Day 873: The Movie-Money Juggling Game

originally published May 22, 2014

A spoiler for today’s article: it may shatter your innocence, lay waste to your humbling yet lavish optimism regarding the spirit of humanity, and rend into tatters your perceptions of Hollywood studio executives as upstanding, honest and forthright folk. If this won’t be a problem for you, read on.

The movie business is all about money, as evidenced by the fact that any film that coughs up some modest box office returns seems to get a sequel, or by the fact that Tyler Perry and Martin Scorcese technically have the same job. But beneath the big sparkly numbers earned by flicks like Avatar and Titanic lies an even more impressive act of CGI than those frolicking blue cats – they call it Hollywood Accounting.

Hollywood Accounting has nothing to do with the studios scamming the government to avoid paying taxes. I’m sure like any massive business they employ accountants to help them with that cause too, but specifically Hollywood Accounting is the insider method by which the movie studios can pilfer money from the very artists who concoct their revenue. It’s an ugly side of show business, but one that every aspiring actor, writer and director should be aware of.

To illustrate, let’s talk about this guy:

That’s Art Buchwald, whom you might remember from his Pulitzer Prize-winning syndicated Washington Post column, or, if you’re under 50 you might not. He was a brilliant wordsmith though, which is why it was strange that Paramount Studios was unable to transform his treatment into a full-blown feature. His concept – entitled “King For A Day” at this point – was about an arrogant and wealthy African potentate’s visit to the United States, ensuing in wacky hijinks and goofy hilarity. It would have been a perfect fit for Eddie Murphy, who was under contract with Paramount at the time.

The studio optioned the script in 1983 and commissioned a heap of unsuitable screenplays. Two years later it was dumped. Warner Brothers took over and tried to work it into something. Then in 1987, Paramount began working on an eerily familiar concept, based apparently on a story Eddie Murphy created. Warner Brothers subsequently dropped Buchwald’s option, while Paramount recruited John Landis to direct what would eventually become this:

Naturally, a lawsuit happened next. I’ve seen the synopsis for “King For A Day”, and while it doesn’t exactly follow the storyline of Coming To America, there was certainly a case to be argued here. This is evidenced by the fact that Buchwald’s lawyers did argue that there were similarities, and the California Superior Court agreed. Paramount was going to have to pay up.

The question was then how much they’d have to pay. According to the contract Buchwald had originally signed when he’d submitted his treatment in 1983, he was to receive a percentage of the film’s net profits. As you may recall (and if you’re under 30, you probably don’t), Coming To America was a huge success, grossing a whopping $288 million in domestic and foreign ticket sales – all this before the first videotapes had hit rental store shelves. But that’s gross sales. How much of that was actually profit?

According to Paramount, absolutely none.

The studio claimed that they had spent so much on pre-production, development and marketing that they had yet to turn a profit on the movie. This would mean that, according to Art Buchwald’s contract, he would be receiving a check for zero dollars. The court contemplated these numbers and in a solemn judgment determined that Paramount was “full of steaming, sweltering horse-shit.” (not an actual quote. Probably.). Buchwald was encouraged to pursue a tort lawsuit against the studio.

Paramount quickly offered an undisclosed settlement to Buchwald and ended the affair. This was some heavy precedent-setting stuff, and they didn’t want to change the way artists were paid (or, more specifically, not paid) for their work. The numbers they’d report to the IRS or the SEC have nothing to do with how they calculate ‘profit’. Overhead costs can be inflated easily on paper, and anything to do with the marketing budget can be subject to numerous grey areas.

This is how some of the most successful movies in history have been transformed into accounting flops.

The profits from Forrest Gump should have been able to buy everyone involved in the movie a truck’s worth of ice cream. With a $55 million budget and over $800 million in box office and video income, the math should be easy. But for Winston Groom, the guy who wrote the original novel and who was promised 3% of the movie’s profits, the movie was a bomb. Groom received $350,000 for the rights and another $250,000 from the studio, nothing more.

Stan Lee was supposed to earn 10% of the profits from any of the movies featuring his characters. Think about that – by logic he should be able to buy a gold-plated pair of underwear for every day of the year. But when the first Spider-Man film pulled in over $800 million and he received nothing, he went after them in court. I assume things were restructured so that he can now afford all those luxurious boxer shorts thanks to his X-Men and Avengers-related money.

And this is just the tip of the sleazy, greasy iceberg. Motion picture studios are downright nefarious when it comes to their accounting practices.

Remember My Big Fat Greek Wedding? If you’re under 20 you probably don’t. But the thing cost less than $5 million to make and earned over $350 million in theaters. According to Gold Circle Films, the movie lost $20 million. The entire cast (apart from writer/star Nia Vardalos, who had a separate deal) sued. Warner Brothers claimed that Harry Potter And The Order Of The Phoenix finished up with a loss of $167 million, despite theater revenue (again, not counting DVD and Blu-Ray sales) reaching past the $939 million mark. Even Return Of The Jedi, which only cost about $32.5 million to make, hasn’t yet turned a profit. Christ, they probably made that much on Ewok toys alone.

TV is not immune to Hollywood accounting either. J. Michael Straczynski created the show Babylon 5, which has earned over $1 billion for Warner Brothers in advertising revenue and DVD sales. A billion dollars. Yet they showed Straczynski a recent profit statement that puts the show at about $80 million in debt. “Basically, by the terms of my contract, if a set on a Warner Brothers movie burns down in Botswana, they can charge it against Babylon 5’s profits,” according to a disgruntled Straczynski.

As a result of the Art Buchwald lawsuit, Hollywood studios have changed the way they handle unsolicited scripts, generally sending them back unopened now because they fear any movie with even a remote similarity to something submitted might cause a lawsuit. But because Paramount was quick to settle, their Hollywood Accounting practices have yet to be subject to scrutiny.

The moral? If you sell a script, only accept points on the gross.

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