hollywoodaccountingkj09-04-07

We hear a lot about how much money such-and-such movie made in theaters. With blockbusters such as The Dark Knight, Iron Man, the Star Wars franchise, and the Lord of the Rings trilogy, it’s hard to imagine that all parties involved didn’t make a fortune. Sadly, for those who are unaware of studio practices, they are often swindled. Not by a little bit, but out of millions of dollars.

David Prowse, the actor who played Darth Vader in the Star Wars Trilogy, has received little money in the form of royalties from Return of the Jedi.  The reason? Apparently, the movie has not made a profit. It would definitely seem like the movie made a lot of money right? Nope, in fact it is at a loss! That’s pretty surprising for a movie that grossed $475 million worldwide. The movie made a gross profit, but a net loss. The net income is calculated by subtracting various expenses from the revenue of the movie. Simple enough. The only problem is that the studios add on so many bogus expenses, that movies appear to have lost money when really they have made money.

This is just one of the many cases highlighting what is known as “Hollywood accounting”.

Note to self: don’t ever agree to percentage of the net profits for a movie, you want GROSS profits. You will rarely ever make any money off net profits.

Here are a few movies that, surprisingly, have actually lost money by using this accounting system…

  • Return of the Jedi: Gross profit: $475 million worldwide. Budget: $32.5 million. David Prowse, the actor who played Darth Vader in three of the films, claims he has not received royalties since the release of the film in 1983 because the studio claims that the movie lost money, and therefore can’t pay him.
  • My Big Fat Greek Wedding: Gross Profit: almost $369 million worldwide. Budget: $5 million. The producers (Tom Hanks, Rita Wilson, and Nia Vardalos) of the film filed a lawsuit against Gold Circle Films claiming they have not received all of the agreed net profits from the movie, due to a mysterious loss of money.
  • Forrest Gump: Gross Profit: $677 million worldwide. Budget: $55 million. There were no lawsuits filed against Paramount Studios, but how they managed to create a net loss is amazing. The writer of the novel, Winston Groom, apparently only received $350,000 of net profit and was denied more. His contract stated he would earn 3% of the net profit. Paramount’s accountants really deserve a bonus for that one.
  • Lord of the Rings Trilogy: Gross Profit: around $2.914 billion. Budget: $281 million. Problems arose when director, Peter Jackson, filed a lawsuit against New Line Cinema claiming the studio was fraudulent in the manner they distributed the profits of the movies. Apparently, Jackson was cheated some $100 million of the profits. The details are still a bit sketchy.
  • Spider-Man: Gross Profit: around $821 million. Budget: $139 million. The creator of the Spider-Man character, Stan Lee, filed a lawsuit against Marvel Comics claiming he had not received that profits he was entitled to from the movie. His contract states that he is to receive 10% of profits from the various TV shows and movies with the Spider-Man character and yet when the movie came out he didn’t earn a dime even though his name was used to help promote the movie. He was then assured that it wouldn’t happen again when Spider-Man 2 was released in 2004, but oops! It did!

Keep in mind, these numbers only include revenue from theatrical release. It does not include revenue made from DVD sales, merchandise, and licensing. That shuts out a large portion of revenue for these movies. Nevertheless, these movies made a staggering amount of money through theatrical release.

This occurs regularly within the studios. However, it is difficult to find out the actual net profit or net loss of a movie. The studios don’t let everyone examine their books. Through unsavory accounting practices, the studios will create “expenses” as a way of avoiding payment of royalties. This information is often released because of lawsuits filed by disgruntled parties involved. If studios were really losing as much money as they say they are, they would be out of business and would not be able to afford bigger and more expensive blockbusters each yet. But the movies keep on coming, the producers cars keep getting nicer, and something tells me that someone is getting ripped off.

What do you think? Do you think something should be done about this? Is this fair? Or should people learn to negotiate their contracts better?