It was the biggest year ever for Hollywood – $10.6 billion in box office revenues. Moviegoers lined up to see on the big screen battling robots, sexy vampires, Vegas misadventures, and the latest installments in the “Star Trek” and “Harry Potter” franchises. As the year ended, audiences couldn’t get enough of the extraordinary visuals of “Avatar,” propelling the sci-fi fantasy film to the highest box office take ever (at least when not adjusted for inflation). Still, with all that money flowing toward the major studios just what happens to it all? In most other industries a $10 billion year would bring expansion but in the film industry that isn’t necessarily the case. The studios are scaling back the number of films they finance and release. The only thing growing in Hollywood is the budgets. So just what does happen to all that money? When the general public reads about tens of millions that films bring in on their opening weekends they must think that someone somewhere is getting a great payday. Yet there have been films that brought in millions yet were still considered unprofitable. What gives? The British newspaper The Guardian called it “The Weird World of Hollywood Finance” in a 2001 article. Hollywood Accounting is the better known name. “There is no simple answer,” said longtime box office analyst Paul Dergarabedian, with Hollywood.com. “That’s my bottom line to it.” The studios, of course, are on the line for the highest cost associated with a feature film. In 2008, the average cost of a film was approximately $71 million. Then marketing costs averaging between $32 million and $35 million must be factored in. Then comes advertising (those billboards don’t put themselves up), creating prints to send to the theaters, and the making of masters to create the DVD version. There are others waiting, as well, to take their share: the exhibitors, the production companies, the director, writer and big name stars that pull in the audiences, and their associated agents and attorneys. “Everybody wants a piece of the pie and you have to work hard to get yourself in front of the right people,” said Marty Shindler, a long-time entertainment industry consultant with a background in accounting. “It is competitive out there.” Yet despite these astronomical numbers, some studios still find themselves cutting costs. In January, Sony Pictures Home Entertainment and The Walt Disney Studios made staffing cuts. Disney is in the process of consolidating its theatrical and home entertainment divisions. Because these are just divisions within larger entertainment/media conglomerates, an eye on costs is kept even as box office revenues rise, said Jack Kyser, senior economist with the Los Angeles County Economic Development Corp. There has been a mood shift in the industry in that the record box office total was helped by films that had come out of nowhere, notably “The Hangover” and “The Blind Side,” Kyser said. “I understand their slates in 2010 will be equally attractive but they still have the eye on bottom line,” Kyser said. The theaters The simple starting point of where the money goes in Hollywood is the movie theaters. The exhibitors and the studios split the box office take although the percentages can differ with each film and the take on one side changing the longer a film runs. The money returned to the studios becomes known as film rental – their share of the revenue from renting their film. The cost of production and advertising are included within that, as are other costs, Shindler said. The financial waters become murky when one has to consider all the other deals involved with feature films. They are complex just on the domestic side but once overseas distribution gets added in there are typically different entities handling different territories. Toss in merchandising and the complex deals become more complex. There are instances of individuals reaping the rewards of a popular movie. Mel Gibson put up much of the money for “The Passion of the Christ” and earned it back with the $370 million box office. James Cameron put up some of his own money into “Avatar” and stands to make a lot back. Studios will also split the cost of some films to reduce their risks. When “Titanic” sailed into theaters in 1997, Paramount handled the U.S. distribution and Twentieth Century Fox handled getting the film into international theaters. “When that happens you can only imagine what the deal is like,” Dergarabedian said. “The lawyers must be the ones making the money on this.” Those left out When there is so much money involved there is bound to be someone who is not happy. Then come the lawsuits, and there are plenty of stories of those, the most well known being the breach of contract case brought by Art Buchwald against Paramount, which claimed that “Coming to America” had made no net profits despite bringing in $288 million at the theaters. “Forrest Gump” author Winston Groom, comics pioneer Stan Lee, director Peter Jackson, and the cast of “My Big Fat Greek Wedding” all at one point initiated legal action to recoup money they believed they were owed but for questionable accounting practices. When Shindler has talked with people believing they were not paid what they were due from a film he pointedly asks two questions: if they understand the difference of box office take and film rental, and did they read their contract. While there are occasional screw ups on the part of the studios, there is more to Hollywood Accounting than meets they eye, Shindler said. “More often than not the accounting is done correctly,” Shindler said. “There are too many checks and balances to make sure that the check or statement that goes out to the participant is done correctly.”
Where’s the Money?
