TRYING TO STAY AFLOAT

By KIM MASTERS

Bill Mechanic wasn't having much of a honeymoon. When he was named chairman and CEO of Fox Filmed Entertainment a few months earlier, he had been thrust to the front line in the battle to gain control over the making of Titanic, the vastly ambitious epic conceived by director James Cameron. The movie was seriously behind schedule and wildly over budget. July 4, the planned release date, had come and gone. Yet as the weeks ticked by, the obsessive Cameron showed no sign of completing his editing. Titanic was going to be in dry dock right through summer--the best season for earning back the oceans of money Fox had spent. It was an awkward situation, to say the least, for a guy starting a new job.

Mechanic decided not to hide. He invited his boss, Rupert Murdoch, head of Fox's parent company, News Corp., to see where those millions of dollars were going. Titanic at this point was a four-hour work in progress. But Mechanic thought Murdoch would see that the movie--a tricky blend of action and romance--was "pretty remarkable looking."

So Murdoch took himself to Cameron's state-of-the-art screening room in Santa Monica, Calif., prepared to be dazzled. Instead, disaster struck. An electrical short shut down the projector. For a director whose films often deal with the treachery of technology, the symbolism was painfully apt. For Mechanic, it was another speed bump on the highway to hell. Murdoch left without seeing a frame of film.

The setback, like so many others that plagued Cameron's saga of the legendary ocean liner, did not prove fatal. Murdoch saw the film at Fox the next day. "He said, 'It's a great film,' " Mechanic recalls. "He understood where the money went and that we had a chance to get our money back."

Get our money back? Aren't the studios in business to turn a profit? Normally, yes. But nothing about Titanic is normal. After an arduous shoot during which Mechanic fought bitterly with Cameron and even more bitterly with Paramount Pictures, Fox's partner on the film, Mechanic admits to spending a smidgen less than $200 million. (That's without the additional millions it will cost to market it.) The picture will have to gross about $350 million for Fox to break even.

How did Fox end up in water this deep? And even if the picture turns out to be a hit, is it worth it? When Oscar night rolls around, if Cameron bounds to the stage and hoists the golden statuette, will the beleaguered Mechanic feel the agony was justified? Will anyone?

Hard questions. Fox "can't make a justifiable return," Mechanic admits. And he knows the film is bad for an industry whose costs are running so high that profits are all but vanishing. "It's hard to be responsible for it," Mechanic acknowledges. "But I might not ever be near another picture this good. It's not a question of best movie of the year. It's a question of best film of the decade. How many times do you get to do that?"

It was clear from the get-go that Titanic would cost a bundle. Cameron, 43, built a 775-ft. replica of the ship, 10% smaller than the real one, and a 17 million-gal. tank in which to sink it. The film was shot at a 40-acre complex Fox set up in Rosarito, Mexico. And Cameron got the studio to pay for repeated dives to the site of the actual wreck, where he deployed cameras specifically designed for his exploration.

The director had busted budgets before (on The Abyss, Terminator II, True Lies). But his pictures have grossed more than $1 billion, all told. So Fox was moved at once to green-light his tale of young lovers (Leonardo DiCaprio and Kate Winslet) who meet aboard the ill-fated ship. It's seen through the eyes of an elderly survivor of the 1912 disaster (Gloria Stuart), who recounts her ordeal to treasure hunters (led by Bill Paxton) seeking a jewel believed to be submerged in the wreck.

After saying yes, Fox went looking for a partner to share the risk, and possible reward, of a period piece replete with effects but devoid of major stars. Partnering on big pictures is increasingly common--Braveheart and Starship Troopers were team efforts--but the pitfalls are dramatically manifest in the feuding over Titanic.

As shooting started in July 1996, Fox negotiated with Universal, with which it had very profitably split the cost of True Lies. Universal was tantalized but scared. The budget, pegged slightly in excess of $100 million, seemed unrealistic. And the film was projected to run about three hours. At that length, theaters could get only one solid screening a night, which could hurt profits.

