaive but as a representative of the Iraqi Mukharabit. The answer was not it Prague, but in Iraq’sa ntelligence files, and the the CIA and FBI would have to use their own intelligence capabilities to obtain further informatuion about al-Ani’s assignment, and brief. That more oe less cocluded the Czech role in the investigation.

. The FBI had by this time established that Atta checked out of the Diplomat Inn in Virginia Beach and cashed a check for $8,000 from a SunTrust account on April 4, 2001 and was seen again in Florida on April 11, 2001. But it could not account for his movements during this period (or how he used that money), though there wa no record of Atta using his passport to travel outside the United States. The CIA also drew a blank. CIA director George Tenet testified on June 18, 2002 before a Joint Committee of Congress : "Atta allegedly traveled outside the US in early April 2001 to meet with an Iraqi intelligence officer in Prague, we are still working to confirm or deny this allegation. It is possible that Atta traveled under an unknown alias since we have been unable to establish that Atta left the US or entered Europe in April 2001 under his true name or any known aliases." When Al-Ani was captured in Baghdad in 2003, he told the CIA that he was not even Prague at the time of the meeting. Although Ruzek termed Al-Ani’s claim of being elsewhere "pure nonsense," the CIA had evidently found it could go no further with the vexing case. Tenet, on March 9,2004, told a closed session of the Senate Armed Service Committee, "Although we cannot rule it out, we are increasingly skeptical such a meeting occurred."

Prior to 911, when the investigation al-Ani’s activities was iniatated, both the CIA and the BIS took deadly serious the allegation of state-sponsored terrorism directed against Radio Free Europe, Both agencies cooperated in attempting to thwart it, and accepted the information furnished by the BIS’ penetration agent as reliable enough to expel al-Ani. After 9-11, with Iraq now on the Bush administration’s agenda, the subject of state-sponsored terrorism became a political hot potato, as Ruzek learned, that could easily burn who touched it. So hot that if the CIA even questioned al-Ani about the instruction he had concerning blowing up Radio Free Europe, it never disclosed the answers to the BIS. So, like many other intelligence cases that become politicized, the Prague Connection, and all that led up to it, was consigned to a murky limbo.

Monday, October 24, 2005

The Non-Judy Miller Story

Judy Miller, despite the media’s obsessively fixation on her, is not the subject of Patrick Fitzgerald’s investigation. She is a witness, along with a half dozen other journalists, to a possible crime. The crime involves the abuse of power by government officials and the misuse of classified information. The evidence is not merely journalists’ recollections. It includes White House logs, emails traffic,and a classified memo marked "secret" that had been s circulated on Air Force One. The targets are government officials who misused this information for political ends or attempted to cover-up the illicit acts.
Here is basically what happened :
1) Nick Kristof wrote a column in the New York Times on May 6, 2003 wrongly suggesting that Vice President Cheney had sent Joseph Wilson to Niger to investigate WMDs (It was the CIA, not Cheney, that choose and dispatched Wilson.)
2) Cheney sent a request for information about Wilson to CIA Director George Tenet right after the New York Times story appeared. Tenet informed him that Wilson's wife was a CIA officer.
3) On June 12, 2003, according to Libby's notes, he learned from Cheney that Wilson's wife, Valerie Plame, was a CIA officer.
4)Libby subsequenly leake that information to journalists. He discussed it with Judy Miller on June 23, 2003. Meanwhile, Rove and possibly other officials in the administration also "leaked" Wilson's wife's CIA status to other journalists. This "leaking" activity may have involved a conspiracy to misuse classified information.
5) Wilson's op-ed piece was published July 6, 2003.
6) A week later Novak published the information, followed by Cooper. .

Judy Miller did not disclose the name of Wilson's wife, Valerie Plame– which she mispelled "Flame" in her notes– to a single person before Novak’s story. She did not write about it or discuss it on talk shows. If the White House had tried to use her to publish a damaging story on Wison, they clearly failed. Either she saw that Wilson's wife’s identity was a non-story or she believed it was impolitical to undermine a prior New York Times op-ed position.

It is a pure misunderstanding of the media– and of the self-serving blogs-- that this is, as the New York Times calls it, The "Judy Miller Case" or "Miller Mess."

Saturday, August 27, 2005

Able Danger

Mohamed Atta
Two US military intelligence officer, Navy Captain Scott Phillpott and Army Lt. Col. Anthony Shaffer, and a civilian technician, J.D. Smith now say that a secret military intelligence unit codenamed Able Danger had identified Mohammed Atta and three of his 9-11 hijacking associates in early 2000. Phillpott and Smith also said that the unit had a photograph of Atta.

According to these witnesses, Able Danger had found Atta via "data mining." Smith says "I am absolutely positive that he [Atta] was on our chart among other pictures and ties that we were doing mainly based upon [terror] cells in New York City," Smith said.
Smith, although himself only worked on open source material, said "the data was gathered from a variety of sources, including about 30 or 40 individuals. He said they all had strong Middle Eastern connections and were paid for their information. Smith said Able Danger's photo of Atta was obtained from overseas." It is possible Atta could have been located by only the cross-referencing of non-classified data. Here is how.

First, Able Danger could come up with a list of Arabs who might have secretly visited al-Qaeda camps across the Afganistan border of Pakistan. To do this, it would obtained from airline manifests the names of Arab males who flew to Pakistan in 1999 and the names of Arab males who applied for a U.S. visa with a newly issued passport. It could then cross-reference both lists against the passport issuance dates. Presumably, the Arabs on that list seeking to hide trips to al-Qaeda facilities in Pakistan and Afghanistan from US authorities would have gotten new passports after the trip to Pakistan to hide the Pakistan stamps on their old passports. On the short list of Arabs who had been to Pakisatan then obtained new passports would be the names of Atta and al-Shehhi.

Next, since it emerged out of the 1998 investigation of al-Qaeda attacks in Africa that Osama Bin Laden planned to train pilots for crop dusting and other agriculture tasks, Able Danger would cross-reference its short list with applicants to US flight schools. Here Atta's name would come up 31 times, as he applied to 31 flight schools.

Then, Able Danger could check the address both men used on their visa application, 54 Marienstrasse in Hamburg, and this could match the address given by other al-Qaeda suspects. (The 911 Commission had no opportunity to examine Atta and al-Shehhi’s visa applications-- or even determine when they applied-- because in 2001 the files were destroyed "according to routine document handling practices" by the Department of State.)

If just this level of data mining could yield the name and photograph of Atta, the question arises: Did other US intelligence services, such as CIA, with similar data mining techniques (as well as links with informants and foreign intelligence services) have similar results?
Stay tuned. The answer to the mystery of Able Danger will have to await the scheduled hearing of the Senate Judiciary Committee.
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Wednesday, August 03, 2005

Iran's Russian Connection

At the time in June 2002, little attention was paid to General Yuri Baluyevsky's incredible assertion that Iran already had nuclear weapons. The Russian Deputy Chief of Staff stated at a press conference in Moscow, "Iran does have nuclear weapons. These are non-strategic nuclear weapons." Russia had an interest in Iran's nuclear progress. It was then building 6 six nuclear reactors for Iran-- four at Bushehr and two at Akhvaz-- as well as a uranium-conversion plant, and providing assistance for its ballistic missile program. This provided General Baluyevsky a vantage point to assess 6 pieces of the Iran jigsaw not available to the United States.

1) Whether or not the Russian-engineered uranium-conversion plant could be used for uranium enrichment.

2) Since Iranian centrifuges made indigenously in Iran — not imported gear — showed traces of on enriched uranium with a purity level of 36 percent U-235 that matched the atomic signatures of the 36% uranium used in Russian submarines, was Russia the source of this 36% enriched uranium for Iran.

