Good one, Hollywood: I nearly believed you when you said you lost money on HARRY POTTER 5

Good one, Hollywood: I nearly believed you when you said you lost money on HARRY POTTER 5

Jul 07

Whenever I explain to people that big movie studios (like Warner Bros., Universal, Paramount, etc.) don’t make much annual profit (relatively speaking), I’m usually met with blank stares or open incredulity. “But Tentpole: The Movie: Sequel #3 made $xxx million!” they say; “of course they make billions of dollars every year!”

That’s not actually the case. Why? Because, while Tentpole 4 made $xxx million at the box office, making back triple its budget, Overlooked Indie Drama, Mid-Tier Director’s Passion Project, Small-Time Fantasy Epic For The Kids and Star-Driven Comedy Vehicle failed to make their double-digit budgets back.

Net profit at the end of the year? Out of a $10 billion gross revenue, a studio might expect to see $800 million — before tax and expenses. That’s 8%. And that 8% has to be used next year to fund a whole raft of projects, big and small, in the hopes of increasing the total revenue, and thereby increasing the actual money that flows into the studio’s coffers.

Confusing this issue is Hollywood’s annoying habit of fudging paperwork. A fresh example of this is a leaked document from Warner Bros. indicating that Harry Potter 5 ( … And The Order Of The Phoenix, 2007) actually lost the company $167 million despite a $938 million gross revenue.

As the insiders at Deadline helpfully point out, a vast percentage of the expenses are in interest owed to money-lenders (about $57 million); the report doesn’t specify who the money’s owed to, though: did Warner Bros. borrow it from a bank or just “lend themselves” the money? In the case of the latter, that “interest” is pure profit, but counts as a negative on this balance sheet.

Why bother lying to the world and covering up your profits? To avoid paying royalties and per-dollar contracts based on net profit. If you sign a contract with an actor to pay them 5% of all net profit, the actor’s going to think “Gee whiz, thanks Mister, I’m going to be rich when this movie banks a billion bucks!” Little does she know, the accountants find a way to balance the budget into the negative, by arbitrarily inflating expenditures, to avoid paying the actor a blessed cent (beyond her up-front salary).

Upon reading about this financial tom-foolery, I dug a little bit deeper and found that this kind of thing has been going on for decades. Here are just a few examples poached from Wikipedia:

• Stan Lee, creator of Spider-Man, successfully sued Sony when they refused to pay him any of the first film’s profits, claiming a net loss (budget: $140 million; gross: $821 million).
• Winston Groom, author of Forrest Gump, refused to sell the rights to his sequel after Paramount failed to pay him royalties, claiming a net loss (budget: $55 million; gross: $677 million).
• Art Buchwald, whose 1982 script led to the 1988 Eddie Murphy vehicle Coming To America, successfully sued Paramount when he wasn’t paid for his involvement; again, Paramount claimed a net loss (budget: <$35 million; profit: $350 million).
• J Michael Straczynski, creator, producer, and lead writer of TV’s Babylon 5, was massively underpaid according to his contract, despite the show’s greater-than $1 billion worth. Quoth he: “Basically, by the terms of my contract, if a set on a WB movie burns down in Botswana, they can charge it against B5′s profits.” Warner Bros. claims that the B5 property is $80 million in debt.
• Peter Jackson and his studio Wingnut Films, fifteen different actors, and the Tolkien estate have all tried to sue New Line Cinema at one time or another, as New Line failed to honour contracts based on the mammoth Lord Of The Rings franchise, which grossed over $6 billion.

Besides cementing the greedy and detached stereotype attached to Hollywood executives, what does this fraudulent documentation mean at a ground level? It means that filmmakers who choose a percent-per-dollar salary over an up-front sum are being swindled (unless their name is Steven Spielberg), and it means that no-name contributors who have a big effect on a movie are being criminally cheated out of compensation.

This comes hot on the heels of news that the big three Twilight stars (Kristen Stewart, Robert Pattinson and Taylor Lautner) are being paid $25 million each to appear in the two-part finale, Breaking Dawn, and that Daniel Radcliffe (Harry Potter himself) is being paid $50 million to appear in his own two-part finale; that’s proof enough that studios have spare cash to throw down in order to secure things they really need — i.e. bankable faces — but are much more thrifty with their behind-the-scenes dealings.

Don’t get me wrong — I love a big spectacle movie like Lord Of The Rings or Star Trek as much as the next fellow, and it’s hard to imagine a cinema experience completely divorced from the Hollywood machine. But sometimes I wish there was a little more justice in the world, you know?

It’s kind of like that cliche guff from Spider-Man: with great power comes great responsibility. Maybe that should be amended to: With great bundles of cash comes the responsibility to pay people what you owe them, you greedy bastards.