Oh, those Hollywood numbers!
p2pnet view P2P | MPAA:- “If you follow the entertainment business at all, you’re probably well aware of ‘Hollywood accounting,’ whereby very, very, very few entertainment products are technically ‘profitable,’ even as they earn studios millions of dollars”, Says Mike Masnick in TechDirt, from whence came the balance sheet on the right, going on:
A couple months ago, the Planet Money folks did a great episode explaining how this works in very simple terms. The really, really, really simplified version is that 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.
For example, a bunch of you sent in the example of how Harry Potter and the Order of the Phoenix, under “Hollywood accounting,” ended up with a $167 million “loss,” despite taking in $938 million in revenue. This isn’t new or surprising, but it’s getting attention because the income statement for the movie was leaked online, showing just how Warner Bros. pulled off the accounting trick:
In that statement, you’ll notice the “distribution fee” of $212 million dollars. That’s basically Warner Bros. paying itself to make sure the movie “loses money.” There are some other fun tidbits in there as well. The $130 million in “advertising and publicity”? Again, much of that is actually Warner Bros. paying itself (or paying its own “properties”). $57 million in “interest”? Also to itself for “financing” the film. Even if we assume that only half of the “advertising and publicity” money is Warner Bros. paying itself, we’re still talking about $350 million that Warner Bros. shifts around, which get taken out of the “bottom line” in the movie accounting.
Now, that’s all fascinating from a general business perspective, but now it appears that Hollywood Accounting is coming under attack in the courtroom… and losing. Not surprisingly, your average juror is having trouble coming to grips with the idea that a movie or television show can bring in hundreds of millions and still “lose” money. This week, the big case involved a TV show, rather than a movie, with the famed gameshow Who Wants To Be A Millionaire suddenly becoming “Who Wants To Hide Millions In Profits.” A jury found the whole “Hollywood Accounting” discussion preposterous and awarded Celador $270 million in damages from Disney, after the jury believed that Disney used these kinds of tricks to cook the books and avoid having to pay Celador over the gameshow, as per their agreement.
On the same day, actor Don Johnson won a similar lawsuit in a battle over profits from the TV show Nash Bridges, and a jury awarded him $23 million from the show’s producer. Once again, the jury was not at all impressed by Hollywood Accounting.
With these lawsuits exposing Hollywood’s sneakier accounting tricks, and finding them not very convincing, a number of Hollywood studios may face a glut of upcoming lawsuits over similar deals on properties that “lost” money while making millions. It’s why many of the studios are pretty worried about the rulings. Of course, these recent rulings will be appealed, and a jury ruling might not really mean much in the long run. Still, for now, it’s a fun glimpse into yet another way that Hollywood lies with numbers to avoid paying people what they owe (while at the same sanctimoniously insisting in the press and to politicians that they’re all about getting content creators paid what they’re due).
Where the money goes …
“The MPAA was founded in 1950 and its most famous son is/was the late Jack ‘Boston Strangler’ Valenti who, like [ex-boss Dan 'The Joker'] Glickman, was a well-known humanitarian, an award being established in his name”, said p2pnet, continuing
In the 80s he told congress the videocassette recorder was a critical threat to the movie business because tapes could be made of films. “I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone,” he declared.
In 2006 Valenti received $1,447,792, although he was no longer running the MPAA, having been replaced by Glickman.
In 2006 the MPAA lashed out $9,762,369 on worldwide ‘anti-piracy’ funding, and a further $5,471,182 on ‘investigations’.
That year Glickman received $1,312,800 for his efforts.
In 2007 Valenti was still being paid handsomely, stashing $1,440,286 in his bank account. But at $9,347,797, worldwide piracy funding was marginally down, as was spending on investigations — $4,187,663.
Glickman wound up with a total of $1,363,806.
Could it be Valenti was getting more money than Glickman because he was ‘mentoring’ the latter and acting in an ex-officio capacity up until he died in May of that year?
Be that as it may, Valenti may have passed on to the Silver Screen in the Sky, but his estate was (and may still be) rakingit in, receiving $1,361,938.
Stay tuned.
(Cheers, Jahm)
… and identi.ca
p2pnet – Hollywood Accounting and Average Joe, July 12, 2010
TechDirt – ‘Hollywood Accounting’ Losing In The Courts, July 8, 2010
p2pnet – MPAA finances: The Naked Truth, July 15, 2010
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August 3rd, 2010 at 10:30 am
Can we find any such evidence of accounting trickery with the music biz?
August 3rd, 2010 at 12:50 pm
“Can we find any such evidence of accounting trickery with the music biz?”
You bet. This are the same companies directed by the same corporate parasites.