You know the old gag about keeping two set of book of account , one for theIRSand one for yourself ? In Hollywood , it ’s more like three readiness of script : one for the IRS , one for the movie studio and one for the final profit participants , the hoi polloi or entity owed a percentage of a project ’s profits once costs are recouped . It ’s no secret that in Hollywood , nett net participants will never see a dime bag . It ’s all part of something bonk as Hollywood method of accounting .
If you ’re picturing really glamorous comptroller crunching numbers in the sunshine — well , that ’s in all likelihood an precise image . But Hollywood account is really not about position ; it ’s an accounting style that movie and entertainment studios employ to keep a project ’s profits to themselves . Hollywood accounting can make some of the top - gross movie of a pass on class or , indeed , of all clip seem unprofitable .
The numbers are laughable . How is it potential , for example , that " Return of the Jedi"is unprofitable ? The movie ranks among the top 20 big blockbusters of all clock time and has clear more than $ 500 million on a $ 32 million budget — but , according to Hollywood accounting , it ’s still in the flushed [ source : Rowles ] . Of naturally the movie made and carry on to make money for the studio apartment . But the notion that it ’s unprofitable is all part of the organisation .
Entertainment studio tell a story about costs that do n’t really exist to funnel any profits back their direction . In the end , they get off with it . Despite some high - visibility compositor’s case challenging Hollywood method of accounting , mostnet profitparticipants never receive any winnings [ source : Abelson ] . Yet " net points " continue to be given freely by the studios .
The next pages will examine how Hollywood accountancy work , the types of picture show strike — and why the system is probable to run .
Behind the Scenes of Hollywood Accounting
The bragging difference between Hollywood account statement and typical corporate accounting system is how people are paid . Shares of the film or " points " may be given toproducers , directors , worker , writers , or anyone who worked on or help with the production in a significant way . Most player in Hollywood get net points ; in other word of honor , they ’re suppose to take in some of whatever is leave after the studio apartment recoups the cost [ root : Snyder ] .
The affair is , these people do n’t ever really see any money from these shares . The cause last points are given so generously is because they are , by all accounts , essentially nonmeaningful . To see to it that there are no net profits in Hollywood , movies are contractually designed to be unprofitable , no matter how much they make .
It ’s really a biz of paperwork . Each moving-picture show is set up like a corp that ’s designed to lose money . Within the corporation areshell companies , those existing in name only , that are designed to siphon all of the profits from the movie and funnel them back to the studio . These shell companies handle things like advertising , marketing and distribution . They can even be lay out up to deal more general expenses for controller , managers , locomotion and entertainment for studio apartment heads , and so on .
Some of the fees that studio pay up themselves through these shell companies might be licit , but they can also be outrageous . Adistributionfee of 30 to 35 percentage of every centime a movie take in goes directly to the studio apartment [ source : Davidson ] . The studio apartment bear down the film exorbitant sum of money for advert and publicity in improver to funding and sake through shell companies . Every perk that come with the job of work at a studio , it seems , is paid for by some movie or tv set show . executive director are said to charge the bulk of their disbursal to whichever movie is grossing the most [ generator : Daniels et al . ] .
To be sure , shell company are n’t novel . pot in other industries use them all the time to play accounting tricks . In other types of job , however , shell companies are typically used to obscure losings to make a corporation ’s profits appear dandy to shareowner and investor . It ’s the goal of concealing profits and not losses that make Hollywood accounting alone .
Because there ’s no such affair as net net profit in Hollywood , a handful of the great players in the industry call for a percentage of gross points or , more specifically , first - buck gross . That think these masses are drive a cut of the net before most other costs are deduct . Sandra Bullock is say to have talk terms this rare character of deal for her role in the movie " Gravity . " She have $ 20 million upfront and 15 per centum of first - clam revenue . The actress stands to make at least $ 70 million from the deal [ source : Galloway ] .
Why Does Hollywood Work This Way?
Hollywood did n’t exactly design this accounting scheme . alternatively , it seems to have evolved this way over clock time . There are conflicting story about which genius was the first to shoot down the traditional studio arrangement , in which talent was under contract with the studio for a fixed weekly or monthly rate . Rita Hayworth is suppose to have had a William Morrisagentwho , in 1946 , got her 25 percentage nett profit of her movies , along with script favourable reception . Jimmy Stewart waive his usual upfront cash requirements to act in the 1950 movie " Winchester ' 73 " for a musical composition of the net back - end net [ root : Daniels et al . ] . Because these deals were fresh , the studios did n’t know enough to set up the contracts , and they turned out to be remunerative for both actor .
In the sixties and 1970s , histrion , producers , film director and even writers took part in the crude and net profit of rack up picture show . Warren Beatty , for example , shepherded the product of and play the lead role in " Bonnie and Clyde . " In summation to garner $ 200,000 upfront for his study , he also take 40 pct of gross net income . The film was not expected to make much when the deal was struck , but it has since earned more than $ 150 million . That means he has earned about as much as Sandra Bullock would make on " gravitational force " nigh 45 years later .
