When your billion dollar grosser loses money.

1) i don't understand how that's possible (and i've studied finance).

2) i really don't believe that it's lost any money (the article is very vague).

3) the accounting statement isn't enlargeable.

4) the article is saying that:

movie prod cost + marketing cost = 400 mil
"interest cost" = 60 mil (what's "interest cost" exactly?)

total cost = $460 million.

gross revenue = $938 million.

938,000,000 - 460,000,000 = $478,000,000

movie cost a half bil to make, and made a billion. how does it loose money?

am i missing something?
 
You've never heard of "Hollywood accounting"? I don't think any major release in the history of film has ever "made money."
 
Not sure if I'm totally getting this article. Please correct me if I'm wrong.

They're in the red because of interest? And because they're in the red, none of the creative talent offered back end points is making any money? AND, the studio is trying to keep it in the red so they don't have to share any profits?

This is why I didn't go into accounting. Any clarification is appreciated.
 
Basically, sounds like what happens with small time distributors and indy filmmakers all the time, except in this case is on a big hollywood scale.

Hollywood says "oh, our film hasn't made any money, so we don't have to pay you any stake in the profits".

The guy didn't come right out and say it, but was implying that the film did indeed obviously make money, but the studio is doing some fancy reporting on their books in order to avoid paying out profits to the director, actor, etc.... anyone who might have a stake in the films profits in exchange for a lower salary on the film.

In the indy world, if distributor says they'll pay you out of profits, you generally will never see anything b/c they will always report a loss on your film. Is why it's generally best (from my recollection) to get up front money for any deal you might make with a distributor on your indy film, b/c it is likely all you will ever see from them
 
It has to with the fact that almost every single Hollywood Production company and most large independent companies (ie; LionsGate) have billions of dollars of debt. Most films need to make back 3-4 times it's budget to be consider profitable to cover not only film expsense, but also the debt (bond) financing that almost all major film studios have.

Look at why people are hesitant to purchase MGM... It has about 4 billion dollars in debt financing that needs to be paid off by 2012.

As of mid-2009, MGM had US$3.7 billion in debt, and interest payments alone totalled $250 million a year. MGM earns approximately $500 million a year on income from its extensive film and television library, but the economic recession is reported to have reduced this income substantially.
Whether MGM can avoid voluntary or involuntary bankrupty has been a topic of much discussion in the film industry. MGM must repay a US$250 million line of credit in April 2010, a US$1 billion loan in June 2011, and its remaining US$2.7 billion in loans in 2012.
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Fahad said:
that can't be legal
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Just try and fight it in a civil court. It's been done successfully, but you need extensive resources and real dedication: studios maintain well-staffed legal departments for the purpose of making the screw-job stick...
 
It's messed up, but isn't anyone on a Harry Potter film that'd be eligible for profit sharing already taking down a 7 figure paycheck?
 
Sad Max said:
Yeah. It's pretty disgusting.
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really disgusting.

Sad Max said:
Just try and fight it in a civil court. It's been done successfully, but you need extensive resources and real dedication: studios maintain well-staffed legal departments for the purpose of making the screw-job stick...
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man that's a damn shame. if you have an army of lawyers and accountants, you're fine, if not, you're not. hmm.
 
It's a business, don't forget about what studios do when they make the movie. Lets say it had a so called $150M budget, they bill their studios out to the production at MASSIVE rates sometimes getting 30%+ of it back through the other departments. It's just how it works, I have seen $175M budget movies that were actually made for under $100M if you use normal accounting practices.
 
It's likely been said, but no one studio picture, acquisition or distributed asset is an island unto itself. A blockbuster will help offset all the overhead, debt and losses the studio incurs through its normal operations. I've never seen a major's P&L firsthand, but my guess is that the latest Potter picture isn't the only line item in the larger budget.
 
Fahad said:
1) i don't understand how that's possible (and i've studied finance).

2) i really don't believe that it's lost any money (the article is very vague).

3) the accounting statement isn't enlargeable.

4) the article is saying that:

movie prod cost + marketing cost = 400 mil
"interest cost" = 60 mil (what's "interest cost" exactly?)

total cost = $460 million.

gross revenue = $938 million.

