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PaperclipPerfector  1yr ago (text post)   30462 thread views

Culture War Roundup for the week of August 14, 2023

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Hollywood accounting is largely a legend from the old days, and despite some real examples it was never as common as is sometimes implied (accounting tricks were commonly used for production finance and tax reasons, most creators who sold rights were paid cash). In the modern day, agents will make sure you get points up front or a substantial cash payment for IP rights.

For the most part in movies the people who make money are those who fund movies and some star talent (directors, star actors, occasionally others) that can bid up their price. Everyone else gets paid standard or union rates. This is similar to any other business.

The problem is that in entertainment an additional entitlement exists, namely the ‘right’ some people demand to revenue points even when they bear none of the risk for a production. In other industries this doesn’t fly, equity is offered either as part of compensation packages to attract talent or to keep it, there is no ‘right’ to it. And when an accountant or lawyer makes partner, they have to ‘buy in’ for several years before they start making a personal profit.

This (not AI or writers rooms) is actually the biggest sticking point in the current strikes.

Hollywood accounting is largely a legend from the old days

Looks like this crowd don't know that:

Disney has been hit with a lawsuit in Los Angeles Superior Court by film financier TSG, which claims that the media giant used “nearly every trick in the Hollywood accounting book” to hoard hundreds of millions in profit.

Maybe their lawyer should tell them "Sorry, but 'Hollywood accounting' is an old days legend, I can't take this case because you will embarrass yourselves"?

Lawsuit here, doubtless the judge will laugh it out of court because "Hollywood accounting doesn't happen today!"

The pejorative term “Hollywood Accounting” refers to the opaque and creative methods frequently employed by major television and film studios to cheat those who share in the profits of a television series or film out of their full contracted-for shares. The practice has unfortunately become ubiquitous among the major Hollywood studios, with a recent report from CNN Business describing the tactics of Hollywood Accounting as among “the most fantastical fictions ever devised in Tinseltown.” Even by those standards, however, this case stands out. At its root, it is a chilling example of how two Hollywood behemoths with a long and shameful history of Hollywood Accounting, Defendants Fox and Disney, have tried to use nearly every trick in the Hollywood Accounting playbook to deprive Plaintiff TSG — the financier who, in good faith, invested more than $3.3 billion with them — out of hundreds of millions of dollars.

...What the auditors found in sampling just three of the 140+ films at issue was clear evidence of Hollywood Accounting. For example, the auditors discovered that Fox failed to credit TSG with revenue that Fox’s own business records showed should have been included in Defined Gross Receipts, Fox charged TSG tens of millions of dollars of distribution fees that the RPA does not permit, and Fox deducted from TSG’s Defined Gross Receipts additional tens of millions of dollars of purported “distribution expenses” that, in fact, had nothing to do with the distribution of the Qualifying Pictures and were therefore not properly deductible. The auditors also uncovered rampant “self-dealing,” the practice by which a studio enters into “sweetheart” deals with its licensee affiliates to artificially minimize the profit payments to stakeholders like TSG, who generally share only in the revenues received by the studio, excluding the revenues received directly by these licensee exhibitors.

Up until recently, nearly all films debuted in the movie theatres and remained there exclusively for a period of time, typically between approximately 90 to 120 days. This period of time is known as the theatrical “window.” Films would generally then be released in secondary distribution channels in sequential “windows,” starting with pay per view (i.e., digital film rentals), then home video (i.e., DVD and Blu-Ray sales), then pay television (i.e., exhibition on pay television networks such as HBO and Showtime, traditionally known as the “Pay 1” window) and then subscription video-on demand or “SVOD” (i.e., availability on a subscription-based digital streaming service such as Netflix or Hulu). For decades, Fox licensed films to the pay television service HBO exclusively in the “Pay 1 window” pursuant to an “output deal” that required HBO to license Fox films after they had debuted in the theatres. Relevant to this dispute, public sources have reported that Fox agreed in 2012 to license HBO its films released through 2022, for an estimated $200 million per year.

In 2019, however, Fox was acquired by Disney. Shortly thereafter, Disney’s then CEO Bob Chapek announced that Disney would restructure to focus strategically on building value in its wholly- and majority-owned SVOD platforms, such as Disney+ and Hulu. This meant that Disney wanted to make its most attractive content available for streaming on those platforms as soon as possible. Standing in the way of this strategy, however, was that the Fox films, including the Qualifying Pictures, were contractually exclusive to HBO in the Pay 1 window, and therefore could not be offered on Disney+ and Hulu without violating the terms of the HBO license. Undeterred, on information and belief, Disney ordered Fox to renegotiate its agreement with HBO and give up a significant portion of its guaranteed HBO license fees, in return for HBO agreeing that Fox could license these Qualifying Pictures to Disney+ and Hulu.

