is the practice of major studios of making profitable motion pictures into what seems like financial loss on purpose and by way of debatable accounting methods. The objective is to prove zero profits even with the movie actually being successful, in order to not having to cover any person who worked out for a cut of returns.
This method has been going on for a long time, and definitely pretty much everyone in the industry must be informed of it, but at least the lawyers and agents that work out a deal the arrangements should have.
So why does this technique still continue? Why is there apparently no wide-spread, effective boycott by motion picture makers and actors, why do people continue to approve a percentage of incomes as repayment, as opposed to a percentage of gross earnings?
What you need to remember is that in financial discussions, the accounting division will never freely declare that they are using ‘Hollywood Accounting’, it is often something initiated through people being deceived. The wording/circumstances are often rephrased to avert detection: ‘Net Point Profit’ was the circulating verbiage for a long time but has since fallen out of style as people have become quickly aware of its true definition.
Among the best examples of this Hollywood rip off are recognized producers, writers among other actors and talents in the industry.
Winston Groom’s cost for the screenplay rights to his novel Forrest Gump included a stocks of the profits; however, due to Hollywood accounting, the film’s commercial triumph was converted into a net loss, and Groom received not a dime. As such, he has refused to sell the screenplay rights to the novel’s sequel, explaining that he can not in good conscience permit money to be thrown away on a failure.
Stan Lee declared and won a lawsuit after the producers of the movie Spider-Man cheated him out of his portion of the profits of the movie.
In the case of Actors/talent, they often have little alternative in the matter: if they want a part in the film, they’ll get what their given, and hope that the finance department is fair in the execution of debt owed. Although not ‘Hollywood Accounting’, Jonah Hill is a recent example of this ‘desperation’ to be in a movie, taking only $60,000 for The Wolf of Wall Street, because it was the only way he could get Scorcese’s people to recognize to his involvement. That’s a mainstream, Oscar-nominated actor taking a financial hit to secure his role, so sometimes Actors will just take what they can.
Hollywood accounting is not restricted to motion pictures. An example is the Warner Bros.television series Babylon 5 created by J. Michael Straczynski. Straczynski, who wrote 90 % of the episodes in addition to producing the show, would receive a generous cut of profits if not for Hollywood accounting. The series, which was profitable in each of its five seasons from 1993– 1998, has accumulated more than US$ 1 billion for Warner Bros., most recently US$ 500 million in DVD sales solely. But in the last earnings declaration given to Straczynski, Warner Bros. declared the property was $80 million in liability.
A good way to maintain a movie out of earnings is to keep going back and paying a wide range of units for work ‘owed’, and delivering bonus’ upon bonus’. If you’ve worked on the film, and are ‘in on it’ (and willing to co-operate), if the film is prosperous there’s a good chance you’ll obtain some kind of surprise ‘bonus’ (who’s real purpose is to stop the movie having to commence net-point payouts).
As pointed out, there potentially should be some kind of group that will front in opposition to this kind of habits, but regrettably there are too many individuals complicit in its system, and the old system of ‘Unions’ was broken aside by the grow of the New Hollywood in 1969, so the only formidable force left in Hollywood is the SAG & WGA: in which are on their own complicit in this process as well.
The sad thing is, Hollywood Accounting is supported out of a couple of aspects, Greed, and Ignorance! Until they are abolished, its likely the habit will carry on.