How Hollywood Accounting Works HowStuffWorks

While Warners insists the picture will be profitable, there’s plenty of debate as to what constitutes success. And how much more will Warners spend to keep the picture in theaters, pushing the break-even point into the distance — a concept known in the business as a “rolling break,” as the profit margin rolls further and further away. Over the years, the money TSG received from its investments “decreased dramatically” and the company launched an independent audit to investigate the financial records. Based on what the auditors found in their sample, they estimate that TSG’s defined gross receipts were reduced by at least $54.5 million from Electronic Sell-Through distribution and it was improperly charged $35 million in costs related to Movies Anywhere. TSG last year sued 20th Century for breach of contract and Disney for inducing that breach. The first job production accountants get will be an entry level role, where they’ll be required to wear many hats within the team.

  1. According to Business Insider, WarnerMedia’s decision to release its 2021 slate of big movies (e.g., The Matrix 4) simultaneously in theaters and on HBO Max is riling Hollywood folk.
  2. Often these roles are filled by those fresh out of high school or college who have a love for the entertainment industry, the professionals said.
  3. Within this structure are shell companies, existing primarily in name, designed to drain the film’s profits and redirect them to the studio.
  4. Echoing the Scarlett Johansson suit over the release of Black Widow across both movie theaters and Disney+ in 2021, TSG contends that Disney made a number of moves aimed at feathering its own streaming nest.
  5. This article is part of a series on starting and building entertainment industry careers.

He previously served as corporate controller at GoDigital Media Group and an auditor at Deloitte & Touche. He graduated from the University of Southern California with master’s and bachelor’s degrees in accounting. Anousha Sakoui is a former entertainment industry writer for the Los Angeles Times who covered topics such as labor and litigation in Hollywood. She has been a journalist for over 20 years, having joined The Times in 2019 and reported for the Financial Times, Wall Street Journal and Dow Jones Newswires, Bloomberg News and Businessweek Magazine. Entertainment Partners launched its own academy at the start of the pandemic.

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It might be time to think about raising money from the throngs of movie lovers. Production accountants come from a variety of backgrounds and enter the field with diverse skills, said Lintinger. You could have an accounting and finance degree, or you could have a liberal arts degree, said Steinke. This article is part of a series on starting and building entertainment industry careers. That $58 billion statistic comes from a 2007 report written by Stephen Siwek of the Institute for Policy Innovation. In case you’ve never heard of him or the Institute, it’s a think tank backed by Dick Armey.

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After you pay your dues as a third assistant accountant, you can become a second assistant accountant, who is tasked with day-to-day purchase orders and invoices. Second assistant accountants also work with the production’s accounting systems and start to learn about managing the costs of the production. The indies exaggerate the cost of their movies; the studios lie in the other direction. Both are masters at bundling groups of films when they sell them abroad so that one movie’s loss is factored against another’s success. Last year, the website Techdirt revealed a balance sheet from “Harry Potter and the Order of the Phoenix”, which, under Hollywood accounting, ended up with a $167 million “loss” even though it’s one of the top grossing films of the last decade. Warner Bros. charged about $350 million in distribution, advertising, and interest fees to this external corporation.

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On the rare occasions they do, they stay mum about their marketing outlay. Here is an amazing glimpse into the dark side of the force that is Hollywood economics. The actor who played Darth Vader still has not received residuals from the 1983 film “Return of the Jedi” because the movie, which ranks 15th in U.S. box office history, still has no technical profits to distribute.

“Many former production accountants have gone on to earn significant roles within our industry, becoming successful producers and even heads of production at major studios,” Williams said. Hollywood’s unique accounting system wasn’t deliberately designed but evolved over time. In the past, actors like Rita Hayworth and Jimmy Stewart struck deals that allowed them a percentage of net profits. These deals were so new that studios hadn’t yet figured out how to manipulate the contracts, leading to lucrative outcomes for the actors.

Mark Goldstein, president and CEO of the film production services company Entertainment Partners, says one role in Hollywood has been in particularly high demand in recent years, and no, it can’t be filled by the likes of Anya Taylor-Joy or Daniel Kaluuya. But there’s yet to be any definitive assessment of the actual loss. Until there is, the $6.1 billion and $20.5 billion and $58 billion numbers are all just estimates. Why the gap between the MPAA’s $6.1 billion and Siwek’s $20.5 billion? Because the latter also factors in estimated losses from revenue that fails to circulate through the economy.

This approach to hiding profits, rather than losses, is what sets Hollywood accounting apart. If you’re picturing really glamorous accountants crunching numbers in the sunshine — well, that’s probably an accurate image. But Hollywood accounting is really not about location; it’s an accounting style that movie and entertainment studios use to keep a project’s profits to themselves. Hollywood accounting can make some of the top-grossing films of a given year or, indeed, of all time seem unprofitable. Hollywood accounting (also known as Hollywood bookkeeping) is the opaque or creative set of accounting methods used by the film, video, television and music industry to budget and record profits for creative projects. Expenditures can be inflated to reduce or eliminate the reported profit of the project, thereby reducing the amount which the corporation must pay in taxes and royalties or other profit-sharing agreements, as these are based on net profit.

The production accountant team typically travels with the production. Typically, the assistants supporting the production accountants start at approximately $1,000 per week and can earn up to $3,000 per week, according to Wagner. For many people who pursue entertainment as a career, it takes years to get yourself to where you are making hollywood accounting money from your creative work. But more and more people are turning to platforms like TikTok, Twitch and Patreon. The next step is first assistant accountant, who tracks and manages daily spending on such things as labor, petty cash and per diem expenses, while also dealing with vendor costs, such as for materials, locations and stages.

Not to be confused with the Hollywood Style category of tropes like Hollywood Economics, Hollywood Law, etc. And in 2008, Deborah Gregory, author of the popular young-adult fiction series “Cheetah Girls,” complained that she had never seen a penny of the 4 percent net profits she was promised by Disney from the movies, DVDs and merchandising surrounding her book. Not everyone in Hollywood supports the local accounting practices, however. Over the years, there have been signs that the studios’ clever tricks would catch up with them. It also found that 60 percent expect AI to have “a positive disruptive impact on business performance in three years.” And a majority identified streaming, advertising, video games and sports betting as the areas that will see the biggest impact. With or without deals, reducing headcount is “a critical priority” for 33 percent of sector companies, EY noted based on its conversations.

Art Buchwald received a settlement from Paramount Pictures after his lawsuit Buchwald v. Paramount (1990). Paramount settled for $900,000,[8] rather than have its accounting methods closely scrutinized. A production accountant could eventually go to work at a studio as a finance executive, who is responsible for several projects in production simultaneously.

Consulting and accounting firm EY found 83 percent of respondents feel “they must execute on M&A opportunities to achieve their strategic goals,” and 60 percent expect AI to have “a positive disruptive impact on business performance in three years.” The suit names Twentieth Century Fox Film Corporation and The Walt Disney Company as defendants, referring numerous times to the studio entity as “Fox” even though the entity owned by Disney is now called 20th Century Studios. But just because being a production accountant is a job with a big focus on numbers does not mean interpersonal skills aren’t important. One big difference is the impact that tax incentives have had on production. With all the offers of rebates, grants and credits encouraging filmmakers to bring their shoots to different locations, shows are now filmed around the world — wherever makes sense for the script and the budget. So you want to direct, but you don’t have a wealthy benefactor or thousands of dollars to spare?

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