Hollywood Accounting explained

Senior Editor
07.12.10 18 Comments

Accountant-Fat-cat-Angry-Tobey-Maguire(You tell ’em, Tobey, don’t let those fat cats start pulling their tricks.)

In light of the WB accounting statement that surfaced last week alleging that the $938 million-grossing Harry Potter & the Order of the Phoenix was still $167 million in the hole, Hollywood Accounting is a hot topic.  Similar court cases had a Who Wants to be a Millionaire producer being awarded $269.4 million in back royalties, and Don Johnson collecting $23 million for Nash Bridges (which, if you’ll remember, was a show about a “special investigations unit”. ha, good thing they don’t make silly stuff like that anymore, huh?).

TechDirt had a nice piece recently detailing how the little accounting tricks work (a follow up to an earlier NPR piece) that I thought was worth sharing:

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.

In [the Harry Potter] 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.

That’s the problem with being able to create an infinite number of “corporations.”  You get one long paper trail and no one’s ass to kick.  Call me simplistic, but the way it’s worked since the beginning of time is that you could promise to pay someone and then not pay them, but in so doing, you always ran the risk of getting your ass kicked.  Not getting your ass kicked isn’t nearly the incentive it should be.  I blame similar for the rise of Quidditch in Northeastern private colleges.  It’s like no one cares.  Greenlighting a magic 8-ball movie?  A person should be embarrassed and a little scared of an ass kicking for that.  But no one is.  I’m sick of it.  I’m going to sock three strangers in the belly at random today just to plant the seed.

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