938,000,000 - 460,000,000 = $478,000,000

movie cost a half bil to make, and made a billion. how does it loose money?

am i missing something?
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First of all, the studio itself did not actually receive $938M in gross-profits. A studio generally receives around 50% of the total box office (the other half to the theaters), so if the world-wide Box Office is reported as $938M, the studio has received, on average, $469M.

So, if you trust the studio's numbers of $400M production / marketing / distribution and $60M interest, the film has barely made a profit of $9M, which probably barely covers that quarters Interest on the film, which is constantly compounding.

The kicker is that that Interest amount of $60M plus a large amount of the $400M number is really money that the studio is paying to itself, so on paper it might not make a profit on the film, but the studio is lining its pockets all along, and definitely isn't "losing" any money on the film.

The Interest is basically the cost of the money that the studio has invested in the movie. So not only is the studio going to be getting the lion's share of the net-profits (if they ever come :happy:), but the studio is charging itself for the money it is spending on the film.

The Distribution arm of the studio then takes millions in fees, which subtracts from the net-profits, but that isn't really money lost, because the studio is usually the distributor as well.

As well as the studio is probably charging the production to use its own locations, facilities, and equipment during the actual production of the film.

All of that money goes down as debt on the budget, but it isn't money lost for the studio, because, as I said earlier, the production is paying a significant amount of that money to the studio itself.
 
So its basically a vertically integrated monopoly then, right?

Good thread guys. Really interesting stuff.
 
Fahad said:
3) the accounting statement isn't enlargeable.
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Sorry, I posted from the moblie site. Here is the "statement" in a larger size--

harry-potter-net-profits.jpg
 
thanks battuta.

now it's more clear. damn that's ugly. but gross revenue isn't near the ~$938 mil i read about earlier. hmm...
 
This is exactly what I was going to say. this big films that attract lots of people are like long time inversions. It's clear that the film ticket sales are enough to recover the inversion, but the real benefits come from DVDs-blurays, merch, and above everything, usually, licenses (ask Disney, the largest license holder of the world). I'm sure that they gets lots of money from the use of the HArry Potter franchise on theme parks, as the recently opened the wizardling world of Harry Potter area in WB park in Florida, food, books (not the original ones, but all the ones that come from the film), electronics, PC game, etc...

If you analyze Disneys financial data you'll see that income from their activities ranks in this way, first TV (media networks, ABC, ESPN, Disney Channel...), then THEME PARKS and resorts, films, and finally merchandising. Films is only the third, even below theme parks and resorts.

I know that you can't compare a Disney picture and the use that Dysney makes of it (which is impressive, pc games, theme park rides, books, webpages, electronics, toys, FOOD... with the use that WB makes of its films. But is a way to identify the importance of a big film as a long time inversion.....when the film is a hit, not like those that make studios go bankrupt...cough...Heaven's gate...cough..Titan AE...cough...the golden compass.....cough


Sorry for this long and not very well though post...

agcohn said:
First of all, the studio itself did not actually receive $938M in gross-profits. A studio generally receives around 50% of the total box office (the other half to the theaters), so if the world-wide Box Office is reported as $938M, the studio has received, on average, $469M.

So, if you trust the studio's numbers of $400M production / marketing / distribution and $60M interest, the film has barely made a profit of $9M, which probably barely covers that quarters Interest on the film, which is constantly compounding.

The kicker is that that Interest amount of $60M plus a large amount of the $400M number is really money that the studio is paying to itself, so on paper it might not make a profit on the film, but the studio is lining its pockets all along, and definitely isn't "losing" any money on the film.

The Interest is basically the cost of the money that the studio has invested in the movie. So not only is the studio going to be getting the lion's share of the net-profits (if they ever come :happy:), but the studio is charging itself for the money it is spending on the film.

The Distribution arm of the studio then takes millions in fees, which subtracts from the net-profits, but that isn't really money lost, because the studio is usually the distributor as well.

As well as the studio is probably charging the production to use its own locations, facilities, and equipment during the actual production of the film.

All of that money goes down as debt on the budget, but it isn't money lost for the studio, because, as I said earlier, the production is paying a significant amount of that money to the studio itself.
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