Understanding the Intricacies of Hollywood's Financial Management
In the glamorous world of Hollywood, the concept of profits and paychecks isn't always as straightforward as it seems. A unique accounting system, often referred to as Hollywood accounting, is employed by movie studios to keep a significant portion of a film's profits for themselves. One of the most intriguing aspects of this system is the use of shell companies. These entities handle expenses like advertising, marketing, distribution, and general expenses for accountants, managers, travel, and entertainment for studio heads. These costs are often inflated, leading to a reduction in the reported profits. This system is not exclusive to small-scale productions. Even blockbuster movies like 'Coming to America' have seen its writer, Art Buchwald, receive a substantial payout of $900,000, despite the movie not having seen a net profit. The biggest beneficiaries of this system are major stars with backend participation deals. Luminaries such as Keanu Reeves, Tom Cruise, Bruce Willis, Will Smith, Alec Guinness, Robert Downey Jr., Sandra Bullock, Tom Hanks, Harrison Ford, and Jack Nicholson have all received a share of Hollywood production revenues, even when the films were not profitable. For instance, Tom Cruise earned around $50 million for his role in 'Mission: Impossible II' through a rare deal for 30 percent of the film's adjusted gross. Similarly, Leonardo DiCaprio's percentage of first-dollar gross from 'Inception' earned him around $50 million. However, it's not just the stars who benefit from this system. Behind-the-scenes players like writers, directors, and producers also negotiate deals for a percentage of gross points or first-dollar gross. Filmmaker Michael Moore sued producers Harvey and Bob Weinstein over profits for 'Fahrenheit 9/11' and settled out of court for an undisclosed amount. On the other hand, some creators like Deborah Gregory, author of the 'Cheetah Girls' series, have complained about not seeing their promised profits. Gregory was promised 4 percent net profits by Disney, but never received a penny. The Hollywood accounting system has been a subject of controversy for many years. Actor David Prowse, who played Darth Vader in the original Star Wars trilogy, owns a percentage of 'Return of the Jedi' but routinely gets letters explaining that the movie still has not turned a profit. Despite grumbling about these practices, there are no real signs that they will change anytime soon. Movies are contractually designed to be unprofitable, with shell companies being used to siphon profits back to the studio. For instance, the movie 'My Big Fat Greek Wedding' is said to have cost the studio $20 million in losses despite earning more than $350 million. In the 1940s, Rita Hayworth was one of the first stars to negotiate a deal for the net profit of her movies. Since then, the Hollywood accounting system has evolved, but not intentionally so. Today, it remains a complex and often misunderstood aspect of the film industry. In conclusion, the world of Hollywood accounting is a labyrinth of profits, shell companies, and stars. While it has motivated those involved in film production, the actual profit shared has decreased over time. As the industry continues to evolve, it remains to be seen how this system will adapt and change.
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