How is hollywood accounting legal

Hollywood Accounting is how a production studio weasels out of paying royalties or anything else based on a percentage of profit: just over-estimate your expenses, and bingo, there is no profit, or at least a lot less of it - at least on paper, even if the gross reaches into the billions. The "expenses" are charged to a separate entity or aspect of the filmmaking process, such as marketing, even though both entities involved are owned by the same film studio.

Some really outrageous cases have led to lawsuits. For this reason, the smart actors in Hollywood will insist on getting a percentage of "gross points" in their contract, i. That Other Wiki has a more in-depth article on the subject found here. See also Box Office Bomb where the movie makes low gross revenue for real, not just on paper. And he stayed at the Ritz Carlton, ordered sushi at 3 a. Each year of its original run, we know it showed a profit because they TOLD us so.

And in one case, they actually showed us the figures. Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

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Thank you. Filed Under: bones , fees , hollywood , hollywood accounting , lies , profits , scams , self-dealing Companies: disney , fox , hulu. The First Word. David Prowse still wants his rightfully-due royalties for being Darth Vader in Return of the Jedi that after thirty years he still has not gotten.

Maybe now with this case as evidence of Fox's behavior he might finally have a chance. Subscribe: RSS. View by: Time Thread. If nothing else it nicely exposes that the 'moral high ground' they'd like people to think that they are making those claims from is in fact a pit , and they're making those claims from the very bottom of it up to the 'pirates' that sit above them. Now if we can just get every news outlet around the world to present this fact rather than inane puff pieces and how we need to crack down on piracy.

I'm beginning to think kayfabe is a disease that has broken out from professional wrestling and is now epidemic across all media. So many incidents of fictitious narratives substituting for contrary evidence.

Measles outbreaks, alt-right uprisings and wildfire in California are all symptoms. Think of all the tax dollars left on the table by acquiescing to their perverted notions of profit. I suppose it is possible that the entities receiving those outrageous fees for doing little might pay some taxes, but I bet they have tax mitigation and profit recycling plans for those as well.

No tax dollars are lost. There is still tax paid on every penny Its just who gets to keep the profits, and fox is unfairly ensuring that its them. Due to state incentives it's unlikely they'd owe much tax anyway.

Any state that tries to make film producers pay the normal tax rate will find nobody's willing to film there. The big issue comes two fold. One is that due to the history in their accounting method, the IRS accepts that they have a historical accounting method and by policy accept that they deviate from accounting standards.

So the choice to match the film's revenue to the studio's marketing and distribution expenses while seemingly strange in normal accounting practices, is accepted. The second is that the IRS has accepted the practice of double and triple billing time by many professions Lawyers have a history of billing multiple people for the same block of time such as making a single visit to court to handle multiple court filings and it being considered legal.

The way Hollywood generates losses while still making money is by charging full billing for shared expenses between multiple films assuming they aren't just hallucinating expenses to bill.

This leads to overbilling and questionable losses. I imagine the IRS would enjoy taking this to task. However, the legal fight would likely lead to enough political pressure that it would not make it to a resolution. This is particularly true given the long history of budget hawks cutting IRS enforcement funding and refusing to fund task forces to investigate tax fraud.

The best resolution is more cases like this one, where the practice is questioned by private parties. This sidesteps the political pressure, and might lead to enough judgements with penalties to make the practice non-profitable. Peter, I think I died too early. I may only have been seventy, but I still had life to live! The thing I find most baffling about all this is For the outcome to be that Fox was doing something wrong makes me want to look outside to see if pigs are flying. I believe both parties have to approve the arbitrator, but I could be mistaken.

Regardless, arbitrators do tend to favor the corporation over the individuals. That said, the details in this case are so egregious that even a sympathetic arbitrator would likely have to acknowledge Fox committed fraud here. So, outside of forced binding arbitration, the courts still refer lots of cases to arbitration binding or otherwise before the case makes its way to be argued in front of a judge. When the issue is not pressing this is an issue that has been building for years that does not need immediate resolution , courts often prefer to see if the far less costly and far less crowded arbitration system can resolve the issue.

Furthermore, the statistical observation of Arbiters favoring corporations comes from the results found in forced binding arbitration, where the arbiter has a potential financial conflict of interest, as the corporation is likely to try to hire them repeatedly whereas the individual is likely to only use them the one time.

Then Star Wars came out and they decided to make a Star Trek movie instead. Titanic, remember that movie that everyone hates?

Well, to make the film Fox built a studio, a production facility down in Mexico. This had the very large water tank that Titanic needed. So that may seem strange but it is how it works.

In the media, the cost to make a movie is often reported, as well as the money earned. Presumably the cost reported is the amount the studio spent to make and I suppose promote the film, whereas the money earned is the box office gross receipts. And the promotion costs are not usually included in the reported budget for a film. Reading about this stuff makes me understand why Clint Eastwood started his own production company.

It must make it a lot easier to get your cut of the profits when you own the studio. Many bigger names among actors and directors have their own production companies, but, my understanding is that they are still stuck with working with a major studio for distribution and other aspects of movie-making. Of course Hollywood makes profits. But those profits are generated by a minority of huge blockbuster movies. The losers are those whose movie deal gives them money on the back end after all other deductions rather than on the front end before anything else is taken.

Needless to say only the biggest stars and directors get the front end deal. And, since the fees to the production company are expenses to the film, the production company can rake in the dough even while showing everyone else that the film lost money. Why does the IRS tolerate Hollywood accounting? The compensation terms between all parties are outlined in the distribution agreement. Anyone who has a profit share can see how much the studio will charge the production company before they sign their contract.

They can see that the production company will never make a penny on paper. They still pay Uncle Sam the same amount on their consolidated corporate income statement that they would through each subsidiary film production company.

Interestingly, however, is that this type of accounting is mostly an American phenomenon. It seems unethical to outsiders and the naive, but this kind of accounting is entirely above-the-board.

This shit is contractual. How a production company is obligated to pay a studio is defined in the distribution agreement. Investors and profit participants or their lawyers or agents are given all the information to sign off on. Keep in mind that these studios are big, publicly traded companies. In fact, lying to you or refusing to meet their obligations as outlined in the distribution agreement can be more civilly and criminally damaging than abiding by the agreement.

To me, the whole point of a contract is to take ethics out of the equation. Imagine you run a hot dog stand with your partner Greg.