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How does Hollywood movie accounting actually work?


How can a movie that brings in $150 million in profits not be profitable? Primarily this is down to Hollywood accounting which uses its creativity not only in the film made but in the revenues received. It is common practice that when a new movie is produced a new shell company is created.

The shell company is designed to lose money by incorporating marketing and distribution expenses against the money made from the movie, essentially writing out any perceived profit. This is a bit above what an entry level accountant, or any other finance-related job may know, but is pretty old-hat for the seasoned veteran.

It should be noted that the fees offset against the movie shell company are actually paid to the studio that made the film. This allows the studio to hold on to more of the money rather than having to distribute profits. So when you hear that a mega movie has bombed at the box office, you can rest assured that the main studio itself is rubbing its hands in glee.

The studios counteract any wrongdoing by claiming that the production and distribution costs are so high, but it is hard to take them seriously when they are the ones arranging the advertising and distribution deals, often paying back into their own company.

Many studios are loath to provide the actual figures paid out for particular services and it could be argued that greater transparency in this sector is needed.

How about a$450 million movie? Well you would think that a film grossing this profit could not possibly make a loss, but by the same tactics as above, the film Return of the Jedi, did precisely that. Because they were able to write off the profits against hyper inflated expenses that they were charging themselves on paper this film made a loss. The accountants sure earned their money for this one!

This is bad news for people who were expecting a share of the profits, but good news for the studios. By twisting the figures through bogus expenses the main studio gets to keep all the money. This manipulation and creativity with figures mean that the studio can renege on profit sharing agreements. The creativity of the movie corporations accounting would in itself make a fantastic movie.

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