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People have predicted the demise of Hollywood accounting after each lawsuit, but the practice has endured. In 2005, Stan Lee, the man behind Spider-Man and X-Men, won a similar lawsuit as did two individuals suing over their share of television show profits in 2010. These situations - a writer scammed out of a 3% share of Hollywood’s biggest hits - must look like truffles to lawyers.Ī Guardian article on Hollywood accounting wrote that “participants have no right to complain if they don't see any profits because they sign a contract agreeing to abide by the studios' accounting rules.” Nevertheless, judges or jurors have ruled against the practice on multiple occasions.Ī 1990 court case described Paramount’s accounting practices as “unconscionable” and freed up the writer behind the film Coming to America to pursue his fair share of the film’s profits. The survival of these accounting practices may be the most magical thing about Hollywood. Since Forrest Gump is still not profitable, he did not receive any share of the profits. Paramount Pictures famously offered Winston Groom $350,000 and a 3% share of net profits for the rights to his novel Forrest Gump. Since it is still paying off its debt to Superhero Studios, there are no profits to share. If anyone asks for a share of the profits of Spider-Man 10, the producers can point to Spider-Man 10 Inc. By the time Superhero Studios finishes paying itself (through Spider-Man 10 Inc) to perform work that costs $100 million, Spider-Man 10 Inc will be on the hook for one billion dollars.Īs suggested by the example of a cheated Darth Vader, the purpose of the charade seems to be hoarding profit shares promised to actors, writers, and other individuals or organizations. Superhero Studios then overcharges Spider-Man 10 Inc for every aspect of making, marketing, and distributing the movie. So if Superhero Studios decides to film Spider-Man 10, they create a shell company, Spider-Man 10 Incorporated. For each new film, a movie “is set up as its own corporation, the entire point of which is to lose money” by paying fees to the studio producing the movie. Instead of cooking the books to hide losses and inflate profits, Hollywood accountants inflate costs to ensure that even smash hits stay in the red.Ī 2010 Planet Money podcast with “Hollywood economist” Edward Epstein explains how it’s done. Hollywood’s lack of profits exists only on paper, the result of creative accounting practices so institutionalized and infamous that a Wikipedia page on “Hollywood Accounting” includes the inside joke that Hollywood’s most creative minds are the accountants. Where is his pot of gold that lures businessmen and investors to Hollywood?īuried in paperwork. Reading this statistic, we agreed with Darth Vader that this seems implausible. Over 80% of Hollywood movies fail to turn a profit. Their lack of profitability, in fact, is typical. They had perfectly average production budgets and expenses for movies of their scale. These films are not a cautionary tale about how wasteful spending can turn a commercial success into a net failure. I don’t want to look like I’m bitching about it, but on the other hand, if there’s a pot of gold somewhere that I ought to be having a share of, I would like to see it.” Now here we’re talking about one of the biggest releases of all time. “I get these occasional letters from Lucasfilm saying that we regret to inform you that as Return of the Jedi has never gone into profit, we’ve got nothing to send you. Two years after the re-release of Return of the Jedi in 1997, for example, David Prowse, the actor who played Darth Vader, told Equity Magazine that he still received letters informing him that Lucasfilm had no profits to share with him: