Those affected can include writers and actors, but also production companies, producers and investors.[1][2] A number of cases of creative accounting have been successfully pursued in court and have resulted in hundreds of millions of dollars in awarded damages. Another trick if a movie was particularly profitable is to charge fees to cover the pay and bonuses of various studio employees, whether they actually directly had anything to do with the project or not. Similarly, many of the other internal operational costs of a studio can be shifted around to different projects easily on paper. Using this fact, part of the losses from an actual box office bomb can be moved to a film that made a ton of money, thus making the box office bomb help reduce profits from the successful film, again, all in order to ensure every project possible loses money on paper. Another form of Hollywood accounting is a reverse tobashi scheme, in which the studio unjustly cross-collateralizes the accounting of two projects and shifts losses from a flop onto a profitable project by shifting costs involving internal operations.
How Hollywood Accounting Can Make a $450 Million Movie ‘Unprofitable’
In short, this method does not, by any rational standard, attempt to adequately trace overhead costs. This town may be in flux, but it’s still one of the greatest places on earth to earn a living. THR teamed up with Glassdoor to crunch the data on the top entertainment companies from Netflix to Riot Games, ranking the culture, the money and, of course, the snacks. New Line chief Bob Shaye was furious and refused to allow Jackson to ever direct another film with the company. New Line was later fined $125,000 for failing to provide its accounting documents in relation to the suit.
The Three Sets of Books
- Warner Bros. eventually offered the producers a settlement, which their attorney (who did not specify the amount) described as the value of “two popcorns and two Cokes”.
- In this way, the studio, or vice-versa, can charge pretty much whatever it feels like for any service.
- In the end, Hollywood Accounting is an oft mocked and derided element of film production that many in the industry would happily see die and be replaced by a fairer, more transparent system.
- These shell companies handle things like advertising, marketing and distribution.
- Despite challenges to this system, most net profit participants never see any profits.
- The smaller the net percentage, the smaller the amount Warners had to share.
In this case the bet worked out splendidly and that sequel, finally entitled Aliens (1986) made over $183 million against an $18 million budget and was also a huge critical success (matching the original) with awards nominations to back up that praise. Without adjusting for inflation, the Harry Potter series of movies is the highest grossing film franchise of all time. In fact, Harry Potter and the Deathly Hallows – Part 2 (2011) is the highest grossing Warner Bros. movie ever made.
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As noted, Paramount would later argue that the film, which cleared almost 13 times its production budget, a total of $700 million at the box office or about $1.2 billion today, had actually lost $62 million, all in an attempt to weasel out of paying Groom, among others. Well the short and obvious answer is that they don’t want to lose money. They just want to make it look like their films are losing money.
WarnerMedia’s move to release its 2021 films straight to streaming means lower paydays for talent.
Moore waited until 2011 to sue his buddies Bob and Harvey Weinstein (of the Weinstein Company) for a big, fat $2.7 million, claiming that the brothers had employed those similar creative formulas to cheat him out of his just income. A lawyer for the former Miramax executives responded that Moore had “been paid $20 million and he claims he should get $2 million more” and went on to call Moore’s claims “Hogwash”. While it might take a big screen investigation like a Michael Moore film to figure out where the real corruption here is, The Weinstein Company settled out of court with the what is hollywood accounting big guy. It isn’t merely huge studios with gigantic, effects-laden productions that have employed this practice, either. In spite of its name, My Big Fat Greek Wedding (2002) was actually a tiny little independent movie from Gold Circle Films; however, it soon became a Big Fat American Success at the box office, pulling in over $368 million with a budget of only $5 million. In short, this Canadian/ Greek/ American co-production (quickly labeled the “most Profitable Independent Film in History”) would be considered a hit by any accounting practice in Canada, Greece or America.
These are by no means cherry picked examples, with some estimates suggesting that upwards of 80% of all major studio releases lose money according to the studios, which somehow magically manage to stay in business anyway. In Hollywood, top stars typically negotiate back-end profits as a percentage of gross (instead of net) box-office revenue. And in 2008, Deborah Gregory, author of the popular young-adult fiction series “Cheetah Girls,” complained that she had never seen a penny of the 4 percent net profits she was promised by Disney from the movies, DVDs and merchandising surrounding her book. Warner Bros. and Fox are definitely not the only companies in Hollywood to employ this sort of creative accounting (nor is this merely a Hollywood phenomenon, if the word “Enron” means anything to you). See also Box Office Bomb where the movie makes low gross revenue for real, not just on paper, though the two have gone hand in hand a few times. Not to be confused with the Hollywood Style category of tropes like Hollywood Economics, Hollywood Law, etc.
To ensure that there are no net profits in Hollywood, movies are contractually designed to be unprofitable, no matter how much they make. While this has been a subject of controversy and legal dispute, it’s essential to understand that not all film studios employ such practices. Hollywood studios use it to grab profit shares and limit extra payments to other film participants. Despite all these, Hollywood accounting is not illegal but heavily criticized for its lack of transparency and unfairness. Thus, Warner Bros. stood to lose a lot of profit by making (or at least, reporting) a lot of money. The smaller the net percentage, the smaller the amount Warners had to share.
And then there are the disrupters, non-legacy outfits like YouTube, Meta and Riot Games, that made the top 25 by changing the very definition of what it means to work in entertainment. Naturally in this way, Hulu would make a massive profit on the show, while Fox itself would show only mild income from the streaming rights. Hollywood accounting tries to maximise the tax rebates from the various states/countries where the movie is being made, while reducing the payments made to third parties (tax payments etc). The next pages will examine how Hollywood accounting works, the types of movies affected — and why the system is likely to persist. Nevertheless, it must be noted that such a dubious accounting method finds usage in some of the Hollywood studios as authorities don’t deem Hollywood accounting illegal. By 2007, after a string of flops for New Line, Jackson was brought back to the studio to first executive produce, then to officially direct the new trilogy based on J.R.R. Tolkien’s The Hobbit (all part of the same continuity as The Lord of the Rings).
If there is any lesson to be learned here, it’s that Hollywood Creative Accounting will always be a standard practice as long as there are pieces of the financial pie to share. Studios cannot change agreed-upon percentages, so the smartest and most money-making strategy is to simply make the pie itself smaller and smaller and smaller (often along with their ethics). Naturally Buchwald sued, as his contract with Paramount indicated he would be paid for creating the film’s story. The California Superior Court heard Buchwald v. Paramount and reached a verdict in 1990, deciding in favor of Buchwald.
Hollywood accounting primarily impacts the financial reporting and profit-sharing calculations after a film’s release. It is separate from the box office reporting, which reflects the gross revenue generated by a movie at the box office. However, the reported profitability (or lack thereof) can influence how the public and the industry perceive a film’s success. Hollywood accounting refers to a set of intricate financial practices utilized by film studios in Hollywood.