Skip

An example of Hollywood accounting
July 9, 2010 2:36 PM   Subscribe


 
This was linked in the already-open screenwriting thread, just so you know.
posted by unSane at 2:45 PM on July 9, 2010 [1 favorite]


As much as I love movies, I hate the people who finance and distribution them.
posted by grubi at 2:46 PM on July 9, 2010 [5 favorites]


Oh.

If the mods feel this is a double, so be it.
posted by new brand day at 2:48 PM on July 9, 2010


Pretty far down the thread, and possibly missed. I know I did, and appreciate seeing it here.

So I'm guessing that as long as the Big Picture Company is making a profit and (presumably) paying taxes, the IRS doesn't care but so much about the Flybynight Shell Company ripping off the net point profit sharers? That about right?
posted by IndigoJones at 2:53 PM on July 9, 2010


Spoiler: the Major Studios have enough vertical integration that they pay themselves to cut parties out of profit percentages.
posted by filthy light thief at 3:00 PM on July 9, 2010 [2 favorites]


I'm not nearly creative enough to be an accountant.
posted by bstreep at 3:15 PM on July 9, 2010 [1 favorite]


Profitum Evanesco!
posted by mazola at 3:19 PM on July 9, 2010 [19 favorites]


For a while now, in my experience, whenever anyone mentions compensation as deferred payment or having back end "points," it's nowhere near as preferable as cash in hand, even if the film looks like it'll actually rake in some dough. Because you'll never see that money.

On the other hand, I just got my first ever royalty check from ASCAP today - hooray for a system that actually works! (despite, uh, stuff)
posted by SmileyChewtrain at 3:21 PM on July 9, 2010


This is the first time I've seen one of these. A few of the things that amazed me:
  • I always thought that "Hollywood Accounting" somehow involved incomprehensible and complex accounting tricks. It turns out they can clearly sum up how they ripped off anyone sharing "profits" with a clear, one-page balance sheet. Absolutely incredible.
  • For this movie, there appears to be no gross participation whatsoever.
  • The film vehicle is paying almost $8 million in interest every year as of 2007, so even as more money continues trickling in, it probably won't be long before the annual interest payments exceed the annual gross.

posted by grouse at 3:27 PM on July 9, 2010 [2 favorites]


This is why I always demand a slice of the gross.

Like that three-month old cake. Gimme a slice of that.
posted by GuyZero at 3:27 PM on July 9, 2010 [2 favorites]


From what I've heard, you pretty much have to negotiate for points on the gross rather than net if you ever want to see any kind of money from a movie's earnings. (Of course there's also the base pay.)
posted by kmz at 3:28 PM on July 9, 2010


I want these guys to do my books.
posted by birdwatcher at 3:31 PM on July 9, 2010


Here's how that negotiation for gross participation points goes:

"Hi. I'd like a slice of gross"

"Is your name James Cameron?"

"No".

"No".
posted by unSane at 3:43 PM on July 9, 2010 [29 favorites]


I agree that there is some shady work going on, but I don't think that the article made it clear. The author talks about $130 million in advertising fees as a fee that WB is paying to itself. Really? To itself? I thought it was buying ads and putting them on tv and on billboards and radio and frigging everything. Now, it might be that the cost of actually purchasing those ads is $30 million and the extra $100 million is a fee from WB to WB, which would be totally dishonest, but is that what is happening? Likewise, the distribution fee of $212 million. That seems high, but it is unarguable that movies cost money to distribute. It's stated that this is just WB paying itself so that the movie has a loss, but absolutely no proof is given.

The thing that really stands out (to me) is the Negative Cost/Advance (probably because I have no idea what it is).
posted by It's Never Lurgi at 3:44 PM on July 9, 2010


We had a Real Hollywood Screenwriter post in that other thread (I think it was UnSane), and he said that it's absolutely impossible to get gross points right now. All you can get is worthless net points.
posted by Malor at 3:44 PM on July 9, 2010


Gah, an edit would be nice.

Okay, I see that the cost of prints and everything else is included in another section so, yeah, the distribution fee does seem like a fee created out of nowhere just so they can charge the shell company something.
posted by It's Never Lurgi at 3:45 PM on July 9, 2010


Here's what I don't get. Everyone knows net points are a lie. Everyone. So why does anyone even bother with them?
posted by GuyZero at 3:50 PM on July 9, 2010




I want these guys to do my books.