3) If so, could the Russian 36% U-235 could be raised by Iranians to weapon-grade U-235 with either centrifuges or the laser isotope separating system and had Iran acquired such technology from Russia .
4) Since Polonium 210-- an isotope used by Russian scientists (in combination with beryllium) to ensure the chain reaction leading to a nuclear explosion begins at the right time-- was detected in Iran, was Russia the source of Iran's Polonium 210.

5) A defecting Iranian nuclear scientist had claimed in 1998 that Iran had attempted to use Russian criminal intermediaries to buy four tactical nuclear weapons and enriched uranium from Kazakhstan. Was there any basis to this claim.
6) Has Iran managed to weaponize the Shahab-3 medium-range ballistic missile with a warhead?

Of course, General Baluyevsky may have conjured up the picture of Iran's tactical nukes out of thin air. If not, did he based his assessment on the answer to some or all of these questions.

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Sunday, July 24, 2005

The Mind of Deep Throat

W. Mark Felt

Bob Woodward interviewed Mark Felt on Tuesday February 27, 2000 to test the memory of his legendary source on Watergate. In his own book, Woodward had Deep Throat meeting him in an underground garage, inserting coded signals in Woodward's New York Times, drinking with him in a bar, etc. Here is precisely how Felt remembered these events.

(Audiotape, February 27, 2000)

MR. WOODWARD: You remembered the Nixon period a little bit.
MR. MARK FELT: Vaguely but I still don't have any specific recollections
from it.
MR. WOODWARD: Remember back in those years when we met and chatted? And
MR. FELT: Well, I think I remembered the area and a time, but I don't
remember specifically anything.
(End audiotape)
Here was the perfect candidate for Deep Throat

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Monday, July 04, 2005

The Set Up

Bob WoodWard and Carl Bernstein

Bob Woodward had some concern that he and his partner Carl Bernstein were being set up by two government officials who had provided them with false information. Both officials worked for the FBI, one had arranged an elaborate series of meetings with Woodward; the other called Bernstein out of the blue with an offer to volunteer secret information. Then, in late October 1972, both of these sources confirmed to Woodward and Bernstein that Hugh W. Sloan Jr., the treasurer of Nixon’s reelection campaign, had testified to the Grand Jury that President Nixon’s top deputy, Bob Halderman, had been involved in dispersing secret funds used for illegal activities. To publish the story, the Washington Post required two independent sources, which the FBI had conveniently provided. The Washington Post ran the story on October 24, 1972 under the sensational headline. "Testimony Ties Top Nixon Aide To Secret Fund."

The story fell apart the next day. Sloan and his lawyer denied that Sloan’s Grand Jury testimony contained any such information about Halderman. The Washington Post had been caught flagrante delicto in a false story based on anonymous sources at a critical time. Since both FBI officials should have known from their access to FBI files that Sloan had not named Halderman, Woodward asked in All the President’s Men,"Had the entire thing been a set-up"?

Woodward had a point. Could it be a mere coincidence that two FBI officials sought out the Washington Post reporters during the same time period and provided them with the same misleading information? Woodward also knew-- although his editor did not-- that the source he described as working in the executive branch was actually W. Mark Felt, the associate director of the FBI.

Felt was certainly capable of setting up a reporter. He had earned his spurs at the FBI in the 1940s orchestrating disinformation operations. He also was in charge of controlling the "leaks"on Watergate appearing in the Washington Post. In working against the Washington Post, Felt had an entire team of FBI agents at his disposal. According to Paul V. Daly, a former FBI bureau chief, whose account was recently published in the Albany Times Union, this team included Richard Long, who was chief of the FBI's white-collar crimes section during Watergate; Robert G. Kunkel, agent-in-charge of the Washington field office, which led the Watergate burglary investigation; and Charles Bates, who was assistant director of the FBI's criminal investigative division. They were all involved in the operation of "leaking" (the euphemism for planting) stories to the Washington Post. The FBI agent who approached Bernstein with information from secret FBI 302 reports and who confirmed the canard that Sloan had named Halderman presumably was a subordinate of Felt's. If so, the disinformation funneled to Woodward and Bernstein about the White House connection was part and parcel of Felt’s operation. Felt then continued to steer, if not control, Woodward and Bernstein by misdirecting them to search for no fewer than 50 non-existing political operatives who he claimed were the real heart of the Watergate conspiracy. One of the areas Felt may have been steering Woodward and Bernstein away from was the FBI's extensive program of illegal break-ins, which Felt had himself authorized.
Woodward did not find it profitable to pursue his suspicion of a set up. By submerging Felt into the mystery he brilliantly created about the identity of Deep Throat, Woodward managed to avoid that issue.

Monday, June 06, 2005

Clearing Deep Throat

W. Mark Felt
Journalists cannot hope to approach an accurate rendering of an event without revealing their sources. Every source who has supplied a journalist with a part of a story has selected that bit of information, whether it is true or false, for a particular purpose. That purpose may be to advance his own career, to advance (or subvert) the interests of the agency he works for, to discredit an enemy, to advance an ideological agenda, or simply to assist a reporter. The bits of information thus supplied can be properly evaluated only in light of the circumstances and context in which they were given. It is not enough simply to present the assertion of an interested party— even if it can be shown that it is "accurate," in the trivial sense of accuracy" (which simply means correctly specifying the details touching on the event). One must know who made the disclosure and, ideally, why he made it to that particular individual at that particular moment in history. Concealing such information from the public amounts to a deliberate disguising of the event itself, since such a process hides all the interests that selected, shaped and possibly distorted the disclosures. To be sure, concealing the interests behind the disclosures of sources often serves the self interest of the journalist by making more likely that his sources will provide him with information for public disclosure. This makes his job much easier, but it also may omit a critical part of the story.

Consider, for example, Bob Woodward and Carl Bernstein’ celebrated Watergate stories– described on the jacket of their book, All The President’s Men, as "the most devastating political detective story of the century." For 30 years, they kept secret one of their principal sources, W. Mark Felt, the FBI’s Associate Director, who now they identify as the "Deep Throat" character in their book. Felt, who began his career in the FBI in 1941 as a disinformation officer, was himself deeply involved with illegal break-ins. After J. Edgar Hoover died in 1972, and his secret files purged, Felt was gained control over some of the most sensitive files, including one entitled "Black Bag Jobs." Prior to Watergate, Felt had authorized a number of highly-secret FBI operations, including warrentless and illegal break-ins into the homes of relatives of political radicals (for which he in 1980 was convicted in Federal court of "unlawfully, willfully, and knowingly combine, conspire, confederate, and agree together and with each other to injure and oppress citizens.") In June 1972, when the Watergate burglars were arrested, and then one of their co-conspirators Alfred C. Baldwin III, a former FBI agent, provided the FBI with details of a wide ranging wire-tap operation, Felt, and other FBI officials who had authorized their own illegal black bag jobs, had a motive in controlling the press reaction. In addition, Nixon's appointment of L. Patrick Gray to succeed Hoover as FBI director had set off a brutal power struggle. So Felt's efforts to steer Woodward, Bernstein and other journalist may be a relevant part of the event.

Felt carefully controlled the information he (as well as possibly others in the FBI) fed to journalists. For instance, he did not tell Woodward in the summer of 1972 about the prior break-ins and extensive electronic eavesdropping that the ex-FBI officer Baldwin had revealed to the FBI. Instead, as the prosecutors determined, he supplied Woodward with FBI "302" reports that detailed activities about one Donald H. Segretti. Segretti, a young Republican lawyer, had been playing "dirty tricks" on various Democrats in the primaries-- such as sending two hundred copies of a defamatory letter to Democrats-- but had nothing to do with illegal break-ins or Watergate. Felt, however, told Woodward that these dirty tricks were an integral part of Watergate, and that there were fifty other Segretti-type agents, all receiving information from Watergate-type bugging operations. Felt’s "50 other agents" never materialized anywhere except in a Woodward and Bernstein story. This detour-- which occupied almost one-third of Woodward and Bernstein's reporting-- led to a dead end.

