Hollywood Accounting Despite the many copyright infringement accusations and the recent economic recession, the Hollywood box office remains a multi-billion dollar industry. If it is unarguably profitable and healthy then how do highly acclaimed feature presentations such as Harry Potter, My Big Fate Greek Wedding, Lord Of The Rings, Who Wants To Be A Millionaire, Forest Gump and Nash Bridges report incredible losses of up to $167 million? The answer is Hollywood Accounting and it basically consists of cooking the books; with a new flavour.
Simply put, a large film entertainment company creates a subsidiary which will make it incur expenses in the form of service charges. These service charges fall in three categories of overhead: Production, Distribution and Marketing. The controversy lies in the percentage of expenses allocated to each of these overhead charges which are often criticized as being inflated. Recently, the income statement of the movie Harry Potter and the Order of the Phoenix has been leaked.
Many wondered how can one of the highest grossing movies of 2009, which received nearly $1 Billion, generate a substantial loss. In the statement you can see a “distribution fee” of $212 million, an “advertising fee” of $130 million and a “financing fee” of $57 million. Many argue that these amounts are grossly inflated and demonstrate that Warner Bro’s is paying itself. This might be true considering that Warner Bro’s in-house distribution, advertising and financing subsidiaries are taking the cut.
People who generally suffer from this kind of fraud are anyone in the range of writer to director, who are entitled to receive a percentage of the gross profit that their project generates. It turns out that accusations of using Hollywood Accounting are being brought to court. Those involved in the legal process are having a hard time believing that successful television shows and movies actually “lose” money. It makes me think, isn’t the industry being slightly hypocritical by prosecuting individuals who illegally download their movies when the companies themselves try to avoid paying their writers?