Count your spoons before they leave the house.
posted by IndigoJones at 3:53 PM on July 9, 2010


Here's what I don't get. Everyone knows net points are a lie. Everyone. So why does anyone even bother with them?

It gives the lawyers something to argue about. Also, they can actually be very important if a low budget movie becomes a break-out hit. A lot of the time indies trade lower fees for a slice of the back end. Most of the time this amounts to a hunk of less than nothing, but once in a while you hit paydirt. These deals are always done with reference to you 'quote', ie your established net profit participation, so you have to keep it up even on studio deals where you know it's meaningless.

(In movie circles, your last contract (your 'quote') is always your model for the next one and the numbers never get lower. Theoretically.)
posted by unSane at 3:54 PM on July 9, 2010 [1 favorite]


If the mods feel this is a double, so be it.

I think it's a thick enough issue for it's own thread. But that said, the post itself is a little thin.

Where I first read this particular story.

Hollywood Accounting - according to Wikipedia.
posted by philip-random at 3:58 PM on July 9, 2010


The Planet Money story that's referenced in the first link explains some of the logic behind taking net points. It sounds like it's basically a way for people to disguise how much money they're not making. If a movie star can say that their last deal was worth up to a possible $10m net when they really only got paid $500,000, they can make themselves look like a lot hotter commodity than they are.
posted by nangua at 3:58 PM on July 9, 2010


Now, it might be that the cost of actually purchasing those ads is $30 million and the extra $100 million is a fee from WB to WB, which would be totally dishonest, but is that what is happening?

In a way, yes. WB creates a corporation to make the movie, funds the corporation, which pays "fees" to WB. Who bought the ads for the movie? The corporation. Who'd they pay to make them? WB.

Shazam. The corporation that "made" the movie is broke.

"Hey, WB, how much did you make with Harry Potter?"
"Who, us? We didn't make that movie."
"Who did?"
"That corporation over there. And I heard they took a fucking bath on it with all the exorbitant fees they had to pay for distribution."
"Jesus, who did they pay those fees to?"
"Oh, they paid them to us. Bummer for them, though."
posted by Cool Papa Bell at 3:59 PM on July 9, 2010 [11 favorites]


Hollywood sets up a separate corporation for each movie with the intent that this corporation will take on losses. The studio then charges the "film corporation" a huge fee (which creates a large part of the "expense" that leads to the loss). The end result is that the studio still rakes in the cash, but for accounting purposes the film is a money "loser" -- which matters quite a bit for anyone who is supposed to get a cut of any profits.

So who would this be, exactly? Who is "Them"? Besides anyone who is getting net profits, which everyone knows don't exist? D list actors, writers, sure, but don't most of the crew work for scale rather than a percentage? This just seems somewhat elaborate and involved and transparent unless there is something else going on. (Or, on preview, is it all part of the negotiating charade the unSane refers to?)

Though I could be wrong. THe Hollywood idea of A Cunning Plan may be as clever as Baldrick's
posted by IndigoJones at 4:04 PM on July 9, 2010


Not just D-list actors. A-list actors, most A-list directors, producers and so on.

The list of people apart from James Cameron who get gross points at the moment now follows:
posted by unSane at 4:06 PM on July 9, 2010 [5 favorites]


Well, presumably Lucas gets gross. Spielberg?
posted by GuyZero at 4:18 PM on July 9, 2010


This just seems somewhat elaborate and involved and transparent unless there is something else going on.

Don't forget taxes and unions.

Hard to pay union fees when there are no profits. Hard to pay taxes on profits when there aren't any. ;-)

Some movies turn profits and pay out a net -- unexpected hits like Sideways, My Big Fat Greek Wedding, etc.

The game is rigged, sure, but even Vegas loses every now and again.
posted by Cool Papa Bell at 4:19 PM on July 9, 2010


Well, presumably Lucas gets gross. Spielberg?

Lucas owns his movies outright and partners only for distribution. Fox has been kicking themselves over this since 1977.

Spielberg produces everything he makes now, so he's sitting at the head of the table, too.
posted by Cool Papa Bell at 4:20 PM on July 9, 2010 [1 favorite]


*Sigh.* Oh, Hollywood. Why can't you be good like your big brothers Wall Street and Mortgage Companies?
posted by drjimmy11 at 4:21 PM on July 9, 2010 [2 favorites]


For this movie, there appears to be no gross participation whatsoever.