To be sure, Felt also directed Woodward to a number of more profitable areas, such as the destruction of documents by his superior at the FBI,Gray. Less than 2 months after he supplied Woodward with this story, Felt was out of the FBI, but the flow of information to Woodward did not stop. According to a recent disclosure by another former FBI executive, Paul V. Daly, at least 3 other FBI officers were involved with Felt in this clandestine effort, all falling under the portmanteau cover of Deep Throat. Such a collaboratve effort might also explain how the Deep Throat package continue to pass White House secrets to Woodward 4 months after Felt had left the FBI. If so, the Machiavellian operation was effectively obscured by Woodward's Deep Throat. Instead of learning that a high-ranking FBI executive-- possibly with the aid of others in the FBI-- had been manipulating the press, the public was presented with a heroic tale of a patriotic loner, code named Deep Throat, who helped a dynamic duo of journalists defeat the governmental Goliath. The perpetuation of this myth for three decades is a triumph of the literary skills of Woodward and Bernstein over reality.
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Thursday, June 02, 2005

Deep Throat Resurrected

Deep Throat Component

On June 1, 2005, W. Mark Felt Jr., a retired FBI official, claimed that he was "Deep Throat." Yes, Felt had been a source for Bob Woodward (and many other reporters) during the Watergate era. In my book Between Fact and Fiction-- published in 1975-- I wrote about "Deep Throat": The prosecutors at the Department of Justice now believe the mysterious source was probably Mark Felt, who was then an associate deputy director, because one statement the reporters attribute to Deep Throat could only have been made by Felt."There were similar stories in the Los Angeles Times published prior to Woodward and Bernstein's in the Washington Post, so presumably Felt had other outlets.

The traceable information that aroused the interest of the Watergate prosecutors concerned data from a few FBI 302 files that sent Woodward and Bernstein after Donald Segretti, and turned out to be, if not a wild goose chase, not relevant to the Watergate crime. The issue here was the FBI's curious role in feeding Woodward and other reporters stories on Watergate. (See my 1974 article in Commentary.) The FBI had a powerful interest in such a diversion since it had itself been guilty of a series of secret warrantless break-ins on Vietnam veterans which had been illegally ordered by Felt. (and would later result in Felt being convicted on a criminal charge of conspiracy.) The prosecutors eventually concluded that Felt provided this information to Woodward "to get rid of [FBI chief L.Patrick] Gray." Felt certainly was well versed in disinformation techniques, having begun his FBI career in 1945 with a successful disinformation operation. Woodward now confirms that the prosecutors were correct: Felt provided him information from FBI files. So we know what we knew 30 years ago.

The question at issue now is: is Felt the source described in Woodward's book as Deep Throat-- or is he merely a part of a composite character, a package called Deep Throat?

Consider, for example, Woodward and Bernstein explosive Washington Post story on November 8, 1973 about "deliberate erasures" on one of the White House tapes. In his book All The President's Men, Woodward says that in the first week of November he "moved the flower pot" on his sixth floor balcony (a signal to Deep Throat), then met Deep Throat that night in an underground garage. Deep Throat then told him that the tapes contained "gaps" that indicated it had been tampered with. So that story is sourced to Deep Throat in November 1973.

But the person who provided that information that night could not have been Felt according to records examined by Nixon's biographer Jonathan Aitken. In November 1973, only six people knew about the gaps in the tape-- Richard Nixon; Rose Mary Woods (Nixon's personal secretary); Alexander Haig (The White House chief of staff); Haig's deputy, Major General John C Bennett and two trusted Nixon White House aides, Fred Buzhardt and Steve Bull. Not only was Felt not privy to that White House secret, but he was no longer even in the FBI, having left that October.

Felt himself repeatedly denied being the source of this information for some 30 years. He states in his 1979 autobiography that he met Woodward once-- and in his FBI office-- and rejected Woodward's request for information. If so, Felt cannot be the "Deep Throat" character who met with Woodward over and over again in an underground garage. If Felt himself is truthful in his book, he can be no more than a component of the Deep Throat package.

Part of the "mystery" enjoyed by Woodward, is that there are no corroborative witnesses to any of these meetings between Woodward and Deep Throat (no more than there was a corroborative witness to Woodward's putative death bed interview with CIA Director William Casey). Not even Woodward's co-author, Carl Bernstein, was present at any of these meetings that supposedly took place in an empty underground parking garage.

Woodward never mentioned Deep Throat in any of the newspaper stories he wrote in the Washington Post between 1972 and 1974. In these stories he consistently attributes his information to multiple sources. Consider, for example, his (and Bernstein's) 1972 revelation that at least "50 people" who worked for the White House and the Nixon campaign were involved in spying and sabotage. In the Washington Post (October 10, 1972, p A1), he attributes the information to multiple "FBI reports." In 1974, in All The President's Men (p.135), he puts the exact same information in the mouth of Deep Throat, saying "You can safely say that 50 people worked for the White House and the CRP to play games and spy and sabotage and gather information."

According to Woodward's own book agent, David Obst: "In the original draft of their book, Deep Throat was not mentioned. In the second draft he suddenly appeared and it was a better book for the addition, a much more exciting one." What Woodward perhaps did not antipate is that his character would take on a life of his own-- and 30 years later be adopted by the handlers of Mr. Felt.
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Friday, May 20, 2005

The Blur Between Fact And Fiction

Michael Douglass
Can the New York Times distinguish fact from fiction any longer?

Consider a front page story today (May 20,2005) stating "Just as corporate raiders represented the Wall Street of the 1980's (think of Gordon Gekko) and mutual fund managers were the icons of the 90's (Jeffrey N. Vinik, who ran the Fidelity Magellan fund, was a minor celebrity), the lawyers who keep companies in compliance with increasingly tough regulatory laws have become a new prototype of the financial district." Unlike Jeffrey Vinik, however, Gekko is not a real person. Played by Michael Douglas in the 1987 movie Wall Street, he is a fictional creation of writer-director Oliver Stone. Stone, himself a master of the art of blending fact and fiction in movies, say he modeled the character after Ivan Boesky. That may be true, but Boesky was not a corporate raider. He was a crooked money manager, who bought inside information for cash, traded illegally on these secrets, and went to prison for it.

The New York Times reporter, Jennifer Steinhauer, may have been innocently misled into thinking Gordon Gekko was a real corporate raider by CNN’s program Moneyline which repeatedly used a film clip in the 1990s from the movie in which an immaculately dressed Gordon Gekko (Michael Douglas) intones "Greed is good" to illustrate news reports of corporate corruption. Moneyline's decision to use such fictional clip for its news coverage was, appropriately, part of an even bigger greed-is-good corporate deal in which Warner Brothers (which produced Wall Street) paid CNN (which was acquired by its corporate parent from Turner Entertainment ) to hype the licensing values of its movies. The result, as is demonstrated by the New York Times, is that fictional images such as Gekko come to stand for real events.

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Saturday, May 14, 2005

Paranoia For Fun and Profit

Michael Moore
Michael Moore proved yet again that funnctional paranoia could be both fun and lucrative. By the end of April 2004, he'd finished making Fahrenheit 9/11 but had no American distributor. Mel Gibson's Icon Productions rejected the project back in April 2003. (Moore claims he had a signed contract before Gibson acquiesced to White House pressure. Icon executives deny any such contract existed.) Moore then went to Harvey Weinstein at Miramax. Weinstein agreed to back the movie and signed a contract with Moore to acquire the rights. But in order to distribute the movie, Weinstein still needed the approval of his superiors at Disney. Although he does not discuss this publicly, Weinstein's contract explicitly prohibits Miramax, a wholly owned subsidiary of Disney, from distributing any film that's vetoed by the Disney CEO. When CEO Michael Eisner exercised his veto in May 2003, Miramax, though it still held the rights to the film, could not distribute Fahrenheit 9/11.