Universal looked for some sort of sweetener--like the promise of a partnership on an upcoming Cameron project. None was offered. In August 1996, Paramount president John Goldwyn called Fox to inquire if Paramount might step in. Paramount had teamed with Fox on Braveheart, Mel Gibson's epic, with the happiest of results: good box office, Oscars. Paramount's tough but charming chairman, Sherry Lansing, had concerns. Could a young star like DiCaprio carry a film this big? And the $100 million budget seemed low. But that Sunday afternoon, Fox executive Tom Rothman eloquently persuaded Lansing that Titanic would be an epic on a par with Doctor Zhivago or Gone With the Wind. The deal was done. Paramount would release the film in the U.S. and Canada; Fox got the rest of the world.

When documentation arrived, Paramount concluded that the budget was as much as $30 million off. An insider says it allowed only $300,000 for music and about $7 million for special effects. Typically, music in a big movie like Titanic can cost more than $1.5 million. As for effects, Starship Troopers or The Lost World each required more than $20 million worth. Using the threat of a lawsuit, Paramount negotiated an agreement that capped its contribution at $65 million. It was the beginning of what Mechanic describes as "a terrible relationship."

As Cameron fretted over every soggy shot, Mechanic fought to trim scenes. "We tried to get it done for the least amount of money and still allow Jim to get his vision on the screen," he says. But Cameron isn't one to compromise. And firing him wasn't an option. Not only had he written the script; he might be one of the few directors alive who could orchestrate a project of this scope. "We were already in for a lot of money," Mechanic says. "There was only one way to get our money out, which was to make the best possible movie."

The numbers went inexorably up. A source who worked on the film says the effects cost more than $30 million. Fox tried to hold the overall budget to $150 million, then to $175 million. It repeatedly asked Paramount to ante up a little more--to augment, for example, the music budget. Paramount declined. "They never helped the movie," Mechanic says. "Anytime something could have made things better, it was 'That's your problem.' " Stymied, Fox offered to give Paramount its money back and take over. Paramount didn't take the offer seriously. Rather than lose scenes he deemed essential, Cameron gave up his fees in bits. He relinquished some, for example, to pay for Oscar winner Kathy Bates to play the "unsinkable" Molly Brown. Eventually he gave up his profit participation as well (but kept his scriptwriting fee).

Early on, the press scented trouble. Stories began to appear about budget overruns; about the schedule, which eventually stretched from 138 to 160 days; about the arduous working conditions, in which crew members complained of sweatshop-style practices that sometimes had them working as long as two weeks without a break; about Cameron's screaming tirades; and about a still unsolved food-poisoning incident in which chowder served to the cast and crew was laced with the drug PCP. Meanwhile, Fox and Paramount quarreled publicly over the release date. Finally, they settled on Dec. 19--after the early rush of holiday shopping but in time to qualify for the Oscars.

Titanic will open against potentially strong competition: the new James Bond movie, Tomorrow Never Dies, and the DreamWorks comedy Mouse Hunt. But January is a dead zone. Titanic can play and play and play. And it will have to for both studios to get their money back. It's not an impossible mission. Paramount's Mission: Impossible grossed $422 million worldwide. Sony's Men in Black grossed $527 million. Despite Titanic's marathon running time (3 hrs. 14 min.), most industry observers think it has a chance. Paramount, with its cap, should see a profit while Fox is still praying to break even. Mechanic is resigned. "They have a better deal than we do," he says. "That's life."

And when another Cameron project comes along, will Mechanic slam the door? Will Paramount? Both studios say no. In fact, Mechanic says he's sure Fox will do Cameron's next picture. Surely Cameron won't smash the budget the way he did the time before. And the time before that. And the time before that. "It does not have to be this complex," Mechanic insists, with a showman's optimism. "I don't think this will happen again."