Specifically, according to public reports, in November 2021, after decades of lucrative Pay 1 licensing deals, Fox—on information and belief at the direction of its parent company Disney—convinced HBO to waive its exclusivity and thus enable Disney+ and Hulu to exhibit films concurrently with HBO’s Pay 1 window. While this move was beneficial to Disney its shareholders and, relatedly, its senior executives, it came at a great cost to TSG because such valuable waivers in the entertainment business do not come for free. On information and belief, the renegotiation of the Fox/HBO Pay 1 output deal cost Fox many millions of dollars that otherwise would have been reported to TSG as Defined Gross Receipts.

Hollywood accounting is alive and well. The films are quite good at turning minimal profit, so if your contact is based on the profit not the gross you are fucked. On the other hand this type of accounting is very common in any multinationals - there is reason they are based in Dublin and the companies in Dublin pay trough the nose for ip from companies in the Cayman Islands, so calling it Hollywood is probably a bit dated.

I once started on an abortive career in Accenture (absolutely hated the culture, was mildly relieved I got fired) and as we were getting familiarized with SAP modules it was pretty obvious one module existed mostly to allow deceptive accounting. E.g. creating illusory numbers through billing for various corporate 'services' provided between controlled companies meanwhile still preserving the real numbers.

I imagine part of the problem is that the guy is looking at "This movie made $300 million, I didn't get any of that, who did?" and pinning it on his family. But it is going to be the studios who take chunks out of that to cover marketing, distribution, etc. Even if that means $100-200 million of a profit remaining, that's going to the people who know how the system works and that you don't sign up for a flat fee at the start, you make sure you look for a share of whatever profits are made.

I would say Mr Oher took the up-front money, and is now expecting that his share should have been bigger, and nobody is explaining to him (or he's not listening to them) that this is not how it works when you make movies.

Hollywood accounting is largely a legend from the old days

The latest examples on Wikipedia are from the late 2010s (including one case settled in 2021). When I think of the old days of legend I think "my grandsires' grandsires", not "my kids were a little shorter".

some people demand to revenue points even when they bear none of the risk for a production

Revenue points are a way of bearing some of the risk for a production. If I demand $100K flat, I bear zero risk. If I demand 0.1 gross points on a movie expected to gross $100M, my expectation is still $100K (either pretend interest rates are 0 or say I get a little more to even out the NPV) but my risk has increased (my variance is no longer 0), and my paymasters' risk has decreased (their expected profits are still $N-$100K but the variance of their profits has reduced). I'm bearing more risk and they're bearing less. For many standard/union rate workers this might usually be moot, as they can only negotiate for points in addition to base salary rather than instead, but people with IP rights aren't so restricted.

Looking thru Wikipedia - I’m surprised there are still some examples of this. I’d assume the stars have agents who know the accounting games and would have their workarounds at this point. I could see things working years ago for studios in their contracts but I’d assume the agents and lawyers on the other side aren’t idiots.

The examples from the 2010s section involve either old cases or losses for studios in lawsuits for trying this against established stars e.g. with the cast of Bones or Frank Darabont vs AMC. So at least their lawyers were on-point.

I assume anyone with leverage is wise now.

Other people just take what they can get and don't even get on that page because there's nothing to challenge.

I remember some redditor writing a short story (or it may have just been the outline of the concept) about a group of US Marines trapped in ancient Rome called Rome Sweet Rome that got optioned and he clearly noted the problems with a net profit share in his AMA but he also pointed out that he had absolutely zero leverage.

Think I heard that story might become a movie. Almost feel like it was associated with the next gladiator movie.

Isn't that what 'gross' means? Gross revenue? Eg Box office ticket sales.

So the producers can't say a movie bringing in $300 million cost $400 million to make factoring in catering and purchasing IP from the company in the Cayman Islands?

As an actors agent I think you'd be able to tune your contract's definition of 'percentage of gross revenue' to deflect most Hollywood accounting issues. You'd also think the Screen Actors Guild would actually have resources available to help provide this knowledge.

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