By the time Eisner told Weinstein of his decision, the Miramax head had already given Moore $6 million from Miramax's loan account. Weinstein agreed that this advance was to be "bridge financing" that he would recover when he sold off the film's distribution rights. To make sure there was no misunderstanding, Disney's Senior Executive Vice President Peter Murphy, who was also at the meeting, wrote Weinstein a letter on May 12, 2003, affirming that this money was "bridge financing" and that Weinstein had agreed to dispose of Miramax's interest in the film.

For Moore, this $6 million in "bridge financing" was more than enough to make Fahrenheit 9/11. He acquired most of the footage from television film libraries at little, if any, cost and did not pay any of the on-camera talent (except for himself). On April 13, 2004, after Weinstein saw a rough cut, he went back to Eisner and asked him to reconsider his year-old decision not to distribute Fahrenheit 9/11. After getting a report on the content, which included footage from such sources as Al Jazeera and Al-Arabiya television, Eisner saw no reason to change his position. He again declared that Disney wouldn't have anything to do with the movie.

With the presidential election heating up, Moore needed to get his movie into theaters. Although Weinstein had told Eisner and Murphy that he planned to sell the film's distribution rights after it was screened at the Cannes Film Festival, Moore had a more expedient strategem. On the Fahrenheit 9/11 DVD, Moore says he resolved to get the film seen in America "by hook or by crook." His hook was censorship.
On May 5, 2004, the New York Times ran a front-page article headlined "Disney Is Blocking Distribution of Film That Criticizes Bush." The story included the sensational charge that Eisner "expressed particular concern that [choosing to distribute Fahrenheit 9/11] would endanger tax breaks Disney receives for its theme park, hotels and other ventures in Florida, where Mr. Bush's brother, Jeb, is governor." The source for this allegation was Moore's agent, Ari Emanuel. Two days later, Moore claimed on his Web site that Disney's board of directors rejected Fahrenheit 9/11 "last week." In fact, the Disney board had not made such a decision in 2004—the project had been vetoed in 2003.

Moore's excursion from reality proved a boon at Cannes. On May 22, 2004, the Cannes jury defied putative efforts to censor Moore by awarding Fahrenheit 9/11 the prestigious Palme d'Or. Moore now had a golden palm in his hand and the media at his feet—with more free publicity than any Hollywood studio could afford to buy, Fahrenheit 9/11 now stood to rake in a fortune. And Disney, which still controlled the movie's rights through its subsidiary Miramax, now got to decide who was going to profit from it.
Disney had some experience dealing with Miramax's hot potatoes. Rather than distributing the controversial Kids and Dogma, Disney allowed Miramax founders Harvey and Bob Weinstein to buy the films back and set up short-lived companies to distribute them. But those potatoes were as small as they were hot. In the case of Fahrenheit 9/11, Eisner wasn't about to let the windfall escape into the Weinstein brothers' pockets. Nor could Disney take the PR hit that would result from backtracking and distributing the movie itself.

Eisner's solution: Generate the illusion of outside distribution while orchestrating a deal that allowed Disney to reap most of the profits. Here's how the dazzling deal worked. On paper, the Weinstein brothers bought the rights to Fahrenheit 9/11 from Miramax. The Weinsteins then transferred the rights to a corporate front called Fellowship Adventure Group. In turn, that company outsourced the documentary's theatrical distribution rights (principally to Lions Gate Films, IFC Films, and Alliance Atlantis Vivafilms) and video distribution rights (to Columbia Tristar Home Entertainment).

Because of the buzz and prestige attached to Fahrenheit 9/11, Harvey Weinstein extracted extremely favorable terms from these distributors, about one-third of what distributors typically charge. Their cut amounted to slightly more than 12 percent of the total they collected from the theaters. As a result, Fahrenheit 9/11's net receipts—what remains after the distributors deduct their percentage and their out-of-pocket expenses (mounting an ad campaign, making prints, dubbing the film)—would be much higher than those of a typical Hollywood film.

Fahrenheit 9/11, now an event, took in more than $228 million in ticket sales worldwide, a record for a documentary, and sold 3 million DVDs, which brought in another $30 million in royalties. After the theaters took their share of the movie's gross (roughly 50 percent) and distributors deducted the marketing expenses (including prints, advertising, dubbing, and custom clearance) and took their own cut, the net receipts returned to Disney were $78 million.

Disney now had to pay Michael Moore's profit participation. Under normal circumstances, documentaries rarely, if ever, make profits (especially if distributors charge the usual 33 percent fee). So, when Miramax made the deal for Fahrenheit 9/11, it allowed Moore a generous profit participation—which turned out to be 27 percent of the film's net receipts. Disney, in honoring this deal, paid Moore a stunning $21 million. Moore never disclosed the amount of his profit participation. When asked about it, the proletarian Moore joked to reporters on a conference call, "I don't read the contracts."

What of Disney? After repaying itself $11 million for acquisition costs, it booked a $46 million net profit, which Eisner split between two subsidiaries, the Disney Foundation and Miramax. While it was far less than Disney made on children's fare such as Finding Nemo, it was not a bad outcome. The Weinstein brothers also made a multimillion-dollar profit. They had a deal with Disney that contractually entitled them to a bonus of between 30 percent and 40 percent of the net profits on any film that they produced—in this case, that came out to about $8 million per brother. But Michael Moore had perhaps the happiest ending of all. Not only had he made $21 million, he already had a sequel in preproduction—Fahrenheit 9/11 ½.
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Sunday, April 03, 2005

Dowdy Intelligence

Maureen Dowd

In a scathing ad hominem attack on the Commission on Intelligence Capabilities in the New York Times today, Maureen Dowd protests: "It is absurd to have yet another investigation into the chuckleheaded assessments on Saddam's phantom W.M.D. that intentionally skirts how the $40 billion-a-year intelligence was molded and manufactured to fit the ideological schemes of those running the White House and Pentagon." She then implores, "Please, no more pantomime investigations."

Despite such ridicule from Dowd, the nine-person bipartisan Commission is not without credentials and the capability of intelligent speech. Co-chaired by Governor Charles S. Robb, the former Democratic Senator from Virginia, and Judge Laurence Silberman, who serves on both the U.S. Court of Appeals and U.S. Foreign Intelligence Surveillance Court of Review, its members include Walter Slocombe, President Clinton’s former Undersecretary of Defense, Judge Patricia Wald of the International Criminal Tribunal at the Hague, Senator John McCain, Republican from Arizona, and Charles Vest, the President of M.I.T. It had unprecedented access to all the documents used by the Intelligence Community in reaching its judgments about Iraq’s WMD programs, including what no journalist has ever seen: the chain of documents ranging from raw operational traffic produced by intelligence operators to finished intelligence products culminating in the President’s Daily Brief. Its 60-man staff interviewed hundreds of officials involved in producing and analyzing these documents. Aside from US intelligence reports, the Commission also reviewed the highly-classified assessments of British, Australian, and Israeli Commissions.

Doth Dowd protest too much? As it turns out, she has a a most compelling reason for scorning the Commission: its findings expose her own repeated misrepresentations of the event.

