Hollywood accounting, explained

WarnerMedia’s move to release its 2021 films straight to streaming means lower paydays for talent.

December 8, 2020

In Hollywood, top stars typically negotiate back-end profits as a percentage of gross (instead of net) box-office revenue.

Take legend Eddie Murphy: He calls net percentages “monkey points” because he deemed them worthless.

Why is that?

Well, the film industry is so notorious for financial shenanigans that “Hollywood accounting” has become a thing.

Film Studios have to pay lots of stakeholders…

… in the form of taxes, royalties, and profit-share agreements.

They often make payouts based on profits, and there are a myriad of ways Hollywood can reduce profits.

Namely, studios can tack on various overhead costs (production, distribution, marketing) that have no verifiable basis in reality.

The problem could get worse

According to Business Insider, WarnerMedia’s decision to release its 2021 slate of big movies (e.g., The Matrix 4) simultaneously in theaters and on HBO Max is riling Hollywood folk.

Theater chains are understandably up in arms (AMC announced a desperate equity offering to raise cash) — but industry talent is also worried.

HBO Max is licensing the films from sister studio Warner Bros

Presumably, at a market rate.

However, the films will be free to streaming subscribers already paying ~$15/mo.

The fact that streaming money will pale in comparison to box-office receipts makes the specter of Hollywood Accounting as great as ever.

AMC’s official statement captures the mood: “WarnerMedia intends to sacrifice a considerable portion of the profitability of its movie-studio division and that of its production partners and filmmakers to subsidize its HBO Max startup.”

(Author’s note: In a previous life, I optioned a film to Fox and had to deal with my own version of Hollywood accounting)

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