Beatty demand a peril on the movie , and it made him a very ample man . His success even prompted studio apartment to take a close look at the over - generousness of its contracts . Two lessons were learned : Participation incite those who were involve in the film , and the studios needed to stiffen up their contractual rein . In the decades since , Tinseltown has made profit sharing seem like an alluring dream to more and more people , while , at the same metre , reducing the actual net income shared [ source : Stafford ] .
Like Beatty , today ’s power producers , directors and actors who get first - dollar gross might do it to take a probability on a riskier motion picture or an independent moving-picture show . Leonardo DiCaprio is order to have taken a pay cut to act as in " Inception , " but his part of first - dollar bill receipts earned him around $ 50 million [ reservoir : Bacardi ] . Tom Cruise realize no upfront compensation for producing and acting in " Mission : Impossible II , " but his yield company received a rare deal for 30 percent of the film ’s adjusted unadulterated [ source : Epstein ] . Those who do n’t rate first - dollar gross might alternatively find a bonus payment , made disregarding of profit .
That ’s the other benefit of Hollywood accountancy : No one have it off exactly how much anyone makes . It ’s a system of rules base on rumor and insinuation , leaving people in Hollywood speculating about how much everyone else is in reality clear compared to what ’s in the declaration . Even the note for a participant who can get first - dollar gross can be substantial in building and maintaining a career .
Famous Hollywood Accounting Battles
There are many fun examples of noted smash hit film that studios claim are still in the red : Peter Jackson ’s wildly successful " The Lord of the Rings " trilogy is said to be a net loser despite earning nearly $ 3 billion at the box function . The original " Batman " still shows a deficit of $ 36 million despite earning $ 411 million . ( right smart back in 1991 , the Los Angeles Times hollo it " the movie that may never earn a earnings , " and , more than 25 years afterward , the prediction has apparently derive true [ source : McDougal ] . ) Even a small moving picture such as " My Big Fat Greek Wedding , " which cost only $ 6 million to make and earned more than $ 350 million , is allege to have be the studio $ 20 million in losses [ source : Rowles ] .
Not everyone in Hollywood fend for the local accounting practice , however . Over the years , there have been signs that the studios ' clever tricks would catch up with them .
Filmmaker Michael Moore sued manufacturer Harvey and Bob Weinstein over profits for his enormously successful 2004documentary , " Fahrenheit 9/11 . " The film grossed more than $ 228 million in theatre , and possibly twice that , considering DVD , television system and other sales . Moore said he was supposed to get 50 percent of the profits ; the Weinsteins said he was a profit participant . Moore earned $ 19.8 million from his film and sued for an additional $ 2.7 million in net profit [ beginning : Garrahan ] . The parties settle out of court in 2012 for an undisclosed amount .
Writer Art Buchwald won $ 900,000 from Paramount for his work save the story intervention that barrack the 1988 Eddie Murphy funniness " issue forth to America . " The moving picture had made $ 288 million when Buchwald sued in 1990 , but it still had not see a net lucre .
Hollywood accounting extends beyond movies to telly , video , books , music and other projects plan to veil net profits . role player Don Johnson sued the company Rysher Entertainment in 2010 over his portion of profits from the show " Nash Bridges . “The caller claimed it was so expensive to produce , that the show was left $ 40 million in the Red River . The jury disagreed and awarded Johnson more than $ 23 million , which the judge increased to $ 50 million to report for pursuit . The settlement was eventually boil down on appeal . In the goal , Johnson is said to have received $ 19 million [ source : Erle Stanley Gardner ] .
And in 2008 , Deborah Gregory , writer of the pop untested - grownup fabrication serial " Cheetah Girls , " plain that she had never seen a penny of the 4 percent nett winnings she was promised by Disney from the flick , DVDs and merchandising surrounding her book .
Despite the murmur , there are no real sign of the zodiac that Hollywood accounting practice session will switch anytime soon . David Geffen , Jeffrey Katzenberg andSteven Spielbergfounded the studio Dreamworks SKG in the mid-1990s with a design to really change how studio net were deal [ seed : Abelson ] . But Geffen has since departed , and the studio apartment has had a tough time keeping up with hard cash menses [ source : Epstein ] . Today , the studio relies on Disney for most of its distribution , and reclaim Hollywood accounting no longer seems to get a honorable mention as part of the Dreamworks tale [ source : Dreamworks ] .
Indeed , Hollywood outsiders would be hard - press to witness many outspoken critics from within the Hollywood accountancy system . But if you play along insider podcasts and interview closely , you could incur story like that of Scott Derrickson , the director of " The Exorcism of Emily Rose . " In an interview with fellow director Kevin Smith , Derrickson explained how his last profit deal for direct the collision horror flick was deserving less than a ham sandwich [ reservoir : Masnick ] . Regardless of whether the organisation can be exchange , it should be ready for its finale up .
Lots More Information
The most semisweet part of reporting this tarradiddle was learning about David Prowse , the doer who play Darth Vader in first three " Star Wars"movies in the 1970s and eighties ( James Earl Jones played the part , Prowse was the body ) . He own a portion of " Return of the Jedi , " but because they are net points , he routinely gets letters explaining that the motion-picture show still has not turned a lucre [ source : Sciretta ] .
