They may not go to premieres or win Oscars, but there’s a group of people who are of far more value to the movie business than any Tom, Will or Affleck.
They’re Hollywood accountants and they’ve the kind of brains apparently able to vanish millions in cash right out of the tills. They can turn a blockbuster into a dud – on paper at least – and save their bosses a heap of money.
You see, it’s all about the percentage points. Film is collaborative, but that’s not so great when you’re divvying up the box office takings. With so many fingers in the pie, it makes sense for studios to make sure as few people as possible are entitled to their share (completely legally of course).
The full extent of what makes up a movie balance sheet is enough to fill several books, but it comes down to this. Every time a film is made, a new company is set up specifically to produce it (Generic Rom-Com Co.). Strangely, it’s in the studio’s interest that this company actually loses money. By carefully calculating the movie’s overhead and the money paid to above-the-line talent, studio, exhibitors, ad carriers, etc., it can be insured that the important people get their reward before the corporation goes into the red.
That way, all those with further claims on the profits of the film can be shown the finance sheets of Action Thriller Inc., see that it’s gone bust and that they’re not eligible for any extra cash.
This shadowy practice is frequent and expected (and to be re-iterate, legal), but not really discussed. Yet like all great monetary schemes, it’s easy to manipulate and near-impossible to penetrate. The language used in contracts is fluid, with fancy terms like rolling actual breakeven and artificial break-point.
It also varies from company to company, year to year. Lore has it that when John Wayne signed his contract for ‘Rooster Cogburn’, his reps demanded that Universal include a copy of what the previous generation’s studio lawyers perceived net profit to be.
What this means is that there are several box office hits which allegedly failed to make any money whatsoever. Here are (just a) few:
'Harry Potter And The Order Of The Phoenix'
One of the famous examples of Hollywood accounting, in 2010 a Warner Bros. balance sheet for the film was leaked. Despite making over $938 million at the global box office, ‘Phoenix’ was adjudged to have actually lost $167 million.
'Star Wars: Episode VI - Return Of The Jedi'
The third ‘Star Wars’ movie has earned over half a billion dollars in revenue. But according to an interview he gave to Equity Magazine, David Prowse, the man who embodied Darth Vader, said, “I get these occasional letters from Lucasfilm saying that we regret to inform you that as ‘Return Of The Jedi’ has never gone into profit, we’ve got nothing to send you.”
'Gone In 60 Seconds'
The car heist pic starring Nic Cage and Angelina Jolie was considered one of Disney’s big successes of 2000. It cost just over $103 million to make and took $242 million in receipts. But despite a further $198 million in sales when the film hit DVD and perhaps another $20 million in TV sales, the movie still officially ended up over $150 million in deficit. How? Blame the theatres’ 60% cut or Disney’s distribution arm which charged $90 million for carrying out its duties. And that’s not even counting interest. For more, check out Edward Jay Epstein’s excellent book The Hollywood Economist.
'The Exorcism of Emily Rose'
This indie horror movie did tidy business at the worldwide box office earning $150 million on a $19 million budget. Writer/director Scott Derrickson, helming his second film, negotiated 5% net profits. However, in an interview with fellow filmmaker Kevin Smith, he explained, “There’s no net. That’s how movie math works. I told my attorney, the next time you’re negotiating my net profit for the movie, ask for a ham sandwich instead.”
The 1989 Tim Burton version of Bruce Wayne’s alter ego was sued for net profits by two producers, but Warner Bros. insisted the smash hit wasn’t profitable thanks to merchandising deals and generous pay packets to star Jack Nicholson. Even though the studio thought it successful enough to make a sequel, they still held the line that there was no money in the piggy bank. Lawyer Thomas Girardi told The Associated Press in 1992, “We don’t know why they’re making ‘Batman Returns’ when they claim to have taken it in the ear so bad on ‘Batman’.”
The seminal 1979 horror flick was one of that year’s biggest hits. But a newspaper investigation in 1980 showed that despite taking over $50 million on a budget of a little under $11 million, 20th Century Fox declared it a flop, losing almost $2.5 million. As top entertainment lawyer Tom Pollock said at the time, “You can’t win under the rules that they are playing with.”
'Lawrence Of Arabia'
According to recent figures, the historical epic is the 70th biggest box office hit of all time when looking at adjusted numbers. Director David Lean didn’t seem to feel that way when he typed a letter to the British Film Academy in the late 1960s, offering to donate the profits he earned from ‘The Bridge On The River Kwai’ and ‘Dr Zhivago’. Why not ‘Lawrence’? As he wrote, “I would have included ‘Lawrence Of Arabia’ but Columbia maintain that it has not yet come into profit and is unlikely to do so.”