This week Neil Calloway looks at Hollywood Accounting…
Earlier this week it was revealed that Harry Shearer is suing Vivendi for his share of the profits from This Is Spinal Tap.
Shearer – probably best known now for providing the voices for Mr Burns, Principal Skinner, Reverend Lovejoy and others on The Simpsons – played Derek Smalls in the 1984 mockumentary (it was, in fact, the film that popularised that word), and has made only $81 from merchandise for the film and $98 from the music. It seems that the studio’s calculator’s only go up to eleven.
These sort of lawsuits are quite common in the entertainment industry, and they usually boil down to someone having been badly advised and signed an unfavourable contract decades ago, and they get settled out of court. This may happen in Shearer’s case too, but it also helps shine a light on the peculiar practice of Hollywood Accounting.
Box Office is King in the movie industry, and everyone wants their film to be a success, up to a point. There comes a time when it is in the studio’s interest to play down the amount of money a film has made, and that is when it is time to pay out some of the profits to the cast and crew. Here is when Hollywood Accounting comes into play.
The system is designed to minimise the amount of money a film appears to have made, so that the studio are not obliged to pay anyone who has a contract that says they will be paid a percentage of the gross. The way this is done is remarkably similar to the way that some multinational companies get around paying tax in certain countries; a company is set up by the studio specifically to produce the film, and then various costs are charged by the studio to that company, meaning the film never actually turns a profit. Of course, the more successful a film is, the more the studio can charge the company for dealing with foreign TV rights, or merchandising deals, and the more likely it is that the film won’t make any money according to some studio accountant’s spreadsheet.
This creative bookkeeping is helped by the fact that, due to marketing and distribution costs, a film needs to make back roughly twice its production budget at the box office to break even. Of course, margins on film production are quite small; a studio would probably get a better return if they stopped making movies and invested all their money in property; architecture enthusiasts are also less demanding than Marvel and DC fanboys.
Two of the most famous beneficiaries (or perhaps victims) of Hollywood accounting are Return of the Jedi – which “has never gone into profit” despite earning almost $500 million worldwide – and Harry Potter and the Order of the Phoenix, the latter of which apparently lost almost $170 million. With these figures, it’s a surprise anyone made the Star Wars prequels and that Disney paid $4 billion for Lucasfilm and that Warner Bros. committed to five Fantastic Beasts And Where To Find Them films.
This kind of financial jiggery pokery is not illegal of course, but it’s hardly ethical, and hopefully perhaps Shearer’s lawsuit will go some way to bring it to an end.
Neil Calloway is a pub quiz extraordinaire and Top Gun obsessive. Check back here every Sunday for future instalments.
Originally published October 23, 2016. Updated April 16, 2018.