Consider Dowd’s amazingly smug assertion: "We all know what happened... Ahmad Chalabi conned his neocon pals, thinking he could run Iraq if he gave the Bush administration the smoking gun it needed to sell the war. Suddenly Curveball appeared, the relative of an aide to Mr. Chalabi, to become the lone C.I.A. source with the news that Iraq was cooking up biological agents in mobile facilities hidden from arms inspectors and Western spies."
Dowd here is partly correct: "Curveball"– an Iraqi engineer who defected to Germany– was a fabricator. According to the Commission, he provided false information that seriously misled the CIA to conclude Iraq had biological weapons. But she is wrong that Curveball was a product of the Bush administration. He defected during the Clinton Administration. He defected to Germany in 1999, and his (mis)information was passed by the Germans first to the DIA and then to the CIA a year or so before Bush was President. His false data on Iraq biological warfare went to Clinton's policy makers in 2000 and was included in the CIA’s revised 1999 National Intelligence Estimate (NIE). As he refused to (ever) meet with CIA or other US intelligence officers, the CIA could not squeeze more out of him than he gave to his German debriefers. Dowd’s assertion that "Suddenly Curveball appeared...." during the Bush administration is therefore demonstrably false. That Dowd repeated it in two columns-- March 31st and April 3rd-- after the facts were revealed in the Report gives her serial status.

The Commission also found that there was not a shred of evidence showing Curveball was influenced by Chalabi (as Dowd claimed in her March 31st column) or his INC organization. On page 107, the Commission says: "the CIA’s post-war investigations were unable to uncover any evidence that the INC or any other organization was directing Curveball to feed misleading information to the Intelligence Community. Instead, the post-war investigations concluded that Curveball’s reporting was not influenced by, controlled by, or connected to, the INC."

Moreover, whereas Dowd describes Chalabi as providing "the smoking gun" to the Bush Administration, the Commission concludes " In fact, over all, CIA’s post-war investigations revealed that INC-related sources had a minimal impact on pre-war assessments."

The Commission also undercuts an idea that has run amok among Dowd, as well as journalists at Newsweek and the New Yorker, that the CIA's faulty analysis of intelligence was the result of political pressure. On the contrary, the Commission found "Analysts universally asserted that in no instance did political pressure cause them to skew or alter any of their analytical judgments. We conclude that it was the paucity of intelligence and poor analytical tradecraft, rather than political pressure, that produced the inaccurate pre-war intelligence assessments."

The Commissions’ report is well worth reading (especially for journalists reporting on the issue). It shows that the enormous intelligence failure went beyond fabricating defectors. Technical intelligence, which CIA officials in the 1980s promised would provide an electronic Maginot Line against deception, proved to be just as vulnerable to error as human intelligence. Indeed, according to the report, it was the satellite imagery from Iraq that led to the staggering mistakes about Iraq’s chemical weapons. The problem lies in the elusive nature of "intelligence" itself. Whether obtained from humans , communication interceptors, or satellite cameras, the data requires interpretation. Unlike marbles, which can be lined up by size or color, each fragment of intelligence must be selected and placed in a scheme that exists in the mind of the beholder. In this case, the mind of the beholder, the CIA, was at least temporarily deranged between 1998 and 2003.
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Sunday, March 27, 2005

Rise Of The Tube Moguls

Brad Grey Toasts Jeff Bewkes

A common thread runs through the appointments of Robert Iger as CEO at Disney, Sir Howard Stringer as Chairman of Sony, Tom Freston as Co-President of Viacom, Brad Grey as CEO od Paramount, Gail Berman as President of Paramount, Jeffrey Bewkes as President of the Time Warner Entertainment & Networks Group , and Peter Chernin as President of the Fox Entertainment Group. They are all former top TV executives.

The ascendency of the tube moguls should not come as a surprise– at least not to readers of The Big Picture. What used to be the movie business, centered in "movie houses," has been transformed into the home-entertainment business, centered around TV sets. Old Hollywood studios–prior to 1948– owned or controlled movie houses; New Hollywood studios– or their corporate parents– own or control television outlets. In fact, they own all six broadcast networks in America, almost all the principal cable networks in America, and most of the Pay-TV channels in America.

Underlying this transformation is a singular reality: most of the adult population no longer goes to the movies on a regular basis. As late as 1948, over two-thirds of Americans went to the movies weekly. Now barely 10 percent of Americans go in an average week (and, even in this sliver of the population, most of the frequent movie-goers are teenagers.) Where did the audience go? On any given night, over 90 percent of the American population is at home watching something on a television set. Naturally, Hollywood followed that mass audience home.

The numbers, which I reveal in Table 1 of The Big Picture, tell the story: ticket sales from theaters, which had provided all the studio revenues in 1948, provided less than 20 percent of the studios’ revenues in 2003 . Instead, home entertainment– including television, Pay-TV, DVD, and videos– provided more than 82 percent of the studios' revenues . Further, whereas as the high costs of print and advertising eat away most, if not all, of theatrical revenues, the studios retain the lion's share of the home entertainment revenues.
These lucrative home entertainment earnings have transformed the way Hollywood operates. Theatrical releases, despite the blinding allure they hold for the media, now serve essentially as launching platforms for its products for the home market, much like the runways at money-losing fashion shows establish brands for downstream consumer markets.

With New Hollywood's takeover of the television now all but complete-- see my X-Ray of the 6 major studios' media holdings-- the line of succession now runs to the gatekeepers of its El Dorado: the tube executives
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Monday, March 21, 2005

Send In The Aliens

Milla Jovovich

Furthering the Midas formula for New Hollywood, Twentieth Century Fox arranged in 1996 for the then governor of Nevada, Bob Miller, to dedicate Nevada’s Highway 375 as an "Extraterrestrial Highway" on which aliens would be granted safe haven when they landed their UFOs. The studio then unveiled a beacon on it near the town of Rachel, Nevada. This monument, according to the Fox news release, pointed to "Area 51"–where the U.S. military operates "a top secret alien study project." In fact, there is no such military base or "Area 51", but Fox assumed it had license to stretch the boundaries of reality for the opening of Independence Day– a Fox movie that, not unlike the news release, depicted "Area 51" as the U.S. government base for alien spacecraft. So while its beacon had only problematic navigational utility to any visitors from alien heavens searching for "Area 51," it had great value in luring entertainment journalists by the busload along the now official Extraterrestrial Highway to the putative periphery of the non-existing "Area 51." These investigative junkets (helped along with the usual studio-provided terrestrial gift bags) resulted in hundreds of news stories about the alien sanctuary.

The reason that Fox went to such lengths to establish Area 51 is that the mining of the paranoid fantasy about government machination to conceal space invaders from the public produces gold in the form of licensing rights for the New Hollywood. Steven Spielberg deserves much credit for developing the mother lode of this El Dorado. In his enormously-successful Close Encounters of the Third Kind (1977), the US government is so deeply involved in concealing the alien abductions that it stages a fake nerve-gas attack to hide its transactions with extraterrestrials. The deception pays off when, in an inspired ending, the aliens exchange the humans they have been abducting for experimental purposes for a busload of American astronauts. Spielberg expanded on the theme with E.T.: The Extra-Terrestrial (1982), which not only broke box-office records around the world, but opened up the universe of merchandise licensing which heretofore largely been the preserve of Disney. He also produced the franchise, Men in Black (in which the government not only shelters ETs but systematically erases the memories of civilians exposed to alien visitors) and the miniseries Taken about alien abductions (its tag line: "Some secrets we keep. Some are kept from us.")

These Spielbergesque fantasies neatly fit the requisite in New Hollywood for movies that could serve as launching pads for the raft of other products– including videos, games, toys, TV spinoffs and rides– that now kept it afloat. So others followed suit. Fox, for example, used The X-Files television series to help establish the Fox network.

Ironically, in promoting a view of governments as paternalistic institutions that create elaborate illusions to shield citizens from developments with which they cannot cope, studios may be extrapolating from the strategies they themselves use to dupe the public. What else is the Extraterrestrial Highway but a brilliant con job? The political logic of Hollywood may seem other-worldly, but, as The Big Picture explains, there is a decided method in its madness .
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Sunday, March 13, 2005

The Money Shot

William Safire

The lucidity prize for summing up my entire 396-page book in a succinct sentence goes to master wordsmith William Safire. In his column in today’s New York Times Magazine, he writes: "In The Big Picture: The New Logic of Money and Power in Hollywood, the investigative author Edward Jay Epstein holds that what used to be the movie business, centered in "movie houses," has been transformed into the home-entertainment business." That transformation, in a nutshell, is the key to understanding the New Hollywood.

