Movie Accounting How Hollywood Accounting Can Make a Box Office Hit Unprofitable

This reversal was partially because co-studio MGM shut down production without Jackson. My kids and their kids, they’re taken care of because of the system. But there are dark little segues and people that have put it to ya. They say the definition of Hollywood is someone who stabs you in the chest. Needless to say, this is mostly a Hollywood (and American) trope, since doing this outside the U.S. is considered fraud in many countries.note Not that some non-American companies and directors haven’t tried this trope before in their countries, with varying results. This trope is also pretty prevalent with the recording industry as well, with artists somehow ending up broke even after having a huge record that sold millions of copies.

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It’s the goal of hiding profits and not losses that makes Hollywood accounting unique. The real reason for this loss was the practice of Hollywood accounting. That was renowned for exaggerating expenditures and other expenses to minimize profit sharing.

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The movie went on to gross, adjusted for inflation today, about half a billion dollars (about 30 times its original production budget). Naturally, losing 40% of that to Beatty stung a bit and finally made studios start to realize that with an abundance of talented actors who would sell their own souls for a bit of fame, they probably didn’t need to give out gross deals like that except in rare cases. Doubling down, they seem to have realized they could still reduce pay anyway by instead giving out net profit deals and then cook the books so they didn’t have to pay anything extra to anyone. For instance, a distribution fee of 30 to 35 percent of a movie’s earnings goes directly to the studio.

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Soon after this, Groom mysteriously stopped accusing Paramount of trying to rip him off and explained that the whole thing had been blown out of proportion. A similar thing is often used in marketing- again, using a separate arm to handle that, who can then charge the studio that owns them anything they please, which may or may not what is hollywood accounting reflect the actual cost of marketing a given film. This is important because the studio, or sub-company, can then charge the other company for its own services- essentially paying itself to produce and distribute the movie. In this way, the studio, or vice-versa, can charge pretty much whatever it feels like for any service.

Movie Accounting – How Hollywood Accounting Can Make a Box Office Hit Unprofitable

Expenditures can be inflated to reduce or eliminate the reported profit of the project, thereby reducing the amount which the corporation must pay in taxes and royalties or other profit-sharing agreements, as these are based on net profit. The Batman lawsuit is hardly unique and seemed to repeat itself a decade later. Spider-Man co-creator Stan Lee, who shaped much of what we know of the “Marvel Universe” claimed to have had a deal with Marvel for ten percent of any profits from film and television programs that utilize his characters. When 2002’s Spider-Man motion picture (from Columbia Pictures) raked in over $800 million (against a $140 million budget), Lee stuck his hand out and found it slapped.

Practices

• While this has been a subject of controversy and legal dispute, it’s essential to understand that not all film studios employ such practices.
• For example, consider the case of Winston Groom who was promised 3% of the net profits of a film based on a little book he wrote called Forrest Gump.
• Studios craft tales of non-existent costs, ensuring all profits are funneled back to them.
• The studio is the entity that determines who gets their payout–and in a market where everyone wants to get paid, they also want their cut.

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He earned a significant portion of the gross profits, prompting studios to reevaluate their contracts. Over the years, while the allure of profit-sharing increased, the actual profit shared decreased. What happens with Star Wars is not the only time box office hit movies have never returned a profit. Art Buchwald sued Paramount pictures calling Paramount’s actions “unconscionable,” noting that it was impossible to believe that 1988’s Eddie Murphy movie Coming to America, which earned $350 million in the box office, failed to make a profit.

That means he has earned about as much as Sandra Bullock would make on “Gravity” nearly 45 years later. If you’re picturing really glamorous accountants crunching numbers in the sunshine — well, that’s probably an accurate image. But Hollywood accounting is really not about location; it’s an accounting style that movie and entertainment studios use to keep a project’s profits to themselves. Hollywood accounting can make some of the top-grossing films of a given year or, indeed, of all time seem unprofitable.