EXCLUSIVE: Signing a deal that makes anyone a net profit participant in a Hollywood movie deal has always been a sucker’s bet. In an era where studios have all but eliminated first dollar gross and invited talent to share the risk and potential rewards, guess what? Net profit deals are still a sucker’s bet. I was slipped a net profit statement (below) for Harry Potter and The Order of the Phoenix, the 2007 Warner Bros sequel. Though the film grossed $938.2 million worldwide, the accounting statement below conveys that the film is still over $167 million in the red. (Text continues below…)
I ran the data above by several attorneys and agents, who are so accustomed to seeing studio accounting wave magic pencils over hit movies that they weren’t surprised even a Harry Potter film that grossed nearly $1 billion would fall under the spell. Dealmakers say studio distribution fees are a killer, as are incestuous ad spends on studios’ sister company networks. They also cited the $57 million in interest charges, an enormous pushback on profitablity. Since Warner Bros didn’t invite in a co-financing partner on the Potter films, has the studio borrowed money from parent company coffers? Are they paying that interest to a bank, or to themselves? Bottom line: nearly $60 million in interest for the estimated $400 million required to make and market Harry Potter, charges carried for about two years, is a high tariff.
As one dealmaker tells me: “If this is the fair definition of net profits, why do we continue to pretend and go through this charade? Judging by this, no movie is ever, ever going to go to pay off on net participants. It’s an illusion to make writers, and lower-level actors and filmmakers feel they have a stake in the game.”
And yet Warner Bros isn’t doing anything differently here than is done by every other studio. Clearly, nothing has changed since Art Buchwald successfully sued Paramount over the 1988 hit Coming to America when the subject of net participation was scrutinized, and a judge called studio accounting methods “unconscionable”.