Even though today's Hollywood studios may have the same names, logos and back lots as their Old Hollywood counterparts, they are radically different creatures. The Old Hollywood studios owned movie houses; the New Hollywood studios– or their corporate parents– own television conduits, including all six broadcast networks, all the principal cable networks (including ESPN), and most of the pay-TV channels. The Old Hollywood studios made virtually all their money from the sale of tickets at box-office; the new Hollywood studios make most of their money from licensing products, including movies, TV shows, and videos, for home entertainment. For the extent of the TV windfall alone, see the answer to my Question of the Day.

Underlying this transformation is the reality that most of the adult population no longer goes to the movies weekly. Consider: as late as 1948, over two-thirds of Americans went to the movies weekly. Nowadays barely 10 percent of Americans go in an average week (and most of today's frequent-goers are teens). Today's mass audience-- over 90 percent of the population-- is at home watching something on a television set.

The ineluctable metamorphosis of Hollywood into a provider of home entertainment brought with it a new global logic. For one thing, unlike the movie business, the television business is licensed, franchised, and regulated by government authorities.

If this sea change has remained elusive to the outside world, that is not accidental. The owners of the new Hollywood go to considerable lengths to conceal the breakdown of their cash flows they garner from home entertainment. Once the numbers are known– and I provide the breakdowns in The Big Picture– it becomes clear that all that remains of the Old Hollywood is institutionalized nostalgia, self-generated myths, and an outdated vocabulary.

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Tuesday, March 01, 2005

Willful Blindness

"Willful blindness involves the conscious avoidance of the truth"
-- Merriam-Webster Dictionary of Law

In Hollywood reporting willful blindness can be found in the media’s avoidance of any performance measures for moguls that might get undercut "gotcha" personality stories. This eyes-wide-shut practice serves a truly gawkeresque purpose: it allows entertainment journalists to focus on juicy tidbits about the bad manners of moguls while ignoring, or at least holding in abeyance, readily-available facts that might distract their audience from them.

Consider, for example, the field day. or, more precisely, field decade, that the media has enjoyed in its disparagement of Disney’s Michael Eisner. The stories about Eisner’s bad behavior began soon after Jeffrey Katzenberg, Disney’s talented studio chief, left in 1994, intensified after Eisner’s clumsy firing of Michael Ovitz in 1996, and became a veritable feeding frenzy after Eisner got rid of Roy Disney, Walt Disney’s nephew, in 2003. The rehash of items about Eisner's insensitive language (eg. describing Katzenberg as a "midget"), nepotistic decisions (eg. hiring his friend Ovitz), back-stabbing (eg. firing Ovitz) and rich payoffs (eg., honoring the compensation committee’s negotiated $140 million settlement with Ovitz) gradually coalesced into a media morality play: how Eisner's "dark side" led to Disney’s near downfall. To keep the story plausible, entertainment journalists kept their eyes wide shut to the numbers that showed that Eisner, even with the "dark side" that their moral compasses located, had transformed Disney into a huge financial success.

Willful blindness conveniently allowed these journalists to miss the most obvious measure of performance: the valuation of Disney by the stock market. Here are the actual figures: in 1984, when Eisner took over Disney, the (split corrected) Disney share price $1.20, giving Disney a market value of only $1.7 billion; in 1994, when Katzenberg left, the share price was $12.90, Disney had a market value of $18.6 billion; today the share price is $28.5, giving the company a market value of $55.8 billion. So under Eisner, his bad manners and questionable pay offs not withstanding, Disney’s market value has increased $54 billion. Even taking inflation into account between 1984 and 2005, the company increased 18 times in value under Eisner. In view of this enormous business success, it is not surprising that Fortune’s 2005 poll of 10,000 business executives rated Disney as the most admired company in the entertainment industry. These executives evidently valued good performance over bad manners.

Eisner achieved the $54 billion increase in the company’s value not because of his "dark side" but because he recognized that Disney’s future would be in home entertainment– not movie theaters– and, to move Disney in this direction, boldly bought Capital Cities/ABC in 1996 for $19 billion. Disney acquired not only 10 ABC television stations in the biggest advertising markets and the ABC network, but 80 percent of ESPN which turned out to be a huge money-machine. With this coup, Disney moved to the forefront of home entertainment, which is now the heart (if not the soul) of the new Hollywood. As I demonstrate in my book The Big Picture, the logic of money and power behind the new Hollywood is not always transparent. For a closer look at why Disney makes record profits even when its movies bombed at the box-office, see the answer to my Question of the Day on my web site.

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Wednesday, February 23, 2005

Lighting Hollywood's Camera Obscura

Hedy Lamarr

The screenwriter William Goldman famously explained Hollywood this way: nobody knows anything. He is right– up to this point. The decisions of Hollywood studios seem inexplicable to anyone who is not privy to what is perhaps their most carefully guarded secret: the breakdown of the money made from sources other than movie houses. Despite the tsunamis of back-stabbing and self-idolizing anecdotes about mini-moguls that all but drown the entertainment media, there is a Saharan dearth of information about actual cash flows from such after-markets as television networks, cable television, Pay-TV, and DVD sales.

If these numbers are obscure that is not accidental. Studios have no interest in providing a road map to their El Dorado to those who might want to claim a share of the gold, including talent agents, stars, producers, directors, writers, and equity partners. And, as of now, no regulatory agency requires divulging this information. So just as the studios keep their patrons in the dark in movie theaters, they keep their other audiences in the industry– and media– in the dark about the magnitude of these cash flows.

Once the lights go on– and I provide the numbers and breakdowns in The Big Picture– the studios’ decisions not only are explicable but the business model is more relentlessly logical than those of many non-creative industries. They demonstrate that those who ask how the movie industry can possibly make sense are asking the wrong question. There is (no longer) a movie industry, there is an entertainment industry. Consider, for example, Table I, in my book. The ticket sales from theaters, which had provided all the revenues in 1948, provided less than 20 percent of the studios’ revenues in 2003 . Instead, home entertainment in the form of television, Pay-TV, DVD, and videos provided more than 80 percent of the studios' revenues in 2003. This tidal shift reflects this underlying reality: on any given night, less than 2 percent of Americans go to movie theaters while over 95 percent stay home to watch something on TV. Since the advertising and other marketing costs associated with DVD sales and television licensing are minimal, the six big studios earn a veritable ocean of bottom-line profits from this home market. These rich streams, which studios understandably prefer to keep private in their camera obscurae, have transformed the way Hollywood operates. Theatrical releases, despite the blinding allure they hold for the media, now serve essentially as launching platforms for licensing rights, much like the runways at haute couture fashion shows.

Even in the face of this forced march towards home entertainment, there are notable disconnects between the economic and social logic of the Hollywood community. See, for example, the answer to today's Question Of The Day– "Is movie sex an asset or a liability in Hollywood's economy today?"

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Saturday, February 19, 2005

Logic of Hollywood

My book has finally made it to the book stores. What is it about? The Big Picture is neither pro nor anti Hollywood: it is a demystification of it. The thesis, as perverse as it may sound, is that there is an underlying logic to today’s multibillion-dollar entertainment economy--and that those who run the industry understand it

The gross misunderstanding most people have about Hollywood proceeds from the assumption that the business is about making movies. Once upon a time, it was: as late as 1948, two-thirds of Americans went to the movies every week and the tickets they bought accounted for virtually all of Hollywood's profits. But the lights blinked out in that universe more than half a century ago, obliterated by the bright blue glow of television.

