MOVIE MONEY: UNDERSTANDING HOLLYWOOD'S (CREATIVE) ACCOUNTING PRACTICES
By Bill Daniels, David Leedy and Steven D. Sills, Silman James Press, 299 pp
Reviewed by Richard S. Zimmerman, CPA, Frank & Zimmerman & Company LLP
The natural affinity that people feel for the movies has crossed over to the business side of filmmaking and distributing. Every Monday morning newspapers across the country publish the weekend box office receipts of the top ten grossing movies. In some cases these figures, representing a movie's popularity and success with the audience, may translate into how much some of the participants are actually paid. Movie accounting, distribution, and profit participation are treated in this book.
Film production and distributions are particularly interesting to me because I began my accounting career as an accounts payable clerk at a major motion picture studio. It was my job to reimburse petty cash expenses for the nationwide distribution offices. After several months of summarizing lists of expenses and preparing reimbursements, it occurred to me that a pattern was emerging. Although the executives worked on booking and promoting all the studio's offerings, they seemed to charge the bulk of their expenses to the film that was grossing the most. The authors here show us the rest of this dismal picture.
The book is intertwined with a screenplay that shows a typical example of a star whose film is a big hit while her participation statement shows the film is losing money. This screenplay is particularly entertaining (and pure fiction) because the accountant hero drives a Lamborghini and ends up with the girl after slaying the studio dragon. The authors recount a similar situation (without the Italian car and the girl) that has been in the news over the last few years: Art Buchwald won a modest victory from Paramount Pictures for his participation in Coming to America, a movie that starred Eddie Murphy. As a consequence, the contract system and how it defined the amounts to be charged to the participants came under court and public scrutiny.
The authors detail how the original studio system functioned until the 1950s. Under that system, the talent (actors, directors, writers, etc.) were indentured to the studios for long terms at fixed rates. The wedge driven into the system was a deal made by the agent Lew Wasserman for his client Jimmy Stewart. According to the legend perpetuated by the authors, Universal Pictures (which Wasserman went on to head and more recently sell to The Seagram Company, Ltd.) wanted Stewart for the movie Winchester '73, but they did not want to pay his usual "cash up front" fee. Wasserman made a deal that Stewart would accept less up front and have a stake in the success of the picture on the "back end."
The authors ignore a deal struck in 1946 that appears in a mini-history of the William Morris Agency. Johnny Hyde, a William Morris agent, made this radical deal between Columbia and Rita Hayworth, which entitled her to 25% of the net profit of her movies and script approval.
The authors, a trio of attorneys and accountants active in the business, guide us through the maze of studio accounting and reveal how the definitions of "gross" and "net" were developed by the studios, which control the process of production and distribution. The definitions change only when the clout of a specific artist forces the issue. Artists who are awarded a percentage from "net profits" are the recipients of what Eddie Murphy has colorfully called "monkey points" (Eddie is a "gross player"). Essentially, the net profit recipients have about as much chance of getting anything additional as would a monkey. Most terms in studio contracts are specifically defined, and artists (actors, directors, writers, etc.) know in advance that they must be effectively represented by attorneys and accountants who understand these definitions.
The text explains a "participation statement" as an accounting for those who are due a percentage of some contractually defined amount. The studio prepares the participation statements, which may include using a hybrid form of accounting, such as cash basis for revenues and accrual basis for expenses. To make matters even more complex and arcane, the contracts may also use a different definition for each participant. The term "Hollywood accounting" has a bite to it that conjures up many sets of books for those involved. As the authors review each line of the participation statements, it is clear that through cunning, guile, history, tradition, or just plain brute force, the studios have loaded the dice in their favor. Those poor monkeys who expect distribution from the "net" are usually disappointed. On the other hand the gross players are very few indeed. They are the Hollywood royalty who may have the ability--through their name or talent--to open a movie.
To be fair to the studios, the book details the services provided that warrant a large share of the proceeds before sharing profits with the talent. These include financing, producing, advertising, and distributing, among others. The book defines much of the contract language and explains for the uninitiated how a movie is made, the sources of revenue, and the costs involved. It discusses how films are distributed and promoted, who pays for them, and who receives the proceeds.
This book is a good primer on how the system works but falls far short of being a text for use by experts. If anything, it is entertainment reading for those interested in the movie business, required reading for the talent who sign the contracts, and a good gift for the film buff accountant.
The book lacks an index, which certainly would have helped this reviewer and might be missed by any reader. It does contain a glossary, which is helpful but should have been indexed to the text for ease of use. *
Contributing Editor: Andrew B. Blackman, CPA/PFS, of Shapiro and Lobel, LLP, is chair of the NYSSCPA Entertainment and Sports Committee.
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