What is Hollywood Accounting? (2024)

Have you ever seen a movie make a lot of money at the box office and then hear the producer say that it still owes up to what was not spent?

Well, this is a fairly broad topic and today many producers suffer from this practice. Hollywood accounting refers to unclear accounting methods for the film and television industry where expenses, mainly distribution, are inflated and thus the net profit of the project is reduced or eliminated, thus avoiding paying royalty concepts, profit sharing or other agreements, which are based on the net profit of the film and this affects not only producers, but also writers and actors; Suppose you are an actor and they promise you points, profits from the film, at first it may sound tempting, and more if it comes from a studio, you may think that the sales will be great, then you find out that the film sold more than 100 million dollars world wide, but when you find out that they will not give you anything yet and that there is no date for them to pay you, then you start doing what you should have done from the beginning, investigate.

Winston Groom's price for the screenwriting rights to his novel Forrest Gump included a 3% share of the profits; however, due to Hollywood accounting, the commercial success of the film becomes a net loss.

Stan Lee, co-creator of the Spider-Man character, had a contract giving him 10% of the net profits based on his characters. The Spider-Man (2002) movie makes over $ 800 million in revenue, but the producers claim it made no profit as defined in Lee's contract, and Lee received nothing..

Remember that a film has income from its 1st day of sale, but no profit and the latter begins to be generated once all the costs of the manufacture of the film have been paid, including marketing where your film achieved very good numbers, 100 million, on a movie that cost no more than 30 million pesos, in the eyes of the world you could say that you are already rich, but when your distributor, exhibitor tells you:

-Effectively the film earned 100 million, but only in P&N (Printing and Advertising), we spent more than 30 million, plus marketing expenses, which are another 50, because we are barely paying ourselves-

Main factors in Hollywood accounting to reduce the reported profit of a movie, and everything that has to do with the calculation of overhead costs can be:

• General manufacturing expenses.

• Total production costs.

• Distribution.

• General marketing expenses.

I'M LOST?

No, you are not, it really is a matter of you getting good advice before signing a distribution or financing agreement, at present many directors or producers ask for a % of income rather than profit, since they know that this second will never come, On the other hand, you have a great advantage, you are in the era of new technologies, although many of the contracts are somewhat draconian, you have a better chance of going for an independent distribution; today many have done so, and with good results.