So how do you make a film that grosses almost a billion dollars and still be $167 million in the hole? By having the same accountants as Warner Brothers apparently.
It used to be a rule of thumb that a movie needs to make back two-and-a-half to three times its production costs to break even. But Harry Potter And The Order Of The Phoenix had a budget of $150 million dollars and earned just a bit over $938 million in worldwide ticket sales. That’s more than six times the official cost of the film, yet it is still $167 million dollars in the red according to Warners.
Take a look at the financial statement for the studio’s Harry Potter And The Order Of The Phoenix below. It was slipped to Deadline by someone who had a net profit participation deal with the studio, i.e., they would receive a certain percentage of profits after the studio had made back all of the money it spent on making and distributing the film. These are different from gross profit deals, where participants receive money before all the account ledger legerdemain is performed. As you can see, somehow the movie hasn’t made a profit yet, so the studio doesn’t have to pay the person anything further.
Hard to believe that this could happen to the ninth biggest film of all time, right? Makes you wonder how studios manage to stay in business year-in and year-out with their films loosing money like this.
I am no expert here, but it appears as if Warners is playing a shell game with some of the money, moving it from one corporate part of parent company Time-Warner to another. How much of advertising was spent on Time-Warner owned broadcast stations and cable outlets? And where does that $60 million in interest payments come from? As the film did not have a co-financing partner, did it borrow the entire $400 million it took to produce, advertise and distribute from company coffers? If so, isn’t Warners charging itself a hefty interest fee on that loan? How is that even legal?
Net deals are often known to be sucker deals in Hollywood as the studios have been practicing this kind of financial chicanery for decades. Last April, David Prowse, the actor who wore Darth Vader’s black armor for the original Star Wars trilogy announced that he was told by Lucasfilm that Return Of The Jedi had not turned a profit yet, so he was ineligible for a contractually negotiated percentage of profits. And this is after the film had earned an estimated $572 million in worldwide ticket sales, including the $88 million it pulled at the box office during its last re-release in 1997. Art Buchwald famously sued Paramount over his profit participation in Eddie Murphy’s Coming To America, which the studio quickly settled out of court for fear of having their accounting practices exposed to the world.
The irony is that if you have enough power to alter the details of a net profit deal, you probably have the bargaining leverage to get gross points to begin with.
Do I see this ever changing in Hollywood? The only way it would, would be through an industry wide initiative to deal with talent more honestly (not likely) or a vast intervention on the part of the federal government (a bit more likely, though not much).