Further research indicates that gross participation does not necessarily begin with the "first dollar" of receipts. Sometimes, "the gross" is paid out only after a certain "break-even" point is reached, or after some other magical, yet unlikely trigger. So it might be that there are people who thought they were gross participants in Order of the Phoenix who have still received nothing.
posted by grouse at 4:37 PM on July 9, 2010


Also, they can actually be very important if a low budget movie becomes a break-out hit. A lot of the time indies trade lower fees for a slice of the back end. Most of the time this amounts to a hunk of less than nothing, but once in a while you hit paydirt.

Isn't this what happened on Pulp Fiction? I heard Travolta came out like a bandit on that one.
posted by P.o.B. at 4:51 PM on July 9, 2010


Does the corporation setup to run the movie have a strict separation of concerns? I was involved with setting up a secondary corp. for some very specific reasons. The lawyers had us doing double of everything. Sit the new corporation people down in a cubicle, give them a phone and computer? The phone had to be on a separate phone system, the computer had to be on a separate network, etc. We even had one box full of pens marked Corp. A, the other marked Corp. B. The idea was that if someone were to audit it or Corp. A or B had to go into default, it needed to be clear as possible that these were two separate legal entities.

(Of course, apparently Hollywood accounting is not holding up in court, I'm surprised the IRS or some other government agency isn't going after them more aggressively.)
posted by geoff. at 4:56 PM on July 9, 2010


Taxes is the big equalizer. Net net - as long as the IRS gets what is owed from someone (and here, it looks like it WB the parent company) - then the inter company charges are probably going to be accepted. But transfer pricing between related entities are a BIG deal - and you don't want to fuck with the IRS on transfer pricing.

In fact - if you are are partner in this vehicle, you probably don't mind the loss (as long as you are part of the cost structure). A nice tax loss to offset other gains is not a bad thing. I think people would be suprised to see that most single purpose companies and partnerships run at a loss for tax purposes. It's how to ensure that all the profits are siphoned off to ensure that no actual profits have to be paid out.
posted by helmutdog at 4:57 PM on July 9, 2010


Why isn't that kind of transparent behavior grounds for piercing the veil and getting the actual net? Actual law? Because everyone expects it? Because suing would exile you from Hollywood?
posted by a robot made out of meat at 5:12 PM on July 9, 2010


To be clear - we are talking today. In the past, someone like Jack Nicholson could get first dollar grosses. But times have gotten tougher. Nowadays, even top stars are not getting their "official" quote too often. Many deals include worthless sops to assuage the ego (an additional room at the hotel!!!ONE!), but the hard truth is that deals are getting leaner even for top talent.
posted by VikingSword at 5:26 PM on July 9, 2010


The topic of underwriting a movie is pretty darn intimidating and books have been written on the subject (I remember there was one with a chapter by Mel Brooks that was pretty good).

Without knowing what I'm talking about, I'm sure a big part of the accounting is due to the Harry Potter movies being a Sure Thing and everyone involved knows down to a few mil how much the thing is going to make -- thus the deals struck are much less risk-oriented.

But there are folks who do this stuff for a living.
posted by RobotVoodooPower at 5:29 PM on July 9, 2010


B-b-but piracy!
posted by JHarris at 6:28 PM on July 9, 2010


Why isn't that kind of transparent behavior grounds for piercing the veil and getting the actual net? Actual law? Because everyone expects it? Because suing would exile you from Hollywood?

Presumably the contracts are written so as to make this impossible. This wouldn't be difficult to do... the studio would just have to make sure that the "net profit" referred to in the take-it-or-leave-it contract is the dodgy one. A third party like a tax office or a creditor in insolvency would have a better chance of piercing the veil, but no doubt everything is structured very carefully to make this difficult or pointless.
posted by A Thousand Baited Hooks at 6:44 PM on July 9, 2010


On the other hand, I just got my first ever royalty check from ASCAP today - hooray for a system that actually works! (despite, uh, stuff)

Not for long! Cuz ASCAP exists thanks to Copyright Law and a fundamental acceptance for a musician's right to get paid for the use of their work. Which is not, of course, a value held by the forward thinking, cybermorality herds heralding forth Web 3.0!
posted by The3rdMan at 6:45 PM on July 9, 2010


The incompetence of producers in Hollywood is staggering.
posted by Jessness at 6:46 PM on July 9, 2010


Also, when you say "net profits" out loud, remember that there's a Y in there between the N and the E.
posted by adipocere at 8:06 PM on July 9, 2010 [8 favorites]


the studio would just have to make sure that the "net profit" referred to in the take-it-or-leave-it contract is the dodgy one.