Today, the big picture is very different. On an average night about 4 million Americans go to the movies, while more than 260 million Americans stay home to watch something-- a program, video, DVD-- on television. Hollywood may continue to pay lip service to its ever-diminishing audience of moviegoers, but it now makes its real money from the home audience. To tighten their grip on it, the studios gradually extended their domain over the entire television industry. All six broadcast networks and most of the commercial cable channels are now owned by the corporate parents of the six big studios-- new Hollywood's sexopoly -- and the studios make most, if not all their money, from that captive home audience. As far as the studios are concerned, the main function of the remaining moviegoing audience-- barely ten percent of the population-- is to help establish a movie in the public’s mind for the all-important home market. To get it, they go after that part of it they can most efficiently find. Happily for the studios, the audience that has proved easiest to find (because they’re home watching TV), lasso (with a barrage of 30-seconds ads) and herd to the multiplexes for big opening weekends is also the primary audience for videos, merchandising tie-ins, and character-driven video games: teenagers. As a result, people under 21 now make up over 62 percent of habitual moviegoers.

Not surprisingly, the creative decisions of the sexopoly are largely driven by the economic necessity of capturing the home audience. But that is not the whole story. There is also a social logic involving awards, prestige, star worship, publicity-mongering, power, and even the impulse to make a work of art, which, though less tangible, also informs the Big Picture.

Book reviews
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Sunday, February 13, 2005

Playing The Reality Card

Leslie Parrish

The political values of today’s Hollywood often surface in its selection of stereotypes for movie heroes and villains. Such choices are particularly clear in remakes of past movies that substitutes new villains for outdated ones. Consider, for example, Paramount’s recent remake of the 1962 classic, The Manchurian Candidate. The original movie, directed by John Frankenheimer and based on a novel by Richard Condon (an ex-Hollywood publicity man), is both a thriller about a hypnotized assassin and a satire of political paranoia. The evil protagonist is the Soviet Union, whose nefarious agents, with the help of the Chinese Communists, abduct an American soldier in Korea and turn him into a sleeper assassin. When Paramount decided in 2004 to remake the movie as a straight psychological thriller, with the military abduction transposed from Korea in 1950 to Kuwait in 1991, it obviously needed a new resident evil to replace the defunct Soviet Union. Even though the U.S. was battling the Iraqi forces of Saddam Hussein in Kuwait at that time, Demme chose not to make the Iraqis or Islamists the villain of his movie because, as he explains in his DVD commentary, he did not want to "negatively stereotype" either Arabs or Muslims. Neither Saddam Hussein nor Iraq is even mentioned in the film.

Whom, then, did Demme enlist to play the heavy in his remake? What evildoer can be safely "negatively stereotyped" as an enemy of America in today’s Hollywood? Answer: hedge-fund managers. These lily-white, impeccably dressed corporate executives man the helm of the Manchurian Global Corporation, a multibillion-dollar equity fund that is planning a "regime change" in America so it can secure more government contracts. Not only do the fund’s technicians rewire the brains of abducted soldiers, but they implant them with false memories of al-Qaeda-type terrorists so that, if caught, they will blame Muslim extremists rather than the fund managers for their crimes.

The challenge for Paramount was in building a "reality envelope" that gave the movie’s demonization of corporate executives a more convincing connection to actual events. Warner Brothers had previously met this challenge by making an arrangement with CNN (which its corporate parent owns) that resulted in the cable network’s news program, such as Moneyline, showing the scene from Oliver Stone’s movie Wall Street in which the immaculately dressed financier Gordon Gekko (Michael Douglas) intones "Greed is good" to illustrate news reports of corporate corruption.

Paramount-- which does not own CNN-- found a more imaginative way to breach the fluid boundary between movies and television news for its resurrected Manchurian Candidate. It created a counterfeit web site for the Manchurian Global Corporation. Since it nowhere identified the site as fabricated (and went so far as to provide a fictional address and phone number to hide its own role in the site’s design), any person who found the site via Google or another search engine would have reason to believe that the Manchurian Global Corporation was a real equity fund with huge biotech investments in such projects as the genetic decoding of Alzheimer's disease.

Although Paramount’s ingenious deception may violate ICANN rules against using false information when registering a domain– a Paramount executive defended the fraud by pointing out that even if it involved "pushing the reality envelope," it is an integral part of show business.
There is indeed a hoary tradition in the movie business of such reality enhancement, as I explain in my book The Big Picture: The New Logic of Money and Power In Hollywood. Throughout the era of the studio system, studios made it a practice to invent off-screen lives– including fictional romances with co-stars –– for the stars they had under contract. They then relied on the fan magazines, newsreels, and gossip columnists they controlled to disseminate these newly burnished images. Even though today's studios no longer own the stars, they enjoy an even greater dominion over the entertainment media. Their corporate parents own all six television broadcast networks, as well as almost all the major cable networks-- a cozy arrangement that further fuses the interests of Hollywood and television.

The new Hollywood’s real-life relationship with the media thus proceeds from a serious commonality of interests. And as Tad Friend insightfully reported in the New Yorker, one of the interests all the players have is in not revealing that commonality. "It is in everyone's interest (except, perhaps, the reader's) to pretend that P.R. consultants are not involved in stories," Friend writes. "It behooves the journalist, because it suggests that he has penetrated a rarefied realm; it behooves the star, because he looks fearless and unattended by handlers; and it behooves the publicist, because it always behooves the publicist if the star is behooved."

Behind this cloak of media invisibility, Hollywood’s armies of publicists are free to plant items that continue to blur the rapidly-eroding line between fact and fiction. One top producer of a national late night talk show observed that "ninety percent of talk show anecdotes are either completely manufactured or improved so significantly that they are basically untrue." Creating fraudulent websites for nonexisting corporations is simply one further stretch of an already-larger-than-life reality envelope.

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Saturday, February 05, 2005

Culture Of Deception

Charlie's Angels
Nowhere does Hollywood’s culture of deception more clearly manifest itself than on those television talk shows in which stars tell about their movies. The point of this media exercise, at least for the studios releasing the movies, is to fuse the celebrity stars with their fictive movie characters (otherwise the stars might focus interest on themselves instead of the movies being opened.) So carefully-designed PR scripts require that the stars "stay-in-character," as Hollywood calls real life play-acting. When it comes to action movies, the scenario typically calls for stars to tell making-of-movie anecdotes that suggest that they, like the heroes they play on screen, perform death-defying feats. Even if the putative perils are an obvious stretch, they can almost invariably count on a suspension of disbelief on the part of their host-interrogator. Consider, for example, the heroics related on MTV by the three lovely stars of Charlie’s Angels: Full Throttle– Lucy Liu, Drew Barrymore, and Cameron Diaz.

The MTV interviewer, JC Chasez began by asking, "Did you guys do any of your own stunts?"

"We did," Lucy Liu ("Alex") jumps in.

"We get to do all these amazing things," Cameron Diaz ("Natalie") adds, describing by way of example how Drew Barrymore ("Dylan") clung to a speeding car going about "35 miles an hour" while "hitting on the hood of the car"– even after her safety cord came undone.
"She’s literally hanging on to the car," Liu explains.

At this point in the story, with Barrymore precariously holding onto the hood with one hand and banging on it with the other, the interviewer asks her excitedly why she didn’t yell, "Cut"?

Barrymore ("Dylan") explains despite the danger to herself, she persevered with the shot because "you get so into the adrenaline and you want to be tough.... my character, Dylan, was trying to stop the bad guy." In other words, she had morphed into Dylan – at least in the PR script.

Now back to reality. Stars may have license on talk shows to fantasize about performing perilous stunts such as hanging off the hood of a speeding car, but on a movie set, no matter how willing they may be to risk their lives and limbs, studios will not permit them to take such risks for two cogent reasons.

