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Lucasfilm's Kathleen Kennedy on 'Star Wars,' 'Lincoln' and Secret J.J. Abrams Meetings (Exclusive)

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Kennedy was not one of those unhappy kids who found escape at the movies. She recalls a very normal childhood in the small Northern California towns of Weaverville, where the local theater showed movies just once a month, and Redding. Her mother was a homemaker; her father was a lawyer, then a Superior Court judge. There were three girls: Kathy, as she's still known, her twin and another younger sister.

When Kennedy started college at San Diego State University, her plan was to become a nurse. That was scrapped after she volunteered at a local TV station during the 1972 election and instantly was hired part time as a camera operator on a show called Dialing for Dollars. Kennedy switched majors to film and telecommunications and started doing various jobs on a mixed bag of programming, from local news to football games to rock concerts.

In 1977, Kennedy saw Spielberg's Close Encounters of the Third Kind and decided she wanted to work in the movie business. ("I know that sounds made up, but it's true," she says.) Her college roommate, actress Mary Ellen Trainor (Roswell), told her that filmmaker John Milius was looking for a production assistant. Trainor knew that because her boyfriend at the time, a young Robert Zemeckis, was co-writer of a period comedy with Dan Aykroyd and John Belushi that Milius was executive producing. The film was 1941 -- Spielberg's follow-up to Close Encounters.

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Kennedy's first task was cataloging Milius' gun collection. "I consequently know the difference between a Colt .45 and a Colt .45 Gold Cup," she says. "I know what a Winchester Over Under is. Things that I have no desire to know, I know because of John Milius." Milius is one of Hollywood's larger-than-life characters, and Kennedy acknowledges, "There was a fair amount of insane things going on. I tried to ignore the things that I didn't find particularly appropriate and carried on," she says. "I did have thoughts every now and then of, 'Is this really what I want to do?' But I knew I wanted to make movies, and I knew it was somewhat of a means to an end."

Indeed, the end was near. "Kathy was working for John Milius, and yet she kept hanging around my area of the office," recalls Spielberg. At one point, he asked her to organize some notes. "I stayed up all night long putting these little booklets together," says Kennedy. "And he seemed incredibly impressed. I thought that's what was expected." Spielberg soon swiped her to be his secretary/assistant. "And the first script he put down in front of me was Raiders of the Lost Ark," she says. "Nice way to start."

Kennedy had met Spielberg at a pivotal moment. Having made 1975's Jaws, which was a seminal hit, he had gone over budget on Close Encounters. Then came a humbling experience with 1941, which underperformed. "Steven and I talk about this," says Kennedy. "It was a real turning point when he started to recognize that he was going to have to carry some of the responsibility from a producorial standpoint into his directing. I think he actually acknowledged for himself that he didn't do his best work when there were no boundaries." So while Kennedy's job was always to keep projects on budget, she had a more than willing partner.

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Raiders was an enormous turning point for the industry and for Kennedy. In 1980, thanks to Lucas' clout coming off the first two Star Wars movies, Paramount agreed to what many in Hollywood considered an outrageous deal for the project, yielding considerable control and a hefty share of first-dollar gross to the filmmakers. Sid Sheinberg, then running Universal, declared that the Raiders precedent would "destroy this business." And in fact, it marked a dramatic shift in power and profit to talent that has only begun to subside in recent years.

As work on Raiders began, Spielberg told Kennedy to get in touch with producer Marshall, who was working in Lucas' nearby offices in Universal City. "I kept calling him Mr. Marshall," says Kennedy of her future husband, then 33 and seven years her senior. "And he finally said, 'Could you please stop calling me Mr. Marshall?' He said, "I'm going to come over and meet.' So I'm looking out the window, and this little teal blue Porsche drives up, and this really cute guy in a cable-knit sweater jumps out, and I'm like, 'Well, hell-o, Mr. Marshall!' "

Says Marshall: "I knew that the best way to know what my director was doing was to become friends with his assistant. She was very cute and very efficient and energetic about making movies. I had never thought I'd find someone who liked to make movies as much as I did. But I was completely respectful. There was no way I was going to screw this up by hitting on Steven's assistant." Still, he says, "good relationships are, a lot of times, built when you're friends first. And that's kind of what happened with us."

Even in those days, Spielberg had come to rely on Kennedy so much that he admits he would not have been happy to learn she had begun to date Marshall -- which she had, secretly. "I wanted Kathy to be working with me as my assistant and Frank to be producing the movie, and never the twain shall meet," he says. "But you can't stop love."

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With Raiders under way, Spielberg offered Kennedy the chance to produce his next movie. (At the same time, he had come up with the idea for Poltergeist and hired Marshall to produce.) Kennedy might seem unflappable now, but as a 26-year-old producing her first film, she threw up every weekend -- remarkably confining her anxiety to her days off. That first movie turned out to be E.T., and Kennedy's stomach soon settled. She had been promised $50,000 to produce the tale of a boy and his alien friend, but when it grossed more than $350 million (more than double the next-highest-grossing movie of 1982, Tootsie), she got a windfall of $700,000 instead. She called her grandfather, who counseled her to buy bonds.

With the success of E.T. and Poltergeist, Spielberg, Kennedy and Marshall concluded that the team could produce more than one film at a time. In 1983, they formed Amblin Entertainment, and an enormously prolific period ensued. Spielberg had found partners who were as dedicated as he could have wished. "When we built Amblin, we even put Murphy beds in there because we thought that was so practical," says Kennedy. "Why would anybody, if you were working on something, need to go home at night? You'd just stay there, wake up in the morning and carry on."

Amblin produced not only Spielberg's films but an array of hits from storied directors, including Zemeckis' Back to the Future trilogy and Who Framed Roger Rabbit, Richard Donner's The Goonies and Martin Scorsese's Cape Fear. Kennedy primarily focused on development and took the lead on movies that Spielberg directed, including The Color Purple, Empire of the Sun and Jurassic Park.

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But in the early '90s, Spielberg's fears of abandonment were realized. Marshall wanted to direct and started his own production company. For a time, Kennedy remained at Amblin, working on projects and developing Schindler's List, but she soon joined her husband, forming Kennedy/Marshall. Spielberg, who calls it "a very amicable parting of the ways," turned to another married couple, Walter Parkes and Laurie MacDonald, to run his company. By the time filming began on Schindler's List -- Spielberg's only film as director to win the best picture Oscar -- Kennedy was gone.

"Leaving Steven was the hardest thing Frank and I ever did, but it was done only because we had personal things that we wanted to do together," says Kennedy. For instance, they wanted to start a family. "I was 50 when we had [our first child]," says Marshall. (Kennedy was 42.) "We almost waited too long."

Kennedy/Marshall had success with The Sixth Sense and Seabiscuit, though the pace eventually flagged as the industry began to contract. But by then, Kennedy already had circled back to working with Spielberg, starting with his 2001 film, A.I. Artificial Intelligence. "In a strange way, I never really left," she says. "We were always continuing to talk about movies." She was passionate about the unfinished Stanley Kubrick project, and Marshall says, "As long as she got to work with Steven, she was very happy."