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After George Lucas made the hit movie American Graffiti, he worked on a space opera he called The Star Wars, which was then purchased by 20th Century Fox. Lucas intended to create special effects that had never been done before. However, Fox's in-house special effects department had been shut down because of costs and people's interest in more realistic looking films. Lucas then decided to create his own effects company. His first choice was Douglas Trumbull, responsible for the photographical effects in 2001: A Space Odyssey. Given Trumbull was doing Steven Spielberg's Close Encounters of the Third Kind, he instead recommended Lucas his assistant, John Dykstra. Dykstra then assembled a crew of 75 college students, artists and engineers.
Gary Kurtz bough to crew to work on a warehouse in Van Nuys, California. Looking for a name that would disguise the warehouse's function and suggest it was simply in the business of wholesaling electronic components rather than making movies, Lucas came up with Industrial Light and Magic. In July of 1975, the company was born.
ILM's first film was Star Wars (called The Star Wars at first). The company (then jokingly nicknamed "The Country Club") had just recently been founded, and was not sure it could successfully a new ground-breaking special effects that many at ILM thought would never work. The working environment was chaotic and unorthodox: when Fox executives visited the crew to see their progress, one of the employees was wearing a fish-head mask, the artists used an improvised slide to plunge into a swimming pool built in a container, and Dykstra threw a refrigerator from the warehouse's roof "because we wanted to know how it would sound". The artists spent their days smoking marijuana and trying to relieve the hot environment in bathtubs. Most of the $1 million Lucas lent to the company was spent on equipament, such as miniatures and the Dykstraflex motion control camera mdash; a technology later crucial for scenes such as the Battle of Yavin.
After Lucas returned to California after ending the principal photography, the ILM company was in worse shape than ever before. Except for the escape pod being released from Tantive IV, Lucas found all the completed effects to be unsalvageable. Adding this to the troublesome shooting, most doubted Star Wars would ever reach theaters, and Fox was nearly terminating production. Lucas decided to take direct control of the company, supervising the effects work daily. The battle scenes were mostly directly copied from dogfights taken from World War II movies such as Tora! Tora! Tora! which Lucas used as reference.
Once of the film was completed, most of the crew at ILM decided to stay, but Dykstra brought some of the artists to make his own company, called Apogee.
In 2010, ILM allowed the show The Amazing Race to film at their complex. They set up a challenge for the contestants on the show, which involved the characters of Ponds, Cody, and Padmé Amidala from The Clone Wars.