I can dig out the wording from a contract if you want, but net profits are defined pretty darn loosely in most contracts with plenty of wiggle room. However the bigger issue is that if you want to prove that you're being cheated, you have to force an audit, and this is a BIG BIG FUCKING DEAL (see: Peter Jackson). The studio do NOT just open up their books. In order to get a full audit you have to go to court and get the court to enforce the audit clause in your contract. This is the last thing on earth that any studio wants to do and so they will throw money and lawyers at the problem until you give up. You have to be VERY pissed off and VERY rich to go head to head with the studio like this. (See: Peter Jackson).
posted by unSane at 8:24 PM on July 9, 2010 [1 favorite]


Why is it wrong to steal revenue from the studios when they are very busy stealing revenue from their own hardworking employees?
posted by Avenger at 9:20 PM on July 9, 2010


Why is it wrong for studios to steal revenue from their employess when their customers are very busy stealing from them?

This is not a good argument.
posted by unSane at 9:57 PM on July 9, 2010 [1 favorite]


The thing that really stands out (to me) is the Negative Cost/Advance (probably because I have no idea what it is).


HAHAHA.

The negative cost is the cost of producing the 'negative', ie the finished, post-produced film complete with audio.

IE the cost of physical production including above the line -- cast, writer, director, producer etc -- and below the line -- sets, camera department, costumes, location fees, all post production etc. Basically the money required to actually make a movie.

As you can see, it is basically dwarfed by all the other bullshit, but it's the only money that matters in terms of what you see on screen.
posted by unSane at 10:02 PM on July 9, 2010


They made $27 in "miscellaneous royalties". That's mad cash there.
posted by John Shaft at 10:10 PM on July 9, 2010


Paramount did this for Forrest Gump. They paid Winston Groom, the author of the original novel, $300,000 and promised him a percentage of the profits. Then, 670 million dollars later, they turned their pockets inside out and told him, whoops, we can't give you any money because the movie didn't get into the black.

A few years later, Paramount came calling to Winston again, asking for the rights to film his sequel novel, "Gump and Co." He refused, saying that he wouldn't dream of letting them risk their necks making a sequel to a movie that was such a failure at the box office.
posted by EmGeeJay at 2:11 AM on July 10, 2010 [8 favorites]


This is not a good argument.

It wasn't an argument, it was a question.
posted by Avenger at 6:00 AM on July 10, 2010


This makes me somewhat angry.
posted by codacorolla at 8:50 AM on July 10, 2010


The negative cost is the cost of producing the 'negative', ie the finished, post-produced film complete with audio.

And here I assumed that was covered under "expenses".

Isn't that an awfully big number to appear as a single item? Or is this where you pat me on the head and say "Yes, Lurgi. That's the point"?
posted by It's Never Lurgi at 9:23 AM on July 10, 2010


This is why I always demand a slice of the gross.

Like that three-month old cake. Gimme a slice of that.


The cake, much like Harry Potter movie profits, is a lie.
posted by inigo2 at 11:11 AM on July 10, 2010 [1 favorite]


David Prowse, the original Darth Vader, C-in-C of the 501 (“Vader’s Fist”), has been informed he is not to be invited to any future LucasFilm conventions or events.

Why?

Quite possibly because he complained openly about not getting any residual checks from Return of the Jedi.

Why?

Well, it, uh, never turned a profit.

So.
posted by kipmanley at 12:01 PM on July 10, 2010 [1 favorite]


A few years later, Paramount came calling to Winston again, asking for the rights to film his sequel novel, "Gump and Co." He refused, saying that he wouldn't dream of letting them risk their necks making a sequel to a movie that was such a failure at the box office.

Good on him, not least of all because the movie is nothing at all like the (far superior) book - but it does raise the question whether he could have asked for an gotten gross points for Gump II. Do book writers ever get this?

(And what kind of deal did J.K.Rowling get, by the way? Anyone?
posted by IndigoJones at 4:58 PM on July 10, 2010


« Older Survey Says . . .   |   Antoine Dufour & Tommy Gauthier Newer »


This thread has been archived and is closed to new comments



Post