Nowadays, with the highest grossing movies raking in hundreds of millions of dollars and sometimes even billions you’d think everyone in Hollywood would be swimming in the profits Scrooge McDuck style.
But ‘profit’ is a tricky term in Tinseltown and often studios claim that movies have yet to make any money despite raking in huge amounts of cash in box office takings. How and why, you very possibly cry...? Well, it's thanks to a shady practice known as Hollywood accounting that basically allows a studio to wriggle its way out of paying out by deducting enough in expenses so that on paper it looks like a movie has made nothing or, in some cases, has actually lost money.
It goes a bit like this: Let’s say a movie makes £500 million at the box office. This figure is classed as its gross profit and is usually the number studios brag about so their movie seems uber-successful.
Then the studio starts deducting costs associated with the movie, usually in the form of marketing and distribution fees, leaving a massively reduced net profit. The funny thing is that the companies paid for marketing and distribution are often a subsidiary of the studio so in essence, it’s actually paying itself for these services. It’s also a great way to get out of paying any actors or crew that might be entitled to a percentage of the net profit.
If it sounds ridiculous and shady it’s because it is, but like a lot of shady things in Hollywood it happens all the time.