First, stars often do not have an opportunity to perform stunts because action movies are not shot linearly. As I explain in The Big Picture: The New Logic of Money and Power in Hollywood, the work is divided between different units that shoot at the same time in different places. The first unit, "principal photography," shoots the stars and other actors (who do so-called "matching shots" that can be blended into stunts); the "second units" shoot the stunts as well as backgrounds that do not require the presence of the actors. In the James Bond movie Tomorrow Never Dies, for instance, this division of labor had 5 different people playing the James Bond character– Pierce Brosnan, the star, was playing James Bond at the Frogmore Studio outside of London, while four stuntmen at four different locations were playing him in stunts. Similarly, In Charlie’s Angels: Full Throttle, the "Dylan" character, was played by Drew Barrymore and stunt women Heidi Moneymaker, a star gymnast, and Gloria O’Brien. (Lucy Liu’s character had 5 players).

A second, and even more compelling reason, is the cast insurance requisites. Even if stars are physically present during the shooting of perilous stunts, the production’s insurers prohibit them from substituting for the stuntmen. Since Harold Lloyd nearly lost two fingers performing his own stunts in 1920, cast insurance has been a sine qua non requisite for a Hollywood movie. If a star is deemed an essential element in a movie– as Liu, Diaz, and Barrymore are in Charlie’s Angels: Full Throttle– and the star becomes disabled, the insurer must cover the resulting loss – which may be the entire investment in the project, which in the case of Charlie’s Angel: Full Throttle was about $120 million. Before issuing such expensive policies– and no Hollywood movie could be made without one– insurers go to great lengths to make sure that actors do not take any risks that could lead to even a sprained ankle or pulled muscle. Their representatives analyze every shot in the script for potential risks and scrutinize the stars’ prior behavior on and off the screen. (See, for example, the answer to the Question of the Day on my web site.) Once the production starts, they also station hawk-eyed agents on the set to make sure that the stars are not put in harm’s way. They might require, for example, that a star standing on a stationary car be held by two safety men (masked in blue spandex so they can be digitally deleted from the final movie.) Even if a director or producer were willing to risk injuring a star, the insurer would not allow it. So stars, as much as they might enjoy performing their fantasies, cannot do dangerous stunts for movies.

For the most part, stars do not tell these tall tales of daredevil
adventurism on television out of either personal dishonesty, vanity, or egoism. It is their job to play a character in publicity appearances, just as it is the job of studios to hype their movies. Nor do others in these Hollywood productions– even if they were not bound by contractual restrictions on disclosures, or "NDAs"– have reason to demystify such off-screen fictionalizing. The subterfuge is part of the system by which studios, talent agencies, music publishers, licensees, and others create, maintain, and profitably exploit the stars’ public personalities. The more interesting question: why entertainment journalists, instead of challenging these preposterous claims, act as the star’s smiling attendants on this organized flight from reality? The answer: deception is a cooperative enterprise. By suspending their disbelief, the entertainment journalists get the stars on their programs.
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Wednesday, February 02, 2005

The Sexopoly and Antitrust

Rabbit or Duck?
In response to my last web-log entry (January 31) about the six movie studios’ secret revenue data, I received an out-of-the-blue email from an extremely well-respected antitrust economist (a man who, because he once worked for the movie industry, prefers to remain anonymous), who asks, "Has this data-sharing relationship ever been questioned by authorities?" He goes on to note: "US antitrust officials generally look at such scenarios with a suspicious eye. . . . Generally, when competitors share sensitive business data--without disclosing these data to the public (analysts or public at large)--there needs to be some procompetitive purpose, such as enforcing safety standards. Absent such procompetitive justifications, such scenarios are usually investigated for any evidence of cartel behavior."

The secret data about markets is not the only information the six studios share. They also conveniently use the same private market researcher, the National Research Group (NRG), which supplies each of its clients with a weekly "Competitive Positioning" report. As is explained in more detail in my book The Big Picture: The New Logic of Money and Power in Hollywood, from the report’s breakdown of upcoming movies’ relative appeal to different age, sex, and ethnic groups, studios can see how their films are likely to fare against competing films appealing to the same audience groups. Studios can then coordinate their films’ release dates to avoid competing for the same all-important opening-weekend audience.
To be fair, even if, as Adam Smith famously said, "people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public," data sharing is not necessarily anticompetitive. It depends, as the Department of Justice and Federal Trade Commission Antitrust Guidelines for Collaborations Among Competitors assert, on just what kind of information is being shared:

"The Agencies recognize that the sharing of information among competitors may be procompetitive and is often reasonably necessary to achieve the procompetitive benefits of certain collaborations; for example, sharing certain technology, know-how, or other intellectual property may be essential to achieve the procompetitive benefits of an R&D collaboration. Nevertheless, in some cases, the sharing of information related to a market in which the collaboration operates or in which the participants are actual or potential competitors may increase the likelihood of collusion on matters such as price, output, or other competitively sensitive variables. The competitive concern depends on the nature of the information shared" (pp. 15-16).

Anticompetitive collusion or procompetitive collaboration? Like the famous "Rabbit or Duck" illusion, it’s all in the eye of the beholder– and in this case, the Bush Administration is the beholder who counts. Given the current climate of acquiescence to corporate cooperation, it seems extremely unlikely that the sharing of secret data by Hollywood’s sexopoly will be a candidate for investigation anytime soon.

Indeed, in another regard, the six studios may themselves be victims of a restraint of trade by what is today the country’s greatest monopsony: Wal-Mart. Wal-Mart, which writes the single biggest check to Hollywood each year for videos and DVDs (which it both rents and sells), has told the studios, according to one top studio executive, that if they dare to move up the release date of their movies on Pay-Per-View to compete with Wal-Mart’s rental business, they do so at the risk of losing critical shelf space in the giant retailer’s stores. For more on this possible monopsony stranglehold--and the man who might break it– see the answer to the Question of the Day on my website today.

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Monday, January 31, 2005


Under the intriguing headline "Video Sales Abroad Are Good News in Hollywood. Shhh," Ross Johnson reports in The New York Times today (January 31, 2005) that the Motion Picture Association (MPA), although it is privy to the studios income from worldwide DVD and VHS sales, will not give out that vital information. An MPA spokesman told Johnson, "Those figures are confidential, and we don't release them." So instead the Times had to rely on a British publication called Screen Digest for the guessestimate that the studios took in $11.4 billion from overseas home-video sales in 2004. Johnson rightly complains "It has always been hard to pry reliable numbers out of Hollywood, even when the numbers tell a happy story."

Ross Johnson is absolutely right about the importance of MPA numbers. They come directly from Fox, Time Warner, Sony, NBC-Universal, Paramount, and Disney, the 6 studios that dominate the new Hollywood . As part of their general principle of keeping their audience in the dark, the studios keep secret from the public-- and even the Wall Street analysts-- the data that accurately reflect the real sources of their earnings. Each of these studios, however, furnishes these precise data, including a detailed breakdown of their worldwide revenues from movie theaters, home video, network television, local television, pay television and pay-per-view– to the Motion Picture Asocciation on condition that they will not be released to any other parties. The MPA then consolidates these cash flows into the MPA All Media Revenue Report which it then circulates back to the studios on a confidential basis. Each studio can then use this common pool of data– the 2003 report is over 300 pages– to compare its own performance, and that of its subsidiaries, to that of the other major studios in 64 different markets. I had access to all these reports between 1999 and 2004 for my book The Big Picture: The New Logic of Money and Power in Hollywood. They helped answer a crucial question: how do the studios actually earn their money?
Now, there is no reason for the home-video market to remain a secret or even a press guessestimate. In 2003– the last full year that the MPA reported the studio data– the studios (and their subsidiaries) earned $18.9 billion from the world home video market. Of that $18.9 billion, $7.68 billioncame from overseas markets. Foreign DVD sales provided $5.52 billion, foreign VHS $2.16 billion. Ninety percent of those foreign earnings came from just 10 countries. (For a more complete breakdown, see Tables 2 and 3 in the Deal X-Raying section of my website).
Why shouldn't Hollywood-by-the numbers be public knowledge?

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