The Twilight gang has it right: if you're going to be earning a percentage of a film's profits, make sure it's from the theatrical gross, and not the net profits.
Certain members of the cast and crew of Harry Potter and the Order of the Phoenix haven't been so lucky though, as a leaked accounting statement from Warner Bros. clearly demonstrates. The film made over $938 million worldwide—almost a billion dollars—but if you were to believe the below numbers, the film hasn't made any profit at all.
Deadline got a hold of the report, which provides evidence of how deliberately calculated the costs and expenses of a studio film can be.
According to the statement, the film shows a loss of $167+ million. Even with one of the top 10 worldwide grosses of all time (it currently sits at #9, just ahead of Harry Potter and the Half-Blood Prince), the film's distribution, advertising, and print costs—which are listed as being the film's greatest expenses—are apparently enough to negate every dollar of that achievement.
I don't think it's even necessary for me to spell out what a shady business practice this is. If these numbers were accurate, Hollywood wouldn't bother making movies, because none of them would be profitable. One of the reasons the numbers have been tallied this way is to justify not paying anyone who's set to make a percentage of the net profits (meaning, revenue minus expenses).
There's no reason to single out Harry Potter here, either. This particular example is interesting because of how rarely we get to see behind the studio curtain when it comes to film finances, but the practice is discouragingly prominent. Studios use the allure of back-end points to sweeten a deal, even though they know they can twist the numbers however they want to avoid paying up. There's very little risk for them, and plenty to lose for the lesser paid writers, directors and actors who are subjected to it.
Alas, this is how Hollywood operates. It ain't too pretty.
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